Court Opinion

ID: 4628878
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:04:14.389723+00
Date Added: 2024-06-11T07:57:17.121241
License: Public Domain

APPEAL OF CALUMET STEEL CO.Calumet Steel Co. v. CommissionerDocket No. 6673.United States Board of Tax Appeals9 B.T.A. 174; 1927 BTA LEXIS 2655; November 18, 1927, Promulgated *2655  Deduction for a loss alleged to have been sustained in 1917, denied for want of proof.  Albert W. Torbet, C.P.A., for the petitioner.  Ward Loveless, Esq., for the Commissioner.  GREEN *174  The Commissioner has determined a deficiency in income and profits taxes for the year 1917 in the sum of $20,344.06.  The petitioner seeks a redetermination of its tax liability and asserts two errors on the part of the Commissioner.  The first relates to the refusal of the Commissioner to allow in the taxable year the deduction of an alleged loss, and the second relates to the reduction of the petitioner's invested capital by the amount of such bad debt.  FINDINGS OF FACT.  The petitioner is a corporation with its principal office in the City of Chicago.  Its books of account are kept on the accrual basis.  During the years prior to 1916 the petitioner sold its products to the *175  Carbo Corporation and its predecessor, the Carbo Steel Post Co. These sales were continued to September 6, 1916.  The last payment on account was made by the Carbo Company to the petitioner on September 6, 1916.  Subsequent to the date of the payment and prior to September 11, 1916, a*2656  creditors' committee took over the control and management of the business.  Thereafter and during the remainder of the year 1916 the petitioner sold and delivered its products to the Carbo Company.  On February 13, 1917, a petition in bankruptcy was filed against the Carbo Company.  A composition was effected by the creditors and in May and June of 1917 the petitioner received $1,180, which amount it returned as income for that year.  On December 31, 1916, the Carbo Company was indebted to the petitioner in the sum of $11,800.57, and at that time the amount of such indebtedness was charged off on the books of the company as worthless.  On its return for 1916 the petitioner deducted, among other losses, its loss upon the Carbo Company account.  This return was sworn to by J. H. Poorter, president, and A. S. Hook, treasurer, on the 27th day of February, 1917.  Upon the return appear the following questions as answers: When were the deducted losses ascertained to be such?  - 1916.  How were they so ascertained?  - Fire, failure and bankruptcy.  Subsequently an amended return was prepared on which the petitioner again deducted the account of the Carbo Company.  This return was*2657  sworn to by Arthur S. Hook as vice president and treasurer, and Sidney J. Poorter as secretary, on the 19th day of December, 1917.  Upon this return appear the following questions and answers: When were the deducted losses ascertained to be such?  - Apr., May, Sept. and Dec., 1916.  How were they so ascertained?  - Bankrupts - Ret. by Atty. as uncollectible.  The petitioner's return for the year 1917 executed by J. H. Poorter and A. S. Hook, was subscribed and sworn to before a notary public on the 30th day of March, 1918.  In this return the petitioner made no claim to a reduction for the Carbo Company indebtedness.  Subsequently thereto the petitioner filed its amended return for the year 1917.  This return was likewise executed by Poorter and Hook and sworn to before a notary public on the 14th day of January, 1922.  In the amended return the petitioner did not seek to deduct any amount on account of the indebtedness of the Carbo Company.  After an examination and audit of the petitioner's return for 1917 the Commissioner found due the amount of tax which is now the *176  deficiency.  The petitioner protested and claimed the right to deduct the Carbo Company debt in*2658  1917, and that its invested capital for 1917 should not have been reduced by the amount so charged off in 1916.  The Carbo Company account was charged off at the direction of A. S. Hook, the vice president and treasurer of the petitioner corporation.  He examined and, together with the president of the corporation, signed on behalf of the corporation its return for 1916 and 1917.  The amount of the indebtedness of the Carbo Company was allowed by the Commissioner as a deduction in 1916.  OPINION.  GREEN: The petitioner bases its claim to the right to deduct the amount of the Carbo Company account upon the provisions of section 5 of the Revenue Act of 1917.  A. S. Hook, who signed all the returns referred to in the findings of fact, was the only witness for the taxpayer.  He testified that the policy of the company in charing off accounts as worthless was ultra conservative and that at the time he directed the auditors to charge off the account of the Carbo Company he knew that that account was not worthless and that he expected to be able to collect a part of the amount due.  He stated that at the time the deduction was claimed by the petitioner on its return for 1916, he knew*2659  the account was not worthless.  On the witness stand he testified that petition in bankruptcy of the Carbo Company was filed in February, 1917.  This statement is not in accord with his sworn statement made in the return.  He likewise stated on the stand that no effort was made through attorneys to collect this account prior to the time it was charged off in 1916.  This statement is not in accord with the return.  He likewise stated that the petitioner had never acquiesced in the Commissioner's disallowance of the deduction here claimed.  The petitioner's letter of acquiescence executed by him, was offered and received in evidence.  We have repeatedly held that the burden is upon the petitioner to produce evidence before us sufficient to overcome the presumption that the Commissioner's determination is correct.  If any weight is to be given to this presumption, it is obvious that the testimony of the witness Hook is not sufficient to overcome it.  His statements on the witness stand when this petitioner is seeking to deduct this account as a loss in 1917, do not at all coincide with the answers made in the return executed by him for the year 1916.  The witness offered several explanations*2660  as to the reason for the conflict.  One was that at the time the deduction was taken in 1916 he knew that the account *177  was not worthless and that at that time he expected that the corporation would recover a part of the amount.  This statement did not tend to increase our confidence in him.  The respondent's action in reducing invested capital by the amount of the bad debt is approved Reviewed by the Board.  Judgment will be entered for the Commissioner.