National Bank of New Jersey v. Commissioner

Before IVINS, KORNER, and MARQUETTE.

This is an appeal from a determination of the Commissioner proposing to assess an additional tax against the taxpayer for the year 1918 in the amount of $1,972.45. From the evidence the Board makes the following

FINDINGS OF FACT.

The taxpayer is a national bank doing business at New Brunswick, New Jersey. Prior to the year 1918 the taxpayer kept its books of account and made its returns for income-tax purposes on the basis of cash receipts and disbursements, except that in its return for the year 1915 it attempted to accrue certain interest payable on savings accounts, which was disallowed as a deduction in that year. For the years 1916 and 1917 returns were made on a strict cash basis, and only interest actually paid within the taxable year was deducted.

In the year 1918, upon the recommendations of the Comptroller of the Currency, the taxpayer changed its basis of accounting from a cash receipts basis to an accrual basis, and there was deducted in that year the full amount of interest accrued during the year 1918 and an amount*2596 of $19,834.82 accrued during the year 1917 for interest on savings accounts. Under the method adopted by the taxpayer, interest on savings accounts was paid on August 1st and February 1st of each year, and the amount sought to be deducted in 1918 represented all interest accrued in the year 1918 and five months' interest which would have been accrued in 1917 had the taxpayer been on that basis, and which was paid in 1918.

In auditing its returns for 1918 on the accrual basis the Commissioner allowed the taxpayer to deduct the entire amount of interest accrued during that year, but refused to allow as a deduction interest paid on February 1, 1918, which, on the accrual basis, represented five months' interest for which the bank became liable in the year 1917.

DECISION.

The determination of the Commissioner is approved. The provisions of section 234(a)(2) of the Revenue Act of 1918 permit the deduction of interest paid or accrued within the taxable year and do not contemplate the deduction of both interest paid and interest accrued within such year.