Appeal of Eagle Shoe Manufacturing Co.

OFINION.

The writing off of bad debts and their deduction from gross income during the taxable year ‘here under consideration is governed by section 234 (a) (5) of the Revenue Act of 1921, which reads as follow^:

Debts ascertained to be worthless and charged off within the taxable year (or in the discretion of the Commissioner, a reasonable addition to a reserve for bad debts) ; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt to be charged off in part.

The record of this case proves that on December 31, 1921, the taxpayer’s debtor was bankrupt and that, after having received a 25 *26per cent creditors’ dividend, the taxpayer was satisfied that little if any more conld be recovered upon its account, and thereupon exercised its sound business judgment in writing off approximately three-fourths of the balance of said debt and claiming the same as a deduction from gross income in the year 1921, and when, in the year 1922, it developed' that no further payments were to be made from the debtor’s estate, the remaining balance of such account was written off. We are of the opinion that the taxpayer acted well within the limits of sound business discretion, as well as within the provisions of the above-quoted portion of the Revenue Act of 1921, and that its claim for a deduction from gross income for the year 1921 on account of the Jolles Shoe Co.’s debt should be allowed.

Order of redetermination will be entered on 15 days’ notice, under Rule 50.