Klau, Van Pietersom, Dunlap, Inc. v. Commissioner

*1335 The Commissioner determined deficiencies in income and profits tax as follows:

The petitioner instituted this proceeding for a redetermination of its tax liability and in its petition alleged several errors, all of which, with one exception, were abandoned at the hearing. The single issue remaining for decision is whether the Commissioner committed error in refusing to allow a deduction in 1920 for a debt alleged to have been ascertained to be worthless and charged off in that year.

FINDINGS OF FACT.

The petitioner herein is a corporation organized under the laws of Wisconsin in 1913. It made its returns for the years involved in this proceeding to the collector of internal revenue whose office is located at Milwaukee in the State of Wisconsin.

*4252 On December 31, 1920, the Racine Auto Tire Co. of Racine, Wis., was indebted to the petitioner upon open account in the amount of $28,175.13, which amount petitioner ascertained to be worthless during 1920 and which amount petitioner charged off as a worthless account upon its books on December 31, 1920.

The petitioner in its income-tax return for 1920 claimed a deduction from its gross income of the above-mentioned amount of $28.175.13, which amount was disallowed by the Commissioner as a *1336 deduction in computing the petitioner's net income subject to income and profits tax.

OPINION.

PHILLIPS: The sole question before us for determination is whether the petitioner should be allowed to deduct in 1920 the amount of an indebtedness which it charged off on its accounts as worthless in that year. The respondent admits the existence of the debt and the fact that it was charged off, denying only that the petitioner ascertained the indebtedness to be worthless. Upon this issue the petitioner submitted its testimony which disclosed that its officers were thoroughly familiar with the affairs of the Racine Auto Tire Co. during 1920 and that due to a series of unfortunate*4253 events that company was so hopelessly involved financially that its unsecured creditors could hope to recover nothing more than a nominal amount, if anything, from the liquidation of its affairs. Having knowledge of the facts which would lead to such a conclusion, it is our opinion that the petitioner properly charged off the account in 1920 and is entitled to deduct the amount as a debt ascertained to be worthless and charged off in that year.

There is no deficiency for 1920. The deficiencies determined by the Commissioner for the fiscal year and for the fiscal period ending in 1919 are approved.

Decision will be entered accordingly.