Rudiger v. Commissioner

*204 This proceeding was instituted to redetermine a deficiency of $5,531.87 in income tax for 1925. The issues are whether a loss was sustained on certain notes and whether petitioner is entitled to a personal exemption of $3,500 as the head of a family.

FINDINGS OF FACT.

Prior to September 22, 1920, the petitioner and his son, J. H. Rudiger, Jr., each acquired an interest in the Rancho Isabelle Syndicate, *205 a syndicate organized by James W. Rich for the development of oil properties in Texas. The syndicate was incorporated the latter part of 1921 or in 1922.

On September 22, 1920, October 19, 1920, and March 28, 1921, the petitioner loaned $15,000, $1,500, and $12,700, respectively, to the syndicate. The loans were evidenced by noninterest-bearing demand promissory*2151 notes. The notes executed in 1920 were endorsed by James W. Rich, treasurer and general manager of the syndicate, and J. H. Rudiger, Jr., secretary, and the remaining note was endorsed by James W. Rich. The notes were protested on October 3, 1921, for nonpayment.

Investigations made by the petitioner in 1921 after the notes had been protested as to the financial responsibility of the endorsers developed the fact that neither of them had anything out of which a judgment for the amount of their liability could be collected. The operations of the Rancho Isabelle Syndicate were not successful. In 1924, when it wound up its affairs and dissolved as a corporation, it had no assets for distribution to creditors, and paid nothing to petitioner on the notes.

The petitioner has not made any effort to collect the notes from Rich since they were protested. In 1924 he made a demand on his son for payment and was informed that he was unable to liquidate the indebtedness. In 1924 the endorsers were not in a position to meet any part of their financial obligations to petitioner under the notes. The financial condition of the endorsers in 1925 was not any better than it was in 1924.

*2152 In his return for 1924 petitioner claimed one-half of the cost of the stock he owned of the Rancho Isabelle Syndicate, and one-half of the amount of the notes, as a single deduction. The remaining half was claimed as a deduction in 1925. The respondent disallowed the deduction claimed for 1925 and allowed the cost of the stock and the amount of the notes as losses sustained in 1924.

The petitioner's daughter and her husband have been living at the home maintained by petitioner since the death of petitioner's wife in 1913. In 1925 the daughter was 42 years of age, and the son-in-law, 48. The daughter employed and discharged the servants and supervised the running of the household. The petitioner gave her a monthly allowance to pay the expenses of operating the house. The daughter had no other occupation and was not dependent upon petitioner for support. The son-in-law was employed as cashier of the Merchants National Bank, Jersey City, N.J., and received a salary from it for his services. The son-in-law gave his wife money every month.

*206 OPINION.

ARUNDELL: The only point in controversy under the first issue is whether or not the loss was sustained in 1925*2153 or prior thereto. In 1924 the corporation was dissolved without sufficient assets to pay any part of the indebtedness. Thereafter petitioner had only the endorsers to look to for payment, and by the close of 1924 he knew that they were financially unable to pay any part of their liability to him. A bare hope that something might turn up in the future that would permit petitioner to recover constitutes no sound reason for postponing the time for taking a deduction for a loss that has been clearly sustained. The record satisfies us that the loss was sustained prior to the year 1925.

The respondent's action in denying petitioner a personal exemption of $3,500 as the head of a family was not error. ; ; .

Decision will be entered for the respondent.