allowing an interest deduction for notes that "bore no interest on their face, but it was understood and agreed between the maker and the payee that the notes should bear interest * * * at the going rate."
How later courts described this case
- allowing an interest deduction for notes that "bore no interest on their face, but it was understood and agreed between the maker and the payee that the notes should bear interest * * * at the going rate."
Written by the judges who cited it.
The opinion
This is an appeal from the determination of a deficiency in income and profits tax for the calendar year 1921 in the amount of $3,824.08. The issue presented is whether the Commissioner erred in refusing to allow the taxpayer to deduct from gross income for the year 1921 interest on its indebtedness for years prior to 1921 which was paid in that year.
FINDINGS OF FACT.
Taxpayer is a Massachusetts corporation, engaged in the manm facture of baseballs, with principal office at Natick. It kept its books and rendered its returns for 1921 and prior years upon the accrual basis. During the taxable year and in years prior thereto the principal officer and stockholder of the taxpayer loaned it various sums of money, for which the company gave him its promissory notes from time to time, payable on demand. These notes bore no interest on their face, but it was understood and agreed between the maker and the payee that the notes should bear interest payable on demand at the going rate. In the year Í921 the taxpayer, upon demand, paid interest on its indebtedness of the character above mentioned for the years 1919,1920, and 1921, in the amounts of $1,363.55, $4,763.25, and $2,217.19, respectively.
The Commissioner allowed the taxpayer a deduction for the year 1921 of the interest accrued upon its indebtedness in that year, and disallowed as a deduction the interest upon its indebtedness for 1919 and 1920 which was not paid until 1921.
*1294 DECISION.
The determination of the Commissioner is approved. Westerfield v. Rafferty, 4 Fed. (2d) 590; Appeal of McIntosh & Seymour Cor poration, 2 B. T. A. 953.