The opinion
A. W. SKAER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Skaer v. Commissioner
Docket No. 10521.
United States Board of Tax Appeals
10 B.T.A. 247 ; 1928 BTA LEXIS 4157 ;
January 26, 1928 , Promulgated
*4157 The evidence does not support a claim for the deduction from gross income of losses alleged to have been sustained in the taxable year.
Stanley Spurrier, C.P.A., for the petitioner.
P. M. Clark, Esq., for the respondent.
LANSDON
*247 The respondent has asserted a deficiency in income tax for the year 1919, in the amount of $2,991.76. The petitioner asserts that he is entitled to deduct from his gross income for the taxable year certain amounts which he contends represent losses sustained in such year.
FINDINGS OF FACT.
The petitioner is an individual who, during the taxable year, resided at Augusta, Kans. Some time in such year he loaned $40,000 to H. D. Mollohan and L. R. Mollohan and took therefor 8 joint promissory notes, each in the amount of $5,000, with 8 per cent interest from date, and all dated July 26, 1919, and all payable 6 months from date, at the American National Bank at Augusta. The notes were secured by a chattel mortgage on 496 Hereford cows, included at $75 each, together with all calves at their sides; 309 Hereford heifers, 2 and 3 years old included at $60 each; and 17 registered Hereford bulls, 5 years old, and *4158 included $250at each. The mortgage also recited that all said property was owned by the mortgagors, free from lien, and was in their possession on the L. R. Mollohan Ranch in Lubbock and Lynn Counties, in the State of Texas.
None of the notes for which the above described mortgage was taken as security has ever been paid. Some time in 1922 the petitioner went to Texas, and to the counties of Lubbock and Lynn therein, and after diligent search failed to find either the cattle covered by the mortgage or the ranch upon which such cattle were alleged to have been owned and kept by the mortgagors.
Late in the year 1918 the petitioner authorized the American National Bank of Augusta, Kans., to purchase for him Liberty bonds in the amount of $3,000 and charge the cost thereof to his account in such bank, of which he was president. In January, 1919, the bank, upon demand for such bonds, was able to make delivery only in the amount of $2,000, and informed the petitioner that the remaining bonds of the value of $1,000 had been misplaced and would doubtless later be located and then delivered. Before any such delivery, the *248 bank failed and the petitioner has never received *4159 any part of the bonds of the value of $1,000.
OPINION.
LANSDON: There appears to be no doubt that the petitioner sustained a loss in the amount of the principal of the notes as a result of his loan to the Mollohans. The only question for this Board to determine is whether the loss occurred in 1919, when the loans were made, or in 1922, when the worthlessness of the security was ascertained. The petitioner contends that the loss sustained is comparable to an embezzlement or theft, and that, therefore, it occurred at the date when he parted with his money. With this view we are unable to agree.
The loan was made to individuals who gave their notes therefor. It is not disputed that the signers of such notes were the identical persons who negotiated the loans. The chattel mortgage was no more than security for the payment of the notes. For all the record discloses, the Mollohans, at the time they made the notes, may have owned all the cattle enumerated in the mortgage. In any event, the loans were evidenced not by the mortgage, but by the promissory notes of the Mollohans. We are of the opinion that, regardless of the value of the security, the transaction created a debt. *4160 Such debt, not having been ascertained to be worthless until 1922, can not, therefore, be deducted from the petitioner's gross income in the taxable year.
There is no evidence in the record upon which we can base a finding of fact that the petitioner sustained a loss in 1919 by the theft or other misappropriation of Liberty bonds of the value of $1,000.
Judgment will be entered for the respondent.