The opinion
HENRY S. THOMPSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Thompson v. Commissioner
Docket No. 29374.
United States Board of Tax Appeals
18 B.T.A. 1142 ; 1930 BTA LEXIS 2508 ;
February 14, 1930 , Promulgated
*2508 Deduction on account of bad debts disallowed upon the evidence.
Howard W. Brown, Esq., for the petitioner.
W. F. Gibbs, Esq., for the respondent.
SMITH
*1142 This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1924 in the amount of $2,392.35. The petitioner alleges that the respondent erred in disallowing a deduction of $13,500 claimed in his return on account of bad debt losses.
*1143 FINDINGS OF FACT.
The petitioner resides at Fairhaven Hill, Concord, Mass. He graduated from Harvard College in 1899. Soon after his graduation he began helping his younger brother and sister in their education. At various times during the years 1900 to 1908, inclusive, he advanced small sums of money to defray their expenses while attending preparatory schools and colleges. The brother graduated from Harvard College in 1906. The sister graduated from Bryn Mawr College.
The petitioner sometimes paid the tuition and other expenses incurred by his brother and sister as they became due. During, or at the close, of each school year the brother and sister gave the petitioner their personal notes for *2509 the amount of the money advanced to them by the petitioner during the year. It was the understanding that these notes would be paid later out of their earnings. In September, 1908, the petitioner's sister gave him her personal note for $7,500, representing her total indebtedness at that time for money advanced by the petitioner for her education. In January, 1912, the petitioner's brother gave him a like note for $6,000.
Neither the petitioner's brother nor his sister ever made any payments on these notes. They were both living at the close of the taxable year 1924. The brother was then 47 and the sister 50 years of age. They had been employed from time to time since their graduation from college, but their earnings had always been small and they had not accumulated any property of value. The petitioner had continued to give them financial assistance from time to time up to the year 1924. On account of the inability of the brother and sister to pay, the petitioner had never attempted to collect either of the notes.
In his income-tax return for the calendar year 1924 the petitioner charged off the notes in question as bad debt losses, believing at that time that they were *2510 and would remain uncollectible.
OPINION.
SMITH: The only question involved in this proceeding is the petitioner's right to deduct the amounts of $6,000 and $7,500 representing the notes of his brother and sister.
Section 214(a)(7) of the Revenue Act of 1924 permits the deduction from gross income of debts ascertained to be worthless and charged off within the taxable year. In , the court stated that this section of the statute contemplated the deduction of bad debts within the year in which they were ascertained or reasonably should have been ascertained to be worthless and that "a taxpayer should not be permitted to close his eyes to *1144 the obvious, and to carry accounts on his books as good when in fact they are worthless, and then deduct them in a year subsequent to the one in which he must be presumed to have ascertained their worthlessness."
The evidence, to our mind, does not show that the debts in question were of any less value in 1924 than in many of the prior years of their existence or that the petitioner had any more reasonable grounds for considering them uncollectible in the year 1924 than *2511 he had in prior years. There was no change in the financial condition of the debtors in the year 1924. They had never been able to pay the notes given by them and the petitioner had continued to give them financial assistance after their graduation from college.
The petitioner submits that the worthlessness of the notes in 1924 was evidenced by the fact that his brother and sister had reached the ages of 47 and 50, respectively, without ever having been able to pay any part of their obligations. This fact does not, however, prove that the notes were any more uncollectible in 1924 than in prior years.
Judgment will be entered for the respondent.