Low v. Commissioner , 19 B.T.A. 980 ( 1930 )

T. H. LOW, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Low v. Commissioner

Docket No. 31806.

United States Board of Tax Appeals

19 B.T.A. 980; 1930 BTA LEXIS 2287;

May 16, 1930, Promulgated

---

BAD DEBT. - Where it does not appear from the evidence that an alleged bad debt was ascertained within the taxable year to be bad, in whole or in part, it may not be allowed as a deduction under section 214(a)(7) of the Revenue Act of 1921.

T. H. Low pro se.

P. A. Bayer, Esq., for the respondent.

---

TRUSSELL

This is an appeal for the redetermination of a deficiency in income tax for 1923 in the amount of $219.60. The petitioner alleges error in the failure to allow as a deduction from income a bad debt in the amount of $1,249.

FINDINGS OF FACT.

The petitioner is a resident of New Haven, Conn. While on duty in Washington during the World War the petitioner became acquainted with Clarence Weiner, hereinafter referred to as Weiner. Weiner was a Harvard graduate who at one time was possessed of large means, having inherited a million dollars. Prior to the World War, Weiner had enjoyed some success as a writer of magazine articles; he held a number of responsible positions in London, England; he was at one time president of a publishing company in New York; he was a war correspondent during the Boer War; and he enjoyed many interesting experiences throughout Europe. His personality was impressive and he was not without ability. Nevertheless, he seemed never to achieve success during the years in which the petitioner was acquainted with him.

Subsequent to the World War the petitioner received a telegram from Weiner, then located somewhere in the West, stating that he, Weiner, was stranded and asking for employment at the ranch of the petitioner, and also for a temporary loan of cash. The petitioner advanced Weiner the necessary cash for his traveling expenses to the ranch and employed him there. The loan was repaid out of the wages earned on the ranch by Weiner. Weiner became manager of the ranch but was not satisfactory, and the ultimate outcome of this experience was a lawsuit between the petitioner and Weiner. After this the petitioner did not hear from Weiner for some time. In 1920 or 1921 Weiner returned from a trip to South Africa, whereupon he got in touch with the petitioner and, beginning at that time, he successively borrowed many small sums from the petitioner. When the aggregate of these loans amounted to a considerable sum a promissory note was drawn up for the amount, payable to the petitioner. This custom was followed thereafter, the latest note always representing the aggregate amount of the advances down to date. Weiner was persevering and very ingenious in the invention of reasons appealing to the petitioner in justification of further advances of cash. Weiner finally resorted to threats of suicide, and he had made at least one such threat prior to the taxable year. The petitioner often grew tired of Weiner's importunities and frequently felt that he would never be repaid for the advances.

Several persons of literary ability expressed to the petitioner their opinions that Weiner showed literary talent, and that, with his previous interesting experiences, he should achieve recognition sooner or later in the literary field. Weiner kept on writing; his production subsequent to the taxable year included 381 short stories, 10 novelettes, 3 novels, 8 plays and some 20 volumes of poems; however, he was not successful in getting any of them published for a cash consideration. Weiner is now about 40 or 45 years of age and resides in New York. He has a rich uncle. The petitioner holds what he describes as a "written lien" on Weiner's writings. Weiner has made a will naming the petitioner as one of the executors.

The latest note of Weiner, in the amount of $9,350, is still in the possession of the petitioner, and it includes the amount of $1,249 claimed as a bad debt in the taxable year.

At the end of the taxable year the petitioner was in Europe. He made up his return in the following year after his return to the United States. Other than the amount of $1,249, the petitioner has made no claim for a deduction on account of the advances to Weiner. The petitioner sold an oil well profitably in the taxable year, and it was against this income that the bad debt deduction was claimed in the return.

OPINION.

TRUSSELL: All of our facts are gleaned from the statements of the petitioner, who took the stand in his own behalf. There is no other evidence.

The contention of the respondent is that the advances to the acquaintance of the petitioner were purely charitable donations or gifts, for the reason that they were made under circumstances which afforded no hope of repayment. Assuming, without deciding, that this is so with reference to the later advances, it may still be pointed out that at first the transactions certainly were loans, the aggregate of which, at some time or other, would properly be designated as a debt. However, after a careful consideration of the testimony of the petitioner, we feel satisfied that the record certainly does not support a conclusion that the debt was ascertained to be bad during the taxable year, as it must have been to be allowable as a deduction. See section 214(a)(7) of the Revenue Act of 1921. We think our uncertainty in this regard is shared by the petitioner. His testimony indicates considerable doubt as to whether he was convinced in his own mind during the taxable year that the debt was uncollectible. We, therefore, conclude that the deduction claimed may not be allowed.

Judgment will be entered for the respondent.