¶1*3469 A claim was filed against petitioner in 1919 for a shortage in his accounts for the collection of Liberty bond subscriptions. Petitioner denied liability but compromised and settled the claim in 1920 for $1,250. Held, that the amount expended in settlement of the claim was, under the circumstances, a loss sustained in 1920.
¶2*737 By this proceeding the petitioner seeks a redetermination of a deficiency in income tax for the year 1920 in the amount of $145.71. The petitioner claims that the respondent erred in disallowing as a deductible loss the sum of $1,350, of which $1,250 was expended in settlement of a claim filed against him for a shortage in his accounts for the collection of Liberty bond subscriptions, and $100 was paid to counsel for representing him in connection with the claim.
¶3FINDINGS OF FACT.
¶4Prior to and during 1920 the petitioner, a resident of Flushing, N.Y., operated a substation post office for the Federal Government at 576 Third Avenue, New York City, in connection with his drug store business at the same address. As compensation*3470 for operating the substation he received the sum of $400 per year. The work incident to the operation of the substation was performed by two girls who had taken the oath of office of the Post Office Department but were paid by the petitioner. They also acted as cashiers for the drug store.
¶5In the spring of 1918, the petitioner, because of his connection with a post office, was persuaded by a Liberty Loan committee to receive, without compensation, payments on Liberty bonds subscribed for on the basis of $2 down and $1 per week and payable at any post office. Such subscribers were provided with a book containing a coupon and stub for each installment payment under their subscription. Upon receipt of a remittance, the petitioner's receiving cashier receipted both the coupon and corresponding stub, using for that purpose a stamp bearing the substation's number, retained the coupon and returned the book to the subscriber. Upon payment of the last installment the subscriber became entitled to a bond in an amount equal to his payments. The petitioner never personally performed any service in connection with these collections. The petitioner's cashier received all the payments and*3471 made daily remittances to the Liberty Loan committee located on West 44th Street, New York City.
¶6*738 A short time after the arrest in February, 1919, of the two cashiers for the embezzlement of money received for Post Office money orders, it was ascertained that their accounts for the collection of Liberty bond subscriptions were also short. Upon the discovery of the shortage the cashiers were promptly discharged and have not been in petitioner's employ since. The exact amount misappropriated was not known in, or subsequent to 1919. The money misappropriated did not belong to the petitioner. Some time subsequent to the discovery of the defalcation, the Liberty Loan committee filed a claim against the petitioner on account of the shortage of the accounts. The petitioner denied liability under the claim and engaged counsel to represent him. In 1920, prior to the trial of the suit instituted by the Liberty Loan committee for the recovery of the amount alleged to be due, the claim presented was compromised and settled by payment of the sum of $1,250.
¶7In the year 1920 the petitioner paid the sum of $100 to counsel for representing him in connection with the claim filed*3472 by the Liberty Loan committee.
¶8OPINION.
¶9ARUNDELL: The respondent does not deny that a loss was sustained and admits that the money embezzled by the two employees of the petitioner belonged to the Liberty Loan committee, for whose account the funds had been collected.
¶10It is apparent that since the money misappropriated belonged to the Liberty Loan committee, the petitioner did not suffer any loss at the time of the wrongdoing but only at the time he was required to make good any difference between collections made from subscribers and remittances to the committee. See .
¶11Upon the filing of the claim against him by the committee for a shortage in his accounts, the petitioner denied liability, presumably under the theory that he had exercised all the care required of him as a collecting agent. The exact amount of the shortage was not only unknown at that time but had not been determined when the claim was compromised and settled in 1920 for $1,250.
¶12No loss was sustained by the petitioner until 1920 and the respondent erred in disallowing the item as a deduction in that year.
¶13As to the fee of $100 paid by the petitioner in*3473 1920 to counsel for representing him in connection with the claim, it appears that while counsel performed some service in 1919, he did not render a bill for his charges until 1920, and there is no liability for the petitioner to accrue on his books or pay in 1919.
¶14Judgment will be entered for the petitioner.