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7 B.T.A. 1060

Stifel v. Commissioner

United States Board of Tax Appeals

Decided August 9, 1927

United States Board of Tax Appeals · decided 1927-08-09

Debts, not ascertained to be worthless and charged off as such on decedent's books during the taxable period, can not, when later ascertained to be worthless, be claimed as a deductible allowance in computing net income of the decedent for said taxable period.

Key passage — most relied on by later courts

“The charging off of bad debts should, in the case of a taxpayer keeping regular books of account, be evidenced by such book entries as will effectually eliminate the amount of the bad debt from the book assets of the taxpayer.”

quoted by 1 later decision, including Herder v. Commissioner

Relies on Murchison Nat'l Bank v. Commissioner · Mason Machine Works Co. v. Commissioner · Ames v. Commissioner

Good law ✅— No negative treatment on recordhow we know

Decided 1927-08-09

How this case has been cited

Cited by 4 later decisions — most recently December 1980

1 district ·

201927193019401950196019701980decided

Later decisions citing this case, by decade. The current decade is in progress, and our corpus holds fewer opinions from the most recent years, so the latest bars are undercounted — not a real decline.

View the full empirical analysis of this case →

¶1*1061OPINION.

Littleton :

¶2The decedent maintained personal books of account. Although he was an officer and a stockholder of the One Wheel Truck Co. and was familiar with its financial condition prior to his death, there is no evidence that he considered the notes which he held to be worthless. He did not charge them off on his books of account. Counsel for the estate contends “ that the fact that the notes of the One Wheel Truck Co. were not charged off on the taxpayer’s books is wholly immaterial as bearing upon the issue since said fact constitutes merely a bookkeeping entry or may be ascribed to faulty *1062bookkeeping, and does not in itself affect or alter the worthlessness of the debts. Furthermore, it is a well known and established fact that mere bookkeeping entries can not create income or affect the income, but the facts underlying such entries must determine the tax liability of a taxpayer.”

¶3Section 214- (a) (7) of the Revenue Act of 1918 provides that in computing net income there shall be allowed as deductions debts ascertained to be worthless and charged off within the taxable year. Under the provisions of the statute, it is necessary to an allowance of a deduction for bad debts that such debts shall have been ascertained to be worthless and charged off. In Ed. G. Lasater, 1 B. T. A. 956, the Board held that “ Under the provisions of the Revenue Act of 1918 a so-called bad debt is an allowable deduction from gross income only when ascertained to be worthless and charged off within the taxable period. The charging off of bad debts should, in the case of a taxpayer keeping regular books of account, be evidenced by such book entries as will effectually eliminate the amount of the bad debt from the book assets of the taxpayer.” See also Winthrop Ames, 1 B. T. A. 63; Greenville Textile Supply Co., 1 B. T. A. 152; Donalsonville Oil Mill, 1 B. T. A. 167; Murchison National Bank, 1 B. T. A. 617; Jessie B. Wadsworth, Executrix, 1 B. T. A. 1043; Dover Iron Co., 1 B. T. A. 1123; Mason Machine Works Co., 3 B. T. A. 745.

¶4Judgment will be entered for the respondent.

Considered by Smith.
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