Bart v. Commissioner

Stuart Bart and Jacqueline Bart, Petitioners, v. Commissioner of Internal Revenue, Respondent Bart v. Commissioner Docket No. 39955 United States Tax Court 21 T.C. 880; 1954 U.S. Tax Ct. LEXIS 272; March 10, 1954, Promulgated *272 Decision will be entered under Rule 50. Deduction From Income -- Bad Debts -- Business v. Nonbusiness -- Sec. 23 (k) (1) and (4), I. R. C. -- A bad debt resulting from advances by an advertising agent to a client in the course of business of assisting in the publication of a magazine was proximately related to the advertising agency business and was deductible as a business bad debt. Jerome Landau, Esq., for the petitioners. Donald J. Fortman, Esq., for the respondent. Murdock, Judge. MURDOCK *880 The Commissioner determined a deficiency of $ 3,111.61 in the income tax of the petitioners for 1947. The only issue for decision is whether a bad debt of $ 7,322.71 is to be deducted as a business or a nonbusiness bad debt. *273 FINDINGS OF FACT. The petitioners, husband and wife, filed a joint return for 1947 with the collector of internal revenue for the third district of New York. A deduction of $ 7,322.71 for a debt which became worthless in 1947, was taken on the return. The Commissioner, in determining the deficiency, held it was a nonbusiness bad debt allowable under section 23 (k) (4) of the Code subject to the limitations of section 117 (d) (2). The debt was proximately related to Stuart's individual business, that of an advertising agent, and was a business bad debt, deductible in full under section 23 (k) (1). All facts stipulated are incorporated herein by this reference. OPINION. Stuart, as sole proprietor, was engaged in business as an advertising agent when the debt arose and when it became worthless. One of his clients was Physicians Publication, Inc., which employed him as an advertising agent in connection with the publication of its magazine. Through that client relationship he obtained other clients, some of whom advertised in the magazine. He ordered printing and made other commitments for Physicians Publication, Inc., in the course of his business. He had to advance money to the*274 client to enable it to pay those and other operating expenses. He occasionally made similar advances to others in the course of his business. He advanced a total of $ 14,975.24 to Physicians Publication, Inc., of which $ 7,652.53 was repaid to him and the balance of $ 7,322.71 became worthless in 1947 when the client became insolvent *881 and ceased business. He advanced the money in an effort to retain the client on a profitable basis, to hold other clients' advertising in the publication of this one, and to maintain his credit standing and reputation as an advertising agent. The debt was proximately related to his business ( Robert Cluett, 3rd, 8 T. C. 1178) and he is entitled to a deduction under section 23 (k) (1) rather than under (k) (4). The fact that Stuart was a minority stockholder in Physicians Publication, Inc., and as such had an added incentive to make it successful does not prevent the debt from being a business rather than a nonbusiness one. He was employed and worked for the company only as an advertising agent, not as an officer. The Commissioner cites no authority and makes no sound argument which is contrary to the holding*275 herein. Decision will be entered under Rule 50.