Sass v. Commissioner

MORRIS SASS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Sass v. Commissioner Docket No. 6922. United States Board of Tax Appeals 12 B.T.A. 156; 1928 BTA LEXIS 3584; May 28, 1928, Promulgated *3584 Loss. - In 1919 a bank called upon petitioner to pay $24,153.12 as guarantor for certain loans and in that year petitioner paid $4,899.58 cash and gave his note for the balance. Petitioner was on the cash basis. Held, that the $4,899.58 is a proper deduction and that the amount of the note is not deductible as a loss sustained in 1919. 7 B.T.A. 557 modified. Thos. J. Reilly, Esq., and Robert Ash, Esq., for the petitioner. R. H. Ritterbush, Esq., for the respondent. TRUSSELL *156 This proceeding is a rehearing of the case of Morris Sass, 7 B.T.A. 557, pursuant to the Board's order dated November 12, 1927. The testimony in the form of a deposition in support of petitioner's allegations, was made a part of this record by stipulation of counsel who thereupon submitted argument on the merits of the case. The deficiencies complained of are in the amounts of $2,785.82 and $933.80 for the calendar years 1919 and 1921, respectively, but the sole issue raised is the deductibility of a loss alleged to have been sustained and paid in 1919. FINDINGS OF FACT. The petitioner is a resident of Ardmore, Okla. Prior*3585 to and including a part of the year 1917, the petitioner was engaged in loaning money under the terms of an agreement with a Kansas City bank. *157 Petitioner and the bank had an oral agreement whereby petitioner was to place loans for the bank at 10 per cent interest to it; to take as security chattel mortgages in the name of the bank; to collect the loans upon maturity thereof and to guarantee the bank against any loss by reason of nonpayment of any of the loans made through petitioner. It was further agreed that all interest over and above 10 per cent should be received by petitioner in return for his services in arranging the loans. Pursuant to that agreement petitioner arranged loans to farmers at rates above 10 per cent and took notes for the money to be loaned, together with chattel mortgages running to the bank as security therefor. When he had accumulated several notes and mortgages for money to be loaned, he forwarded to the bank the farmers' notes, copies of the mortgages, and his own note for the aggregae amount of the farmers' notes plus 10 per cent interest. At the same time he drew a draft, on a special account set up by the bank, for the aggregate of the*3586 loans to be made. The proceeds of the draft were then turned over by petitioner to the proper persons in the amounts of the notes given by them. Petitioner's note was given for the purpose of guaranteeing to the bank collection of the money loaned with interest at the rate of 10 per cent. Some time during 1917 the petitioner ceased loaning money under his agreement with the bank on account of the passage of a usury statute in Oklahoma. In the year 1919 loans aggregating $24,153.12 made and guaranteed by petitioner pursuant to his agreement remained unpaid, and in the same year the bank called upon petitioner to pay it that amount as guarantor. In 1919 petitioner paid the bank $4,899.58 in cash and gave his note in the amount of $19,253.54 for the balance. The note was paid in 1920 and 1921. Petitioner kept his accounts and made his income-tax returns upon the cash receipts and disbursements basis. For the year 1919 petitioner claimed a deduction of $24,153.12 as a loss and upon audit of his return respondent allowed a deduction of $4,899.58 and disallowed as a deduction the amount of $19,253.54 represented by the note given in 1919, no part of which was paid in that year. *3587 OPINION. TRUSSELL: The only issue raised in this proceeding is whether petitioner is entitled to a deduction as a loss in 1919 of the amount of $24,153.12 which he was called upon by the bank to pay as guarantor of certain loans made by the bank through the efforts of petitioner. The definition of the noun "loss" as given in Webster's Dictionary is, "Act or fact of suffering deprivation; failure to keep a possession; *158 esp., the unintentional parting with something of value; * * *." See also the cases of Hawaiian Commercial & Sugar Co., Ltd. v. Tax Assessor, 14 Hawaii, 601, and Queenan v. Palmer,117 Ill. 619; 7 N.E. 613, as to the accepted meaning of the word loss. The giving of a note does not constitute a disbursement or deprivation of cash, nor does it necessarily constitute the disbursement of the equivalent thereof. In giving his note to the bank, petitioner gave evidence of his indebtedness in the amount of $19,253.54 incurred as a guarantor, but being on the cash receipts and disbursements basis he did not sustain an actual and deductible loss, i.e., a deprivation of his property, until he paid the*3588 note subsequent to 1919. S. R. Davis,9 B.T.A. 755. We are of the opinion that petitioner is not entitled to a deduction of the amount of the unpaid note as a loss sustained during the taxable year 1919, and, further, that respondent properly allowed a deduction of the amount of $4,899.58, which represented a loss sustained and paid in cash during 1919. The decision in this case 7 B.T.A. 557 is modified accordingly. Reviewed by the Board. The deficiencies are in the amounts of $2,785.82 and $933.80 for the calendar years 1919 and 1921, respectively, and judgment will be entered accordingly.