Ernst v. Commissioner

IRVING L. ERNST, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Ernst v. Commissioner Docket No. 25586. United States Board of Tax Appeals 18 B.T.A. 928; 1930 BTA LEXIS 2567; January 27, 1930, Promulgated *2567 Claim for deduction from gross income on account of bad debts not supported by evidence. Alex M. Hamburg, Esq., for the petitioner. T. M. Mather, Esq., for the respondent. LANSDON *928 The respondent asserts deficiencies in income taxes for the years 1922 and 1923, in the respective amounts of $1,773.22 and $869.36. The only issue is whether the Commissioner properly disallowed certain deductions from gross income in each of the taxable years, which the petitioner claims represent debts ascertained to be worthless and charged off in such years. *929 FINDINGS OF FACT. The petitioner is an individual who resides in the City of New York, where he is regularly engaged in the practice of law. During each of the taxable years and for several years prior thereto, the petitioner was president of the Crescent Hill Improvement Co., a New York corporation, hereinafter designated as the company, which was organized in 1907 for the purposes of acquiring, developing, holding for investment and selling certain unimproved real estate located in Brooklyn, N.Y. All the property acquired for the purposes of the corporation was purchased without*2568 cash payments and the notes and mortgages given therefor were endorsed by the petitioner and other stockholders. At the date of its incorporation the company issued its stock for cash in the amount of $30,000. It continued in business until some time in 1926, when it sold all the property which it then owned and was dissolved. After the company had used all its original paid-in capital it had no corporate funds with which to meet its charges for taxes, interest and operating expenses except its income from the sale of lots. At times it was necessary to borrow from banks or to secure advances from stockholders. In the years 1922 and 1923, respectively, the petitioner advanced to the company the amounts of $9,490 and $5,032.85, no part of which was repaid in either of the taxable years. At December 31, 1922, the company owned assets of the value of $91,700 and its liabilities on that date were $104,100; and at December 31, 1923, its assets and liabilities were $78,900 and $81,749.54, respectively. In his tax returns for the years 1922 and 1923, the petitioner deducted from gross income the respective amounts of his advances in such years as debts ascertained to be worthless*2569 and charged off. Upon audit of such returns the Commissioner disallowed the deductions so taken and determined the deficiencies here in controversy. OPINION. LANSDON: The evidence fails to support the contention of the petitioner. At the close of each of the years for which bad debt deductions are claimed the company had assets of such substantial value that it is impossible to find that its obligations were worthless in the hands of the holder thereof. The deficiencies determined by the Commissioner are approved. . Decision will be entered for the respondent.