Wourms v. Commissioner

JOHN H. WOURMS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Wourms v. Commissioner Docket No. 23780. United States Board of Tax Appeals 25 B.T.A. 671; 1932 BTA LEXIS 1478; February 29, 1932, Promulgated *1478 John H. Wourms, Esq., pro se. Eugene Meacham, Esq., for the respondent. MATTHEWS *671 This is a proceeding for the redetermination of a deficiency in income tax for the year 1922 in the amount of $12,509.92. The only allegation of error is that the respondent refused to allow the petitioner to deduct, as a bad debt, the amount of $50,410. The case was submitted on the pleadings and a stipulation. FINDINGS OF FACT. The petitioner is an attorney, a resident of Wallace, Idaho. The petitioner in his return for 1922 deducted as a bad debt the amount of $50,410, which he claimed as the difference between an amount of $56,660 owing to him as his fee for services rendered to one James F. Callahan and the amount of $6,250, received by him in 1922 in settlement of his claim for such services. The parties have stipulated as follows: Prior to April 2, 1913, a controversy arose between one James F. Callahan and his brother, John Callahan, over the ownership of 183,333 shares of the capital stock of the Callahan Mining Company. On or about April 2, 1913, James F. Callahan employed petitioner as his agent and attorney to adjust the controversy, *1479 agreeing to pay petitioner for his services one-half of said 183,333 shares of stock or of such portion thereof as the said James F. Callahan should *672 receive from John Callahan. A settlement was effected by the petitioner whereby John Callahan abandoned his claim to the 183,333 shares of stock and surrendered them to James F. Callahan. Thereupon James F. Callahan voluntarily surrendered and gave to Mary Callahan, the wife of John Callahan, 83,333 shares of said stock, retaining in full settlement 100,000 shares. Under the agreement petitioner became entitled to receive as compensation one-half of the 100,000 shares retained by James F. Callahan, or 50,000 shares. The petitioner and James F. Callahan became estranged and petitioner has never received the stock. James F. Callahan died on or about July 12, 1921. Petitioner brought suit against James F. Callahan. After his suit was instituted, mutual friends of both parties attempted to effect a settlement. Petitioner was represented by one Eugene R. Day, who, it is alleged, came to an agreement with Callahan, but before the settlement could be consummated, Callahan died, on or about July 12, 1921. Petitioner then*1480 filed his claim with the executors of Callahan's estate. The claim was disallowed. Suit was then brought to recover the debt, but as the only witness familiar with the details, Eugene R. Day, died on November 11, 1922, petitioner concluded that he could not prove his case and made a settlement, accepting in full payment $6,250. The stock had a par value of $100 per share, and petitioner alleges that in 1916 responsible parties offered him $56,660 in cash for his said 50,000 shares. The petitioner deducted on his return as a bad debt, $50,410, which is the equivalent of deducting full value of the amount offered, $56,660, and reporting as income the amount received in settlement, $6,250. The Unit has disallowed the item of $50,410. The petitioner was on the cash receipts and disbursements basis. The amount was never reported as income in any year. OPINION. MATTHEWS: The petitioner in this proceeding is claiming the right to deduct as a bad debt an amount of $50,410, being the difference between $56,660, which he claims was the value of the stock of the Callahan Mining Company, to which he was entitled as compensation, and the amount of $6,250 received by him in 1922*1481 in full settlement of his claim for such services. If the petitioner had received the full amount of the stock to which he was entitled as compensation, the fair market value thereof would have constituted income to him when received. There is no evidence as to what was the fair market value thereof. The statement in the stipulation that *673 "the petitioner alleges that in 1916 responsible parties offered him $56,660 in cash" for the stock is not evidence of its fair market value. The petitioner did receive $6,250 in cash, which he correctly included in his income. But even if the petitioner had established the value of the stock, he is not entitled to a bad debt deduction. The petitioner was on the cash receipts and disbursements basis and never received the stock, never reported it in income or accrued it in any way. There is no basis for a bad debt deduction. See , and . Judgment will be entered for the respondent.