OPINION.
MuRdook, Judge:Deductions for bad debts are allowed by section 166(a) in the year in which worthlessness occurs, whereas (c), by allowing “a deduction for a reasonable addition to a reserve for bad debts,” enables the taxpayer to take the deduction in anticipation of the actual worthlessness and to charge the current losses against the reserve thus created. The word “reasonable” brings a relative, as opposed to a definite, amount into the law. No set formula for computing “a reasonable addition” has ever been fixed by law, the regulations, or the courts. The computation depends upon the circumstances of each case and this is wise though sometimes difficult. The provisions of the Code obviously refer to debts owed to the taxpayer. Cf. sec. 1.166-1 (a), Income Tax Regs. There are perhaps contingent liabilities of taxpayers for which good accounting might set up a reserve but for which the Internal Revenue Code does not allow deductions of additions to such reserve. Lucas v. American Code Co., 280 U.S. 445, 452. Good accounting, relied upon by the petitioner, is not determinative in this case.
The reserve accounting used by the petitioner up to March 1, 1955, had created a reserve balance which the Commissioner apparently considered excessive and sufficient, without any addition, to take care of fiscal year 1956. The figures in the record do not show error on his part in reaching that conclusion. He devised a new method of determining a reserve for the petitioner to which the latter objects only in part. The record does not contain facts upon which this Court could determine a proper reserve or reasonable additions thereto and the parties, apparently, expect the Court to decide only whether the receivables held by banks must be treated the same as those owned by the petitioner.
The petitioner argues that the discounted notes should be treated just like the ones not discounted, despite the fact that it disposed of those notes, ceased to be the creditor, was a guarantor only, and when it reacquired some of them the Commissioner included 50 percent of the outstanding reacquired debt in the addition to the reserve. The petitioner is supported in this contention by a recent decision of the Court of Appeals for the Ninth Circuit, Wilkins Pontiac v. Commissioner, 298 F. 2d 893, reversing the Tax Court decision in that case, 34 T.C. 1065. We cannot in good conscience follow the reversal because we think our opinion in that case was in line with prior decisions, correctly interpreted the law, and reached the correct result. The discounted notes, not being debts due the petitioner, could not be considered in determining a reasonable addition to a reserve for its debts until as guarantor it reacquired them and again became creditor of the debtor (Putnam v. Commissioner, 352 U.S. 82), only then could the notes be the basis for a deductible addition to its reserve for its bad debts.2 The Commissioner has followed this interpretation of the law precisely.
Reviewed by the Court.
Decision will he entered under Rule 50.
Beuce, concurs in the result.Not only did the parties not argue the point relied upon in the concurring opinion but a fair reading of the stipulation, the opening statements, and the briefs shows that the parties are agreed upon what would be reasonable additions to the reserve, if the Commissioner is wrong in ignoring the debts owned by the banks during each of the taxable years, and that amount (including 4 percent of the discounted notes) would be larger than the amount allowed (Including 50 percent of the reacquired, notes).