*788OPINION.
Littleton :The first issue in this case is whether the Commissioner was in error in refusing to allow the petitioner to consider the amounts advanced to the Couch Mills Co. in 1917, 1918 and 1919, as a part of the cost of goods purchased from this company in these years.
While the facts are not entirely clear as to all understandings between the petitioner and Couch Mills Co., with respect to these advances, it is clear that the parties themselves treated it as a loan and so at all times acted with respect thereto. Apparently, the peti*789tioner made the loans on the assurance that when the Couch Mills Co. started operations, the petitioner would be supplied with material necessary for its operations, which it was difficult, if not im]pos-sible, to obtain at that time elsewhere. The fact, however, that this was what induced the petitioner to make the loan does not change its character. The first two amounts were evidenced by promissory notes and, as to the entire $55,000, the evidence is conclusive to the effect that the petitioner not only expected the repayment of the amount advanced but also, on various occasions, sought to obtain repayment. Whatever materials were furnished the petitioner were paid for at market prices and no attempt was made to credit the advances on the purchase price thereof. Certainly, if the Couch Mills Co. had been successful and could have repaid these advances as requested by the petitioner, it could not have been said that this represented income from a business transaction or have had any effect on the cost of goods sold — it would have been the mere liquidation of a liability. Whatever loss the petitioner suffered was sustained when the debt was proven worthless. The action of the Commissioner as to this issue must, therefore, be sustained.
The second issue involves the deductibility of certain advances to the Iowa-Alabama Farms Co. charged off as worthless in the period ended July 31, 1918, and fiscal year ended July 31, 1920.
The evidence shows that prior to July 31, 1918, advances had been made to the Farms Company, and that prior to this time an option had been given for the sale of a part of the land owned by the Farms Company, which the petitioner was informed, prior to July 31, 1918, would be exercised. The petitioner apparently decided that on the basis of the amount which would be realized from a sale of a part of the land, recovery could not be had on the advances previously made and charged them off as worthless. At this time the option had not been exercised and even outside of the part covered by the option, the Farms Company had 1,500 acres of land. Not only did the Farms Company continue in existence throughout 1919 when the option was exercised, but also the petitioner continued to make advances for carrying on its operations for at least several years beyond the years on appeal. The remainder of the land was later exchanged for other land which the evidence shows is being farmed at the present time — apparently by the Farms Company.
A requirement of the statute which the petitioner must meet in order to become entitled to the deduction here claimed is that the debt be “ ascertained to be worthless ” in the taxable year. The debtor corporation was in existence during the taxable year as an operating company with substantial assets, and the petitioner continued to make similar advances.
*790The Board is of the opinion that the evidence is insufficient to satisfy the burden imposed upon the petitioner of showing the worthlessness of these debts as a condition precedent to securing the benefit of the deduction claimed, and, therefore, the action of the Commissioner in denying the deduction must be sustained. Winthrop Ames, 1. B. T. A. 63; Steele Cotton Mill Co., 1 B. T. A. 299; Alemite Die Casting & Manufacturing Co., 1 B. T. A. 548.
The last issue is whether the petitioner is entitled to a loss in the fiscal year ended July 31, 1920, on account of a certain sale of Liberty bonds. The amount does not seem to be in question, the issue being whether the sale was made prior to July 31, 1920. The petitioner relies on the fact that on July 20, 1920, it instructed the bank to sell the bonds and argues that it is customary for banks to make almost immediate sale of such securities, instead of waiting almost two weeks.
No deductible loss was sustained until the bonds were sold, and in the absence of evidence showing that the bonds were sold within the fiscal year ending July 31, 1920, instead of on August 3, 1920, the Commissioner’s determination is approved.
Judgment will be entered for the respondent.
Considered by Littleton, Love, and Smith.