*2149 1. Expenses incurred by a partnership for experimental work on ideas and devices abandoned as worthless in 1919, allowed as a loss.
2. The Board is without authority to order the Commissioner to honor an agreement between husband and wife authorizing the application of tax credits due one of them to a deficiency of the other.
*202 These proceedings were consolidated for hearing and decision and involve deficiencies in income taxes for 1918 and 1919 as set forth below:
| Docket No. | 1918 | 1919 | |
| H. B. and Bonnie A. Perine | 29410 | $1,796.70 | $9.22 |
| Martha E. Fuertel | 29430 | 348.66 | |
| Do | 34097 | 1,172.64 | |
| Gus Holter | 29431 | 17.18 | |
| Josephine Holter | 29431 | 60.10 | 98.12 |
The issue common to all of the cases is whether amounts expended in 1919 by a partnership for experimental work are deductible. Other issues involved are: Docket No. 29410, whether the amount of $8,750 due under a mortgage held by H. B. Perine is deductible as a bad debt; Docket No. 29430, whether the deficiency should be*2150 reduced by a credit of $47.73 representing income tax paid for 1919; Docket No. 34097, whether the deficiency should be reduced by a credit for an overassessment determined against her husband.
FINDINGS OF FACT.
H. B. and Bonnie A. Perine, S. W. and Martha E. Fuertel, and Gus and Josephine Holter are, respectively, husband and wife. All of the income received by them during the taxable years was community income.
In 1918 and 1919 H. B. Perine, Gus Holter, S. W. Fuertel, and C. D. Buchner, each owned a one-fourth interest in the Northern Machine & Manufacturing Co., a partnership, hereinafter called the "partnership," engaged in operating a machine shop in Seattle, Wash.
In 1919 the partnership expended the sum of $13,091.76 in performing experimental work on certain ideas and inventions of W. F. Watkins, an inventor and engineer doing business under the firm name of Watkins Construction Company. The work was done under an agreement providing that no part of the cost of the experiments was to be paid by Watkins unless the experiments were successful, and in case the experiments resulted in the production of articles of commercial value, the partnership was to be given*2151 a contract for their manufacture. None of the work done in 1919 produced an article of commercial value and in that year the ideas and inventions on which the experiments were conducted were abandoned by the partnership as worthless from a commercial viewpoint. The cost of the experimental work was claimed as a deduction in the return filed by the partnership for 1919. The deduction was disallowed by the respondent in determining the amount of income the petitioners derived from the partnership.
*203 Martha E. Fuertel paid an income tax of $47.73 for 1919. In his computation of the deficiency against her for that year respondent did not credit her with this payment.
S. W. Fuertel and his wife filed separate returns for 1918 on the community property basis. On March 14, 1921, they executed, and subsequently filed with the respondent, an agreement wherein they agreed that for the years 1918 and 1919 any "credits, refunds or abatements of any kind may be made between the parties to this agreement in any manner that the U.S. Internal Revenue Department may deem proper and for all income tax purposes the accounts of the parties to this agreement may be treated as one. *2152 "
In his determination of the deficiency of $1,172.64 against Martha E. Fuertel for 1918, the respondent did not allow as a credit an overassessment of $1,399.66 determined in favor of her husband for that year.
OPINION.
ARUNDELL: The proceeding brought by H. B. Perine is based on respondent's written notice dated May 5, 1927, wherein an overassessment of $294.51 was found for the year 1918, not arising out of a claim in abatement, and in which no deficiency was asserted for the year 1919. The proceeding brought by petitioner H. B. Perine is, accordingly, dismissed. . This action eliminates the necessity of making any findings of fact or rendering a decision on the issue raised by H. B. Perine as to the propriety of the respondent's action in disallowing as a bad debt deduction the sum of $8,750 due under a mortgage given in a sale of real estate.
The agreement under which the experimental work was performed by the Northern Machine & Manufacturing Company provided that no part of the cost thereof was to be paid by Watkins unless the work produced articles of commercial value. None of the work for which the charge of*2153 $13,901.76 was made resulted in the creation of an article of such value, and in 1919 the partnership abandoned all of the ideas and inventions worked on as commercially worthless. The partnership sustained its loss on the abandonment of the ideas and inventions, and is entitled to deduct the amount thereof in 1919.
The respondent now confesses error in disallowing as a credit in computing the deficiency proposed against Martha E. Fuertel for 1919 the sum of $47.73 theretofore paid on her tax liability for that year.
Under the remaining issue petitioner Martha E. Fuertel seeks to have the respondent apply an overassessment of $1,399.66 determined against her husband for 1918, as a credit against the deficiency proposed against her for that year. The basis for her claim is the agreement *204 she and her husband executed authorizing the respondent to treat their tax accounts as one.
The husband and wife filed separate returns in which each returned one-half of the community income and their tax liability was determined by the respondent on that basis. This method of reporting the income and computing the tax thereon was proper. *2154 . Each paid the amount of tax shown to be due on their returns. The spouses became separate and distinct taxpayers under the statute upon the filing of separate returns of the community income, and the situation is no different than it would be if the taxpayers were other than husband and wife. They being separate taxpayers, we lack authority to require the respondent to credit the proposed deficiency determined against the wife with an overpayment of tax by the husband. . Cf. . The fact that here the spouses executed an agreement authorizing the respondent to make the credit urged, does not affect the answer. The agreement does not appear to have been filed pursuant to any statute and the respondent is not a party to it. He was to act under the agreement only in such manner as he "may deem proper," and we see no reason to question the discretion exercised by the respondent under the instrument.
Decision will be entered under Rule 50.