*2553 1. In 1924 the petitioner held stock in a corporation which cost him $5,000. The corporation's liabilities exceeded its assets in 1924 but the corporation continued in existence and was not dissolved until 1929. Held that the petitioner did not sustain a deductible loss of his investment in the stock in 1924.
2. In his return for 1924 the petitioner deducted from gross income $4,359 representing an alleged bad debt due him from the insolvent corporation above referred to. The deduction was disallowed by the Commissioner. For lack of evidence that the debt was ascertained to be worthless and charged off in 1924, the determination of the Commissioner is sustained.
*969 This is a proceeding for the redetermination of a deficiency in income tax for 1924 in the amount of $395.59, of which amount only $379.89 is in controversy. The petitioner alleges that the respondent erred in disallowing as deductions from gross income in his tax return $5,000 representing a loss upon stock of the Sherman Clothes Shop, Inc., and $4,359 representing a bad debt*2554 due the petitioner from the corporation.
FINDINGS OF FACT.
The petitioner filed an income-tax return for 1924, in which he deducted from gross income $5,000 representing an alleged loss on worthless stock of the Sherman Clothes Shop, Inc., and $4,359 representing an alleged bad debt due him from said corporation. The Commissioner disallowed these deductions in determining a deficiency of $395.59.
The Sherman Clothes Shop, Inc., was organized in 1919. On July 15, 1919, the petitioner bought 50 shares of stock of the corporation for which he paid $5,000. The corporation manufactured certain articles of clothing which were sold to the petitioner and others. The petitioner was its chief customer. Its balance sheet at December 31, 1924, shows as follows:
| ASSETS | ||
| Merchandise inventory | $17,219.10 | |
| Accounts receivable | 1,053.43 | |
| Furniture and fixtures | $1,794.25 | |
| Less: | ||
| Reserve for depreciation | 499.38 | |
| 1,294.87 | ||
| Deficit | 6,185.99 | |
| Total | 25,753.39 |
| LIABILITIES | |
| Accounts payable | $20,340.96 |
| Notes payable - bank | 2,726.80 |
| Notes payable - Simon Sherman | 2,685.63 |
| Total | 25,753.39 |
*970 The capital stock outstanding*2555 at December 31, 1924, was $14,000.
The balance sheet of Sherman Clothes Shop, Inc., at December 31, 1928, shows as follows:
| ASSETS | ||
| Inventory | $5,050.00 | |
| Furniture and fixtures | $4,652.45 | |
| Less reserve for depreciation | 2,327.60 | |
| 2,324.85 | ||
| Total assets | 7,374.85 | |
| LIABILITIES AND NET WORTH | ||
| Liabilities: | ||
| Notes payable | 1,871.71 | |
| Accounts payable | 19,942.98 | |
| Total liabilities | 21,814.69 | |
| Net worth: | ||
| Deficit | 28,439.84 | |
| Less capital stock | 14,000.00 | |
| Net deficiency | 14,439.84 | |
| Total liabilities less deficiency | 7,374.85 |
The Sherman Clothes Shop, Inc., was dissolved in 1929, the petitioner paying the debts of the corporation at that time.
OPINION.
SMITH: The petitioner alleges that he sustained a loss in 1924 upon his investment made in 1919 of $5,000 in the capital stock of Sherman Clothes Shop, Inc. The evidence in support of the contention is very meager. The balance sheet of the corporation at the end of 1924 shows accounts payable in excess of all the assets. So far as the record shows, this may have been the situation in prior years. The corporation was continued and manufactured articles of clothing which were sold by the*2556 petitioner up to some time in 1929. Even if the liabilities of the corporation in 1924 were in excess of its assets, there is nothing to show that the situation might not have changed in subsequent years. There is no identifiable event which would place the loss in 1924. . The action of the respondent in disallowing the deduction of the alleged loss of $5,000 is sustained.
*971 The Revenue Act of 1924 permits an individual to deduct from gross income "debts ascertained to be worthless and charged off within the taxable year." (Sec. 214(a)(7)). The petitioner has offered no evidence aside from the balance sheet with respect to this item. The petitioner was apparently financing the corporation, paying its bills, and selling its product. Persons dealing with the corporation were apparently extending it credit upon the basis of the guarantee of the petitioner. The record does not disclose how the petitioner kept his books of account nor anything relative to the alleged debt of $4,359, nor does it disclose that the petitioner charged the amount off as a bad debt upon his own books of account. The*2557 determination of the respondent upon this point is sustained for lack of evidence proving error on the part of the respondent in disallowing the deduction of the alleged bad debt.
Judgment will be entered for the respondent.