*952 Petitioner had a claim against a bank for unpaid deposits. The bank had been closed in 1931 and was reopened in April 1933, under a plan approved by the state commissioner of banking. Petitioner signed the agreement for reopening and received participation certificates entitling it to receive payments from earnings and liquidation of certain assets up the amount of the unpaid deposit. In 1933 petitioner received payment of 10 percent of the deposit. Petitioner "ascertained" the claim to be worthless and charged it off on its books as a bad debt at the end of 1933. Held, petitioner could not ascertain the debt to be worthless at the close of 1933 and respondent is sustained in disallowing the deduction.
*1037 The Commissioner determined a deficiency of $140,14 in income tax for the calendar year 1933. The only question is whether respondent correctly disallowed a deduction of $1,019.19, claimed as a worthless debt in 1933.
FINDINGS OF FACT.
Petitioner is a New Jersey corporation, with its principal office*953 at Asbury Park, New Jersey. In the year 1931 it had a deposit in the Asbury Park & Ocean Grove Bank of Asbury Park, hereinafter called the Asbury Bank. On December 23, 1931, the Asbury Bank*1038 was closed and on that date petitioner's balance on deposit was $1,130.40. As of December 31, 1931, the amount on deposit in the bank was transferred on the books and records of the petitioner from the "cash in bank" account to "accounts receivable."
After the bank closed several groups made efforts to formulate plans to reopen the bank, but depositors would not give approval. Finally, in the spring of 1933, a plan received the approval of the Commissioner of Banking and Insurance of the State of New Jersey. Seventy-five percent of the depositors, including the petitioner, signed an agreement under which the bank was reopened on April 29, 1933. From that date to the present the bank has conducted its business.
At various times, frequently, between the dates of the closing and opening of the bank, officers of petitioner called at the bank to endeavor to find out what might be paid to depositors, but no information could be obtained. In January 1933 a 5 percent dividend on*954 deposits was paid and petitioner received $56.52, reducing its unpaid deposit to $1,073.88.
It was provided in the plan of reorganization under which the bank was opened that the unpaid depositors would receive preferred stock participation certificates, in lieu of payment of their deposits, and an agreement was entered into May 26, 1933, between the Asbury Bank and the Asbury Bank in its capacity as trustee, which provided for the issuance of 30,000 shares of preferred stock and the participation certificates, as follows: 30,000 shares of preferred stock of a par value of $10 per share, redeemable at $190 per share, were issued represented by a master certificate, "as a means of according to certain unpaid depositors and creditors of said institution voting rights and preferential payments from the orderly liquidation of certain assets and earnings of said institution until said depositors and creditors are paid in full." To save expense of actual delivery of the preferred stock the entire issue in a master certificate was delivered to the trustee in trust for the depositors. They received preferred stock participation certificates as evidence of the rights to vote and receive*955 dividends and payments on account of redemption of the stock "as if the certificates of shares * * * of said stock were actually issued and delivered." Each participating certificate holder became entitled to receive from the trustee out of funds paid to it, such proportionate amount as his unpaid claim should bear to the total unpaid claims.
Petitioner received five and a fraction participating certificates. It held the certificates and made no efforts to sell them. Subsequent to the opening of the bank the petitioner did not make any further deposits. On December 31, 1933, the petitioner's officers determined that the account receivable should be cleared off as a bad debt. Another 5 percent dividend of $53.69 had been paid petitioner in November 1933, reducing the balance of the unpaid deposit to *1039 $1,020.19. The participation certificates were given a nominal value of $1 and the balance, $1,019.19, was charged off on petitioner's books as a bad debt.
Petitioner received another 5 percent dividend of $53.69 in December 1935, and a 1 percent dividend of $10.72 in December 1936. From January 1933 to December 1936 petitioner received total dividends of $174.62*956 on the unpaid deposit.
In 1936 a new liquidating corporation was organized, the Asbury Park & Ocean Grove Corporation, to liquidate certain assets of the Asbury Bank. In 1936 the participation certificates were called in. For each $195.42 balance of unpaid deposits there were issued one share preferred stock of the new liquidating corporation and one share of the capital stock of the Asbury Bank. Petitioner had not disposed of any of this stock at the time of the hearing in this proceeding.
At the end of 1933 petitioner could not ascertain that its claim for unpaid deposits was worthless.
The petitioner, in its return for 1933, deducted the amount of $1,019.19, claiming a loss from a bad debt. The Commissioner disallowed the deduction, stating that "the facts indicate that it was not determined worthless in accordance with section 23(j), Revenue Act of 1932."
OPINION.
HARRON: There is no dispute that petitioner charged off on its books the debt as worthless. There is no question that the item was a debt. A bank deposit creates a debtor-creditor relation. The sole question is whether the petitioner's ascertainment of worthlessness of the debt occurred in the same*957 year that the debt in fact became worthless. The question here is a fact question upon which the burden of proof is on the petitioner.
A taxpayer is not expected to be too optimistic. . Neither should he be too pessimistic when claiming deductions for bad debts. He "must make a reasonable investigation of the facts and draw a reasonable inference from the information thus obtainable." . The facts are that at the end of 1933 petitioner had received 10 percent payment of the deposit; the bank had reopened and depositors had been given an equitable interest in preferred stock of the bank having a par value of $10 per share and redeemable at $190. The petitioner received under the reorganization plan, a right, evidenced by preferred stock participation certificates, to receive preferential payments out of the orderly liquidation of certain assets and earnings of the bank up to the full amount of its unpaid deposit. Petitioner also received the *1040 voting rights that the preferred stock carried. It appears that there*958 was no time agreed upon within which the unpaid deposits were to be paid off. The agreement of May 26, 1933, was for an undetermined period.
The payments which petitioner had a right to receive were to be made from the orderly liquidation of certain assets and from earnings. No evidence is presented in this proceeding as to what comprised the assets to be liquidated, the value thereof in 1933, nor the relation of assets to liabilities. Petitioner's officer who testified in this proceeding stated that he was unable to obtain any information from the bank as to what amount of deposits might ultimately be paid. Lacking any information as to the future probabilities, petitioner's officers concluded at the end of 1933 that the debt was uncollectible and wholly worthless.
We do not have here a situation where a creditor is given stock or other property in settlement of his claim. Cf. ; . Petitioner here received an equitable interest in preferred stock held by a trustee, the voting rights of the preferred stock, and the right to receive payments on account of the*959 unpaid deposit out of both liquidation of certain assets and future earnings. While participation certificates were received, the preferred stock was not received. While the participation certificates were quoted on the market, there is not any substantial evidence before us as to their fair market value in 1933 and petitioner has not made claim for a partial loss. It may be that petitioner could have sold the certificates, but it did not, and it appears that the certificates were not traded in. The intent of the plan under which the certificates were issued was to gradually redeem the stock against which the certificates were issued. Under these facts we do not believe that the issuance of the certificates in 1933 constituted a "closed transaction" upon which petitioner could determine that the claim was worthless at the end of 1933.
Under the plan which petitioner agreed to with other depositors, the Asbury Bank was reopened and carrying on business at the end of 1933, with the approval of the New Jersey State Commissioner of Banking. Unpaid depositors were to be paid, in full, if liquidation proceeds and earnings were sufficient, over an indefinite period of time. It appears*960 that the claim of petitioner had possibilities of being paid in part if not in full, even though collection appeared to be a slow prospect. Therefore, we do not believe that, merely because the possibilities of collection of the claim depended upon the success of liquidation of certain assets and future conduct of business, the petitioner could conclude that the claim was worthless at the end of 1933. A creditor may not charge off as worthless a claim merely because collection may be slow. The issue before us requires proof *1041 as to the value and nature of the assets to be liquidated, prospects of liquidation, the relation of assets to liabilities. This proof has not been presented by the petitioner. Cf. . The explanation of the lack of any such proof as described above is that petitioner's officers were unable to obtain information as to the financial condition of the bank. We accept the explanation as being the true situation, for it appears that constant and reasonable efforts were made to obtain such information. We must, therefore, conclude that petitioner's officers were unable to ascertain that the*961 petitioner's claim was worthless at the end of 1933 and we have found this to be a fact. Cf. ; Parker v.United States, Fed.Supp. (U.S. Dist. Ct., E. Dist. Pa., Mar. 10, 1937). Under the views expressed by the court in the Parker case, we do not believe this petitioner could be held to know what the financial condition of the Asbury Bank was at the end of 1933.
We believe this proceeding comes within the scope of the principle set forth in . In that case a bank that had been closed had reopened in the year in which the taxpayer claimed a loss for unpaid bank deposits. The facts showed that the bank there had slow accounts receivable and it was hoped that the financial condition of the bank would improve. We held that the taxpayer could not ascertain at the end of the taxable year what percentage of the bank deposits might be uncollectible and we denied the claimed loss. The facts in this proceeding are similar, in our opinion. Petitioner here claims that the debt of the bank to it was entirely worthless at the close of the taxable year. Petitioner*962 has not urged nor offered proof to show that the debt was partially worthless. Cf. .
For the reasons given above, we conclude that the debt in question was not worthless at the close of 1933 and respondent's determination is, therefore, sustained.
Decision will be entered for the respondent.