*3354 The fact that a bank writes down or charges off against bonds owned by it reductions in the market value thereof upon the orders of the State Banking Department is not sufficient to establish that such amounts so charged off are debts ascertained to be worthless, in whole or in part, within the taxable year. Bonds generally represent an investment in property from which gain is realized or loss sustained upon the sale or other disposition and are not such debts as are contemplated by the provisions of the Revenue laws permitting deductions for bad debts.
*1356 This is a proceeding for the redetermination of income taxes for the year 1924, as to which the Commissioner has determined a deficiency in the amount of $747.67. It is alleged that the Commissioner erred in refusing to allow as a deduction for the year 1924 certain charge-offs on bonds belonging to the petitioner, which charge-offs were made in obedience to the specific orders of the Banking Department of the State of Ohio and the examiners of said department.
FINDINGS OF FACT.
*3355 The petitioner is an Ohio corporation located in and doing business in the village of West Lafayette, Coshocton County, Ohio.
*1357 In the year 1924 the petitioner, upon orders of the Banking Department of the State of Ohio, charged off on its books various amounts against certain bonds owned by it. The bonds affected, the cost thereof, the respective amounts so charged off, and the adjusted value of the same are as follows:
| Name of bond | Original cost | Now carried as | Charged off |
| Allied Products bonds | $5,000 | $3,500 | $1,500 |
| Hydraulic Steel bonds | 9,000 | 5,000 | 4,000 |
| Cleveland Discount, A bonds | 9,000 | 7,700 | 1,300 |
| Cleveland Discount coupons | 660 | x600 | |
| Constantine Refining Co. bonds | 21,000 | 16,000 | 5,000 |
| West Chester, Biltmore bonds | 5,500 | 5,000 | 500 |
| Booth Fisheries bonds | 10,000 | 9,000 | 1,000 |
| Imperial Russian bonds | 1,000 | 500 | x500 |
| Hydraulic Steel coupons | 400 | x400 | |
| Total charged off | 14,860 |
The Commissioner allowed as a deduction the three items above indicated by the letter "x," totaling $1,560, but refused to allow as a deduction the remainder of said charge-off ordered by the State Banking Department, in the amount of $13,300, *3356 upon the bonds as shown above.
The petitioner filed its corporation income-tax return for the calendar year 1924 on March 12, 1925, wherein it claimed as a deduction for bad debts the above amount of $14,860 charged off on said bonds as aforesaid.
OPINION.
VAN FOSSAN: The petitioner contends that the sum of the amounts charged off against the bonds held by it in the taxable year upon the order of the State Banking Department is an allowable deduction from gross income under section 234(a)(5) of the 1924 Revenue Act. The section of the Act relied upon provides that debts ascertained to be worthless and charged off in the taxable year shall be allowed as deductions in computing net income, and when it appears that a debt is recoverable only in part, such debt may be charged off in part.
While the cited provision of the 1924 Act allows the deduction of a bad debt in whole or in part, it is incumbent upon the taxpayer to establish that the debt, in its entirety or in part, was ascertained to be worthless and charged off in the taxable year. As proof of the worthlessness or partial worthlessness of these bonds, the petitioner relies solely upon the fact that it was ordered*3357 by the State Banking Department to charge off the amounts now claimed as a bad debt deduction. We have held in a number of cases that the charging off or writing down of a debt by a bank pursuant to orders or instructions *1358 of an official of the State or National Government is not sufficient to establish that the debt was ascertained to be worthless. ; ; and .
The petitioner claims the amounts charged off against the bonds as a bad debt deduction. In an analogous case we held that although a bond may be said to represent, in the broad sense, a debt owing to the holder or owner thereof, it is not such a debt as is contemplated by those provisions of the Revenue laws allowing bad debt deductions. Bonds are purchased rather as an investment, as are other species of property, and losses are suffered or gains are realized thereon when they are sold or otherwise disposed of, and deductions for such losses are provided for by other provisions of the Act. (Section 234(a)(4), 1924 Act.) *3358 . The petitioner, however, did not sell or otherwise dispose of the bonds in question. It merely reduced the value thereof on its books. No loss has been sustained by the petitioner on account of these bonds. The Revenue laws do not impose an income tax upon the appreciation in the value of assets, not realized by sale or other disposition (), nor do they allow a deduction from gross income for a mere reduction in the market value of assets which has not been actually sustained or suffered. ( ) The fluctuations in the market value of property held by a taxpayer and not disposed of, materializing in no actual gain or loss, are not within the scope of the income-tax statutes.
The deduction claimed by the petitioner can not be allowed either as a bad debt, under section 234(a)(5), or as a loss sustained, under section 234(a)(4).
Judgment will be entered for the respondent.