*2605 A corporation at the end of 1919 had an open account for merchandise furnished to a customer. After investigation by the president, he was convinced that the corporation would not be able to collect all of this account. He, therefore, ordered that $1,000 of the amount due should be charged off. For over a year thereafter the account remained active until the customer made an assignment for the benefit of creditors. The petitioner eventually lost more than $1,000 on this account. Held, that the amount charged off in 1919, was deductible in that year neither as a bad debt nor as a loss.
*390 This is a proceeding for the redetermination of a deficiency in income and profits tax for the calendar year 1919, in the sum of $3,821.79. The petitioner admitted a deficiency of $1,443.06, but disputed the remainder, or $2,378.73, alleging that the latter amount arose from the refusal of the Commissioner to allow certain deductions for losses sustained during the taxable year in the sum of $8,920. At the trial the petitioner waived its claim on all*2606 but $1,000 alleged to be a loss sustained during the taxable year on one book account.
FINDINGS OF FACT.
The petitioner was incorporated in 1903, under the laws of the State of Idaho. Its principal office is at Boise, Idaho, where it conducts a wholesale grocery business.
During the year 1919, an account in the name of R. F. Passmore was carried on its books. R. F. Passmore conducted a business under the name of Capitol Grocery. The balance due the petitioner on this account on December 31, 1919, as shown by its original ledger sheets was $3,453.78. The following entry appears on a separate ledger sheet:
| R. F. Passmore, City | ||||||||
| Reg. No. | Date | Item | Charge | Date | Item | Credit | Date | Balance |
| 143 | 1919 Dec. 23 | Dec. 23 | Csh | 1,000.00 profit and loss | Dec. 23 | 1,000.00 | ||
| To other a/c see other sheet. |
This credit did not appear upon the regular ledger sheet showing the Passmore account, nor was it shown on the monthly statements sent to R. F. Passmore, because the petitioner did not want the *391 debtor to know that this amount had been charged off. The chargeoff was made by the bookkeeper under the direction*2607 of the petitioner's president.
It was customary in the petitioner's business for the president to go over the accounts in December of each year to determine which accounts were bad. Those that he considered entirely bad he had charged off in toto and from those thought to be partially bad he had charged of amounts which he thought would reduce them to their true values. Upon the account in dispute he could not determine in 1919 the exact amount of loss which he considered the account represented. Later charge-offs were made in subsequent years on the R. F. Passmore account, as follows:
| Year | Amount |
| 1921 | $1,085.51 |
| 1924 | 300.97 |
| 1926 | 476.18 |
R. F. Passmore continued to trade as the Capitol Grocery until the latter part of July, 1921, when he made an assignment of the business to the Boise Association of Credit Men. During the entire period from 1919 until this assignment he continued to purchase merchandise from the petitioner, which continued to extend him credit. Also he made certain payments upon his account. The account was continued on the petitioner's books until 1926, when it was finally closed by charging off to profit and loss the balance which*2608 had not been charged off in the previous years.
OPINION.
MURDOCK: The petitioner claims the right to deduct from his gross income for the year 1919 an alleged loss of $1,000 sustained upon an open account with R. F. Passmore, trading as Capitol Grocery, the total amount of this account on petitioner's books on December 31, 1919, being $3,453.78. The sum of $1,000 represented an amount which petitioner's president, after investigation at the end of the taxable year, had determined the corporation would lose on the R. F. Passmore account.
The pertinent part of the Revenue Act of 1918, reads as follows:
SEC. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:
* * *
(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise;
(5) Debts ascertained to be worthless and charged off within the taxable year.
In a long line of cases beginning with the , we have held that part of a debt can not be *392 ascertained to be worthless and charged off under the Revenue Act of 1918. Section*2609 234(a)(5) of the Revenue Act of 1921, for the first time allowed a debt to be charged off in part where and to the extent that it was recoverable only in part. The record does not show that any loss was sustained during the taxable year. Apparently the petitioner did not feel that the loss had been sustained in that year for in his testimony we find the following:
I had known for some time that Mr. Passmore was in pretty bad circumstances and I had investigated pretty closely at that particular time as to how much he owed and his assets and from the information I got, I felt sure that we would have a one thousand dollar loss on that account. * * *
This petitioner finds himself in a dilemma in regard to his alleged deduction. He is not entitled to deduct the $1,000 either as a bad debt or as a loss. See .
Judgment will be entered for the respondent.
Considered by MORRIS and SIEFKIN.