*3748 Since it does not appear that debts were ascertained to be worthless and charged off within the taxable year, as prescribed by section 234(a)(5) of the Revenue Act of 1921, the disallowance by the Commissioner of such bad debts as a deduction in 1921, approved.
*671 This is a proceeding for the redetermination of a deficiency in income and profits taxes for the calendar year 1921, in the amount of $1,853.16, arising from the disallowance by the Commissioner of a deduction from 1921 income of alleged bad debts in the amount of $23,909.24.
FINDINGS OF FACT.
The petitioner is a national bank, organized under the laws of the United States, with its principal office in Danville, Ind.
On February 7, 1922, the following notes were charged off the petitioner's books:
| S. R. Porter | $8,000.00 |
| O. H. Wisehart | 2,000.00 |
| E. H. Anderson | 5,000.00 |
| Frank Elliott (2 notes totaling) | 5,328.80 |
| Hamet Hinkle | 2,436.69 |
| Chevley Prittle | $17.75 |
| Ray Morris | 30.00 |
| Maude Simmons | 386.00 |
| James Nelson | 710.00 |
| 23,909.24 |
The bank examiner upon*3749 his examination in July, 1921, criticised the above notes, calling them "doubtful" and "slow." Thereafter, and up to December 31, 1921, efforts were made to collect the notes or to get better security for them, all of which were of no avail. The cashier of the bank, prior to December 31, 1921, considered the notes to be worthless.
The president of the bank, W. C. Osborne, owned one-third of the stock, and controlled the bank and board of directors. He made most of the loans in question without consulting anyone, and would not allow them to be charged off as long as he was president. Some of these loans, including the Porter loan, were made to people with whom he was associated in a business way.
S. R. Porter lived in Indianapolis. Shortly after July, 1921, he was requested to pay his note, which was a renewal note, but no response was ever received from him. The note was unsecured and *672 carried no endorsements. The petitioner did not know of any property which belonged to Porter. Osborne considered the Porter note good and had assured both the cashier and the board of directors that it would be paid even if Porter did not have any property. The rest of the board*3750 of directors thought it was "skeptical." The bank examiner marked it "doubtful." It had been held for about six months prior to December 31, 1921.
Shortly after July, 1921, O. H. Wisehart of North Salem, in the same county as Danville, was requested to pay his note. It was a renewal note and the renewal was past due. He payed it after February 7, 1922.
After July, 1921, Anderson was requested to pay his note. He replied that he could not pay it. An investigation at some undisclosed date revealed that he was heavily involved financially and had nothing with which to pay the note. This note was unendorsed and unsecured. Anderson was a farmer, and at the time he gave the note he had property, but in the latter part of 1921, he owned no property. Osborne considered this note good, but the rest of the directors considered it "skeptical." The bank examiner marked it "slow."
At about the same time an effort was made to collect the Elliott notes. They were renewal notes, past due and secured by a first lien on thirteen acres of land in Texas. The petitioner took title to the land and although it has been offered for sale at $1,000, it was still standing in the petitioner's*3751 name at the time this case was heard. The land was encumbered by "water rights" in the amount of $1,200, and by taxes. The bank examiner marked the note "slow."
About July, 1921, an effort was made to collect on the Hinkle note, but nothing was paid on it at that time. Later Hinkle sold some property and reduced his note by $200, giving as part payment the Prittle and Morris notes. This note was a renewal and was past due at the close of 1921. Hinkle lived in Vincennes, Ind. He was a banker, a lawyer, and a large land owner. His bank failed some time after 1921. The petitioner was advised by someone in Vincennes that Hinkle was so heavily in debt that nothing could be recovered from him. This note was later paid, as were the Prittle and Morris notes. The bank examiner marked all three of them "slow."
The petitioner requested the parties on the Simmons, Nelson, and smaller notes to send checks. These people lived in the northern part of the State. At some undisclosed time the Simmons and Nelson notes were placed in the hands of an attorney for collection, but although they were not taken out of the attorney's hands until about two years after they were charged off the*3752 petitioner's books, nothing was ever realized on them.
*673 Suit was not brought on any of the notes because it was not thought that anything could be recovered thereby.
At the annual meeting of the board of directors in December, 1921, the question of charging off these notes was discussed, but it was decided to wait before doing so until the examiner came for his first visit the following year to get the benefit of his knowledge of the notes. At the meeting in December, 1921, a decision was reached to charge off other notes in the amount of $1,896.69.
On February 7, 1922, when the charge-off was actually made, the president resigned. Thereafter efforts to collect the notes continued, and the Wisehart, Hinkle, Prittle and Morris notes, in the amount of $4,484.44, were paid.
OPINION.
MURDOCK: Section 234(a)(5) of the Revenue Act of 1921 provides for the deduction of -
Debts ascertained to be worthless and charged off within the taxable year * * *.
The language of the Act is unambiguous and unmistakably requires compliance with both conditions before a deduction may be allowed for the purpose of computing net income subject to taxation. *3753 .
In the present case we are not convinced that the petitioner, in the year 1921, ascertained any one of these debts to be worthless. There was only one witness called by the petitioner. He was the cashier. He stated that in 1921, he considered the notes to be worthless, but that the president controlled the affairs of the bank and would not allow the charge-off in 1921. It was not until February 7, 1922, that the petitioner determined to charge off the notes as worthless and made the charge-off on its books. While in some circumstances a charge-off on February 7th might be allowed as of the end of the preceding year, in this case it does not appear that the charge-off was intended to be made as of the end of 1921, to close the books for that year.
Judgment will be entered for the respondent.