*2215 Upon the evidence, held that the petitioner is not entitled to the deduction claimed on account of a debt ascertained to be worthless and charged off within the taxable year.
*1280 This proceeding is for the redetermination of a deficiency for the calendar year 1927 in the amount of $865.18. The only issue is whether the petitioner is entitled to deduct from gross income $20,500 representing a debt ascertained to be worthless and charged off in 1927. The entire deficiency results from the respondent's disallowance of the deduction. The facts as hereinafter stated are contained in a written stipulation submitted by the parties.
*1281 FINDINGS OF FACT.
The petitioner over a period of years from 1916 to 1922, inclusive, loaned to one Albert Heustis, who was then conducting an electrical business in Fitchburg, Mass., miscellaneous sums aggregating $20,500. Heustis is a brother-in-law of the petitioner's wife. At or shortly before the end of 1925, the petitioner, while on a visit to Heustis, learned that the latter's business was not*2216 in a prosperous condition and decided that it was very doubtful if Heustis would ever be able to make a substantial payment on the indebtedness. The petitioner told Heustis at that time that he need not worry about the loans as he, the petitioner, did not expect them to be paid. Thereafter, the petitioner wrote on an informal private memorandum which he kept of the loans "Cancelled 1925." Heustis did not see this memorandum, nor was there any further conversation relative to the loans. The petitioner did not give Heustis any written release or other evidence of an agreement with respect to the loans. Nor did Heustis give the petitioner consideration of any sort for a release from his liability to the petitioner on account of the loans.
The petitioner took no steps towards collecting the amount of the loans from Heustis either before or after December, 1925. The petitioner never examined or caused to be examined any books kept by Heustis for the purpose of determining the value of his claim against Heustis. The petitioner never had any definite information from Heustis as to the value of any assets owned by him and used in his business or as to any other assets belonging to*2217 Heustis except that he was informed by Heustis that the business had suffered a substantial loss because of the rapid obsolescence of radios and accessories, and that owing to the closing down of some of the larger factories in Fitchburg there seemed to be very little profitable local work for an electrical contractor. The petitioner did not then know and does not now know how much Heustis could have realized from the liquidation of his business in 1925, or how much inventory he was carrying, except that the petitioner observed in 1925 that the store operated by Heustis seemed to have an adequate stock of merchandise for sale. The petitioner merely had the impression that the business was losing rather than gaining headway and probably would never be successful. This impression was based partly on conversations had with Heustis and partly on the petitioner's knowledge of business conditions in Fitchburg.
Heustis continued in his business until 1927. On November 1, 1927, he filed a voluntary petition in bankruptcy and on December *1282 2, 1927, filed a return of "no assets," which return was allowed on February 13, 1928. Heustis received his discharge in bankruptcy on*2218 February 21, 1928.
OPINION.
SMITH: Section 214(a)(7) of the Revenue Act of 1926 allows the deduction from gross income of "debts ascertained to be worthless and charged off within the taxable year." Upon the facts above stated, which are all contained in a written stipulation filed by the parties, we are asked to determine that the petitioner has met the requirements of the statute with respect to the debt in question.
In the first place, there is no showing whatever that the amount of the debt was charged off within the taxable year 1927 for which the deduction is claimed. We do not even know whether the petitioner kept any books or accounts in which a proper charge-off of the indebtedness might have been made, or whether the petitioner ever decided in his own mind in 1927 to charge off the debt. The facts do not show just when the petitioner learned of the debtor's bankruptcy. The respondent's deficiency notice shows the debt restored to income of 1927, indicating that the deduction was claimed by the petitioner in his return for that year, but we do not know when the return was filed or when the claim for the deduction was asserted. The only evidence before us of any*2219 charge-off of the debt is the statement that the petitioner is 1925 made a note in his personal memorandum book that the note was "cancelled."
The statement of facts raises considerable doubt in our minds as to other questions that might be of importance. Upon what consideration were the loans in question made and when were they due and payable? Were they secured by promissory notes or collateral of any kind? If they were purely personal in nature, then were they rendered worthless by the debtor's failure in business? Was the debt owing to the petitioner accounted for in the bankruptcy proceedings? Was there any repudiation of the debt by Heustis at any time? We think that the meager facts before us fall far short of establishing the petitioner's right to the deduction of the indebtedness as a debt ascertained to be worthless and charged off in the year 1927.
Judgment will be entered for the respondent.