*4235 BAD DEBTS. - Certain debts ascertained to be worthless and charged off in the year 1918, held to be proper deductions for that year.
*1374 Petitioner, as the executor of the estate of G. W. Meredith, deceased, appeals from the determination by respondent of the tax liability of deceased for the calendar years 1918 to 1921, inclusive, as evidenced by letter dated March 28, 1925, asserting deficiencies for those years in the aggregate sum of $5,377.08.
Petitioner assigns various errors on the part of respondent but has abandoned all of these except (a) the disallowance as an expense for the year 1919 of the sum of $800 of a total expenditure of $1,000 representing the cost of an electric advertising sign, and (b) the disallowance as a deduction for the taxable year 1918, of the sum of $4,478.03, representing 13 debts charged off in that year as uncollectible.
*1375 At the hearing it was stipulated by petitioner and respondent that the disallowance of the item of $800 under (a) was improper and petitioner was entitled to this as a deduction. *4236 The only issue left for determination by us is whether taxpayer's deduction for bad debts in the sum of $4,478.03 is allowable.
FINDINGS OF FACT.
G. W. Meredith was during the years 1918 and 1919 and for some years prior to that time engaged in the wholesale liquor business at 1013 Liberty Avenue, Pittsburgh, Pa. In the course of such business, credit was extended to various customers, in varying amounts, for goods sold and in some cases for money advanced. These customers were saloonists. Few of these customers had a regular credit rating. Credit $500for was usually extended to any customer who had a selling license and going business. These credits were in running accounts on which payment was made by the customer from time to time.
During the taxable year 1918 the taxpayer ascertained to be worthless and charged off the following accounts:
| W. S. Daley | $200.00 |
| D. C. Mahon | 112.16 |
| Peters Brothers | 916.03 |
| Howard Minaro | 438.22 |
| George Hiff | 659.30 |
| William F. Ward | 452.00 |
| F. G. Weakland | 155.75 |
| J. E. Webster | 177.00 |
| Welsh Hickman | $103.81 |
| J. J. Wilhelm | 100.00 |
| B. G. Williams | 817.92 |
| Ed. Wenderly | 191.94 |
| A. E. Yocker | 153.90 |
| 4,478.03 |
These*4237 accounts were charged off by petitioner after efforts, without success, to collect them, first through his salesmen, then through a collection agency, and finally through local attorneys.
The taxpayer ceased doing business in the latter part of the year 1919 as a result of the advent of national prohibition. In March, 1925, the petitioner died and the Union Trust Co. of Pittsburgh, Pa., was on April 27, 1925, duly appointed as executor of his estate.
OPINION.
TRUSSELL: Disallowance by respondent of debts in the amount of $4,478.03 charged off in the taxable year 1918 appears to have been for the reason that the ledger sheets covering the accounts were taken out of the current ledger following the charge-off and placed in a transfer binder and that this record could not be found in 1924 when an audit was made by respondent of the petitioner's return for 1918. The fact that the debts existed and were charged off in the year in question is admitted. The necessity thought to exist for the production of the ledger sheets appears to be on the theory that those would show the last dates of payment on each account and *1376 would accordingly show when the individual debts*4238 became worthless in fact, and that this showing is necessary in view of the lack of testimony on this point.
The existence of the debts and their charge-off having been proven and admitted, the production of the ledger sheets in question is not thought to be necessary, in view of the evidence submitted by petitioner at the hearing.
There were two witnesses for petitioner on this question, F. C. Buben, who had been in the employ of taxpayer for 12 years, and at the time these debts were charged off, and for some years prior thereto, was in charge of the books, accounts and collections and looked after most of the credit matters of the business, testified that he made up the list of the debts charged off and identified each one of the accounts and stated that this action was taken by him after unsuccessful efforts to collect each account through the salesmen employed, then through a collection agency, and finally through local attorneys. T. H. Meredith, a son of the taxpayer, who had been an employee of the business for years and was in general charge of matters for his father during the years 1918 and 1919, corroborated this testimony as to the custom of the business in charging*4239 off debts as uncollectible upon unsuccessful efforts to collect as described.
The evidence is sufficient to determine that the petitioner's opinion as to the uncollectibility of these debts was justified and was arrived at in the year 1918 in which they were charged off and petitioner is accordingly entitled to deduct this amount of $4,478.03 for that year. ; ; . Petitioner is also entitled to deduct for the taxable year 1919 the sum of $800 representing a disallowance by respondent of that amount as part of the cost of an electric sign, which, it was stipulated at the hearing, represented an expense of that year.
The deficiency should be redetermined in accordance with the foregoing findings of fact and opinion.
Judgment will be entered upon 15 days' notice, pursuant to Rule 50.