*2713 Commissioner's disallowance of additions to a reserve for bad debts approved.
*1190 The Commissioner determined deficiencies for the following years in the following amounts:
| 1922 | 1923 | 1924 | 1925 | |
| Edith Ellen Akeroyd | $1,365.37 | $549.51 | $452.50 | |
| James Akeroyd | 1,428.60 | 530.16 | 1,432.21 | $647.95 |
The petitioners in the present proceedings seek a redetermination of their respective tax liabilities for the years indicated above in which deficiencies were determined against them alleging as error that their income from their partnership was erroneously increased by the Commissioner when he disallowed a reserve for bad debts set up by the partnership. The cases were consolidated for hearing and decision.
FINDINGS OF FACT.
The petitioners are individuals with their principal offices at Philadelphia, Pa.
In 1921 they formed a partnership, known as James Ackeroyd & Co., which was engaged during the taxable years in the wool brokerage business.
*1191 Its gross sales and the reserve and additions thereto set*2714 up on its books for bad debts and deducted on its returns for the various years were as follows:
| Year | Gross sales | Reserve |
| 1921 | $868,558.59 | None. |
| 1922 | 972,385.48 | 1 $9,250.98 |
| 1923 | 1,121,216.66 | 5,668.19 |
| 1924 | 1,179,730.05 | 5,928.29 |
During the taxable years only one charge was made against the reserve. That was $7,706.19, made in the year 1925 and a deduction in this amount was allowed by the Commissioner in computing the partnership income for that year. The Commissioner allowed no other deduction for bad debts in computing the partnership income for the taxable years.
Charges against the reserve in subsequent years were as follows:
| 1926 | $3,550.00 |
| 1927 | None. |
| 1928 | 8.32 |
OPINION.
MURDOCK: The petitioners in these cases contend (1) that the partnership of which they were members had a right to set up a reserve for bad debts, and (2) that the reserve set up was reasonable. At the start we might point out that the evidence does not disclose what addition*2715 was made to the reserve for the year 1925 and also that the reserve which was set up and deducted for the year 1922 was intended to be a reserve for both the year 1921 and the year 1922, but in our decision of the case these points become unimportant.
According to the statement of counsel for the petitioners, the total of the charges on account of debts considered worthless which were made against the reserve was less than one-third of the total of the original reserve and the additions made thereto during the taxable years. Not only have the petitioners completely failed to show what a reasonable addition to a reserve for bad debts for each of the taxable years would be, but they have pretty successfully demonstrated that the additions which they seek to deduct are excessive. The Commissioner has refused to allow the petitioners to benefit by the use of the reserve method in their partnership, but, instead, has allowed the deduction, as debts ascertained to be worthless, of the total amount which the partnership charged against its reserve on account of debts which it considered to be worthless. We do not think that the petitioners are entitled to deduct any greater amounts*2716 than the Commissioner has allowed.
Judgment will be entered for the respondent.
Footnotes
1. This reserve was first set up in 1923 about the time of filing tax returns for 1922 and was intended to be for both 1921 and 1922, but was all deducted on the 1922 return. ↩