*3137 Portion of debt charged off in taxable year as worthless disallowed as a deduction from gross income.
*917 The petitioner seeks the redetermination of a deficiency in income tax for the year 1921 in the amount of $2,860.85. The question *918 involved is whether the respondent erred in disallowing as a deduction from gross income the sum of $9,648.01, representing a portion of an amount the petitioner on December 31, 1921, considered to be recoverable only in part.
FINDINGS OF FACT.
The petitioner is a New York corporation engaged in the business of holding and renting real estate. It was organized April 25, 1911, with a capital stock of $10,000, of which, at incorporation, Franklin Haynes acquired one share, and his wife and son the balance.
Franklin Haynes, president and treasurer of the petitioner until some time in 1918, in 1913 organized the 33 West 51st Street Corporation, hereinafter referred to as the corporation, with a capitalization of $10,000. All of the capital stock, excepting two qualifying shares, was issued*3138 to Haynes.
During the early part of January, 1913, the petitioner, as a result of negotiations conducted by Haynes on behalf of the corporation, transferred to the corporation as a loan, its equity in a piece of property located on Philipse Place, Yonkers, New York. As security for the loan the corporation gave the petitioner a mortgage in the amount of $15,000. Prior to June 30, 1913, the petitioner loaned the corporation the sum of $8,655.90, and at various times thereafter to August 3, 1916, loaned it additional amounts totaling $2,364.66. The petitioner, on January 7, 1913, entered the value of the equity conveyed, amounting to $30,000, plus the premium on unexpired insurance on the property, amounting to $46.19, in an account entitled "33 West Fifty First Street Co. Inc. Equity in Philipse Place." The other loans were entered in an account designated "Special Loan Acct. (33 W. 51st St.)." The former account was closed after the following entries had been made in it:
| Jan. 7, 1913, interest on Yonker mortgage to Dec. 30, 1922 | $171.33 |
| July 8, 1913, 33 West Fifty-first Street mortgage account | 15,000.00 |
| Oct. 15, 1913, F. Haines, special loan | 5,500.00 |
| June 30, 1914, F. Haines, special loan | 8,157.62 |
| June 30, 1915, surplus | 1,215.24 |
*3139 The balancing entries for these credits, excepting the first and the last one, were made in the special loan account, which on August 3, 1916, had a debit balance of $25,728.06 after deducting credits of $13,950.12.
Haynes orally guaranteed payment of all the loans made to the corporation.
The equity acquired by the corporation was used in connection with the purchase of a lot located at 33 West 51st Street. In 1913 *919 or 1914, during the course of the erection of a building on the lot by the corporation, the supervising architect placed a lien on the property for the balance of his alleged fee for drawing plans and specifications for the structure and supervising its construction, and suits were instituted to foreclose certain mortgages against the property. The property was sold in 1914 under foreclosure proceedings, leaving the corporation without assets except an equity of $3,000 in a building located on Madison Avenue and 127th Street. This property was subsequently sold and the proceeds realized from the sale were used to liquidate some of the corporation's outstanding obligations.
At the time of the failure of the corporation, and in or about 1916, Haynes*3140 had no assets. His financial condition in 1920 was about the same as it was in 1914 and 1916.
On December 31, 1920, the special loan account showed a balance of $15,436.82, the difference between this amount and $25,728.06 having been previously charged off as worthless. At the close of 1920 the petitioner charged off $2,572.81 of the account as worthless, and on December 31, 1921, it charged off as a bad debt the additional amount of $9,648.01, or 75 per cent of the balance of $12,864.01 in the account.
OPINION.
ARUNDELL: The evidence before us is convincing that there was no ascertainment of worthlessness of the claimed deduction in the year 1921. The primary debtor was practically without assets after the sale in 1914 under foreclosure proceedings of its partially constructed building, and there has been no proof that the corporation was in existence during the taxable year. Such assets as it did have after the sale were subsequently sold and the proceeds realized from the transaction were used to pay other financial obligations of the corporation. Even though we were to decide, as we do not, that Franklin Haynes was legally liable to the petitioner for the debt of*3141 the corporation under his oral contract of guaranty, we would nevertheless sustain the respondent's determination, since Haynes' testimony establishes the fact that he had no assets in 1914 and that his financial condition had not improved to any extent up to and including the year 1920. The circumstances which were known to the petitioner in 1921 were also known to it in years prior thereto.
Judgment will be entered for the respondent.