1931 BTA LEXIS 1748">*1748 The Commissioner's allowance of deductions for bad debts and depreciation approved.
23 B.T.A. 1219">*1220 This proceeding is for the redetermination of deficiencies in the petitioner's income taxes for the years and in the amounts as follows:
| 1922 | $16,201.59 |
| 1923 | 2,327.71 |
| 1924 | 3,344.55 |
The petitioner contests (1) the Commissioner's disallowance of a deduction of an addition to a reserve for bad debts for each of the years 1922, 1923, and 1924 and claims that it erroneously deducted the amount of bad debts actually charged off in 1923 and 1924, which deductions the Commissioner has allowed; and (2) the amount of the allowed deduction for depreciation on its furniture and fixtures.
FINDINGS OF FACT.
The petitioner is a bank, organized under the laws of North Carolina in 1920, with its principal place of business at Greensboro. Its books were kept and its calendar year returns were made on the basis of cash receipts and disbursements.
On December 31, 1922, the petitioner's loans and discounts amounted to $6,660,108.73. At the close1931 BTA LEXIS 1748">*1749 of the year 1922 two of the petitioner's officers spent some time going over its assets, notes receivable, and securities, and determined that $125,000 represented the amount of the probable loss that the bank would sustain upon the notes. No reserve was entered on the books of the bank, but a deduction in the amount thereof was claimed upon its 1922 income-tax return. In explanation of the claimed deduction, the petitioner attached the following statement to its return:
WE LIST BELOW CERTAIN NOTES, WHICH ARE LONG PAST DUE, AND A NUMBER OF THEM WERE GIVEN TO US BY COMPANIES, WHICH ARE NOW BANKRUPT. WE BELIEVE THAT THERE WILL BE A LOSS IN NUMBER OF THESE PAPERS AND HAVE SET UP A RESERVE OF $125,000.00 AGAINST THIS PROBABLE LOSS. THE RESERVE IS SHOWN UPON OUR TAX REPORT.
| Name | Due | Amount | |
| American Collapsible Box Co | Note | July 24, 1922 | $10,053.28 |
| L. E. Covington & L. L. Shaw | Note | Feb. 1, 1922 | 1,182.05 |
| B. L. Covington | Note | Nov. 12, 1920 | 1,099.39 |
| George Chatham | Note | July 5, 1921 | 3,000.00 |
| State Bank & Tr. Co., Dunn, N.C | Note | Feb. 20, 1922 | 3,322.64 |
| Gayle Ireland Motor Co | Note | Nov. 1, 1921 | 7,000.00 |
| Gayle Ireland Motor Co | Note | Oct. 3, 1921 | 3,000.00 |
| Gayle Ireland Motor Co | Note | Oct. 26, 1921 | 2,000.00 |
| Farmers Bank & Tr. Co. La Grange | Note | Dec. 15, 1920 | 20,877.37 |
| G. W. Ford & E. S. Ford | Note | Aug. 23, 1922 | 8,289.67 |
| Trent Cotton Oil Co | Note | May 1, 1922 | 1,020.80 |
| Trent Cotton Oil Co | Note | Feb. 22, 1921 | 25,000.00 |
| J. J. White | Note | Mar. 15, 1922 | 3,963.50 |
| Peoples Bank, Williamston, N.C | Note | Aug. 31, 1922 | 21,500.00 |
| Peoples Bank, Williamston, N.C | Note | Aug. 31, 1922 | 5,129.40 |
| Peoples Bank, Williamston, N.C | Note | July 17, 1922 | 4,350.00 |
| Peoples Bank, Williamston, N.C | Note | July 17, 1922 | 4,300.00 |
| Peoples Bank, Williamston, N.C | Note | July 10, 1922 | 2,553.83 |
| Gibsonville Hardware Co | Note | Feb. 23, 1923 | 4,600.00 |
| Pine Tops Drying Plant | Note | Jan. 28, 1923 | $20,000.00 |
| J. R. Thomas | Note | Jan. 28, 1923 | 42,400.00 |
| J. M. Galloway | Note | Dec. 7, 1922 | 20,000.00 |
| J. M. Galloway | Note | Oct. 21, 1922 | 20,000.00 |
| J. M. Galloway | Note | July 31, 1922 | 10,000.00 |
| J. M. Galloway | Note | Aug. 21, 1922 | 10,000.00 |
| O. W. Perry, jr | Note | Sept. 7, 1922 | 800.00 |
| O. Y. Yarboro | Note | Oct. 15, 1922 | 575.00 |
| New Bern Iron Works & Supply Co | Note | Feb. 27, 1923 | 5,000.00 |
| New Bern Iron Works & Supply Co | Note | Feb. 27, 1923 | 3,620.00 |
| New Bern Iron Works & Supply Co | Note | Feb. 27, 1923 | 10,000.00 |
| C. A. Walker, & J. D. Whitted & L. B. Whitted | Note | Aug. 5, 1922 | 15,475.00 |
| E. T. Lewis | Note | Jan. 6, 1922 | 4,592.64 |
| Total | $294,704.57 |
1931 BTA LEXIS 1748">*1750 23 B.T.A. 1219">*1221 On December 31, 1923, the petitioner's loans and discounts amounted to $6,173,376.34. These loans were examined by the petitioner's officers who decided that there would be losses in addition to those charged off and they determined upon $16,000 as the amount of an addition to a reserve for bad debts. The petitioner deducted this amount as an addition to a reserve for bad debts and also $34,134.27 as bad debts charged off upon its income-tax return for 1923. Attached to this return is the following schedule of "bad debts charged off":
| March 8, 1923 - Newbern Iron Works Note | $18,620.00 |
| March 26, 1923 - Checks | 35.00 |
| Sept. 8, 1923 - Checks | 16.77 |
| Oct. 15, 1923 - Checks | 90.00 |
| Oct. 27, 1923 - Checks | 136.00 |
| Dec. 31, 1923 - Note, B. L. Covington | 183.66 |
| Dec. 31, 1923 - Note, B. L. Covington | 899.39 |
| Dec. 31, 1923 - Note, B. L. Covington | 1,182.05 |
| Dec. 31, 1923 - Note, A. J. Jarrett | 1,219.20 |
| Dec. 31, 1923 - Note, J. J. White | 3,963.50 |
| Dec. 31, 1923 - Note, Greensboro Adv. Sign Co | 300.00 |
| Dec. 31, 1923 - Note, R. L. Simpson | 132.38 |
| Dec. 31, 1923 - Note, A. R. Jones | 450.00 |
| Dec. 31, 1923 - Note, J. V. Baggett | 300.00 |
| Dec. 31, 1923 - Note, Chicasaw Lumber Co. Overdraft | 6,606.12 |
| TOTAL [Corrected total] | $34,134.07 |
1931 BTA LEXIS 1748">*1751 On December 31, 1924, the petitioner's loans and discounts amounted to $7,679,756.48. The petitioner's officers determined, as for the year 1923, that $20,000 was the proper amount to be set up as an addition to a reserve for bad debts. The petitioner deducted this amount as an addition to a reserve for bad debts and also $5,988.28 as bad debts charged off upon its income-tax return for 23 B.T.A. 1219">*1222 1924. Attached to this return is the following schedule of "bad debts charged off":
| E. T. Lewis, 2-8-24, note | $2,509.64 |
| H. B. Millican, note, 4-7-24 | 600.00 |
| B. F. Butler note, 5-31-24 | 425.00 |
| O. L. Grubbs note, 1-1-24 | 2,018.00 |
| Checks | 435.64 |
| $5,988.28 |
The amounts claimed as additions to a reserve for bad debts were not entered upon the petitioner's books during the taxable years, and the only amounts that were entered and/or actually charged off were those claimed and allowed as bad debt deductions for the years 1923 and 1924. The Commissioner has disallowed the deductions claimed as additions to a reserve for bad debts.
The petitioner's balance sheet at the close of each of the years under consideration shows furniture and fixtures in the following amounts: 1931 BTA LEXIS 1748">*1752
| 1922 | $16,915.92 |
| 1923 | 22,096.91 |
| 1924 | 42,748.83 |
The furniture and fixtures consisted of ordinary banking equipment such as typewriters, adding and bookkeeping machines, check counters, files, rugs, desks, and chairs, with a useful life ranging from 2 1/2 years for the typewriters up to 10 or more years for the desks. The large increase in the furniture and fixtures account is due to consolidations with other banks and the purchase of some new equipment. The petitioner claimed depreciation deductions at the rate of 25 per cent per annum upon its furniture and fixtures. The Commissioner made some adjustments to the furniture and fixtures account and allowed depreciation deductions at the rate of 10 per cent. A reasonable allowance for depreciation is 10 per cent of the cost or book value of furniture and fixtures.
OPINION.
SMITH: This taxpayer made a similar claim for the deduction of an addition to a reserve for bad debts for the taxable year 1921. The respondent disallowed the deduction and the Board sustained his determination. 1931 BTA LEXIS 1748">*1753 . That record has been incorporated in this proceeding by reference. We found there, and find again in this proceeding, that the petitioner had not set up a reserve for bad debts upon its books. The respondent has allowed the deduction of bad debts charged off within the taxable years. The evidence does not justify a holding that the petitioner had adopted the reserve method of handling its bad debts. 23 B.T.A. 1219">*1223 Neither do we have before us sufficient evidence to support the conclusions of the petitioner's officers that it would sustain any greater loss upon its loans than the amounts actually charged off and allowed as deductions. Under the circumstances the respondent's determination is sustained.
The issue regarding depreciation upon the petitioner's furniture and fixtures must be decided adversely to its contention. The testimony respecting this issue was most indefinite. The petitioner's only witness testified that he did not know the cost or quantity of any item in the furniture and fixtures account, the date any such assets were purchased, or the remaining useful life of the furniture and fixtures acquired through1931 BTA LEXIS 1748">*1754 consolidation with other banks. The evidence does not support the petitioner's claim for a greater allowance for depreciation than that allowed by the respondent.
Judgment will be entered for the respondent.