(dissenting).
I agree that the judge’s charge was' somewhat confusing as to “good faith” and the like. But I would remand for a new trial solely on the issue of the so-called good faith of the taxpayer in disposing of the collateral in the year that he seeks to take the bad-debt deduction. For I disagree with my colleagues in the following respect: I think that, so long as the taxpayer refrains from foreclosing on the collateral because of what he, in good faith, regards as valid business considerations (other than tax reduction), the debt is not to be deemed worthless; the taxpayer’s subjective reactions, in that respect, are controlling. But I think that, at the moment when, in his mind, such business considerations cease to exist, he may not have the benefit, for tax purposes, of postponing such foreclosure to a later date. See Leopold Spingarn, 7 T.C.Mem. 498.
It begs the question to say that a taxpayer has a legal right to decrease, “by means which the law permits,” the amount of what would otherwise be his taxes. ‘ The ' question here is whether, the statute does permit a taxpayer to. reduce his taxes‘by the means the taxpayer here employed. To put it differently, the question is whether Congress intended to allow the taxpayer to choose to foreclose on the collateral in the year which best served his purposes taxwise. I think that such was not the congressional purpose. Section 23 (k) (4), taken together with Section 117(e) (1), constitutes a favor to the taxpayer, a boon, a grace,1 and therefore those provisions should be strictly construed.2 In Belser v. Commissioner, 4 Cir., 174 F.2d 386, 389, 390 — cited by this court with approval in Scovill Manufacturing Co. v. Fitzpatrick, 2 Cir., 215 F.2d 567 — the Fourth Circuit said that “federal income tax statutes have been consistently drawn with the purpose of definitely fixing, so far as is practicable, the precise year in which a deduction or exemption must be claimed, not with the idea of leaving the taxpayer the choice of a taxable year, when his claim would inure to his greatest advantage.”.
Pretty obviously, Congress, in dealing with this subject, was thinking of the-ordinary case of an unsecured debt which becomes worthless; and clearly, with respect to such an unsecured debt, Congress did not intend that the taxpayer was to have the choice of the taxable year in which to deduct the loss, since the statute provides a definite period in which bad debts must be deducted, i. e., “the taxable year” within which they become worthless. I agree with Judge HAND that, in the exceptional case where security has been given *631for the debt, the debt cannot be said to foe worthless while the security has any value. But I do not think that Congress, in such an exceptional case, intended that where, aside from the collateral, the debt is wholly worthless, the year of deduction should be entirely indefinite, i. e., to be made definite solely according to the taxpayer’s decisions as to what will aid him in reducing his tax. Section 23 (k) clearly shows Congress, in general, intended to deny creditors such a choice, and there is no reason for making an exception in the case of a loan secured by collateral.
The following will serve to show where my colleagues’ opinion may lead: Suppose a taxpayer makes a loan of $10,-000, secured by a $500 government bond, and that, a few years later, the debtor becomes utterly unable to pay anything. The collateral, the $500 bond, will then be worth about as much as at any later time. Nevertheless, according to my colleagues, the taxpayer may continue to hold that bond and not dispose of it until 15 years later, at which time he can deduct the debt as wholly worthless.
This conclusion has startling consequences. For I understand that my colleagues agree that their ruling will necessarily apply also to the deduction of business bad debts secured by collateral. To be sure, business bad debts may be partially charged off by the taxpayer if he shows, to the satisfaction of the Commissioner, that part of the debt is not •collectible.3 But, where the taxpayer does not seek a partial charge-off and the debtor in a particular year becomes utterly and conclusively unable to pay anything, yet, according to my colleagues’ decision, if the business bad debt is secured by collateral, it can be deducted in any year when the taxpayer, in his uncontrolled judgment and solely for a tax-saving purpose, chooses to dispose of the collateral. Such a result would offer an attractive means of tax evasion and would largely nullify Congress’ express intent to deny the taxpayer the privilege of freely choosing the year in which to write off bad debts.
I would reverse and remand for a new trial solely on the issue of whether the taxpayer, in good faith, postponed disposition of the collateral until 1944 for what he deemed valid business reasons.
. Interstate Transit Lines v. Commissioner, 319 U.S. 590, 593, 63 S.Ct. 1279, 87 L.Ed. 1607; Deputy v. DuPont, 308 U.S. 488, 493, 60 S.Ct. 363, 84 L.Ed. 416; White v. United States, 305 U.S. 281, 292, 59 S.Ct. 179, 83 L.Ed. 172; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440, 54 S.Ct. 788, 78 L.Ed. 1348; Meltzer v. Commissioner, 2 Cir., 154 F.2d 776, 777; Commercial Union Assurance Co. v. Commissioner, 2 Cir., 144 F.2d 994, 996; Johnston v. Commissioner, 2 Cir., 86 F.2d 732, 734, certiorari denied 301 U.S. 688, 57 S.Ct. 784, 81 L.Ed. 1341.
. Interstate Transit Lines v. Commissioner, supra; Deputy v. DuPont, supra; White v. United States, supra; New Colonial Ice Co. v. Helvering, supra; Mills Estate v. Commissioner, 2 Cir., 206 F.2d 244, 246; Omaha National Bank v. Commissioner, 8 Cir., 183 F. 2d 899, 902; Portland Gasoline Co. v. Commissioner, 5 Cir., 181 F.2d 538, 540; Belser v. Commissioner, 4 Cir., 174 F.2d 386, 389.
. If part of a business bad debt has been deducted in a previous year, when the undeducted portion becomes wholly worthless, it must be charged off in the year it loses all value. Industrial Trust Co. v. Commissioner, 1 Cir., 206 F.2d 229, 233-234.