(dissenting).
During the year 1944 George P. Oswald and G. W. Anderson were jointly in-, terested in two enterprises, one, the mining of coal, and, the other, the selling of coal which they mined and which was mined by others. They incorporated each enterprise. The mining enterprise was incorporated in the year 1936 under the name of the Margarette Coal Corporation. The selling enterprise was incorporated under the name of George E. Warren Corporation. Oswald and Anderson each owned 50 percent of the stock of the two companies, either directly or indirectly.
The selling end of their business, operated as the George E. Warren Corporation, advanced money to the mining end, operated as the Margarette Coal Corporation, to enable it to produce coal for sale. These advances were repaid as far as possible from the coal mined and sold; but during the years 1942 to 1944 the mining company had fallen far behind, and by the end of 1944 was indebted to the selling company in the sum of $601,339.18.
At the end of 1944 the selling company sought to charge off as a bad debt $464,-861.93 of the debt of $601,339.18 owed it by the mining company. The issue presented is their right to deduct this sum from their gross income for 1944 as a partially worthless debt, or as a loss.
At the end of 1944 the Margarette Coal Corporation, the mining end of the business, owned two coal leases, one called the Margarette lease, and the other the Frances lease, and it also owned another piece of coal mining property adjacent to the Frances lease, which was added to the Frances lease in May 1944.' From 1936, when the Margarette Coal Corporation was organized, until 1942 all mining operations were carried out on the Margarette lease, but on January 1, 1942, the Frances lease was acquired, and in 1944 the adjacent property was added to it, and thereafter operations were carried out on both leases. In 1942 deep mining was discontinued on the Margarette lease, and strip mining was begun. The strip mining operations, however, did not prove profitable, and they were discontinued, except through sublessees, in 1944.
Plaintiff, the selling enterprise, claims that in 1944, when it itself ceased to mine the Margarette lease, it determined that it would never be able to collect $464,-861.93 of its claim against the mining company of $601,339.18, and that it is entitled to charge that amount off as a bad debt. The fundamental basis for-this determination is an alleged belief that coal could not be mined profitably from the Frances lease and from subleasing the Margarette lease, or at least profitably enough for them to recover the entire $601,339.18; but they did think they could recover as much as $136,478.-25.
It is difficult to see how plaintiff was able to predict with any assurance that the operations of the mine for the next 8 or 9 years would net $136,478.25, but not $601,339.18. It certainly thought the mining enterprise could still operate at a profit, for it intended in 1944 to advance it further money, and in the next 7 years plaintiff, in fact, advanced it from $400,-000 to $1,400,000 a year, which was paid *942back, in part, from- coal mined and sold. Certainly these large advances would not have been made unless they thought the mine could be operated at a profit; but how could they tell that these advances would finally net them $136,478.25, and not $601,339.18 ?
. I think plaintiff could do no better than guess at what the future held in store. It is, of course, true that an important attribute of a successful business man is the ability to foretell the future, but bear in mind that it was plaintiff’s chief accountant who made this guess, not a man familiar with coal mining, or one in charge of operations. This chief accountant wrote down the book value of the assets of the mining venture, and as a result determined that the assets were worth $136,478.25 more than the liabilities, not counting this debt to plaintiff. Deducting this excess from the amount of the debt, he determined that the balance was a bad debt. This was the exact amount plaintiff claimed as a bad debt.
This might have been all right if it had been the intention to liquidate the mining venture; but this was not the intention ; they intended to continue to operate it. The relation between assets and liabilities did not reflect potential earnings, or greatly affect them, since plaintiff intended to put up the operating capital. Where the debtor is continuing in business, the worthlessness of a debt is to be determined not only by the debtor’s financial condition at the time the debt is charged off, but by its future prospects. No one familiar with the operation of the mine was willing to make any definite prediction on the amount of the profit it might expect to realize in the near future. The nearest any one came to it was Mr. Anderson, a co-owner with Oswald. He said, “We couldn’t look forward to any substantial profit out of this property under normal competitive conditions.” What he meant by “substantial” he did not explain.
One cannot but doubt that they expected to realize no more than $136,000 on their old debt, since in the following year they advanced the mining company $419,000, of which they' got back only $312,000, and in the following year $538,-000, of which they got back $486,000, and in the following year $1,391,000, all of which they got back and $51,000 more. The next year they advanced $1,375,000 and got back $224,000 more than they advanced. And so on. This was a lot of money to advance, with little hope of substantial profits. How could the taxpayer look 7 or 8 years ahead and tell how much those profits would be? Before a debt can be charged off as worthless, it must not only be uncollectible at the time, but in the foreseeable future. Treas. Reg. 111, sec. 29.23 (k)-l, as amended by T.D. 5376, 1944 C.B. 119.
But, even if the taxpayer was satisfied it would be unable to collect no more than $136,000 on the debt, it still is not entitled to deduct the part it believed it could not collect unless it could “satisfy” the Commissioner of Internal Revenue that so much of it was uncollectible. The statute reads, Internal Revenue Code of 1939, as amended, 26 U.S.C. 1952 ed.:
Ҥ 23. Deductions from Gross Income.
“In computing net income there shall be allowed as deductions:
*****
“(k) Bad Debts.
“(1) General rule. Debts which become worthless within the taxable year; or (in the discretion of the Commissioner) a reasonable addition to a reserve for bad debts; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction. * * * ”
The taxpayer had several conferences with agents of the Commissioner of Internal Revenue, but the record does not disclose what support for the claimed deduction was offered at them. So far as' the record before us discloses, the only ' thing the taxpayer did to satisfy the *943Commissioner of Internal Revenue that the debt was worthless was to furnish him with a balance sheet of the mining company as of December 31, 1944, showing reductions in value of the assets made by the accountant, and the resulting net worth, exclusive of plaintiff’s debt. There was no supporting statement to justify the adjustments. It is true that, without the adjustments, the mining company did not have sufficient assets to satisfy plaintiff’s debt; but this is determinative only in case the mining company was to be liquidated. When a company intends to continue operations, a balance sheet is clearly insufficient to satisfy any one that the company would never be able to pay the debt.
The taxpayer intended to make further cash advances to the mining company, evidently with the expectation that it would be able to operate profitably. It is highly improbable that it would have advanced it further money unless it thought it was going to get back more than it advanced. How much more, no one could tell.
It was entirely reasonable for the Commissioner of Internal Revenue to say that he was not satisfied that the debt was partially worthless.
The Commissioner of Internal Revenue was made the judge of the deductibility of the item claimed. I cannot say that he abused his discretion in disallowing the deduction, and this, the taxpayer must show. Stranahan v. Commissioner, 6 Cir., 42 F.2d 729; Olympia Harbor Lumber Co. v. Commissioner, 9 Cir., 79 F.2d 394; Wilson Bros. & Co. v. Commissioner, 9 Cir., 124 F.2d 606; Lehman v. Commissioner, 2 Cir., 129 F.2d 288. Cf. Art Metal Construction Co. v. United States, 17 F.Supp. 854, 84 Ct.Cl. 312.
The taxpayer is clearly not entitled to the deduction as a loss. The deduction claimed was of a debt worthless in part. The statutory provisions for the deductions of bad debts and of losses are mutually exclusive. Spring City Foundry Co. v. Commissioner, 292 U.S. 182, 54 S.Ct. 644, 78 L.Ed. 1200.
For these reasons I respectfully dissent.
MADDEN, Judge, joins in the foregoing dissent.