*2550 Alleged bad debt deduction disallowed.
*643 The respondent has determined a deficiency in income and profits tax for the year 1920 in the amount of $346.30. The deficiency arises from the disallowance by the respondent of petitioner's claim for the deduction from gross income of $2,000 as a bad debt.
*644 FINDINGS OF FACT.
The petitioner is an individual residing in the City of New York. During the taxable year he was engaged in the business of merchant tailoring at 54 Maiden Lane. Some time during the fall of 1919, he sent $2,000 by money order to his son in St. Louis, as requested by the son, Herbert K. Grossman, then 23 years of age. No security or note was given; no agreement was had for the payment of interest; nor was there any understanding had as to a definite time of repayment. With the $2,000, and some little money of his own, saved during his previous employment as a salesman, the son purchased an interest in the Cramer Garment Co. of St. Louis. In the summer of 1920, petitioner was advised, by letter from his son, that the*2551 liabilities of this concern far exceeded its assets, and that a settlement was being considered with the creditors for 33 1/3 per cent of their claims, which would leave nothing for stockholders. The same letter contained the statement, "I will pay you every cent I owe you. Don't lose faith in me." Money was forwarded by petitioner for Herbert's return to New York, where he entered his father's business and was allowed approximately $60 per week.
OPINION.
LANSDON: The determination of petitioner's claim depends, first, upon the question whether this debt had an existence in fact. No deduction can be allowed from his gross income, as a bad debt, unless the existence in fact of the debt is established. .
The petitioner testified that the repayment of the alleged loan "was dependent on his [the son's] success in life, sooner or later, and at the present time he has not succeeded so that he could not pay it." He also testified that, since the failure of the Missouri enterprise, he had advanced money to be used for the support of the wife and children of the son, and that he had continued to make such advances "to*2552 keep his body and soul together," and that he regarded such action as no more than "every father would do for any son whom he considered reliable for a loan."
The law presumes that money transferred by a parent to his child is a gift or advancement, and not a loan. In , the court said:
Transfers of money from a father to a minor son cannot create a debt. Transfers from a father to an adult son may; but only by an express agreement to that effect. Presumptively such transfers are irrevocable gifts, either never to be accounted for or only as advancements.
*645 The same principle was enunciated in -
Money paid to a wife or child will be presumed to have been a gift or advancement, but such presumption is rebuttable.
Also Tiffany on Domestic Relations, 3d ed., p. 391, citing .
To establish the debt petitioner must show affirmatively that there was an agreement or intention of the parties, at the time of the transaction, that the money transferred was loaned. *2553 Proof of such intention or agreement must consist of acts or declarations substantially contemporaneous with the event. Subsequent acts or declarations can not change the nature of the transaction. .
We think the evidence is insufficient to rebut the presumption of law.
Reviewed by the Board.
judgment will be entered for the respondent.