Crocker v. Lucas

• Decision Date: 13 January 1930
• Docket Number: No. 5859.,5859.
• Citation: 37 F.2d 275
• Parties: CROCKER v. LUCAS, Commissioner of Internal Revenue.
• Court: U.S. Court of Appeals — Ninth Circuit

37 F.2d 275 (1930)

CROCKER v. LUCAS, Commissioner of Internal Revenue.

No. 5859.

Circuit Court of Appeals, Ninth Circuit.

January 13, 1930.

Morrison, Hohfeld, Foerster, Shuman & Clark, Herbert W. Clark, and Leon De Fremery, all of San Francisco, Cal., for petitioner.

G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, Morton Fisher, and Harvey Gamble, Sp. Assts. to the Atty. Gen. (C. M. Charest, Gen. Counsel, and Frank M. Thompson, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.

Before RUDKIN, DIETRICH, and WILBUR, Circuit Judges.

RUDKIN, Circuit Judge.

Between the years 1899 and 1902, the petitioner acquired all of the capital stock of the Modelo Oil Company, a California corporation, and loaned money to the corporation, taking notes therefor. Some time prior to March 1, 1913, the loans thus made reached an aggregate of $147,681.59. In 1921 the corporation sold all of its assets for the sum of $75,000, and the amount thus realized was paid to the petitioner, leaving an unpaid balance due on the notes, amounting to the sum of $69,231.59. During 1921 this unpaid balance was ascertained to be worthless and charged off, and in computing his net income for that year the petitioner claimed the right to deduct the amount thus charged off as a loss sustained during the taxable year. On the hearing before the Board of Tax Appeals, it was stipulated:

"(1) That in the event the board should hold as a matter of law that, in the case of an indebtedness arising prior to March 1, 1913, the deduction allowed by section 214 (a) (7) of the Revenue Act of 1921 is the full amount of the debt ascertained to be worthless and charged off in the taxable year, then in that event the deductible loss sustained by the petitioner in 1921 on the notes of the Modelo Oil Company upon liquidation of the corporation in 1921 was the sum of $69,231.59.

"(2) That in the event the Board should hold that, in the case of an indebtedness arising prior to March 1, 1913, the deduction allowed by section 214 (a) (7) of the Revenue Act of 1921 is limited by the March 1, 1913, value of the debt ascertained to be worthless and charged off in the taxable year, then in that event no deductible loss was realized by the petitioner on the notes of the Modelo Oil Company upon liquidation of the corporation in 1921."

On the foregoing facts the Board of Tax Appeals held that the petitioner, having already received the fair market value of the notes as of March 1, 1913, suffered no loss within the meaning of the law, and was entitled to no further deduction. The correctness of this ruling is the only question presented for consideration.

Section 202 of the Revenue Act of 1921 (42 Stat. 229) provides that the basis for ascertaining a gain derived or loss sustained from the sale or other disposition of property, real, personal or mixed, acquired prior to March 1, 1913, shall be the fair market value as of that date, if less than the cost of the property. Section 214 provides that, in computing net income, there shall be allowed, as deductions, debts ascertained to be worthless and charged off within the taxable year. The government contends that the charging off of a debt ascertained to be worthless is a disposition of property within the meaning of the Revenue Act, and its contention in that regard is fully supported by the decision of the Court of Appeals of the District of Columbia in Ayer v. Blair, 58 App. D. C. 175, 26 F.(2d) 547.

Counsel for petitioner earnestly insist that...