Minnehaha Nat. Bank v. Commissioner of Internal Revenue

• Citation: 28 F.2d 763
• Decision Date: 13 October 1928
• Docket Number: No. 348.,348.
• Parties: MINNEHAHA NAT. BANK OF SIOUX FALLS, S. D., v. COMMISSIONER OF INTERNAL REVENUE.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

28 F.2d 763 (1928)

MINNEHAHA NAT. BANK OF SIOUX FALLS, S. D., v. COMMISSIONER OF INTERNAL REVENUE.

No. 348.

Circuit Court of Appeals, Eighth Circuit.

October 13, 1928.

Joe H. Kirby, of Sioux Falls, S. D. (Kirby, Kirby & Kirby, of Sioux Falls, S. D., on the brief), for petitioner.

John Vaughan Groner, Sp. Asst. Atty. Gen. (Mrs. Mabel Walker Willebrandt, Asst. Atty. Gen., Sewell Key, Sp. Asst. Atty. Gen., and C. M. Charest, General Counsel, Bureau of Internal Revenue, and L. W. Scott, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.

Before STONE and VAN VALKENBURGH, Circuit Judges, and PHILLIPS, District Judge.

PHILLIPS, District Judge.

This is an appeal by the Bank from a decision of the Board of Tax Appeals disallowing a deduction from gross income for the year 1920 of the sum of $25,142.57. In the latter part of 1919, the bank purchased from the bank of Springfield, South Dakota, the three following notes:

                  ==============================================
                  Maker          |  Amount |  Date    |   Due
                  ---------------|---------|----------|---------
                  P.D. Magnuson  | $ 6,200 | 11/17/19 | 5/17/20
                  L.S. Taylor    |  19,500 | 12/23/19 | 6/23/20
                  C.P. Knoll     |   6,000 | 11/24/19 | 5/24/20
                  ----------------------------------------------
                

In the early part of 1920, the bank purchased from the Bank of Springfield the following notes:

                  =================================================
                  Maker           |   Amount   |  Date   |   Due
                  ----------------|------------|---------|---------
                  J.M. and C.E.   |            |         |
                    Erickson      | $ 9,000    | 3/22/20 | 9/22/20
                  P.M. Boese      |  18,000    | 5/ 1/20 | 9/ 1/20
                  Ben H. Fitch    |   8,000    | 2/ 6/20 | 9/ 1/20
                  John Pool       |   5,135.90 | 5/ 1/20 | 8/ 1/20
                  -------------------------------------------------
                

On each of the above notes, except the first, P. D. Magnuson was an indorser, and the notes were all carried by the bank as Magnuson paper.

In the year 1920, the bank determined that the first three notes were worthless. In that year, it charged off 35 per cent. of the total paper, that is, $25,142.57. It sought to deduct that amount from its gross income.

Harry B. Allen, Vice President of the bank from March, 1919, until April, 1927, testified:

"The bank charged off 35 per cent. of the total Magnuson paper as bad in 1920. We determined the Sixty-Two Hundred ($6,200) Dollar note of P. D. Magnuson, Nineteen Thousand Five Hundred ($19,500) Dollar note of L. S. Taylor and the Six Thousand ($6,000) Dollar note of C. P. Knoll to be worthless in 1920, but we charged off 35 per cent. of the total paper we held or Twenty-Five Thousand One Hundred Forty-Two & 57/100 ($25,142.57) Dollars. The reason we charged this...