Welch v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 40852

• Decision Date: 08 January 1932
• Docket Number: 53119.,51929,Docket No. 40852
• Citation: 25 BTA 117
• Parties: THOMAS H. WELCH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

25 B.T.A. 117 (1932)

THOMAS H. WELCH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 40852, 51929, 53119.

Board of Tax Appeals.

Promulgated January 8, 1932.

Alexander E. Horn, Esq., and P. J. Coffey, Esq., for the petitioner.

C. H. Curl, Esq., for the respondent.

The respondent has asserted deficiencies in income taxes for the years 1924 to 1928, inclusive, in the respective amounts of $235.46, $1,051.60, $419.70, $546.83 and $819.37. The single issue presented is whether, in the circumstances of these proceedings, the petitioner is entitled to deduct, as ordinary and necessary business expenses, certain amounts paid to reimburse creditors of a corporation for losses sustained when the corporation was discharged in bankruptcy.

FINDINGS OF FACT.

The petitioner is an individual residing in Minneapolis, Minnesota. During 1922 he was secretary of the E. L. Welch Company, a Minnesota corporation engaged in the grain business. Except for 10 shares of stock owned by him, all the stock of E. L. Welch Company was owned by petitioner's father.

For several years prior to 1922 petitioner had been in close touch with the customers of E. L. Welch Company, having traveled through the territory for three or four months each summer making contacts with present and prospective customers. He handled all grain as it came into Minneapolis, and attended to grading and sale. Petitioner's father looked after the financial end of the business only.

On March 23, 1922, the E. L. Welch Company was adjudged an involuntary bankrupt. The petitioner was adjudged a voluntary bankrupt on August 5, 1922. In due course each was discharged from existing debts. Shortly thereafter, the petitioner entered into a contract with the Kellogg Company to purchase grain for it on a commission basis. In order to reestablish his standing and credit, and to revive new business contacts with former customers of the E. L. Welch Company, the petitioner determined, as far as he was able, to reimburse certain creditors of the E. L. Welch Company. Beginning in 1924, he made small payments to all of the numerous creditors, except two, by a special check which bore the following endorsement:

The payee of this check, by the endorsement hereof, accepts and agrees to apply the same on its claim against E. L. Welch Company, according to the terms of the letter of transmittal. It has nothing to do with present or future business relations with the maker of the check and is not to be considered as acknowledging any existing claim or renewing any barred claim against him.

From 1924 to 1928 the petitioner earned commissions and made payments to reimburse creditors of the E. L. Welch Company as follows:

                ------------------------------------------------------------------------
                                     Year                |  Commissions  | Credits of E
                                                         |               | L. Welch Co
                -----------------------------------------|---------------|--------------
                1924 ___________________________________ |  $18,028.20   |    $3,975.97
                1925

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