Wheatley v. Commissioner of Internal Revenue, Docket No. 9665.

• Decision Date: 05 November 1927
• Docket Number: Docket No. 9665.
• Citation: 8 BTA 1246
• Parties: JAMES A. WHEATLEY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

8 B.T.A. 1246 (1927)

JAMES A. WHEATLEY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 9665.

Board of Tax Appeals.

Promulgated November 5, 1927.

James G. Stewart, Esq., for the petitioner.

Granville S. Borden, Esq., for the respondent.

This proceeding results from the determination by respondent of deficiencies in income tax for the years 1920 and 1921, in the respective amounts of $11,662.60 and $2,783.31. The deficiencies arise from the refusal of respondent to permit the petitioner to take the following deductions: (1) In the year 1920, petitioner ascertained a debt owing to him by Suchovolsky & Brother, to be worthless and charged the same off within the taxable year; (2) losses sustained during the years 1920 and 1921, resulting from the purchase and payments of drafts; (3) losses sustained in the year 1921, resulting from the sale of pesos; (4) losses sustained in the year 1921, from the sale of shares of stock of the Ault & Wiborg Co. It has been stipulated that petitioner incurred a deductible loss in the year 1920, with respect to item (1), in the amount of $4,943.70, and that he incurred a deductible loss in 1921 with respect to item (4) of $4,218.25.

FINDINGS OF FACT.

Petitioner is a citizen of the State of Ohio. From 1904 to 1920, he resided at Buenos Aires, Argentine Republic, and since the latter date, has resided at Cincinnati, Ohio. During the time petitioner resided at Buenos Aires, he was the general manager for the Argentine Republic of the Ault & Wiborg Co., of Cincinnati, Ohio. He received a small salary and shared in the profits made by the South American branch.

In September, 1920, the Ault & Wiborg Co. drew three drafts for the total sum of $48,335.90 on their funds in Buenos Aires. The amount represented by the drafts was due them for merchandise shipped to Argentine and sold for them by petitioner. Petitioner was directed by his employer to have all drafts paid promptly on their presentment, regardless of the rate of exchange prevailing on the day the same were presented for payment. The funds of Ault & Wiborg, on the date the drafts were received, were immediately charged with 130,177.36 paper pesos, the amount necessary to satisfy the drafts. When the drafts arrived in Buenos Aires, pesos had fallen in value as measured in American dollars. Petitioner, believing that the rate of exchange was too low and in hope it would soon become normal and believing he would make a profit by their becoming so, on September 23, 1920, authorized the bank to pay the drafts and charge them to him. The drafts were so paid and charged to petitioner. He became, on that day, entitled to and did receive from the Ault & Wiborg funds, the sum of 130,177.36 paper pesos. The rate of exchange, instead of rising, continued to fall, and on November 23, 1920, petitioner paid the drafts with 145,007.70 paper pesos. The difference between the number of pesos which would have paid the draft on September 23, 1920, and the number which was paid on November 23, 1920, when expressed in American money, was $4,943.46.

In September, 1921, the Ault & Wiborg Co. drew three drafts totaling $71,348.14 on their funds in Buenos Aires. For the reasons given above, petitioner authorized the bank to pay the drafts and charge them to him. The drafts were so paid and charged to petitioner. He subsequently executed a note to the bank for the amount of the three drafts. On December 16, 1921, he paid the note in paper pesos. The number of paper pesos paid was 216,476.74. The number of paper pesos which would have paid the drafts when petitioner accepted payment, was 188,910.41. The difference between these amounts as expressed in American money, was $9,085.53.

Petitioner, during his stay in Buenos Aires, accumulated more than half a million paper pesos, which were accumulated at the normal rate of exchange of 1.05. In March, 1921, an installment payment of $4,000 became due to the collector of internal revenue, in payment of Federal income tax,...