1930 BTA LEXIS 1922 | B.T.A. | 1930
Lead Opinion
We are required in this case to decide upon the method of accounting with reference to losses from bad debts which is properly to be followed for income-tax purposes in computing the net income of the petitioner for the taxable year. Petitioner appears to be a fortunate and well managed concern in that the losses from bad debts are comparatively insignificant. Nevertheless, the parties are in disagreement relative thereto, The record contains no hint that either the actual losses or the amounts of the reserve for bad debts were inaccurate or unreasonable. We are concerned here merely with a question of method of accounting.
Section 234 (a) (5) of the Revenue Act of 1921 provides for an allowance at the discretion of the Commissioner of the deduction of a reserve for bad debts. In administering this provision the Commissioner laid down, in articles 561, 151, and 155 of Regulations 62, rules which permitted for 1921 the use, without express permission and at the election of the taxpayer, of a reserve method of accounting for bad debts regardless of what method had previously been
The deficiency should be recomputed, allowing the claimed deduction of $2,000, being the increase in the reserve for bad debts, as actually charged off on the books oi the petitioner. Due consideration should also be given to an overstatement of net income in the deficiency letter in that the item of $66.35, worthless accounts collected during the year, has been twice added back to income; once by inclusion in the adjustment $851.05, total increase of the bad-debt reserve, and again in the additional adjustment item of $66.35.
Judgment wall ~be. entered pursuant to Rule 50.