1942 BTA LEXIS 841 | B.T.A. | 1942
Lead Opinion
Petitioner contends that under section 23 (k) of the Revenue Acts of 1934 and 1936 he is entitled to bad debt deductions ' in the amount of $30,195.55 for 1935 and $50,000 for 1936, representing the debts of Marie Campbell Ravelli and Philip Wick, respectively, which debts were ascertained to be worthless in those years. The respondent contends that no debts were due the petitioner from Mrs. Ravelli or Wick and that there was accordingly nothing for petitioner to charge off or deduct as bad debts in the respective years. Respondent contends and petitioner concedes that before a deduction can be allowed on account of a worthless debt it is essential that the existence of a valid debt be established, J. S. Cullinan, 19 B. T. A. 930; Missouri Valley Bridge & Iron Co., 14 B. T. A. 1162; and Federal Fuel Co., 3 B. T. A. 814; and most of the argument presented centers' around the question whether the facts here establish the existence of valid debts.
We think that in both instances petitioner has established the existence of unadiudicated claims rather, than valid debts. With re
With respect to the second issue, we also think the facts disclose the existence of an unadjudicated claim against Philip Wick rather than a valid and subsisting debt. Petitioner does not contend that any claim which he might have had against Wick for breach of the partnership agreement constituted a “debt” within the meaning of the act'. Cf. Wadsworth Manufacturing Co. v. Commissioner, 44 Fed. (2d) 762; and Lewellyn v. Electric Reduction Co., 275 U. S. 243. His contention is that such claim was converted into a valid and subsisting debt by reason of certain oral statements made by Wick to the effect that he would reimburse petitioner for his losses. Petitioner expressly disavows any implication that Wicks misappropriated or embezzled any funds, yet his authority for his above contention consists of several cases involving embezzlement. Douglas
Those cases are clearly distinguishable. Once embezzlement is admitted, as in those cases, there is no question as to legal liability and a promise to repay merely amounts to an admission of the legal obligation. In the instant case we have not seen a copy of the partnership agreement and on the basis of the record before us we could not, as a question of law, determine that Wick’s management of the firm’s business was such as to make him legally liable to petitioner for his losses, and moreover, we can not determine that Wick’s statement to petitioner amounted to an admission of legal liability under the contract. The record indicates that Wick may have had a number of reasons for making that statement and another fact which indicates that Wick did not regard his statement as having any binding effect is that he subsequently offered to settle the matter by giving petitioner his note for $50,000. Petitioner does not contend that this latter offer, which was rejected, created a valid debt for $50,000, apparently preferring to rely on his contention that there was a debt for the full amount of his losses, the exact amount of which is not shown by the record. On this point he states on brief that a deduction for only $50,000 was claimed because it represented the “minimum” amount he was entitled to deduct.
Petitioner’s negotiations with his attorney with respect to his handling the matter might indicate that petitioner himself did not regard his claim as having been converted into a valid debt. The record does not disclose whether petitioner’s counsel contemplated an action on the alleged debt or an action on the contract, but the negotiations and arrangements, together with other facts of record, suggest the latter. Finally, assuming that a valid debt was created by Wick’s oral statement, petitioner has not shown what value, if any, the debt had at the time of acquisition. Eckert v. Burnet, 283 U. S. 140; Park v. Commissioner, 58 Fed. (2d) 965; and C. H. White, 15 B. T. A. 1375.
We conclude that at the time of Wick’s death petitioner had nothing more than an unadjudicated claim for breach of the partnership agreement, and that does not constitute a valid debt within the meaning of the act. Wadsworth Manufacturing Co. v. Commissioner, supra, and Lewellyn v. Electric Reduction Co., supra. The respondent is sustained on this issue.
Another issue raised in the petition for 1935, involving the taxability of certain dividends received by petitioner from the Consolidated Freight Handling Co. has been abandoned by petitioner.
Decision will he entered under Rule 50.