In July, 1920, Shiman, the taxpayer, guaranteed four brokers’ accounts for his brother-in-law, Oppenheim, who was speculating in stocks. One of these was Oppenheim’s own,, one was Shiman’s, one belonged to Oppen-heim’s wife, in the fourth Shiman and others were interested. At the time of the guaranty Shiman thought Oppenheim solvent, as he was, and the transaction was of the ordinary kind, though influenced no doubt by the relationship of the two. Thereafter, Oppen-heim fell into financial straits and became insolvent, though he still retained a small salary susceptible in part to garnishment. The parties do not however rely upon this as a resource; the ease has been disposed of on the assumption that nothing could be recovered from him. In October, 1924, the brokers made a demand upon Shiman under his guaranty for ten thousand dollars to be applied upon the account in which Oppenheim was alone interested, and Shiman was forced to respond. At that time the brokers had collateral against this account, some of which at any rate was Shiman’s. The record is not clear whether any of it that had value was Opperihеim’s, but we must assume that some was his, the amount being in doubt. This payment kept the account open for the rest of the year, but in 1925 it was closed out, and Shiman was forced to make good the dеficit, this time amounting to twenty-six thousand dollars more. He claimed the payment of October, 1924, as a loss, or a worthless debt, in his income tax return for 1924, and the Commissioner disallowed it. Upon aрpeal to the Board he was again unsuccessful and this appeal followed.
The objections are, first, that the payment created no debt from Oppenheim to Shiman at аll, because at the time he was- known to be insolvent, and a payment to an insolvent’s use cannot be made with intent to create a debt; it is to be treated as a gift. At least, the taxрayer, who has the burden, must show that it is not a gift, and this Shiman failed to do. No doubt a man may pay money for another’s use, from which a promise to repay is normally inferred, without in fact meaning tо create a debt. The relations of the parties may show that it was a gift, just as they may show that any expressions which ordinarily import a contract, are understood by both sides not to сreate one. New York Trust Co. v. Island Oil
&
Transport Corp’n,
Next the Commissioner says that in any event there can be no deduction because Shiman suffered no loss; the debt was worthless at the moment it arose, for Oppenheim was then insolvent and known to be. If the deduction had been for the loss of purchased property, this would be clearly untrue. Thе statute, section 204 (a) and (b) of the Act of
*67
1924 20 USCA § 935 (a, b) and note, fixes the “eosi” of property acquired after March 3, L9L3, as the basis for losses which may be deducted under section 214 (a) (4,5), 26 USCA § 955 (a) (4, 5). A man who buys property at more than its value, does not forfeit Ms deduction by his bad judgment. It is immaterial to prove that he could have got it for less; he is taxed upon his actual net income, nоt on what another, more sagacious, might have secured. But this was not a deduction for a loss under section 214 (a) (4) or (5), to bo calculated under section 204 (a) and (b) ; it was for a debt “ascertained to be worthless and charged off within the taxable year.” Section 214 (a) (7), 26 USCA § 955 (a) (7). Though there was no debt until •Shiman paid the brokers, it then became such at oree and was known to be worthless as soon as it arose; verbally at any rate there is no difficulty. Nor is there any reason to impute a purpose to except such cases; the loss is as real and unаvoidable as though the debt had had some value for a season. The analogy of section 204 (b) is apt. We can see no ground therefore for question except some of thе language used in Eckert v. Burnet,
The debt was “ascertained to be worthless” in 1924. It is true that Oppenheim may have had securities in the account of his own which had value, side by side with Shiman’s; we have already mentioned the possibility. The argument is that until the account was closed out the debt was not ascertained; Oppenheim was not obliged to pay until then. This miscоnceives the relation. Shiman remained contingently bound to pay the balance, when the account was closed; he had guaranteed to do so. Until then Oppenheim owed him nоthing as to that. But the payment in October, 1924, created a debt, independently of whether Shiman might later have to pay more; it was money paid to Op-ponhoim’s use fox which he became liable at once. True, when the account was closed he might have an equity, even after Shiman’s collateral was released; but that did not affect the debt arising from the pаyment. It was relevant only so far as the collateral at its value in October, 1924, might be said to be an asset available in payment of the advance then made. The account, even after the payment, still showed a heavy debit, secured in part by Shiman’s collateral. We cannot demonstrate from the record that if that were taken out the debit was more thаn the value of Opponheim’s collateral, but nothing of the sort is suggested, and we are not disposed to press so far the taxpayer’s burden of proof. That possibility is the merest spеculation, and it fairly appears that the debt was “worthless.”
There remains only the question whether it was “charged off” in 1924. Shiman kept no books and could “charge off” nothing in the usual sense. Thе phrase was apparently introduced to prevent a taxpayer from reserving a loss at his option until his income was large and his surtax high [Avery v. Commissioner,
Order reversed, eause remanded.