Saturday, May 4, 2013

Spring City Foundry Co. v. Commissioner case brief

Spring City Foundry Co. v. Commissioner case brief
292 U.S. 182, 54 S. Ct. 644, 78 L. Ed. 1200, 1934 U.S.

CASE SYNOPSIS: The United States Supreme Court granted certiorari to review a judgment from the United States Court of Appeals for the Seventh Circuit reversing an order allowing petitioner taxpayer to deduct part of a debt in an income tax assessment for a year. Respondent Commissioner of Internal Revenue had disallowed the amount claimed.

FACTS: The taxpayer sold goods to a company for which the company became indebted. A petition in bankruptcy was filed against the company. A receiver paid the taxpayer two dividends. The taxpayer claimed the entire debt as a deduction in its income, which the Commissioner disallowed. The board of tax appeals held that the debt was not entirely worthless at the time it was charged off and that the debt could be regarded as uncollectible at the time of charge-off to a certain extent and allowed a deduction for that amount. The court of appeals reversed, ruling that in the relevant year there was no authority for a debt deduction unless the debt was worthless.

The issue was whether the taxpayer was entitled to a deduction in the relevant year for the portion of the debt which ultimately, on the winding up in bankruptcy, proved to be uncollectible.

The Court affirmed and held that § 234(a)(5) of the Revenue Act of 1918 authorized only the deduction of a debt ascertained to be worthless and charged off within the taxable year.

It did not authorize the deduction of a debt that was not then ascertained to be worthless but was recoverable in part, the amount not recoverable being still uncertain.

CONCLUSION: The Court affirmed the decision of the court of appeals and held that the deduction should not have been allowed because the applicable statute authorized a deduction only if a debt was ascertained worthless within the taxable year.

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