ECKERT
v.
BURNET, COMMISSIONER OF INTERNAL REVENUE
AI-generated. These summaries, headnotes, and key points are machine-generated and may contain errors or omissions. Always verify against the full opinion text below. Not legal advice.
The Supreme Court affirmed the Commissioner of Internal Revenue's disallowance of a bad debt deduction claimed by a taxpayer who, as joint endorser of corporate notes, substituted his own note for the worthless corporate obligation in 1925. The Court held that because the taxpayer made no cash outlay or transfer of property having cash value in the transaction—merely exchanging one form of liability for another—there was no deductible loss in the taxable year under the cash basis accounting method, and any deduction would only be permissible in the year the taxpayer actually paid cash on his note.
© FLexlaw, Inc. — AI-generated enrichments are proprietary. All rights reserved.
Mr. Justice Holmes delivered the opinion of the Court.
The Commissioner of Internal Revenue determined that there was a deficit of $3,378.89 in the petitioner’s income tax for the year 1925 under the Revenue Act of 1924. The petitioner claimed a deduction from income of $22,400 as a bad debt. The deduction was disallowed by the Commissioner, by the Board of Tax Appeals and, in review, by the Circuit Court of Appeals for the Second Circuit. 42 F. (2d) 158. A writ of certiorari was allowed by this Court.
The petitioner’s tax return was on the cash basis. The facts of the transaction concerned were that the petitioner and his partner were joint endorsers of notes issued by a corporation that they had formed. There remained due upon these notes $44,800, that the corporation was unable to pay. In 1925 the petitioner and his partner in settlement of their liability made a joint note for that sum to the bank that held the corporation’s paper, received the old notes, marked paid, and destroyed them. The petitioner claims the right to deduct half that sum as a debt “ ascertained to be worthless and charged off within the taxable year,” under the Revenue Act of 1926, c. 27, § 214 (a) (7); 44 Stat. 9, 27.
It seems to us that the Circuit Court of Appeals sufficiently answered this contention by remarking that the debt was worthless when acquired. There was nothing to charge off. The petitioner treats the case as one of an investment that later turns out to be bad. But in fact it was the satisfaction of an existing obligation of the petitioner, having, it may be, the consequence of a momentary transfer of the old notes to the petitioner in order that they might be destroyed. It is very plain we think that the words of the statute cannot be taken to include a case of that kind. We do not perceive that the case is bettered by the fact that some of the original notes years before were given for property turned over to the corporation by the partnership that-formed it. For the purpose of a return upon a cash basis, there was no loss in 1925. As happily stated by the Board of Tax Appeals, the petitioner “merely exchanged his note under which he was primarily liable for the corporation’s notes under which he was secondarily liable, without any outlay of cash or property having a cash value.” A deduction may be permissible in the taxable year in which the petitioner pays cash. The petitioner says that it was definitely ascertained in 1925 that the petitioner would sustain the losses in question. So it was, if the petitioner ultimately pays his. note. So was the tax considered in United States v. Mitchell, 271 U. S. 9, 12, but it could not be deducted until it was paid.
Judgment affirmed.
Cases With Similar Vibessemantic neighbors from the corpus
Citator
Cited By (52 total)
-
Putnam et ux. v. Commissioner of Internal Revenue, 352 U.S. 82 (U.S. 1956)…the guarantor acquires the debt cannot obscure the fact that the debt “becomes” worthless in his hands. Finally, the Courts of Appeals found support for their view in the following language taken from the opinion of this Court in Eckert v. Burnet, 283 U. S. 140: “The petitioner claims the right to deduct half that sum as a debt 'ascertained to be worthless and charged off within the taxable year,’ under the Revenue Act of 1926, c. 27, § 214 (a) (7); 44 Si>at. 9, 27. “It seems to us that the Circuit Court…1 / 3
-
Don E. Williams Co. v. Commissioner of Internal Revenue, 429 U.S. 569 (U.S. 1977)…h basis with respect to payments to a qualified profit-sharing trust.” Ante, at 578. This assumption is the keystone of today’s decision, for only by treating the petitioner as a cash-method taxpayer can the Court apply the rule of Eckert v. Burnet, 283 U. S. 140, and Helvering v. Price, 309 U. S. [*584] 409, to require the petitioner to have paid out “cash or its equivalent” in order to be allowed a deduction. But the assumption is just that — an assumption that is not and cannot be supported. It is true,…1 / 2
-
Helvering v. Price, 309 U.S. 409 (U.S. 1940)…deduction for a loss upon a contract of guaranty. The Board of Tax Appeals sustained the Commissioner in refusing to allow the deduction, and the Circuit Court of Appeals reversed. 106 F. 2d 336. Because of an alleged conflict with Eckert v. Burnet, 283 U. S. 140, Jenkins v. Bitgood, C. C. A. 2d, 101 F. 2d 17, and Ferris v. Commissioner, C. C. A. 2d, 102 F. 2d 985, we granted certiorari, 308 U. S. 548. The facts as found may be thiis summarized: In 1929 the Atlantic Bank and Trust. Company of Greensboro, No…
Previewing 3 of 52 citing cases — full citator treatment, depth of discussion, and citing context are member features.
Join FLexlaw to unlock all legal intelligenceAuthorities Cited
- United States v. Mitchell, 271 U.S. 9 (U.S. 1926)
- Eckert v. Commissioner of Internal Revenue, 42 F.2d 158 (2d Cir. 1930)