Louis F. Root v. Commissioner of Internal Revenue

This case is here on petition to review a decision of the Tax Court upholding a deficiency assessment in respect of petitioner’s income tax for the year 1945. In, her return for that year petitioner claimed a deduction of $12,910.20 assertedly representing unrecoverable loans to the-Washington Hills Quicksilver Corporation. The Commissioner disallowed the-deduction on the ground that the amount claimed was not a bad debt but a capital investment subject to the limitations of § 117(d) (2) of the Internal Revenue-Code, 26 U.S.C.A. § 117 (d) (2).

The evidence before the Tax Court, partly oral and in part stipulated, we summarize as follows: The Washington Hills Quicksilver Corporation was organized in 1942 by petitioner and her husband and one Mr. Levison. Petition er and her husband were entitled to receive' 50 per cent of the corporate stock authorized to be issued. Petitioner, who appears to have a substantial income from a trust fund left her by her family, made the advances in question for the purpose of buying mining machinery and equipment and for labor costs. These advances were entered in the corporation’s books as loans. The advances were not secured, no interest thereon…