Hans Zimmerman and Clara Zimmerman, Apellants v. United States of America and District Director of Internal Revenue

Hans and Clara Zimmerman, appellants herein, commenced an action in the United States District Court for the District of Hawaii for the refund of income taxes in the amount of $13,180.66. Their claim for a refund was based upon the refusal of appellees to allow as a bad debt deduction under section 166(a) (1) of the Internal Revenue Code of 1954 (26 U. S.C. § 166(a) (1)) money allegedly loaned by them to the National Medical Society during the years 1944 through 1955. The action was tried by the court and a judgment was entered in favor of appellees.

Only a “bona fide debt”, i. e., one which “arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money,” qualifies for deduction under section 166 of the Internal Revenue Code of 1954. The issue on this appeal is whether such a debtor-creditor relationship existed between Dr. Zimmerman and the National Medical Society.

The facts will be briefly summarized here. At the outbreak of World War II, Dr. Zimmerman, a naturopathic physician, who at the time was practicing his profession in Honolulu, was shipped to the United States. He moved to Chicago, Illinois,…