Herbert W. Dustin and Kathleen C. Dustin v. Commissioner of Internal Revenue

Herbert W. Dustin, the taxpayer, appeals from a decision of the Tax Court, 53 T.C. 491 (1969), upholding the Commissioner’s assessment of deficiency in income tax for 1961 in the amount of $4,286.77 and addition to tax of $383.76 for late filing of the 1961 tax return.

BAD-DEBT DEDUCTION

With a Mr. and Mrs. Leswing, taxpayer in 1958 entered into a partner ship, known as Century Schoolbook Press, for the purpose of publishing textbooks for submission to and adoption by the California school system. Taxpayer was a limited partner, and received a percentage interest in exchange for cash. During 1960 and 1961 loans to the partnership were made by taxpayer, and by the end of 1961 the unpaid balance amounted to $7,224.67. On his 1961 income tax return taxpayer deducted this amount as a bad debt loss. The deduction was disallowed by the Commissioner and the disallowance was upheld by the Tax Court on the ground that taxpayer had not proved that debt had become worthless during 1961. Internal Revenue Code of 1954, § 166(a) (1), 26 U.S.C. § 166 (a) (1).

At the close of 1961 the partnership, Century, was without doubt in bad shape financially. Between the date of its formation and the…