First Nat. Bank of Dillon v. Commissioner

This is a petition to review the action of the Board of Tax Appeals sustaining the decision of the Commissioner of Internal Revenue disallowing certain deductions from gross income claimed by the petitioner by reason of bad debts amounting to $76,-825. The amount of tax involved is $8,300.-63 for the year 1929. It is conceded that the debts involved were worthless, and if the debts belonged to the petitioner it was entitled to the deduction claimed for the year 1929.

In the year 1912, petitioner was engaged in the general banking business at Dillon, Mont. It was desired by the officials of the bank to make loans which the bank, as such, was not authorized to make. To overcome this difficulty, the bank officials determined to procure a fund for the purpose of making such loans. Dividends were declared, and, instead of paying the amount of the dividends to the stockholders, the aggregate amount in the first instance, $50,000, from the dividend declared January 8, 1913, was impounded in a special account designed as “Stockholders’ Account.” This was called a nonledger account, and, although carried on books kept in the bank, was not kept in the ordinary bank books. This fund was…