Santa Monica Mountain Park Co. v. United States

The plaintiff, seeks to recover $148,500 income taxes for the taxable year 1927, *211 which it alleges were erroneously paid by it, and were illegally assessed and collected.

The question which calls for the determination is whether the Commissioner abused his discretion in refusing to allow a deduction of $1,100,000 for the year 1926 on account of the partial worthlessness of the bonds of the Minaret & Western Railroad Company, a subsidiary corporation, engaged chiefly in hauling lumber for another subsidiary, the Sugar Pine Lumber Company. Bonds of a face value of S2,500,000 were purchased by the plaintiff in 1923, at a total cost of $2,425,000.

The plaintiff paid voluntarily its tax in 1928, in four installments. The claim for refund was made on June 13, 1931, and finally rejected on November 8, 1933.

Under the Revenue Act of 1926, § 234, 44 Stat. 41 , a partially worthless debt of a corporation, when so ascertained during the taxable year, may be deducted if the Commissioner is “satisfied” that it is “recoverable only in part.”

Thus there is no absolute right to the deduction in the taxpayer and no corresponding duty to allow it, as of course. A discretionary power is…