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American State Bank v. United States

June 13, 1960

AMERICAN STATE BANK, A WISCONSIN BANKING CORPORATION, PLAINTIFF-APPELLANT,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLEE (TWO CASES).



Author: Platt

Before SCHNACKENBERG and CASTLE, Circuit Judges, and PLATT, District Judge.

PLATT, District Judge.

Plaintiff, American State Bank, a Wisconsin banking corporation, has appealed from the decision of the district court dismissing its two suits to obtain refunds for corporate income taxes. In one action plaintiff attempted to recover an alleged overpayment of corporate income tax in the amount of $6,320.54 for the year 1953, and in the other action $41,955.52 and $30,193.21 for the years 1954 and 1955 respectively.The overpayments were alleged to be due plaintiff for the reason that the Commissioner of Internal Revenue refused to allow the full amount claimed as addition to its bad debt reserve account for these taxable years. The two cases were consolidated for trial.

Plaintiff contends in substance:

(1) The district court's findings of fact were not supported by the evidence and were clearly erroneous; and

(2) The district court erred in concluding the Commissioner allowed a reasonable amount for the reserve account, because "of the Commissioner's slavish adherence to a formula with complete disregard of the facts and circumstances, and * * * of the statutory command that the additions be 'reasonable'."

The Internal Revenue Code of 1939 provided:

"§ 23. Deductions from gross income. In computing net income there shall be allowed as deductions: * * *

"(k) Bad Debts.

"(1) General rule. Debts which become worthless within the taxable year; or (in the discretion of the Commissioner) a reasonable addition to a reserve for bad debts; * * *." 26 U.S.C.A. § 23.

and the Internal Revenue Code of 1954 provided:

"§ 166. Bad Debts.

"(a) General rule. -

"(1) Wholly worthless debt. - There shall be allowed as a deduction any debt which becomes ...


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