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U.S. Supreme Court

Lewellyn v. Electric Reduction Co., 275 U.S. 243 (1927)

Lewellyn v. Electric Reduction Company

No. 71

Argued October 26, 1927

Decided November 21, 1927

275 U.S. 243


1. The rights of a buyer who has prepaid a seller for merchandise which the latter has failed to deliver are upon contract, and are not a "debt," where neither party has abandoned the contract; the prepayment is therefore not deductible, in arriving at net income under Revenue Act of 1918, § 234(5), as a "debt ascertained to be worthless and charged off within the taxable year." P. 275 U. S. 246.

2. When the seller proved to be irresponsible, the buyer's loss could be deducted under § 234(4) as a "loss sustained during the taxable year," i.e., the year in which his claim proved to be worthless. P. 275 U. S. 246.

3. Plaintiff, in 1918, paid in advance for goods which were never delivered. He did not charge off the amount in that year on his books, but continued to carry it in a "bills receivable" account. The worthlessness of the claim was proved by the outcome of litigation two years after the payment. He then sought, under Subsection (4), § 234, Revenue Act of 1918, to deduct the amount of the payment in an amended tax return for 1918. Held, that the deduction was not allowable because the loss was not "sustained" during that taxable year. P. 275 U. S. 247.

4. Trial by jury having been waived in writing, review of this case is limited to the sufficiency of the facts specially found to support the judgment and to the rulings excepted to and presented by the bill of exceptions, R.S. §§ 649, 700. The Court is without power to grant a new trial except for error thus presented. P. 275 U. S. 248.

11 F.2d 493 reversed. chanroblesvirtualawlibrary

Page 275 U. S. 244

Certiorari, 273 U.S. 676, to a judgment of the circuit court of appeals which reversed a judgment of the district court for the Collector in an action brought by the Reduction Company to recover income taxes. 8 F.2d 91.

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