This is an appeal from the determination of a deficiency in income and profits taxes for the years 1918 and 1919 in the amounts, respectively, of $2,459.45 and $3,490.60, a total of $5,950.05.
FINDINGS OE FACT.
The taxpayer is a New Jersey corporation with its principal office in the City of Newark. At the close of each of. the taxable years ended December 31, 1918 and 1919, the taxpayer set up on its books and claimed as a deduction in its income-tax returns the amounts of $3,897.96 and $6,866.60, respectively, as reserves for obsolete and unsalable merchandise included in those inventories at the full current market price, or at cost, whichever was lower. Subsequently, in the years 1920 and 1921, the taxpayer sold the merchandise in question, or the greater portion of the same, for amounts ranging from 25 to 50 cents on the dollar.
During the taxable years in question the taxpayer extended credit to various concerns and did not, during the years 1920 or 1921, charge off any of its accounts receivable upon the books. Thereafter, and during the year 1920, the General Electric Co., which was a large creditor of the taxpayer, insisted upon an audit of its books and ascertained that a considerable number of the accounts carried on its books were uncollectible. Thereupon, the General Electric Co. took over the business of the taxpayer, undertook the collection of accounts, and charged against the assets taken over the accounts then ascertained to be worthless and uncollectible.
The taxpayer for the year ended December 31, 1919, claims a deduction for bad debts in an amount of $3,019.46, but admits that these debts were ascertained to be worthless after the business of the taxpayer had been taken over by the General Electric Co. and were charged off either in the years 1920 or 1921. The taxpayer claims that the worthlessness of these accounts should have been ascertained in 1919.
The Commissioner in the audit of the taxpayer’s returns for the above years disallowed the foregoing deductions of $3,897.96 and $6,866.60 on account of inventory and $3,019.46 on account of bad debts.
*90In the deficiency letter sent by the Commissioner to the taxpayer forming the basis of the appeal here in question, the Commissioner readjusted the account, making due allowance for the disallowances on account of inventory as above set forth. In connection with the computation for the year 1919, after making due allowance for the inventory adjustment, the Commissioner further added back to income an amount of $6,866.60' under the heading “ Depreciation of merchandise disallowed.” The Commissioner admits that this constituted a duplication of addition to income of this amount and that the computation is erroneous to that extent.
DECISION.
The determination of the Commissioner is approved except as to the item above mentioned on which he confesses error. Final determination will be settled on consent or on 10 days’ notice, in accordance with Rule 50.