Comm'r of Internal Revenue

Tax Court of the United States.May 13, 1958
30 T.C. 256 (U.S.T.C. 1958)

Docket Nos. 54845 54846 54847.



John E. Pledger, Jr., Esq., John E. Pledger, Sr., Esq., and E. N. Bender, Esq., for the petitioners. Robert L. Liken, Esq., for the respondent.

John E. Pledger, Jr., Esq., John E. Pledger, Sr., Esq., and E. N. Bender, Esq., for the petitioners. Robert L. Liken, Esq., for the respondent.

1. Respondent determined taxable net income for the years 1946 through 1949 by the increase in net worth plus nondeductible expenditures method. With the exception of opening cash, and certain other disputed items, petitioners have accepted the correctness of the net worth computation as adjusted to give effect to certain concessions made by respondent. Held, determination of net taxable income by the net worth method is approved, and findings are made as to opening cash and other disputed items.

2. During 1946, taxpayer became temporarily liable as a guarantor for an obligation of a partnership, in which he was a member. By appropriate adjustment on the net worth statement, respondent took into account taxpayer's distributive share of that partnership's reported net income, including the income resulting from the transaction which gave rise to his liability as a guarantor. Held, any liability which he may have incurred by virtue of his status of guarantor has been taken into account by means of the foregoing adjustment, and should not appear separately as a liability on the net worth statement.

3. Held, deduction for 1947 business bad debt disallowed for failure of proof.

4. Held, a claimed theft loss under Haitian law in 1947 disallowed.

5. Held, the nontaxable portion of capital gains realized during a particular taxable year, although excludible from assets of that year appearing on the net worth statement, is not excludible from assets appearing on the net worth statement for any subsequent year.

6. Held, a part of the deficiencies determined against petitioner David H. Schultz for the years 1946 and 1947, and a part of the deficiencies determined against petitioners David H. and Bessie Schultz for the years 1948 and 1949 were due to fraud with intent to evade tax.

NOTE: These cases were heard by Judge Stephen E. Rice and briefs were duly filed. After his death on February 9, 1958, the cases, not having been disposed of, were reassigned to Judge Arnold Raum, and notice was given to the parties that any motions contemplated in connection with the proceedings should be addressed to Judge Raum and filed immediately, and that if no such motions were received within 30 days he would proceed with the disposition of the proceedings. No motions requesting rehearing or further hearing or relating in any other manner to these cases have been received.

These consolidated proceedings involve deficiencies in income tax and additions thereto in the following amounts:

+-----------------------------------------------------------------------------+ ¦ ¦ ¦ ¦ ¦Additions to tax ¦ +--------+-----+---------------------+----------+-----------------------------¦ ¦Docket ¦Year ¦Petitioner ¦Deficiency¦ ¦ ¦ ¦ ¦No. ¦ ¦ ¦ ¦ ¦ ¦ ¦ +--------+-----+---------------------+----------+---------+---------+---------¦ ¦ ¦ ¦ ¦ ¦Sec. 293 ¦Sec. 294 ¦Sec. 294 ¦ ¦ ¦ ¦ ¦ ¦(b) ¦(d) ¦(d) ¦ +--------+-----+---------------------+----------+---------+---------+---------¦ ¦ ¦ ¦ ¦ ¦ ¦(1) (B) ¦(2) ¦ +--------+-----+---------------------+----------+---------+---------+---------¦ ¦ ¦( ¦David H. Schultz ¦$14,720.16¦$7,435.21¦ ¦$884.83 ¦ ¦ ¦1946 ¦ ¦ ¦ ¦ ¦ ¦ +--------+-----+---------------------+----------+---------+---------+---------¦ ¦54845 ¦( ¦David H. Schultz ¦12,352.16 ¦6,176.08 ¦ ¦912.09 ¦ ¦ ¦1947 ¦ ¦ ¦ ¦ ¦ ¦ +--------+-----+---------------------+----------+---------+---------+---------¦ ¦ ¦( ¦Bessie Schultz ¦14,534.91 ¦ ¦ ¦872.89 ¦ ¦ ¦1946 ¦ ¦ ¦ ¦ ¦ ¦ +--------+-----+---------------------+----------+---------+---------+---------¦ ¦54846 ¦( ¦Bessie Schultz ¦12,266.66 ¦ ¦ ¦893.56 ¦ ¦ ¦1947 ¦ ¦ ¦ ¦ ¦ ¦ +--------+-----+---------------------+----------+---------+---------+---------¦ ¦ ¦( ¦David H. and Bessie ¦1 ¦2,887.43 ¦$100.00 ¦262.11 ¦ ¦ ¦1948 ¦Schultz ¦5,774.86 ¦ ¦ ¦ ¦ +--------+-----+---------------------+----------+---------+---------+---------¦ ¦54847 ¦( ¦David H. and Bessie ¦27,784.16 ¦13,892.08¦ ¦1,440.97 ¦ ¦ ¦1949 ¦Schultz ¦ ¦ ¦ ¦ ¦ +-----------------------------------------------------------------------------+

Respondent determined petitioners' income for the taxable years 1946 through 1949 on the net worth plus personal expenditures basis. The issues for decision are: (1) What was the amount of cash on hand held by petitioners at January 1, 1946; (2) did petitioners have a loan receivable as of January 1, 1946, which should have been included in their opening net worth for that year; if so, what was the amount of that loan receivable, and did it become worthless in any of the years here in issue; (3) did a debt of a partnership, of which David H. Schultz was a member, represented by bank draft dated December 27, 1946, constitute a liability which should have been taken into account in petitioners' closing net worth as of December 31, 1946; (4) did the amounts lent to John and Austin Schalker during 1944 constitute a business debt; and if so, was it deductible by petitioners in 1947 when the debtors were adjudged bankrupt; (5) did petitioners sustain a loss from theft in 1947 upon the purchase of a franchise to remove bananas from a specific part of Haiti; (6) what was the amount of David H. Schultz's investment in the corporation Compania de Navigacion Farber-Jeter at the end of 1947, 1948, and upon its dissolution in 1949; (7) did the amount of $1,000 represented by a check drawn by David H. Schultz in favor of Alex Nathan constitute a loan, or was it a commission for services rendered which should be excluded from petitioners' closing net worth for 1949; (8) should the nontaxable portion of capital gains realized by petitioners during any of the years in issue be excluded from assets which appear on the net worth statement in subsequent years; and (9) was any part of the deficiencies in Docket Nos. 54845 and 54847 due to fraud with intent to evade tax?

All other issues raised by the pleadings have been conceded by the parties.

Some of the facts were stipulated.


The stipulated facts are so found and are incorporated herein by this reference.

During the years in issue, petitioners David H. and Bessie Schultz, husband and wife, resided in Houston, Texas. They filed separate returns on the community property basis for the calendar years 1946 and 1947, and joint returns for the calendar years 1948 and 1949, with the then collector of internal revenue for the first district of Texas. During those years, they reported their income on the cash receipts and disbursement basis. The only income reported on their returns for 1946 resulted solely from the efforts of petitioner David H. Schultz. Unless otherwise noted, David H. Schultz will be referred to hereinafter as the petitioner.

During all of the years involved herein, petitioner was engaged in the wholesale produce business and related enterprises. Until June 1944, and for several years prior thereto, he was the sole proprietor of a business known as White House Produce Company. He sold that business in June 1944, and, after about 2 months, he spent approximately a week at Mayo Brothers Clinic. Upon his return to Houston, he became a partner in a produce business known as M. Morales Company. He disposed of his interest in that firm in January of 1945. In March 1945 he commenced business as David H. Schultz and Company, a sole proprietorship. On November 7, 1947, that company became the National Banana and Tomato Company, a Texas corporation. During 1946, 1947, and 1948, petitioner was a partner in the Roatan Banana Company. During 1947 he was a partner in the Farber-Jeter Shipping Company, which subsequently became Compania de Navigacion Farber-Jeter, a Panamanian corporation, and was a stockholder in the National Banana and Steamship Company, a Haitian corporation.

At all times material hereto, petitioner handled little cash in connection with his business transactions. Normally, any cash possessed by petitioner, outside of that maintained in bank accounts, was kept either on his person or in a safe-deposit box.

Petitioners' cash on hand was $440 as of January 1, 1946, $880 as of December 31, 1946, $1,320 as of December 31, 1947, $1,760 as of December 31, 1948, and $2,200 as of December 31, 1949.

During the years 1944 and 1945, petitioner engaged in certain business transactions with Eli Laviage. In December 1945, in connection with one of those transactions, petitioner advanced to Laviage approximately $4,000 with which to purchase a truckload of pecans in the State of Georgia. It was intended that the pecans be taken to Los Angeles and sold, and that the proceeds be used to purchase a load of walnuts to be transported to Houston for sale. Laviage purchased the pecans and trucked them to Los Angeles. However, they arrived later than expected and were refused by the intended purchaser. No remittance was ever received for the pecans. Laviage then loaded his truck with the walnuts, which were paid for by petitioner. The walnuts were transported to Houston where they arrived on December 26, 1945. They also were refused by the intended purchaser, since they had arrived too late for resale during the holiday season. No returns were ever made on the walnuts. As of December 31, 1945, Laviage was indebted to petitioner in an undisclosed amount with respect to merchandise purchased on account from petitioner. In February 1946 petitioner filed a financial statement with the Houston National Bank, which failed to reflect any debt from Laviage as an asset. At the hearing of this proceeding on February 20, 1957, Laviage orally acknowledged indebtedness to petitioner, and stated he hoped some day to pay it.

During 1946, 1947, and 1948, petitioner was a partner in the Roatan Banana Company which, beginning in March 1946, was engaged in the business of importing bananas from Mexico into Brownsville, Texas. The partnership operated on the basis of a fiscal year ended February 28. In February 1946 petitioner obtained a letter of credit from the Houston National Bank to the Banco Longoria at Matamoros, Mexico, in the amount of $50,000. On the strength of the guaranty embodied in that letter of credit, the bank at Matamoros extended credit to petitioner and the Roatan Banana Company. When Roatan purchased a shipment of bananas in the State of Tabasco, Mexico, a draft in respect of their purchase price would be drawn by the vendors on petitioner's credit at the Matamoros bank. The bananas would then be shipped to Brownsville, a journey of some 48 to 60 hours, where they would be unloaded and immediately sold. The bank draft would arrive at the Matamoros bank some 6 to 10 days after its issuance. The liability represented by those drafts was that of the Roatan Banana Company. Roatan always paid the drafts when presented to the Matamoros bank. On December 27, 1946, a draft in the amount of $13,923,36 was drawn on petitioner's letter of credit by a confederation of banana growers in the State of Tabasco, Mexico. That draft was paid on January 2, 1947, by the Roatan Banana Company. Prior to the close of the calendar year 1946, petitioner withdrew from Roatan at least $22,138.97 representing his distributive share of the partnership profits for its fiscal year ended February 28, 1947.

John Schalker and Austin Schalker, brothers, were in the horsemeat business. In the spring of 1944, Schultz began to make certain advances to the Schalkers. On May 20, 1944, Schultz and the Schalkers formalized their arrangements by entering into certain agreements whereby it was agreed that Schultz would advance or lend the Schalkers various amounts of money in consideration of interest at the rate of 10 per cent per annum. It was further agreed that those advances were to be secured by the assignment of certain accounts receivable of various business enterprises in which the Schalkers were then engaged. As payments were made on these accounts receivable, they were deposited in a special account in petitioner's name with the First National Bank in Houston. Schultz made such advances over an aggregate period of about 6 weeks, and then ceased. On June 16, 1947, the Schalkers filed a petition in bankruptcy in the United States District Court for the Southern District of Texas. On August 6, 1947, they were adjudged bankrupt. On February 16, 1948, Schultz filed a proof of claim against the Schalkers alleging they were indebted to him in the sum of $22,743.12. Of that amount, $18,117.01 resulted from the arrangements between himself and the Schalkers which were spelled out in the agreements of May 20, 1944. On March 26, 1949, the Schalkers were discharged from bankruptcy. On February 25, 1953, the final report of the trustee in bankruptcy was approved, which indicated that $1,346.77 was to be paid to Schultz. In computing their income for the calendar year 1947, petitioners claimed the Schalker debt as a long-term capital loss. At the time that Schultz commenced to make the advances to the Schalkers he was the sole proprietor of a produce business which he sold in June 1944. The Schalker loans were not proximately related to that business or to any other trade or business in which he was engaged during any of the years involved. He had never made similar loans to others, nor was he in the lending business. The debts arising out of the loans to the Schalkers were nonbusiness debts, and did not become totally worthless during any of the years 1946-1949.

In August 1947, petitioner and Nicholas D. Allen entered into negotiations with a group of Haitians (including the President, Cabinet members, and senators of the Republic of Haiti) from whom they wished to acquire a franchise which would grant them a monopoly for 5 years to purchase all the bananas produced in the southern half of the southern peninsula of Haiti, in an area some 120 miles in length and an average of 50 miles in depth They contemplated importing the bananas into the United States for sale. At the outset, the Haitian group indicated the cost of the franchise would be $800,000. However, after a brief period of negotiation they lowered their price to $100,000. To induce petitioner and Allen to enter into the purchase of the franchise, the Haitian group showed them certain production records which purportedly represented the franchise area banana yield at 120,000 payable stems of bananas per month. After bargaining for several days, and without physically examining the area covered by the franchise, petitioner and Allen agreed to purchase the franchise. It was further agreed that the franchise would be contributed to a corporation to be organized to conduct the business; that the Haitian group would receive a 50 per cent interest in that corporation; and that petitioner and Allen should have the remaining interest. In September 1947, petitioner and Allen purchased the franchise. Thereupon, the National Banana and Steamship Company, a Haitian corporation, was formed. The franchise was then contributed by petitioner and Allen to the corporation. In accordance with their agreement they transferred 50 per cent of the stock of that corporation to the Haitian group and divided the remainder equally between themselves. During the first 2 months the corporation received some 40,000 stems per month from the area and the business showed a small profit. However, the total franchise area yield was unknown due to the fact that some of the fruit was diverted to interests other than those of the corporation. Thereafter, the corporation received very little from the area. Within a few months after operations had commenced, petitioner and Allen concluded that the franchise was worthless and made attempts to salvage whatever they could from the deal. Petitioner's total investment in the franchise did not exceed $67,500.

In 1946, petitioner and three others formed a partnership known as the Farber-Jeter Shipping Company to haul bananas from Mexico to the United States. Two of the partners contributed $7,500 each to the business. The remaining investment, at all times material hereto, was equally divided between petitioner and the third partner. Petitioner maintained no personal record of his investment in the partnership. Early in 1947, Valentin Fuente made a loan to the partnership in the amount of $30,500. Fuente has never been repaid any part of that loan. The parties are in agreement that in computing petitioner's investment in the enterprise an adjustment must be made in the amount of one-half of the Fuente loan.

The partnership was incorporated under the laws of Panama on October 21, 1947, as the Compania de Navigacion Farber-Jeter. That corporation was dissolved in February 1949. Upon dissolution, the sole asset petitioner received in distribution was the motor vessel ‘Bill Phil’ having a fair market value of $12,000. As of December 31, 1947 and 1948, petitioner's investment in the corporation was $26,772.75.

In 1949 petitioner purchased a laundry business with the help of Alex Nathan. Some 2 months thereafter, Nathan came to petitioner and requested a loan of $1,000. On July 5, 1949, petitioner drew a personal check for $1,000 in favor of Nathan which bore the notation ‘loan.’ Nathan has never repaid petitioner any part of that $1,000. The transaction was in fact a loan; it did not represent the payment of a commission to Nathan.

During the fiscal year ended February 28, 1947, petitioner and three others comprised the partnership known as the Roatan Banana Company, referred to above. Throughout that period Roatan was actively engaged in importing bananas into Brownsville, Texas, from the States of Tabasco and Chiapas, Mexico. When Roatan purchased a boatload of Tabasco bananas, the vendors prepared a statement of the transaction, setting forth the name of the vessel upon which the fruit was shipped, the date of its unloading at Brownsville, the kind and quantity of the bananas purchased, and the total sales price paid by Roatan. Roatan also prepared a ‘sales sheet’ of the transaction, setting forth the name of the vessel, date of unloading, kind and quantity of the fruit unloaded, the ultimate purchaser, and the total purported sales price received. A comparison of 68 statements rendered by the vendors, with corresponding ‘sales sheets' prepared by Roatan, covering transactions occurring from March 6, 1946, through December 29, 1946, revealed that in 61 instances the purported sales price set forth on the Roatan sales sheet was substantially less than the purchase price shown on the vendors' statement. The total discrepancy between the 61 statements and sales sheets was approximately $256,961.54. Roatan never paid more for bananas than they were worth in the United States.

The accountant who prepared the Roatan partnership return for the fiscal year ended February 28, 1947, totaled the sales as set forth on the Roatan ‘sales sheets' for that year. He then took 5 per cent of the total sales for the year, arriving at a figure of $88,555.89 which he entered on the Roatan return as the partnership net income for that year. No deductions were claimed on the return. Petitioner's distributive share of the partnership net income was reported as $22,138.97, which amount petitioners used in computing their community income for the calendar year 1947.

During 1946 petitioner, operating a sole proprietorship under the name of David H. Schultz & Company, made sales of bananas to J. J. Butler at prices in excess of the established O.P.A. ceiling prices. Butler drew checks in the total amount of $21,408.36 which he gave to petitioner in payment for those bananas. No part of that $21,408.36 was recorded on the books of David H. Schultz & Company. Such amount was also omitted from petitioners' community income for the calendar year 1946.

The L & L Banana Company was a partnership formed during 1947 for the purpose of hauling bananas by truck from Brownsville, Texas. Though petitioner was not a partner in that concern, he made certain advances to the partnership throughout 1947, 1948, and 1949. The amounts so advanced by petitioner represented a loan receivable to him. Petitioner had no record of the advances made by him to the L & L Banana Company.

In December 1948, a fire destroyed the warehouse in which the main office of the Roatan Banana Company was located. Substantially all of the Roatan business records then in existence were burned in that fire. Also destroyed by the same fire were all the records of the Farber-Jeter Shipping Company for the periods preceding December 1948.

On January 29, 1953, a Federal grand jury, sitting in the Austin Division of the United States District Court for the Western District of Texas, returned a two-count indictment against petitioner. Count one charged him with a willful attempt to evade his Federal income tax for the calendar year 1946 by filing a false and fraudulent return for that year, wherein he stated his net income, computed on the community property basis, was $5,136.12 when he knew it was $19,548.06. Count two charged him with a willful attempt to evade the Federal income tax owing by his wife, petitioner Bessie Schultz, for the calendar year 1946, by filing a false and fraudulent return on her behalf for that year which stated her net income, computed on the community property basis, to be $5,136.12, when he knew it to be $19,548.05. On June 10, 1953, petitioner entered a plea of guilty to the second count of that indictment, whereupon, on motion of the United States attorney, the first count was dismissed.

The petitioners have extended, by timely execution of forms 872, the periods of limitation for the assessment and collection of income tax for the calendar years 1946, 1947, 1948, and 1949, to dates subsequent to the date of issuance of the deficiency notices in each of the instant proceedings.

Respondent determined, by the use of the net worth and expenditures method, that petitioners received income in excess of that reported on their returns for the years 1946, 1947, 1948, and 1949. Both parties have made certain basic concessions with respect to the items appearing in that net worth statement. As a result of those concessions, the parties' original positions have been materially altered. The following table shows the amounts of community net income or loss reported by petitioners in their returns, the increases in net worth and their net community income based upon items in the net worth statement which were not in issue herein or which the parties have since conceded, and the increases in their net worth and the amounts of net community income which reflect respondent's present position based upon items conceded as well as those still in dispute:

+------------------------------------------------------------------+ ¦ ¦ ¦Petitioner ¦Respondent ¦ +----+-----------+-----------------------+-------------------------¦ ¦Year¦Net income ¦ ¦ ¦ ¦ ¦ +----+-----------+-----------+-----------+-----------+-------------¦ ¦ ¦reported ¦Increase or¦Net income ¦Increase in¦Net income ¦ +----+-----------+-----------+-----------+-----------+-------------¦ ¦ ¦ ¦decrease in¦received ¦net worth ¦claimed on ¦ +----+-----------+-----------+-----------+-----------+-------------¦ ¦ ¦ ¦net worth ¦ ¦ ¦brief ¦ +----+-----------+-----------+-----------+-----------+-------------¦ ¦1946¦$11,488.94 ¦$22,720.44 ¦$42,075.23 ¦$29,686.62 ¦$49,041.41 ¦ +----+-----------+-----------+-----------+-----------+-------------¦ ¦1947¦31,354.12 ¦(44,762.22)¦(36,805.47)¦44,138.61 ¦43,713.99 ¦ +----+-----------+-----------+-----------+-----------+-------------¦ ¦1948¦15,278.44 ¦23,027.67 ¦34,511.28 ¦23,027.67 ¦1 44,181.58¦ +----+-----------+-----------+-----------+-----------+-------------¦ ¦1949¦(32,404.96)¦73,852.50 ¦66,582.16 ¦76,802.83 ¦69,657.49 ¦ +------------------------------------------------------------------+

In the summary “statement” accompanying the deficiency notice attached to the petition in Docket No. 54847 the deficiency for 1948 is stated to be $6,774.86. However, the detailed computations in the “statement” show the correct amount at $5,774.86. The parties have repeated the error in their pleadings and on brief.

On the other hand, even assuming that the pecan and walnut transaction did result in a true loan resulting in a debt running from Laviage to Schultz, there is no persuasive evidence that it became worthless during any of the years before the Court. Laviage testified in this proceeding that he still hopes to repay Schultz, and the possible running of a Texas statute of limitations on the claim would not necessarily render it deductible as a worthless debt. Unless the debt were in fact worthless, a creditor would not be entitled to a deduction by voluntarily permitting the period of limitations to expire, cf. Earl v. Perry, 22 T.C. 968, 974; nor would the statute of limitations be a bar unless specially pleaded. Cf. Leo Stein, 4 B.T.A. 1016, 1017; Ralph H. Cross, 20 B.T.A. 929, 931, affirmed 54 F.2d 781 (C.A. 9); Charles N. Spratt, 43 B.T.A. 503, 517.
In view of the state of the record with respect to this item, and particularly in view of the strong inference that the total opening net worth for 1946 in any event did not exceed $142,000, we are of the opinion that the Commissioner did not err in refusing to add the so-called Laviage loan as an asset.
2. Roatan bank draft— closing net worth for 1956.— Petitioners contend that their liabilities as of December 31, 1946, should be increased by at least one-half of a bank draft in the amount of $13,932.36 outstanding against Schultz's letter of credit at the close of 1946. The draft had been drawn on December 27, 1946, by Mexican banana growers in connection with a sale of bananas to Roatan Banana Company, a partnership in which Schultz was one of four partners. However, the primary liability in relation to that draft was on Roatan, and Schultz's position, in substance, was that of a guarantor. Moreover, Roatan, in fact, discharged its liability by payment on January 2, 1947.

1In his pleadings, respondent determined that petitioners received net income in 1948 in the amount of $34,364.55.

A part of the deficiencies in Docket Nos. 54845 and 54847 for each of the years 1946, 1947, 1948, and 1949 was due to fraud with intent to evade tax.


RAUM, Judge:

Respondent determined petitioners' net income for the years 1946 through 1949 by the increase in net worth plus nondeductible expenditures method. The petitioners, on brief, do not contest the use of this method, and any objection thereto must consequently be deemed to have been waived. In any event, the use of this method is clearly warranted on this record.

The trial of this case was concerned primarily with the correctness or incorrectness of certain items appearing on the net worth statement used by the Government, Exhibit 39-MM. The parties were in agreement as to most of the items, and have since, on brief, reached agreement as to certain others. There remain for decision only the items discussed below.

1. Opening net worth for 1946 and cash on hand at beginning of each year.—The opening net worth for 1946 is shown as $141,331.13 in the statement. Petitioners contend that this is incorrect in two respects: It fails to give them any credit for cash on hand (claimed to be $2,200) and it does not include an asset in the amount of $10,000 referred to by them as the ‘Laviage’ loan. At the outset, a rough check on the accuracy of the opening figure of $141,331.13 may be had by comparing it with financial statements (incorporated in the findings as part of the stipulation) filed by Schultz with a bank for credit purposes which disclosed a net worth of $123,824.32 as of February 28, 1946, and $98,121.17 as of February 5, 1945. These alone would justify the conclusion that there was no substantial understatement in the opening figure of $141,331.13 as of January 1, 1946. Moreover, the evidence shows that during the course of the investigation in this case Schultz and his attorney admitted an opening net worth of approximately $142,000.

(a) Cash on hand.— The net worth statement shows cash on hand in the amount of $2,200 as of December 31, 1949, but fails to show any cash on hand for any of the other dates during the 4-year period here involved. There is no dispute as to the $2,200 as of the close of the period, which was found shortly thereafter in Schultz's safe-deposit box, but petitioners contend that they had that amount of cash on hand at the beginning of the period as well. However, Schultz's testimony indicated that he ordinarily had only a small amount of cash, and we are far from satisfied by the evidence that the $2,200 found in the box after 1949 was there continuously during the 4-year period before the Court. Nevertheless, we think that the Commissioner erred in failing to credit petitioners with any cash on hand on any date other than the end of 1949. Indeed, he now suggests on brief that the Court might reasonably find that the safe-deposit box contained $500 at the beginning of the period. The matter calls for the exercise of our best practical judgment on the record, and we have found that petitioners had cash on hand in the amount of $440 as of January 1, 1946; $880 as of December 31, 1946; $1,220 as of December 31, 1947; $1,760 as of December 31, 1948; and $2,200 as of December 1949. Cf. Cohan v. Commissioner, 39 F.2d 540, 544 (C.A.2).

(b) Laviage loan.— Petitioners contend that they are entitled to have an item of $10,000 added to their opening net worth for 1946 representing an alleged loan made by Schultz to a man named Eli Laviage. The evidence in respect of this item was vague and unsatisfactory. No checks, notes, or other documents were presented. The amount of the alleged loan was nowhere stated with any degree of accuracy. This so-called loan represents in part an account receivable for merchandise sold to Laviage by Schultz. But Schultz was then doing business through a sole proprietorship named David H. Schultz & Company (which maintained an accounts receivable ledger), and his accounts receivable would be reflected in the computation of his capital account in that proprietorship, which in turn would appear on the net worth statement under ‘Investments,’ ‘David H. Schultz & Company.’ Accordingly, to the extent that the Laviage item includes an account receivable for merchandise, it would be a duplication to list it separately as an asset as of January 1, 1946.

As to the remainder of the item, it appears that Schultz advanced about $4,000 to Laviage to purchase pecans in Georgia for delivery in California by truck. The purchaser refused to accept the pecans, and the transaction resulted in a loss. Laviage then purchased a truckload of walnuts in California with funds in an undisclosed amount said to have been made available by Schultz. He brought the walnuts back to Texas, but the intended purchaser refused to take them, and that aspect of the transaction resulted in a loss. Whether there was a genuine loan to Laviage in connection with the pecan and walnut transaction, or whether Schultz in some other fashion participated with Laviage in these ventures which resulted in losses, is far from clear on the record. Conceivable, what we have here may be nothing more than losses which occurred prior to the beginning of the period before us, and therefore have nothing to do with this case. Indeed, Schultz testified that he regarded the Laviage matter as a ‘bad investment’ soon after he went into it, and he did not include any amount relating thereto as an asset in the financial statement which he filed with the bank for credit purposes on February 28, 1946.