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cannot construe the language in the regulation to include
interest which the taxpayer has “accrued” for financial purposes
but has not taken into account for tax purposes.
In cases interpreting the statutory requirements for
allowance of a bad debt deduction for accrued, but unpaid,
interest, the Board of Tax Appeals construed the provision of a
deduction for “Debts ascertained to be worthless and charged off
within the taxable year”, which appeared in prior versions of
section 166, to include a requirement that the item be previously
“charged on”. See, e.g., Collin v. Commissioner, 1 B.T.A. 305
(1925).8 The Board of Tax Appeals determined that for interest
to be “charged on” for purposes of a bad debt deduction, it must
have been accrued as income, it must have been returned as income
for taxation, and a tax must have been paid thereon. See, e.g.,
id. at 310. Thus, interest which had accrued, but which remained
unpaid, could not be the subject of a bad debt deduction, since
the taxpayer was on the cash receipts and disbursements method of
accounting. See id. Further, an accrual basis taxpayer that had
accrued tax-exempt bond interest on its books, but did not report
actual income, but merely a loss of anticipated
earnings. * * *
See also Beekman v. Commissioner, 17 B.T.A. 643, 648 (1929).
8The statute under construction in Collin v. Commissioner, 1
B.T.A. 305 (1925), was sec. 214(a)(7) of the Revenue Act of 1918,
ch. 18, 40 Stat. 1067.
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