318 7 TAX COURT OF UNITED STATES REPORTS. (287) We are now confronted with the valuation questions involved here. Section 808 of the Revenue Act of 1938 provides that in such a liquidation as occurred here the basis of the property distributed in the hands of the corporation receiving it shall be the basis prescribed by the Revenue Act of 1934, upon the filing of an election to have such basis apply. This election, as we have seen, was effectively filed in this instance. The 1934 Act, at section 113 (a) (6), prescribed that the basis of property received in a tax-free exchange "shall be the same as in the case of the property exchanged, decreased in the amount of any money received by the taxpayer * Article 113 (a) (15-1 (b) of Regulations 94, as amended by T. D. 4815, C. B. 1938-1, pp. 79 and 80, contains the following provision: "If such property consists of more than one class of property, the basis shall be allocated among the several properties (other than money) received, in the proportion that the fair market value of each such property as of the date of distribution bears to the fair market value of all such properties on that date." By these provisions, the basis in the hands of the Products Co. of the property received in liquidation of A. S. Hinds Co. was the basis of the stock surrendered in exchange therefor, decreased by the amount of money received by the Products Co. The basis of the stock so surrendered was its cost to the Products Co., which was $5,387,228.68. This amount, decreased by the amount of money distributed, is to be allocated among the several properties (other than money) distributed, according to the statute and regulation, in the proportion which the fair market value of each such property bears to the fair market value of all such property, as of the date of the liquidation. It is for the purpose of applying this allocation formula that it becomes necessary to determine the fair market value of the several properties on the date of distribution. The parties have stipulated, and we have found, that the fair market value of the machinery and equipment at the Bloomfield, New Jersey, plant was $62,194.90 on the valuation date; that of the foreign machinery and equipment, $20,000; and that the stock of A. S. Hinds, A. G. (Germany) was valueless on that date. There remains for consideration the proper treatment of an account receivable in the amount of $17,551.41; the fair market value, as of January 29, 1936, of the trade names, trade-marks, secret processes, secret formulae and good will of A. S. Hinds Co.; the fair market value of the stock of A. S. Hinds Canada (Ltd.) and of A. S. Hinds Ltd., London. |i are here the Concerning the account receivable of $17,551.41, owed by Lehn & Fink., Inc., to A. S. Hinds Co., it is petitioner's contention that, since Lehn & Fink, Inc., was a solvent corporation, with the highest obtainable commercial credit rating, and since the account was payable on demand and could have been received at any moment A. S. Hinds Co. desired, it was the same as money in the bank and should be considered as “money” distributed on final liquidation for the present purpose. Petitioner points out that in order to have secured an AAA 1 rating in the credit field, Lehn & Fink, Inc., must have had a net worth of one million dollars or more, a clear record for discounting or anticipating all bills, and its officers must have had a clear personal record. These facts are undisputed, and, we have no doubt, are indisputable. The question is whether, as a matter of law, such an account receivable may be treated as "money" in this regard. Petitioner cites no authority for its position. We think it clear that, in both legal theory and business practice, accounts receivable are generally treated as property or assets other than money. As such property, they are properly subject to valuation, and all facts relating to their ready collectibility are pertinent and material to the question of that value. But we do not believe the degree of collectibility affects the nature of the item as distinguished from the value of the item. In other words, the ease with which an account receivable may be realized in money does not, we think, convert it into money. The same reasoning might be applied to any property which is readily salable or otherwise convertible into money. In the absence of authority to the contrary, we hold the account receivable to be property other than money. It is possible that its fair market value may have been somewhat less than face value, in order to allow for a reasonable discount, but petitioner offered no evidence on that point, and, in fact, makes no such contention. On the contrary, its counsel conceded in his opening statement that it was worth its full face value. Under the circumstances, therefore, we hold it was worth face value of $17,551.41. With regard to the other valuation questions presented in this proceeding, we have carefully examined all of the voluminous data presented by the record herein and have considered all of the testimony, both factual and opinion. We have also studied the briefs filed by counsel and have sought to give the proper weight to all of the factors involved in a determination of value. Having considered all of the pertinent facts, a large portion of which is set out in our findings, and having studied with care the opinion testimony and arguments of counsel, we have arrived at our ultimate conclusions as to the fair market value as of January 29, 1936, of the trade-marks, trade names, secret processes and formulas, and good will of A. S. Hinds Co.; the fair market value as of January 29, 1936, of the stock of A. S. Hinds Ltd., London; and the fair market value as of January 29, 1936, of the stock of A. S. Hinds (Canada) Ltd. These conclusions are stated in our findings. Decision will be entered under Rule 50. GWINN BROS. & COMPANY, PETITIONER, V. COMMISSIONER OF INTERNAL REVenue, ResponDENT. Docket No. 5828. Promulgated June 28, 1946.' In 1935 petitioner discovered that an employee had embezzled about $65,000 over 1932 to 1935 and an unknown period of prior years. Amounts embezzled in 1932–1935, inclusive, have been allowed as deductions. In 1935 the petitioner set up the entire amount embezzled as an account receivable, credited thereto amounts recovered from the employee, determined the balance to be worthless, and charged it off in the amount of $54,077.47. Held, the $54,077.47 was properly deducted in 1935. Boston Consolidated Gas Co. v. Commissioner, 128 Fed. (2d) 473; Commissioner v. Wilcox, 327 U. S. 404; McKnight v. Commissioner, 127 Fed. (2d) 572, followed. Leonard R. Tanner, Jr., Esq., and William Ristig, Esq., for the petitioner. Elmer L. Corbin, Esq., for the respondent. OPINION. DISNEY, Judge: The controversy here involves income and declared value excess profits taxes for the calendar year 1935. Deficiences were determined as follows: in income tax, $853.57; in declared value excess profits tax, $310.39. The petitioner claims overpayment of $6,974.07. The only issue presented is whether petitioner is entitled in the taxable year to a deduction of $44,475.35 as a bad debt, or as a loss. A stipulation of facts was filed. We adopt same by reference, finding the facts therein set forth. Omitting formal parts, it reads as follows: 1. On or about the middle of the year 1935, the petitioner discovered that $64,730.79 of its funds due from customers had been embezzled by one of its employees. 2. When the embezzlement was discovered, the employee involved, to wit: W. R. Sweney, readily admitted that he had misappropriated collections on accounts receivable in the amount of $64,730.79 for the period of time covering the year 1935 and an unknown number of prior years. 1 Originally entered as a memorandum opinion on June 25, 1946. 3. Petitioner entered upon its books in an account receivable the amount of $64,730.79 covering the aforesaid defalcation. 4. During 1935 W. R. Sweney caused to be transferred to the petitioner for credit to his account in part payment of his obligation to the petitioner, the following amounts and property: Transfer or assignment of notes payable to Mrs. Sweney representing funds borrowed by petitioner from W. R. Sweney's wife_‒‒‒‒‒ Cash value of life insurance policy---. Real property (fair market value). Less liens -- $1,250.00 2, 649.00 $6,000.00 4,333. 64 8, 232.64 Total___ 5. Of the total amount of misappropriated funds, $2,420.68, representing the amount of said misappropriated funds applicable to the year 1935, has been allowed as a deduction in the Deficiency Notice. 6. The balance of the account, less payments on account and credits due from the said employee, W. R. Sweney, in the total amount of $54,077.47 was determined to be worthless and charged off the books and records of the petitioner on December 31, 1935. 7. The Commissioner of Internal Revenue has allowed as deductions the following amounts for the following years: This leaves a balance for which no deduction has been allowed for any taxable year in the total amount of $44,475.35 which was misappropriated prior to 1932. 8. An exact copy of the Journal entries relative to the aforesaid account receivable appearing on the books and records of the petitioner is attached hereto, marked Exhibit "1", and made a part hereof. [See Exhibit 1, set forth hereinafter.] 9. On or about March 15, 1936, the petitioner filed with the Commissioner of Internal Revenue at Parkersburg, West Virginia, a return of income on a proper form disclosing an income tax liability in the amount of $7,305.07, and a declared value excess profits tax liability in the amount of $1,712.28 for the taxable year ended December 31, 1935. 10. The aforesaid tax was duly assessed and the amount thereof was paid in quarterly installments during the year 1936, with final payment thereof being made on or about December 15, 1936. 11. On or about February 14, 1939, a timely claim for refund, properly raising the issue involving the deduction of the amount of $54,077.47 in determining income for the taxable year 1935, was filed. [The above is an exact statement of the Journal entries on the books of the taxpayer relating to the Sweney account.] From other evidence adduced, we also find as follows: The petitioner is a corporation doing business at Huntington, West Virginia, and filed its Federal income and excess profits tax return for the calendar year 1935 with the collector at Parkersburg, West Virginia. W. R. Sweney was bookkeeper for the petitioner, at a salary of about $225-$250 a month. He had been employed by it about twenty years. He received, receipted for, and retained payments made by others to the company. About a week after discovery of the embezzlement, and about the third week in August 1935, a conversation took place between Sweney, James A. Gwinn, secretary of the company, and his father, D. B. Gwinn, president of the company, at the |