— Deposits by the State of Illinois did not constitute borrowed capital within the meaning of section 719(a)(1). Commissioner v. Ames Trust & Savings Bank, 185 F.2d 47;reversing12 T.C. 770; National Bank of Commerce, 16 T.C. 769; and Capital National Bank of Sacramento, 16 T.C. 1202, followed. 2. EXCESS PROFITS TAX— CREDIT BASED UPON INVESTED CAPITAL— BORROWED CAPITAL— CASHIER'S CHECKS— SEC. 719(a)(1).
It is difficult to exclude these certificates from borrowed capital under that section even under the Commissioner's regulations, despite their lack of a maturity date. Commissioner v. Ames Trust & Savings Bank, 185 F.2d 47, reversing 12 T.C. 770, National Bank of Commerce, 16 T.C. 769, and Capital National Bank of Sacramento, 16 T.C. 1202, appeal dismissed on stipulation, all involved regular banking institutions claiming borrowed capital on certificates of deposit and are not in point here where the petitioner is not a bank and is not making any claim based upon certificates of deposit which by law it is not even permitted to issue. A closely parallel case is Jackson Finance & Thrift Co., 29 T.C. 272.
Thereafter, the Tax Court in National Bank of Commerce, 16 T.C. 769, held, expressly following the reversal in the Ames case, that the indebtedness of a United States national banking corporation on certificates of deposit payable at a stated time was not to be included in the computation of borrowed capital. That decision was followed on similar facts in Capital National Bank of Sacramento, 16 T.C. 1202, appeal dismissed on stipulation. The last three cases all involved regular banking institutions claiming borrowed capital on certificates of deposit and are not in point here where the petitioner is not a bank, either State or national, is not permitted by law to issue certificates of deposit, and, of course, is not making any claim based upon certificates of deposit.
The respondent takes the position that the thrift certificates in question are not instruments having the general character of investment securities issued by a corporation within the definition of the regulations or as the term ‘certificate of indebtedness' is generally understood and defined; and that the funds which petitioners received from customers were ‘deposits' evidenced by a thrift certificate book similar to a passbook and hence were not borrowed capital for excess profits tax purposes within the regulations and the cases upholding their validity. Commissioner v. Ames Tr. & Sav. Bank, 185 F.2d 47, reversing 12 T.C. 770; National Bank of Commerce, 16 T.C. 769; Capital National Bank of Sacramento, 16 T.C. 1202. We cannot regard the thrift certificate in question as an investment security of a corporation by general understanding.
Thus, the taxpayer may, if he chooses, pass over the partial worthlessness in the current year, and charge off the same in some later year while the debt is still valuable in part; or on the other hand, he may wait and take a deduction for the entire debt (or the portion thereof for which no deduction has previously been allowed) in the later year when the debt has become wholly worthless. Capital National Bank Of Sacramento, 16 T.C. 1202; E. Richard Meinig Co., 9 T.C. 976; and Moock Electric Supply Co., 41 B.T.A. 1209. The purpose of the charge-off, in the case of a debt claimed to have become worthless in part, is to perpetuate evidence of taxpayer's election to abandon part of the debt as an asset (cf.
The mistake made was one of law, and ‘neither the taxpayer nor the Commissioner is estopped by the previous taking of an erroneous legal position. ‘ Commissioner v. American Light & Traction Co., 125 F.2d 365, and cases therein cited. See, also, Commissioner v. Mellon, 184 F.2d 157, affirming 12 T.C. 90; Tide Water Oil Co., supra; Mahlon D. Thatcher, 46 B.T.A. 869; Estate of Isadore L. Myers, 1 T.C. 100. Capital National Bank of Sacramento, 16 T.C. 1202. We conclude that the petitioner is not estopped here.
The conclusion we have reached here is supported also by two of our most recent decisions relating to the prerequisites to the partially worthless debt deduction. Capital National Bank of Sacramento, 16 T.C. 1202. Commercial Bank of Dawson, 46 B.T.A. 526.