The deduction, therefore, could not be considered a bad debt, but was obviously a mere claim for breach of contract. See Wadsworth Mfg. Co. v. Commissioner, 44 F.2d 762 (C.C.A. 6); Harmount v. Commissioner, 58 F.2d 118 (C.C.A. 6). The deduction was allowed under section 23(f) of the Revenue Act of 1928 (45 Stat. 799, 800, 26 USCA § 2023(f), which permits the deduction of "losses sustained during the taxable year and not compensated for by insurance or otherwise." It is as a loss which first became fixed and definite when its suit was lost in 1928, that the taxpayer now seeks to sustain the deduction.

Upon a review of the record, we affirm the Tax Court decision that these expenditures constituted a part of the original construction and as such must be capitalized. See e.g., Stewart Supply Co. v. Commissioner of Internal Revenue, 324 F.2d 233 (2 Cir. 1963); Stoeltzing v. Commissioner of Internal Revenue, 266 F.2d 374 (3 Cir. 1959); Jones v. Commissioner of Internal Revenue, 242 F.2d 616 (5 Cir. 1957); Driscoll v. Commissioner of Internal Revenue, 147 F.2d 493 (5 Cir. 1945); Wadsworth Mfg. Co. v. Commissioner of Internal Revenue, 44 F.2d 762 (6 Cir. 1930). See also Griffin Co. v. Commissioner of Internal Revenue, 389 F.2d 802, 182 Ct.Cl. 436 (1968).

By sec. 24(a)(2) of Title 26 of the Code it is expressly provided that "any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate" shall not be allowable as a deduction. And in Wadsworth Mfg. Co. v. Commissioner, 6 Cir., 44 F.2d 762, it was held that excess cost of construction to the owner of a building, due to a contractor's default, was to be treated as capital investment and not as loss. No different rule, we think, is to be applied where the excess expenditure is made by the sole common stockholder of the corporation in completing the building at a cost above the amount called for by the contract which he has with it. As said by the Tax Court, the corporation is his alter ego. Cf. Higgins v. Smith, 308 U.S. 473, 60 S.Ct. 355, 84 L.Ed. 406. In the case before us, taxpayer manifestly made the expenditures, not because as contractor he could be held to the terms of the contract, but because as sole common stockholder of the corporation it was to his interest and the corporation's interest that the building be completed. Because of conditions that had arisen, he was simply putting more into completing the building than originally contemplated; and this is manifestly not loss but capital investment. If the corpor

The fact was as found by the Board that the petitioner was given judgment on a quantum meruit basis for part of its claim only. Its failure to recover the full amount sued for presented no basis for deduction on account of lost debt in 1925. It had only a claim and not a debt in 1919. Commissioner v. John Thatcher Son, 2 Cir., 76 F.2d 900; North American Oil Co. v. Burnet, 286 U.S. 417, 52 S.Ct. 613, 76 L.Ed. 1197; Lucas v. American Code Co., 280 U.S. 445, 50 S.Ct. 202, 74 L.Ed. 538, 67 A.L.R. 1010; Brown v. Helvering, 291 U.S. 193, 54 S.Ct. 356, 78 L.Ed. 725; Cleveland Ry. Co. v. Commissioner, 6 Cir., 36 F.2d 347; Wadsworth Mfg. Co. v. Commissioner, 6 Cir., 44 F.2d 762. On consideration of all contentions made by petitioner, the decision of the Board of Tax Appeals is affirmed.

But even if the obligations running to the taxpayer under the separation agreement had not been performed, the nonperformance would not, in our opinion, have resulted in "bad debts" within the statutory meaning of the term, but rather in losses arising from breaches of contract. Lewellyn v. Electric Reduction Co., 275 U.S. 243, 48 S.Ct. 63, 72 L.Ed. 262; Wadsworth Mfg. Co. v. Commissioner, 6 Cir., 44 F.2d 762. The provisions in the income tax laws allowing deductions for "bad debts" and for losses sustained during the taxable year are mutually exclusive. Spring City Foundry Co. v. Com'r, 292 U.S. 182, 54 S.Ct. 644, 78 L.Ed. 1200.

Even if the cloth was not up to contract, the seller was a large and responsible concern, amply able to respond for breaches of contract. For the same reason, the debt was not worthless, even if an unadjudicated claim for breach of contract can be considered a debt, as has otherwise been held. Lewellyn v. Elec. Reduction Co., 275 U.S. 243, 246, 48 S. Ct. 63, 72 L. Ed. 262; Wadsworth Mfg. Co. v. Commissioner (C.C.A. 6) 44 F.2d 762. It is a startling proposition that a taxpayer may, for reasons of his own, decline to enforce a valid claim against a responsible concern and then assert that he has sustained a business loss which the government should share. "Obviously, the mere refusal to perform a contract does not justify the deduction, as a loss, of the anticipated damages.

The more reasonable inference to be drawn from the facts is either that the debt was worthless from the beginning, or that it was not properly to be considered a "debt," but rather a hoped for addition to income which was subsequently unrealized. Lewellyn v. Electric Reduction Co., 275 U.S. 243, 48 S. Ct. 63, 72 L. Ed. 262; Wadsworth Manufacturing Co. v. Commissioner, 44 F.2d 762 (C.C.A. 6). The petitioner's explanation for the charge off of the account is that it would have cost more to collect than could be realized, and that documents necessary to proof were in possession of the adverse party. We find it unnecessary to decide whether the cost of collecting a debt warrants an ascertainment of its worthlessness; the taxpayer having the right to deduct such expense from current income.

Bercaw v. Commissioner of Internal Revenue, 4 Cir., 165 F.2d 521; Milton Bradley Co. v. United States, 1 Cir., 146 F.2d 541; Gilman v. Commissioner of Internal Revenue, 8 Cir., 53 F.2d 47, 80 A.L.R. 209. Claims arising from breach of contract or unadjudicated claims do not create debtor-creditor relationships. Lewellyn v. Electric Reduction Co., 275 U.S. 243, 48 S.Ct. 63, 72 L.Ed. 262; Wadsworth Mfg. Co. v. Commissioner, 6 Cir., 44 F.2d 762. In 1953, taxpayer had no more than an equitable claim for an accounting; such a claim does not make taxpayer a creditor.

Finally, some eight years after the placing of the original order, the taxpayer's claim against the seller was charged off and a deduction claimed for the amount thereof as a business loss for that year (1927). Citing Lewellyn v. Electric Reduction Co., 275 U.S. 243, 48 S.Ct. 63, 72 L.Ed. 262, and Wadsworth Mfg. Co. v. Commissioner, 6 Cir., 44 F.2d 762, the opinion in Lee held that the record failed to disclose either a loss or a worthless debt during the taxable year. The evidence disclosed that the seller was amply able to respond in damages for the breach of contract and the debt was not worthless.