FIRST COMMERCIAL BANK v. COMM. OF INTERNAL REVENUE

SCOTT, Judge:

Respondent determined deficiencies in petitioner's income tax in the amounts of $46,114.69 for the taxable year ended June 30, 1960, and $10,370.84 for the short taxable year July 1, 1960, through December 31, 1960.

The issue for decision is whether petitioner should be allowed deductions for additions to its reserve for bad debts in the respective amounts of $85,852.22 and $23,000 for its taxable year ended June 30, 1960, and its short taxable year July 1, 1960, through December 31, 1960.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly.

Petitioner, a commercial bank incorporated under the laws of the State of Illinois, commenced operations on or about September 18, 1946. Petitioner's banking office is located at 6945 North Clark. Street, Chicago, Ill.

Petitioner filed its Federal income tax returns for the taxable year ended June 30, 1960, and for the short taxable year July 1, 1960, through December 31, 1960, with the district director of internal revenue, Chicago, Ill.

Petitioner adopted the reserve method of accounting for bad debts sometime prior to its taxable year ended June 30, 1960. For the taxable years here involved petitioner elected to compute additions to its bad debt reserve under the so-called alternative method outlined in Rev. Rul. 54-148, 1954-1 C.B. 60. Petitioner chose to use an average experience factor based on a cumulative 20-year period beginning January 1, 1928, and ending December 31, 1947. Petitioner used the loss experience of all loans of member banks of the Seventh Federal Reserve District (which includes Chicago banks) as shown by statements of condition and earnings and profits reports filed with the Federal Reserve Bank of Chicago for the 20-year period. Although petitioner used a bad debt factor on its return of 0.008375, it is stipulated that the factor which should have been used under petitioner's method of computation was 0.008325.

An analysis of petitioner's bad debt reserve as shown on its income tax returns for the taxable years ended June 30, 1947, through June 30, 1960, the short taxable year July I through December 31, 1960, and the taxable years ended December 31, 1961, through December 31, 1963, shows the following: Total net Bad debt Addition to Bad debt Taxable years ended — bad debt reserve bad debt reserve chargeoffs before reserve after current addition addition June 30 — 1947 ..................... 0 0 0 0 1948 ..................... 0 $2,961 $13,307 $16,268 1949 ..................... $2,963 13,305 6,463 19,768 1950 ..................... 5,156 14,612 16,096 30,708 1951 ..................... 9,972 20,736 10,000 30,736 1952 ..................... 7,125 23,611 15,000 38,611 1953 ..................... 38,832 (221) 28,533 28,312 1954 ..................... 28,544 (232) 21,973 21,741 1955 ..................... (2,544) 24,285 65,515 89,800 1956 ..................... 10,572 79,228 88,838 168,066 1957 ..................... 26,484 141,582 84,649 226,231 1958 ..................... 28,064 198,167 89,445 287,612 1959 ..................... 59,910 227,702 103,381 331,083 1960 ..................... 44,091 286,992 85,852 372,844 Dec. 31 — 1960 (July 1-Dec. 31) .... 11,991 360,853 23,000 383,853 1961 ..................... 26,036 357,817 0 357,817 1962 ..................... 95,271 262,546 0 262,546 1963 ..................... 28,127 234,419 0 234,419 An analysis of petitioner's net bad debt chargeoffs for the taxable years ended June 30, 1947, through June 30, 1960, the taxable year July 1 through December 30, 1960, and the taxable years ended December 31, 1961, through December 31, 1963, shows the following: Total Dealer Taxable years net All appliances Dealer ended — chargeoffs other auto June 30 — 1947 ................... 0 ______ ______ _______ 1948 ................... 0 ______ ______ _______ 1949 ................... $2,963 $2,963 ______ _______ 1950 ................... 5,156 5,156 ______ _______ 1951 ................... 9,972 3,790 $6,182 _______ 1952 ................... 7,125 5,780 1,345 _______ 1953 ................... 38,832 7,942 (776) $31,666 1954 ................... 28,544 (167) 577 28,134 1955 ................... (2,544) (533) (146) (1,865) 1956 ................... 10,572 2,178 (338) 1,507 1957 ................... 26,484 1,169 (146) (605) 1958 ................... 28,064 3,226 (10) 5,901 1959 ................... 59,910 2,806 350 9,763 1960 ................... 44,091 16,613 (348) 14,786 Dec. 31 — 1960 (July 1 to Dec. 31) .................. 11,991 (2,693) (161) 13,126 1961 ................... 26,036 (6,883) 206 21,255 1962 ................... 95,271 80,127 2,296 17,630 1963 ................... 28,127 15,392 (126) 13,587 Home Real Taxable years FHA improvements Mobile estate ended — homes mortgage June 30 — 1947 ................... ______ ______ _______ _______ 1948 ................... ______ ______ _______ _______ 1949 ................... ______ ______ _______ _______ 1950 ................... ______ ______ _______ _______ 1951 ................... ______ ______ _______ _______ 1952 ................... ______ ______ _______ _______ 1953 ................... ______ ______ _______ _______ 1954 ................... ______ ______ _______ _______ 1955 ................... ______ ______ _______ _______ 1956 ................... $551 $6,674 _______ _______ 1957 ................... 812 25,254 _______ _______ 1958 ................... 980 17,967 _______ _______ 1959 ................... 4,577 42,414 _______ _______ 1960 ................... 2,043 10,997 _______ _______ Dec. 31 — 1960 (July 1 to Dec. 31) .................. 1,428 291 _______ _______ 1961 ................... 5,956 688 $4,814 _______ 1962 ................... 4,058 (5,464) (3,412) $36 1963 ................... 2,685 (7,048) _______ 3,637 An analysis of petitioner's total closing loan balances as of the end of the taxable years ended June 30, 1947, through June 30, 1960, the short taxable year July 1, 1960, through December 31, 1960, and the taxable years ended December 31, 1961, through December 31, 1963, shows the following: Taxable year ended — June 30 — 1947 1948 1949 1950 Demand (secured and unsecured) ............ $179,097 $19,111 $14,640 $32,510 Secured — time ........ 416,604 434,137 494,892 733,524 Unsecured — time ...... 40,726 65,182 74,591 109,758 FHA title I ............ _________ 593,375 531,667 443,798 FHA title II ........... _________ _________ 86,393 513,099 Installment ............ 424,515 227,692 324,739 611,279 Real estate (conventional mortgage) 337,548 656,591 725,997 957,023 VA real estate ......... _________ _________ _________ 13,149 Purchased paper ........ _________ _________ _________ _________ Dealers auto loans ..... _________ _________ _________ _________ Home improvement loans . _________ _________ _________ _________ Mortgages in process ... _________ _________ _________ _________ GI business ............ 1,305 _________ _________ _________ Personal loans, insured installment ........... _________ 99,717 _________ _________ Overdrafts ............. 1,017 1,017 710 3,803 --------- --------- --------- --------- Total ............. 1,400,812 2,096,822 2,253,629 3,417,943 Taxable year ended — June 30 — 1951 1952 1953 1954 Demand (secured and unsecured) ............ $36,462 $197,659 $88,248 $75,209 Secured — time ........ 798,123 686,738 720,553 670,287 Unsecured — time ...... 200,603 398,476 382,110 352,493 FHA title I ............ 591,236 729,903 1,245,200 2,015,346 FHA title II ........... 604,544 1,813,891 1,826,229 1,625,942 Installment ............ 415,122 658,444 634,450 661,847 Real estate (conventional mortgage) 1,161,828 1,155,844 1,226,239 1,349,751 VA real estate ......... 10,310 8,892 8,095 6,058 Purchased paper ........ 79,000 152,200 53,000 47,000 Dealers auto loans ..... _________ 384,657 609,048 318,584 Home improvement loans . _________ _________ _________ _________ Mortgages in process ... _________ _________ _________ _________ GI business ............ _________ _________ _________ _________ Personal loans, insured installment ........... _________ _________ _________ _________ Overdrafts ............. 557 2,139 306 1,523 --------- --------- --------- --------- Total ............. 3,897,785 6,188,843 6,793,478 7,124,040 Taxable year ended — June 30 — 1955 1956 1957 Demand (secured and unsecured) .. $279,326 $108,735 $355,137 Secured — time ................. 518,327 696,901 909,816 Unsecured — time ............... 271,594 449,697 429,579 FHA title I ..................... 1,577,094 993,679 1,059,486 FHA title II .................... 2,090,014 2,086,124 2,015,390 Installment ..................... 407,670 485,117 394,607 Real estate (conventional mortgage) ...................... 1,703,568 1,906,960 1,718,716 VA real estate .................. 358,261 394,544 370,365 Purchased paper ................. 38,000 8,000 219,311 Dealers auto loans .............. 114,898 117,326 81,960 Home improvement loans .......... 463,936 3,360,408 2,553,011 Mortgages in process ............ _________ __________ _________ GI business ..................... _________ __________ _________ Personal loans, insured installment .................... _________ __________ _________ Overdrafts ...................... 7,969 6,750 17,104 --------- ---------- ---------- Total ...................... 7,830,657 10,614,241 10,124,482 Taxable year ended — June 30 — 1958 1959 1960 Demand (secured and unsecured) .. $69,650 $203,565 $115,588 Secured — time ................. 1,109,421 1,172,689 1,398,032 Unsecured — time ............... 507,041 537,347 909,172 FHA title I ..................... 1,907,719 1,222,409 1,494,616 FHA title II .................... 2,227,709 3,137,966 3,053,247 Installment ..................... 600,287 1,601,430 1,234,900 Real estate (conventional mortgage) ...................... 2,523,754 2,124,129 1,943,604 VA real estate .................. 351,181 705,401 668,915 Purchased paper ................. 300,001 182,249 341,091 Dealers auto loans .............. 223,935 1,437,978 3,302,814 Home improvement loans .......... 1,625,445 844,832 375,874 Mortgages in process ............ _________ _________ _________ GI business ..................... _________ _________ _________ Personal loans, insured installment .................... _________ _________ _________ Overdrafts ...................... 1,105 7,447 1,725 ---------- ---------- ---------- Total ...................... 11,447,248 13,17,442 14,839,578 Taxable year ended — Dec. 31 — 1960 (July 1- 1961 1962 1963 Dec. 31) Demand (secured and unsecured) ............ $106,865 $107,968 $55,396 $88,420 Secured — time ........ 1,195,039 1,002,727 1,753,143 1,677,851 Unsecured — time ...... 825,346 648,876 542,138 590,373 FHA title I ............ 1,644,797 1,396,824 778,696 434,436 FHA title II ........... 3,627,738 4,060,157 3,909,352 4,158,061 Installment ............ 1,193,936 1,142,361 1,432,089 2,070,269 Real estate (conventional mortgage) 1,857,044 2,536,768 3,663,085 4,106,256 VA real estate ......... 653,778 620,145 2,023,551 2,009,782 Purchased paper ........ 820,296 69,443 10,959 133,314 Dealers auto loans ..... 3,253,586 3,350,412 2,901,659 3,275,023 Home improvement loans . 222,356 79,906 53,206 31,290 Mortgages in process ... __________ ___________ 200,000 440,021 GI business ............ __________ ___________ __________ __________ Personal loans, insured installment ........... __________ ___________ __________ __________ Overdrafts ............. 5,143 2,836 4,765 8,669 Total 15,405,924 15,018,423 17,328,039 19,023,765 The amounts of closing loan balances of petitioner as heretofore set forth have not been reduced by any amounts of unearned discounts. Federal Housing Act (FHA) ( 12 U.S.C. § 1703) title I loans were 90-percent insured or guaranteed by the Federal Government. Federal Housing Act (FHA) ( 12 U.S.C. § 1707) title II loans were 100-percent insured or guaranteed by the Federal Government and Veterans' Administration (VA) real estate loans were 50-percent insured or guaranteed by the Federal Government.

Petitioner's income tax returns for the taxable periods here involved contained the following computation for its claimed deduction for additions to its reserve for bad debts: Taxable year Taxable year ended June July 1 to 30, 1960 Dec. 31, 1960 Loans outstanding (closing) ..... $14,839,577.00 $15,405,924.63 Ratio — average bad debt ratio for banks in Chicago area, 1928-47 per Federal Reserve bank ...... .008375 .008375 -------------------------------------- Annual writeoff limitation ...... 124,281.46 129,025.00 ====================================== Maximum statutory reserve ....... 372,844.38 387,075.00 Statutory reserve prior to current year addition ......... 286,992.16 360,853.35 -------------------------------------- Deduction for addition to reserve ................... 85,852.22 23,000.00

Respondent in his notice of deficiency disallowed the entire addition to reserve for bad debts claimed by petitioner in each of these years with the following explanation:

Bad debts deducted on your returns for the taxable year ended June 30, 1969 [sic] and the taxable period July 1, 1960 to December 31, 1960 in the respective amounts of $85,852.22 and $23,000.00 representing the additions to your reserve for bad debts for such year and such period, are disallowed since it has been determined that the existing reserves were adequate. Section 166 of the Internal Revenue Code of 1954. Computation is as follows: June 30, 1960 July 1, 1960- Dec. 31, 1960 Loans outstanding as of end of year or period ........................ $14,839,577 $15,405,925 Less: Insured or guaranteed loans .. 4,732,856 5,484,944 ---------------------------- Loans subject to reserve computation 10,106,721 9,920,981 Average bad debt ratio for banks in Chicago area, 1928-47 per Federal Reserve bank, revised ............. .00831 .00831 Annual amount ....................... 83,986.85 82,443.35 Maximum statutory reserve 3x$83,986.85 and 3x$82,443.35 ..... 251,960.55 247,330.05 Statutory reserve prior to current year addition ..................... 286,992.16 286,992.16 Allowable addition .................. None None Addition deducted ................... 85,852.22 23,000.00 Bad debts disallowed ................ 85,852.22 23,000.00 The "Average bad debt ratio" of 0.00831 used in respondent's computation results from using petitioner's own experience for the period during which it was in existence and the loss experience on all loans of member banks of the Seventh Federal Reserve District only for the portion of the period January 1, 1928, through December 31, 1947, during which petitioner was not in existence.

OPINION

Petitioner takes the position that its addition to reserve for bad debts for each of the years here involved is properly computed under the "alternative method" allowed by Rev. Rul. 54-148, 1954-1 C.B. 60, supplementing Mim. 6209, dated Dec. 8, 1947, 1947-2 C.B. 26, and therefore is a reasonable addition allowable under section 166(c) of the Internal Revenue Code of 1954.^fn1 In the alternative petitioner contends that if its computations are not in accordance with respondent's rulings, the addition has nevertheless been shown to be reasonable under section 166(c) and respondent's regulations issued pursuant thereto.

Respondent contends that petitioner's computation of additions to its reserve for bad debts is not in accordance with Mim. 6209 and related rulings and that petitioner has not otherwise shown that the amounts of such additions are reasonable under section 166(c) and respondent's regulations issued pursuant thereto.

Respondent in his reply brief states: "* * * If the Court should determine that tax-payer's computation of additions to its reserve for bad debts is properly made under Mim. 6209 et al., then respondent does not contend that such additions are not reasonable under Sec. 166(c) of the 1954 Code."

In several cases we have stated that the ultimate question for decision, where the respondent has disallowed all or a portion of an addition to a reserve for bad debts, claimed by a taxpayer to be computed in accordance with Mim. 6209, is not the detail of the computation under the mimeograph but whether the taxpayer has proved error in respondent's determination by showing the bad debt reserve allowed by respondent to be unreasonable under section 166(c). See Miners National Bank of Wilkes-Barre, 33 T.C. 42 (1959), Central Bank Co., 39 T.C. 856 (1963), remanded 329 F.2d 581 (C.A. 6, 1964), and First National Bank in Olney, 44 T.C. 764 (1965).

However, in the instant case since respondent is in effect conceding that a proper computation under Mim. 6209 and his related rulings would result in an amount which would represent a reasonable addition to petitioner's reserve for bad debts in each of the years here involved, we will first consider whether petitioner's computation is in accordance with respondent's rulings. See the discussions in this regard in North Carolina National Bank v. United States, 345 F.2d 544 (Ct.Cl. 1965); Pullman Trust Savings Bank v. United States, 235 F. Supp. 317 (N.D. Ill. 1963), affirmed per curiam. 338 F.2d 666 (C.A. 7, 1964); and American State Bank v. United States, 279 F.2d 585 (C.A. 7, 1960).

From a mere reading of Mim. 6209 and respondent's related rulings it is apparent that petitioner has not complied therewith in the following two respects:

(1) The elimination of the insured portion of Government-insured loans from the loans outstanding at the end of each of the years here involved before applying the bad debt factor as required by paragraph 4 of Mim. 6209 and Rev. Rul. 57-210.

The parties refer to elimination of Government-insured loans, but a mere addition of the total of petitioner's Government-insured loans as of the close of each year here involved as set forth in our findings shows that respondent in fact only eliminated the insured portion of those loans.

(2) The use of petitioner's own experience for the portion of the 20-year period January 1, 1928, through December 31, 1947, during which it was in existence as required by Rev. Rul. 57-210.

Petitioner, however, contends that since its experience demonstrates that losses were incurred on loans insured or guaranteed under the provisions of the Federal Housing Act it should not be required to eliminate these loans in making its computation under Mim. 6209. In particular, petitioner asserts that it suffered bad debt losses on loans insured under title I of the National Housing Act by reason of the fact that such loans are insured only to the extent of 90 percent of their face amount and petitioner receives no further recovery in the event of default on these loans. This argument is not impressive since the uninsured portion of such loans (10 percent) is included in petitioner's outstanding loans at the end of each year in respondent's computation. The same situation exists as to the partially insured Veterans' Administration loans.

Petitioner also asserts that it suffered bad debt losses on 100-percent Government-insured loans, under the National Housing Act, title II, in that the Federal Housing Administration did not compensate petitioner in cash for defaulted loans, but instead compensated petitioner in Federal Housing Authority debenture bonds, which varied in market value from 85 percent to 100 percent of face value.

Petitioner introduced no evidence of any specific instance of its receipt of Federal Housing Authority debenture bonds for defaulted loans or its policy as to keeping or selling such bonds if it received any. If these bonds varied in value it might be that any loss on the sales thereof was not charged by petitioner to its bad debt reserve but was treated as a loss from sale of securities.

Therefore, even if petitioner is correct that it does not have to show strict compliance with the provisions of Mim. 6209 and respondent's related rulings in its computation thereunder, it has failed to sustain its burden of proof in the instant case of showing that the elimination of the Government-insured portion of the loan is unreasonable. Cf. North Carolina National Bank v. United States, supra, and Pullman Savings Trust Bank v. United States, supra, in which the courts said that a computation in accordance with Mim. 6209 is presumed to be reasonable, a conclusion which respondent here concedes.

Petitioner also contends that the data for all Federal Reserve banks in the Seventh District includes Government-insured loans and therefore to be comparable similar loans should be included in its current loans when applying the bad debt ratio from this data to such loans to compute its addition to its bad debt reserve. The evidence shows that no FHA loans were included in data of Federal Reserve banks for years prior to 1934 and the extent, if any, to which such loans were included from 1934 through 1947 is not shown by the evidence. If such loans were included in a sufficient amount to make this data lack comparability with petitioner's current year loans, after eliminating the insured portion of Government-insured loans, then petitioner has failed in another respect to meet the requirements of paragraph 5 of Mim. 6209, and section 4.03 of Rev. Rul. 54-148 which requires the substituted experience used to be of similar banks with respect to the same type of loans.

Respondent contends that instead of using the data of all banks in the Seventh Federal Reserve District for the entire period January 1, 1928, through December 31, 1947, petitioner should have used its own experience for the portion of this period during which it was in existence as required by Rev. Rul. 57-210, 1957-1 C.B. 94. Respondent relies on Union National Bank Trust Co. of Elgin, 26 T.C. 537 (1956), and First National Bank of LaFeria, 24 T.C. 429 (1955), affirmed per curiam 234 F.2d 868 (C.A. 5, 1956), in support of his position.

The record shows that petitioner had no bad debt chargeoffs for its taxable years ended June 30, 1947, and June 30, 1948, indicating that for the entire period September 18, 1946, through December 31, 1947, it incurred no bad debts. There is no evidence to show that there was any abnormality in this period other than it being petitioner's first period of operations.

In the recent case of First National Bank in Olney, supra, we held under circumstances in substance indistinguishable from those here present that a taxpayer computing its bad debt reserve under the provisions of Mim. 6209 and related rulings must use its own experience for its beginning years when such years fall in its selected 20-year period. This is the requirement of the various rulings and petitioner has shown nothing arbitrary in applying this requirement to it.

We hold that petitioner has failed to show that it complied with the provisions of Mim. 6209 and related rulings in computing its addition to reserve for bad debts for the years here in issue.

The cases of Pullman Trust Savings Bank v. United States, supra, and Union National Bank of Youngstown v. United States, 237 F. Supp. 753 (N.D. Ohio 1965), are distinguishable on their facts from the instant case for the same reason we considered them distinguishable from the factual situation present in First National Bank in Olney, supra.

There is no showing here that petitioner's own experience from the date of its organization to December 31, 1947, was not "meaningful."

Petitioner in the alternative takes the position that apart from Mim. 6209 and related rulings it has shown that its claimed addition to reserve for bad debts in each of the years here in issue is reasonable under section 166(c) and Income Tax Regs., sec. 1.166-4(b)(1).

Sec. 1.1,66-4(b)(1) Relevant factors. What constitutes a reasonable addition to a reserve for bad debts shall be determined in the light of the facts existing at the close of the taxable year of the proposed addition. The reasonableness of the addition will vary as between classes of business and with conditions of business prosperity. It will depend primarily upon the total amount of debts outstanding as of the close of the taxable year, including those arising currently as well as those arising in prior taxable years, and the total amount of the existing reserve.

In First National Bank in Olney, supra, we stated (p. 781):

the failure of a taxpayer to show compliance with the mimeograph and supplementary rulings standing alone does not necessarily require an adverse decision any more than a showing of compliance standing alone necessarily requires a favorable decision. In each instance the decision must be based on the record as a whole.

The question is not whether the additions to the reserve for bad debts are sufficient to absorb the bad debts that might arise during the years involved but rather whether the reserve itself was sufficient for that purpose. Krim-Ko Corporation, 16 T.C. 31 (1951).

The evidence in this case does not show that respondent's determination was unreasonable, arbitrary, or an abuse of the discretion vested in him by statute. For the 14-year period beginning with the taxable year ended June 30, 1947, and ending with the taxable year ended June 30, 1960 (the first taxable year here in issue), the total net bad debt chargeoff by petitioner was $259,169 and the average annual net bad debt chargeoff for the period was $18,512. As of June 30, 1960, petitioner's bad debt reserve was $286,992, roughly 15.5 times its average annual net bad debt chargeoff.

For the 1 1/2-year period here involved, the total bad debt chargeoff was $56,082. In view of the fact that a short taxable year is here involved, the approximately average annual bad debt experience for this period was $37,388.

Bad debt experience for the year ended June 30, 1960, was 44,091, and for the taxable year July 1, 1960, to Dec. 31, 1960, was 11,991 ------ Total 56,082

Total bad debts for period here in issue $56,082 ÷ 1.5 years = $37,388.

Petitioner's bad debt reserve after disallowance of additions by respondent, was $275,001 at the close of the short taxable year July 1, 1960, through December 31, 1960, or 7.3 times petitioner's average annual bad debt chargeoffs for the years here in issue. Reserves which are from 7 to 15 times petitioner's past average annual bad debt chargeoffs are reasonable absent some showing of unusual circumstances. Cf. Paramount Liquor Co. v. Commissioner, 242 F.2d 249 (C.A. 8, 1957), affirming a Memorandum Opinion of this Court; First National Bank in Olney, supra; and Krim-Ko Corporation, supra.

Petitioner has shown no facts to indicate that it anticipated any large increase in its bad debts losses as of the end of either year here in issue.

Petitioner, however, contends that banks are a unique class of taxpayers which should be entitled to more lenient treatment than other businesses in computing their reserves for bad debts for the protection of depositors. This argument does not resolve the question of what is a reasonable reserve for any particular bank.

Petitioner's chief executive officer testified that he considered a reasonable reserve for bad debts for petitioner to be 5 percent of outstanding dealer auto loans, 1 percent of outstanding Government-insured or guaranteed loans, and 2.5 percent of other outstanding loans. These percentages are not supported by petitioner's bad debt experience and this witness gave no reasonable basis for his opinion.

As we pointed out in C. P. Ford Company, Inc., 28 B.T.A. 156, 158 (1933), a taxpayer has an absolute right to deduct his worthless debts when they are ascertained to be worthless and charged off, but if he chooses to deduct additions to a reserve he subjects himself to the reasonable discretion of the Commissioner. Petitioner in the instant case has not shown that respondent's disallowance of its claimed deductions for additions to its bad debt reserve in the years here involved was not a reasonable exercise of respondent's discretion.

Decision will be entered under Rule 50.