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Merchants (P) held notes of Alabama Naval Stores Company from loans made by the bank to Naval. There was an unpaid balance of $49,025.00. In 1941 and 1943 at the direction of national bank examiners, P charged off the notes as worthless. They were then held on a zero basis. The deductions were taken for the charge off as ordinary losses. In 1944, P sold the notes for $18,460.58, which it reported on its 1944 return as a long-term capital gain. The Commissioner held this to be ordinary income.

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