Purchase Solution

Write-off of Bad Debts and Forgiveness Income

Not what you're looking for?

Ask Custom Question

How is the write-off of a bad debt handled on the tax return? How must the debtor handle the forgiveness of the debt? Why?

Purchase this Solution
Solution Summary

Citing legal authority, this solution discusses how the write-off of a bad debt is handled on the tax return and how the debtor must handle the forgiveness of the debt.

Solution Preview

Business bad debts may be deducted in several ways. IRC Section 166(a)(1) states that "There shall be allowed as a deduction any debt which becomes worthless within the taxable year." (In other words, the direct write-off method.) Further, IRC Section 166(a)(2) provides that "When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction." (This is addressed further in Treas. Reg. 1.166-3.) In both cases, IRC Section 166(c) states that "the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property." Treas. Reg. 1.166-1 provides an in-depth discussion of business bad debt write-offs. In addition ...

Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • Refund of overpaid Social Security taxes; Bad Debt write off

    "Generally you must use the specific charge-off method for bad debts. Under this method, you write off specific bad debts in the year they become worthless.

  • How are bad debts accounted for under the direct write-off m

    475124 Debts Accounted for Under Direct Write-Off How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method?

  • Allowance and Direct Write-off Method

    This solution compares and contrasts the direct write-off method and the allowance method of accounting for bad debts.

  • Computing Bad Debts Expense

    of the direct write-off method of reporting bad debts expense?

  • Discuss the allowance method and the direct write-off method

    478133 Discuss the allowance method and the direct write-off method of accounting for bad debts Discuss the allowance method and the direct write-off method of accounting for bad debts.

  • Debt Forgiveness Creates a Taxable Event

    The taxpayer is then liable for the taxes due, and oftentimes if the amount of the debt canceled was for a high amount, may have been better off making a payment plan agreement with the company to solve the issue, so as to pay the debt, and avoid being

  • Anth Company has significant amounts of trade accounts recei

    Anth uses the allowance method to estimate bad debts instead of the specific write-off method. During the year, some specific accounts were written off as uncollectible, and some that were previously written off as uncollectible were collected.

  • Allowances

    (This is called the direct write-off method.) 4. Why does GAAP require the allowance method over the direct write-off method? 5.

  • Bad debts,provision for bad debts

    debts debited to the Profit and loss a/c) Cash realizable value of the accounts receivables before and after write off will be 646000/- The answer contains journal entries for bad debts,provision for bad debts and finding out the cash realisable

View More Related Solutions