Question

1. A taxpayer wishes to take a deduction for a worthless debt. Without proper documentation, the taxpayer faces the risk that the IRS will assert that

A. the debt became worthless in an earlier period, and the statute of limitations prevents the taxpayer from amending that earlier return.

B. the debt is not yet worthless, disallowing the deduction

C. both of the above.

D. none of the above.

2. During the current year, Deborah Baronne, a single individual, paid the following amounts:

Federal income tax	$10,000
State income tax	$4,000
Real estate taxes or land in France	$1,500
Real estate taxes or land in U.S.	$1,700
State sales taxes	$2,000
State occupational license fee	$600

How much can Deborah deduct in taxes as itemized deductions?

3. Phoebe's AGI for the current year is $140,000. Included in this AGI is $100,000 salary, $20,000 of interest income earned on bank accounts, $12.000 of dividend income, a short-term capital gain of $2,000 and a long-term capital gain of $6,000. In earning the investment income, Phoebe paid investment interest expense of $30,000.

What is Phoebe's investment interest expense deduction for the year, assuming no special elections are made?

4. Wes owned a business which was destroyed by fire in May 2019. Details of his losses follow:

Asset	Adj. Basis	FMV Before	FMV After	Insurance Reimbursement
A	$1,000	$2,000	$0	$2,000
B	$15,000	$10,000	$3,000	$2,000
C	$2,400	$5,000	$2,500	$1,000

His AGI without consideration of the casualty is $45,000.

What is Wes's net casualty loss deduction for 2019?

Answer 1

Q.1

Debt become worthless when surrounding facts and circumstances indicates that there is no expectation that the debt will be repaid. To show the debt worthless it must to take all reasonable steps to collect the debt.

However if proper documentation shows that all facts and cicumstances regarding uncollectibility of debt and debt becomes worthless then

1. Deduction for worthless debt can be taken only in the year in which it becomes worthless.

2. Partialy worthless nonbusiness debt can not be deducted.So debt should be wholly worthless.

Therefore, in this question taxpayer faces the risk that the IRS will assert both i.e

a.  the debt became worthless in an earlier period, and the statute of limitations prevents the taxpayer from amending that earlier return. and

b. the debt is not yet worthless, disallowing the deduction

Correct answer is option ( C) both of the above