Question

Amina owes a local bank in Oklahoma of $5,500. The due date of the date was May 1, 2019.

Amina was not able to pay the debt. On December 1, 2019 decided to cancel the debt and

considered the $5,59 as uncollectible accounts.

Discuss the tax treatment for the above situation from Amina’s viewpoint.

Answer 1

Here the Amina owes bank $ 5,500 but she only pays bank $ 4,941 ($ 5500 - $ 559). So, her short payment to bank is if $ 559. Here the tax implication from amina view point will be that she cannot claim $ 559 as her business expense or deduction under any other section of income tax. The other questions that pops up is whether $ 559 can be treated as income in hands of amina, as it has reduced her liability. The answer is no, it will also not be treated as income of amina. So, there won't be any tax treatment of $ 559 in hands of amina.