1. James is in the business of debt collection. He purchased a $20,000 account receivable from Green Corporation for $15,000. During the year, James collected $17,000 in final settlement of the account. James can take a $2,000 bad debt deduction in the current year.
a. True
b. False
2. If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year.
a. True
b. False
3. Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income.
a. True
b. False
4. A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.
a. True
b. False
5. If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.
a. True
b. False
6. A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.
a. True
b. False
7. A business bad debt is a debt unrelated to the taxpayers trade or business either when it was created or when it became worthless.
a. True
b. False
8. In determining whether a debt is a business or nonbusiness bad debt, the debtors use of the borrowed funds is important.
a. True
b. False
9. A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.
a. True
b. False
10.A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.
a. True
b. False
11.The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.
a. True
b. False
12.A bona fide debt cannot arise on a loan between father and son.
a. True
b. False
13.A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss.
a. True
b. False
14.A loss from a worthless security is always treated as a short-term capital loss.
a. True
b. False
15.A loss is not allowed for a security that declines in value.
a. True
b. False
16.Several years ago, John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000. Last year, John sold one-half of his Red Corporation stock to Mike for $12,000. During the current year, John sold the remaining Red Corporation stock for $3,000. John has a $17,000 ($3,000 $20,000) ordinary loss for the current year.
a. True
b. False
17.If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.
a. True
b. False
18.Al, who is single, has a gain of $40,000 on the sale of § 1244 stock (small business stock) and a loss of $80,000 on the sale of § 1244 stock. As a result, Al has a $40,000 ordinary loss.
a. True
b. False