In 2015 Bonnie,a sole proprietor,loaned her employee,John,$10,000 to help him buy a car.In 2017,before he repaid the $10,000,Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance.How should John treat the amount forgiven?

Question

Quizplus · Accepted Answer

B)Forgiven debt is normally included in gross income.The cancellation of debt due to job performance would be characterized as compensation income rather than as a gift,bequest or renegotiation of a purchase price.

In 2015 Bonnie,a Sole Proprietor,loaned Her Employee,John,$10,000 to Help Him