In 2017,Godfrey received a $50,000 sales commission on a long-term contract.But in 2018,the customer filed bankruptcy and Godfrey's employer was not able to collect from the customer.Under the bonus agreement,Godfrey was required to repay the employer $20,000 of the bonus.Godfrey was in the 35% marginal tax bracket in 2017 but he is in the 25% marginal tax bracket in 2018.
A)Godfrey can amend his 2017 tax return and reduce his taxable income by $20,000.
B)Godfrey should deduct the $20,000 paid in 2018 and thus his tax savings will be $5,000.
C)Godfrey can reduce his 2018 tax liability by 35% × $20,000 = $7,000.
D)Godfrey should not have reported the income in 2017 because of the contingencies.
E)None of the above.

Question

Quizplus · Accepted Answer

Godfrey can claim a tax benefit under the "claim of right" doctrine, allowing him to reduce his 2018 tax liability by the amount of tax paid on the $20,000 in 2017, which is $7,000 (35% of $20,000).

In 2017,Godfrey Received a $50,000 Sales Commission on a Long-Term