Martha,an accrual method taxpayer,has an accounting practice.In 2018,she performs tax analyses for Arnold and sends him an invoice for $10,000.In 2019,Martha sells her practice and all accounts to David.Arnold's debt becomes worthless that year after David has purchased the practice.The result is
A)Martha deducts a nonbusiness bad debt in 2019.
B)Martha deducts a business bad debt in 2019.
C)David deducts a business bad debt in 2019.
D)David deducts a nonbusiness bad debt in 2019.

Question

Quizplus · Accepted Answer

Since David purchased Martha's accounting practice, he takes over the accounts receivable and any bad debts that may arise. The debt owed by Arnold becomes a business bad debt for David, and he can deduct it on his 2019 tax return. Martha cannot deduct the bad debt since she has transferred ownership of the accounts to David.

Martha,an Accrual Method Taxpayer,has an Accounting Practice