An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating.The taxpayer immediately sells the note to a bank for less than the note's stated value.The taxpayer has an ordinary loss.

Question

Quizplus · Accepted Answer

When a taxpayer sells a note receivable for less than its stated value, they have incurred a loss which is treated as an ordinary loss for tax purposes. This is because the note receivable is considered a capital asset held for investment or trade, and any loss from its sale is therefore treated as an ordinary loss under the tax code.

An Accrual Basis Taxpayer Accepts a Note Receivable from a Retail