N Airlines declared bankruptcy this year.As a result, it was unable to pay many of its employees their salaries which they had earned.For example, S, one of its pilots, worked all of October and did not receive his $5,000 salary for that month.S is not entitled to a bad debt deduction.

Question

Quizplus · Accepted Answer

A bad debt deduction is only applicable when a debt is owed to the taxpayer. In this case, the unpaid salary is owed by the taxpayer (N Airlines) to the employee (S), not the other way around. Therefore, S cannot claim a bad debt deduction.

N Airlines Declared Bankruptcy This Year