J, a cash basis taxpayer, is the general manager of a minor league baseball club.The corporate owner has promised J, in a valid contract, a $5,000 bonus if attendance exceeded 250,000 this year.Attendance was 250,070.The owner reneges on the $5,000 bonus.Upset, J quits and goes to Florida.
A)J can treat the $5,000 that was not paid as a business bad debt.
B)J can treat the $5,000 that was not paid as a nonbusiness bad debt.
C)J cannot deduct the $5,000 that was not paid.
D)None of the above

Question

Quizplus · Accepted Answer

J cannot deduct the $5,000 because as a cash basis taxpayer, he can only recognize income or deductions when cash is actually received or paid. Since J never received the $5,000, there is no income to report or deduct.

J, a Cash Basis Taxpayer, Is the General Manager of a Minor