If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

Question

Quizplus · Accepted Answer

This is known as the tax benefit rule and it requires that any amount recovered after a bad debt deduction must be included in gross income to the extent that it provided a tax benefit in a prior year.

If an Account Receivable Written Off During a Prior Year