Martha,an Accrual Method Taxpayer,has an Accounting Practice

question 66

Multiple Choice

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.

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Definitions:

Business Relationship

pertains to the connections and interactions between businesses or between a business and its clients, such as partnerships, contractual agreements, and networks.

Binding Arbitration Clause

A contract provision that requires the parties to resolve disputes through arbitration rather than through the court system.

Fees

Charges levied by a service provider for specific services rendered or to cover certain expenses.

Arbitrator Selection

The process of choosing an impartial third party to resolve a dispute in arbitration, typically agreed upon by all parties involved.