Hazel, a Solvent Individual but a Recovering Alcoholic, Embezzled $6,000

question 83

Multiple Choice

Hazel, a solvent individual but a recovering alcoholic, embezzled $6,000 from her employer. In the same year that she embezzled the funds, her employer discovered the theft. Her employer did not fire her and told her she did not have to repay the $6,000 if she would attend Alcoholics Anonymous. Hazel met the conditions and her employer canceled the debt.

• A)Hazel did not realize any income because her employer made a gift to her.
• B)Hazel must include $6,000 in gross income from discharge of indebtedness.
• C)Hazel must include $6,000 in gross income under the tax benefit rule.
• D)Hazel may exclude the $6,000 from gross income because the debt never existed.
• E)None of these.

---

Definitions:

Chattel Paper

A writing that indicates both a monetary obligation and a security interest in specific goods.

Security Interest

A legal claim or lien on collateral that secures the performance of an obligation, such as repayment of a loan.

Ordinary Course

Refers to actions and transactions that are regular and normal for a particular business under the circumstances.

Financing Statement

A document filed to give public notice that a lender has a security interest in a debtor's property, typically for securing loans.