Dana is an attorney who specializes in family law. She uses the cash method of accounting and is a calendar-year taxpayer. Last year, she represented a client in a lawsuit and billed the client $5,000 for her services. Although she made repeated attempts, Dana was unable to collect the outstanding receivable. Finally, in November of the current year, she finds out that the individual has moved without leaving any forwarding address. Dana's attempts to locate the individual are futile. What is the amount of deduction that Dana may take with respect to this bad debt?

A.

Dana may take a deduction up to 85% of the $5,000 with respect to this bad debt. Though the amount was billed at $5,000, only 85% is allowed as a deduction since Dana is a cash method taxpayer.

B.

Dana may take a $5,000 deduction with respect to this bad debt. The amount was billed to her client during the year and included in her receivables during the year.

C.

Dana may not take any deduction with respect to this bad debt unless she waits a three year waiting period and the amount is still not received. This is what makes a bad debt fully uncollectible and deductible to a cash method taxpayer.

D.

Dana may not take any deduction with respect to this bad debt. Although it is a bad debt that had been incurred in her business, she has no basis in the debt because she is a cash method taxpayer and did not report the receivable in income.