Your client, Dora Downer, has an accounting degree but did not become a CPA. Dora generally likes to enjoy life she has never been motivated to work as hard as some of her classmates to become highly successful in the accounting profession. Accordingly, Dora has worked a series of ad-hoc or temporary accounting-related jobs since graduation. Recently, Dora prepared individual income tax returns for Taxes--Us Financial Services during the tax season. Taxes--Us deemed Dora an independent contractor and promised her an hourly rate of $25 plus a hefty 20% retention bonus if she made it through tax season. This was harder work than Dora really wanted, but she stuck with the assignment and worked under this arrangement from early February until April 15. At the end of the tax season, Dora tallied-up her time and submitted her invoice. Dora computed she was owed compensation of $14,600 plus a $2,920 bonus. When Dora went to collect her earnings from Taxes--Us, she found only a vacant office with a sign on the door reading Nothing is certain but death and taxes.

Primary Issue: Can Dora take a bad debt deduction for the compensation and bonus she was unable to collect from Taxes--Us? Hint: Start with Treas. Reg. 1.166-1(e)