A taxpayer wishes to take a deduction for a worthless debt. Without proper documentation, the taxpayer faces the risk that the IRS will assert that A. the debt became worthless in an earlier period, and the statute of limitations prevents the taxpayer from amending that earlier return. B. the debt is not yet worthless, disallowing the deduction C. both of the above. D. none of the above.

The correct answer to the following question will be Option C (Both of the above).

Explanation:

Debt is useless whenever conditions and evidence lead to no possibility that the debt can be returned. To prove useless of the debt, all fair action must be taken to recover the debt.  

Even if adequate reporting demonstrates that all the evidence and circumstances surrounding debt as well as debt collectability are useless.

Moreover, the taxpayer considers the challenge throughout this issue that perhaps the IRS will say both i.e.,

So that option C is the right answer.