Sam, the owner of The Perfect Cut, a wholesale meat distributor, unexpectedly dies during the current year. In an effort to provide equally for his two children, Sam's will provides that the entire business less 40% of its accounts receivables be left to his daughter Helen. Sam's son, Phil, is to receive the other 40% of the businesses receivables and the majority of Sam's other assets. The following year, after extensive legal action, Phil is unable to collect a $5,000 receivable from his father's business and the receivable is deemed worthless.

REQUIRED:

Determine how Phil should treat the worthless receivable on his tax return. Search a tax research database and find the relevant authority(ies) that form the basis for your answer. Your answer should include the exact text of the authority(ies) and an explanation of the application of the authority to Phil's facts. If there is any uncertainty about the validity of your answer, indicate the cause for the uncertainty.