Several years ago, Loon Finance Company, which is in the

Several years ago, Loon Finance Company, which is in the lending business, loaned Sara $30,000 to purchase an automobile to be used for personal purposes. In August of the current year, Sara filed for bankruptcy, and Loon was notified that it could not expect to receive more than $4,000. As of the end of the current year, Loon has received $1,000. Loon has contacted you about the possibility of taking a bad debt deduction for the current year.
Write a letter to Loon Finance Company that contains your advice as to whether it can claim a bad debt deduction for the current year. Also prepare a memo for the tax files. Loon’s address is 100 Tyler Lane, Erie, PA 16563.

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