Optimistic borrowed $$20,000$ to buy a

machine for his printing business. Shortly

thereafter, the economy went into a deep

recession $$nd Optimistic was not able to repay

the debt although he was not insolvent. In the

current year, the creditor reduced the debt by

$$10,000$ so Optimistic could afford to pay it$.$

The creditor was not the seller of the machine.

As a result of this reduction of debt,

A$.$ The purchase price of the machine is

adjusted to reduce Optimistic's basis in

the machine.

B$.$ Optimistic has $$10,000$ of income.

C$.$ The debt is a qualified business

indebtedness and the basis of the

machine must be reduced.

D$.$ Any tax effect from the reduction of the

debt is deferred until final payment by

Optimistic.