Yanni owns a factory and purchases some heavy equipment from ABC, Inc. Yanni signs a note with ABC, Inc. in the amount of $1 million, which is payable in equal installments over the next 5 years. One year after the purchase, ABC, Inc. goes out of business, and XYZ Bank purchases the note. A year after that, the equipment begins to fail, several years before it should be having any problems. Yanni contacts XYZ Bank and demands a price reduction, or it will refuse to keep paying. XYZ Bank agrees to a $200,000 price reduction. 

Explain what tax consequences, if any, should occur. Comprehensively analyze this scenario, supporting your conclusion with law and facts.

Answer rating: 100% (QA)

In the scenario presented several tax consequences and implications may arise due to the purchase of heavy equipment subsequent events involving the seller going out of business the note being purchas... View the full answer