26 U.S. Code § 166 - Bad debts
There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
This section shall not apply to a debt which is evidenced by a security as defined in section 165(g)(2)(C).
1988—Subsec. (d)(1)(A). Pub. L. 100–647, § 1008(d)(1), substituted “subsection (a)” for “subsections (a) and (c)”.
1986—Subsec. (c). Pub. L. 99–514, § 805(a), struck out subsec. (c), reserve for bad debts, which read as follows: “In lieu of any deduction under subsection (a), there shall be allowed (in the discretion of the Secretary) a deduction for a reasonable addition to a reserve for bad debts.”
Subsec. (f). Pub. L. 99–514, § 805(b), as amended by Pub. L. 100–647, § 1008(d)(2), redesignated subsec. (g) as (f) and struck out former subsec. (f) which related to reserve for certain guaranteed debt obligations, par. (1) thereof providing for allowance of deduction, par. (2) disallowing deduction in other cases, par. (3) relating to opening balance of reserve, and par. (4) relating to suspense account.
Pub. L. 99–514, § 901(d)(4)(A), struck out pars. (3) and (4) which read as follows:
“(4) For special rule for bad debt reserves of banks, small business investment-companies, etc., see sections 585 and 586.”
1984—Subsec. (d)(1)(B). Pub. L. 98–369 substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
1976—Subsecs. (a)(2), (c). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Subsec. (d)(1)(B). Pub. L. 94–455, § 1401(b)(1)(A), (2), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977, and “9 months” would be changed to “1 year” for taxable years beginning after Dec. 31, 1977.
Subsec. (f). Pub. L. 94–455, §§ 605(a), 1906(b)(13)(A), redesignated subsec. (g) as (f) and struck out “or his delegate” after “Secretary” in pars. (1), (3) and (4)(D). Former subsec. (f), which related to treatment of payments made by guarantors of certain noncorporate obligations, was struck out.
Subsecs. (g), (h). Pub. L. 94–455, § 605(a), redesignated subsecs. (g) and (h) as (f) and (g), respectively.
1969—Subsec. (h)(4). Pub. L. 91–172 added par. (4).
1966—Subsecs. (g), (h). Pub. L. 89–722 added subsec. (g) and redesignated former subsec. (g) as (h).
1958—Subsec. (d)(2)(A). Pub. L. 85–866 substituted “a trade or business of the taxpayer” for “a taxpayer’s trade or business”.
Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Amendment by Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title.
Written determinations for this section
These documents, sometimes referred to as "Private Letter Rulings", are taken from the IRS Written Determinations page; the IRS also publishes a fuller explanation of what they are and what they mean. The collection is updated (at our end) daily. It appears that the IRS updates their listing every Friday.
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- Bad Debts : 2018-10-19
- Definition of Political Party : 2018-10-19
- Losses Incurred : 2016-10-14
- Partially Worthless Debt : 2016-10-14
- Bad Debts : 2016-01-08
- Bad Debts : 2015-04-10
- Bad Debts and Worthless Securities : 2015-04-10
- Worthless Securities : 2014-12-12
- Clarification Of Taxation of Certain Funds : 2014-12-12
- Deductions For Losses : 2013-07-12
- Bad Debts : 2013-07-12
- Computation of Tax Where Taxpayer Restores Substantial Amount Held Under Claim of Right : 2013-07-12
- Bad Debts : 2013-06-07
- Debt v. Equity : 2013-06-07
- Other : 2013-01-11
- Bad Debts : 2008-04-04
- Bad Debts : 2007-04-06
- Bad Debts : 2007-02-09
- Nonrecognition of Gain or Loss : 2007-02-09
- Securities In Affiliated Corporations : 2007-02-09
- Bad Debts : 2004-12-31
- Other : 2004-12-17
- Bad Debts : 2004-12-17
- Return of Capital v. Income : 2004-12-17
- Deductions For Losses : 2004-02-06
- Bad Debts : 2004-02-06
- Treatment of Certain Liabilities : 2002-10-18
- Basis : 2002-10-18
- Tax Treatment of Stripped Bonds : 2001-12-21
- Interest and Carrying Costs - Straddles : 2001-12-21
- Basis : 2001-12-21
- Capital Asset v. Not a Capital Asset : 2001-12-21
- Hedging Transactions : 2001-12-21
- Effect of Private Rulings : 2001-12-21
- Applicability of Section : 2001-12-21
- Property That is Part of a Hedging Transaction : 2001-12-21
- Partially Worthless Debt : 2001-08-24
- Partially Worthless Debt : 2001-01-05
- Other : 2000-12-15
- Bad Debts : 2000-11-10
- Bad Debts : 2000-07-07
- Accounting Methods : 2000-06-30
- Bad Debts : 2000-06-30
- Reserves for Losses on Loans of Banks : 2000-06-30
- Bad Debts : 2000-06-16
- Bad Debts and Worthless Securities : 2000-06-16
- Other : 2000-04-07
- Definitions : 1999-09-03
- Accounting Methods : 1999-09-03
- Bad Debts : 1999-09-03
- Reserves for Losses on Loans of Banks : 1999-09-03
- Bad Debts : 1999-03-26
- Nonbusiness Debt : 1999-03-19
- Bad Debts : 1999-03-05
- Accounting Methods : 1999-02-26
- Bad Debts : 1999-02-26
- Reserves for Losses on Loans of Banks : 1999-02-26
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