Your client, Ms. Jane Smith, was a 50% interest holder in Smith and Jones LP, a medical bill payer business. Smith and Jones LP was treated as a partnership for federal tax purposes. Smith and Jones LP liquidated in early 2011, as the owner of the remaining 50% interest wished to leave the business. Liquidation proceeds received by Ms. Smith was $30,000 cash, $10,000 of stock investments, and $15,000 of accounts receivable. Smith and Jones LP operated on a cash basis. Previous to the liquidation, Ms. Smith’s basis in the LP ownership interest was $60,000.Ms. Smith had no desire to leave the medical bill pay business, so she carried on as a sole proprietor. In November 2011, $5,400 of the accounts receivable she had received in the LP liquidation became uncollectible.Ms. Smith has come to you for help with her 2011 personal tax return. First, she wants to know how she would report the tax effects of the liquidation of her LP interest. Second, she wants to know if she is allowed to deduct the worthless accounts receivable against her other business income.