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  3. in late 2007, sally invested $100,000 in techco, a

In late 2007, Sally invested $100,000 in TechCo, a startup high-tech venture. Although she had...

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Accounting

In late 2007, Sally invested $100,000 in TechCo, a startup high-tech venture. Although she had great expectations of financial gain, TechCos efforts were not well received in the market, and the value of its stock plummeted. Four years ago when TechCo declared bankruptcy, Sally wrote off her $100,000 stock investment as worthless securities. To Sallys surprise, this year she receives $40,000 from the bankruptcy trustee as a final settlement for her TechCo stock. Sally now realizes that she probably should not have claimed the loss four years ago because the stock was not completely worthless. However, since the statute of limitations has passed, she does not plan to amend her tax return from four years ago. She also decides that the $40,000 is not income but is merely a recovery of some of her original investment. How do you react to Sallys plans? Please discuss the tax treatment.

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