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Jeffrey owns 100% of HR Company. In 20x1, he lent the firm $70,000. In 20x3, he cancelled the debt. The results of this debt cancellation are:
- HR Company recognizes a $70,000 gain; no effect to Jeffrey
- HR Company recognizes a $70,000 gain; Jeffrey has a $70,000 bad debt
- HR company has no income; no effect to Jeffrey
- HR Company has no income; Jeffrey has a $70,000 bad debt
- HR Company has no income; Jeffrey increases his basis in HR Company stock
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