Final answer:
The statement is false. Cash basis taxpayers cannot deduct business bad debts because they only deduct expenses that have been actually paid, and bad debts represent unpaid and uncollectable amounts.
Step-by-step explanation:
True or False - CASH basis taxpayers may deduct business bad debts.
This statement is False.
Cash basis taxpayers can only deduct expenses actually paid. Since a business bad debt would be an amount owed to the taxpayer that has become uncollectable, it doesn't involve the physical outlay of cash and therefore is not deductible for a cash basis taxpayer.
Only those taxpayers using the accrual method of accounting can take a deduction for business bad debts, as they recognize income at the point of earning it, not when it is received, and they match related expenses to the income.