More info
Per IRS Publication 535 Business Expenses, see the caution on top of page 41, it says.........
You can claim a bad debt deduction only if the amount owed to you was previously included in gross income. This includes amounts owed to you from all sources of taxable income, including sales, services, rents and interest.
http://www.irs.gov/pub/irs-pdf/p535.pdf
Or see Topic 453 - Bad Debt Deduction
http://www.irs.gov/taxtopics/tc453.html
