A number of years ago, the company accepted a promissory note from an employee for purpose of acquiring 25,000 shares of its stock at $2 per share. The stock would be paid for with employee's annual bonus. The Note carried a term of five years, accrued interest at 4% per annum, and was secured by the stock itself. As time went on, the company was not able to pay its employees annual bonuses, and Note both P&I remained unpaid. Presently, the company would like to forgive the entire Note and accrued interest as part of a separation agreement with the employee, who would simply be given the company stock. No cash in either direction has ever exchanged hands. Can we assume the employee's tax basis in the stock is $50K? If so, should he report this amount as income in the current year (i.e. when he receives it)?