So this was a nonbusiness bad debt that someone figured was totally worthless, which proved to be wrong.  Stop claiming it on Schedule D until it really does turn out to be worthless.  Should amended returns be filed for those years when the $3,000 (or greater amount, if applied against capital gains) was claimed?  That's a good question. Anyone?

Disclaimer - my method may not be the "correct" way to handle.

I had client with same situation - I reduced the capital loss carryforward by amount received.  

If you don't have any capital loss carryforward, couldn't you report as Capital gain in the year received?

I am not sure you would break even doing it DKH way.  You save at ordinary income tax rate with $3,000 capital loss per year.  Then you turn around and pay income tax at the capital gain rate when you add the $3,000 or entire amount back as taxable capital gain.  IMO doesn't seem fair to replace ordinary loss with capital gain if you are correcting something.

Recoveries of bad debts are reported in the same manner as the deduction. So if the bad debt was a short term capital loss the recovery is a short term capital gain.

Sjr hit the nail on the head...