Claiming Capital Loss for Bankrupt Corporation

#10 06-14-2004, 07:24 AM

- quote -

> > Let's say a public company in which you hold stock declares
> > chapter 11 in 1999, and then formally files a reorganization
> > plan in 2001 that wipes out all of the ordinary
> > shareholders. In what year should you claim that stock as
> > a capital loss?

> When the stock became worthless, 2001.

I disagree that the post has such a conclusion.

The answer I would give, given the above, is WHEN THE COURT
ACCEPTS the reorganization plan (which could be in a later
year). A mere filing of a plan doesn't make the stock
worthless.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#9 06-10-2004, 05:59 PM

"A.G. Kalman" <glendale202-mtm[at]yahoo.com> wrote:

- quote -

> As to your last question, if the year is closed you can not
> amend it to write-off securities that became worthless in
> the closed year. This is why it is important to keep track
> of your portfolio when companies declare bankruptcy.

Just to clarify, a closed year for this specific purpose is
beyond seven years not the normal three.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Boston, MA 02109

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#8 06-10-2004, 05:40 PM

A.G. Kalman wrote:
- quote -

> CHANGE USERNAME TO westes wrote:

> > Let's say a public company in which you hold stock declares
> > chapter 11 in 1999, and then formally files a reorganization
> > plan in 2001 that wipes out all of the ordinary
> > shareholders. In what year should you claim that stock as
> > a capital loss?
> > > In the event that the capital loss was deemed to be in 1999,
> > and since this is a closed year you cannot refile your
> > federal return to claim the loss, is there any provision for
> > filing the loss claim in a later tax year? Or does the law
> > say that the loss will just go unrecorded forever?

> You take a loss on worthless securities as of the last day
> of the year in which the securities became worthless. The
> Treasury regulation uses the term "wholly worthless" and
> also does not allow a deduction if the securities have any
> recognizable value.
> It is highly likely that in 1999 the price probably fell to
> a few pennies per share and continued to be offered for sale
> until such time the shares were canceled (2001). This would
> make 2001 the year to write off any loss.
> As to your last question, if the year is closed you can not
> amend it to write-off securities that became worthless in
> the closed year. This is why it is important to keep track
> of your portfolio when companies declare bankruptcy.

Whoops..... I forgot the 7 year rule for amending for bad
debts and worthless securities.

- quote -

> For professionals:
> The IRS discussed this issue pretty thoroughly in FSA 200226004.
> http://www.irs.gov/pub/irs-wd/0226004.pdf

--
Alan
http://taxtopics.net

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#7 06-09-2004, 06:57 AM

"CHANGE USERNAME TO westes" <DELETE_westes[at]earthbroadcast.com> wrote:

- quote -

> Let's say a public company in which you hold stock declares
> chapter 11 in 1999, and then formally files a reorganization
> plan in 2001 that wipes out all of the ordinary
> shareholders. In what year should you claim that stock as
> a capital loss?
[snip]

It's when the reorganization plan takes effect. This will be
some time after it was filed. If this is any day in 2001,
then your loss is figured as if you sold the stock for
nothing on December 31, 2001.

--
Chris Green

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#6 06-09-2004, 06:19 AM

- quote -

> Let's say a public company in which you hold stock declares
> chapter 11 in 1999, and then formally files a reorganization
> plan in 2001 that wipes out all of the ordinary
> shareholders. In what year should you claim that stock as
> a capital loss?
> In the event that the capital loss was deemed to be in 1999,
> and since this is a closed year you cannot refile your
> federal return to claim the loss, is there any provision for
> filing the loss claim in a later tax year? Or does the law
> say that the loss will just go unrecorded forever?

If the common stock is canceled in 2001, that's when the
loss is claimed. Even if 1999 were the correct year, that
year would still be open for amendment in this situation as
you generally have 7 years to claim a worthless security
loss. (See IRS Pub. 550).

Ira Smilovitz

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#5 06-09-2004, 06:19 AM

CHANGE USERNAME TO westes wrote:

- quote -

> Let's say a public company in which you hold stock declares
> chapter 11 in 1999, and then formally files a reorganization
> plan in 2001 that wipes out all of the ordinary
> shareholders. In what year should you claim that stock as
> a capital loss?
> In the event that the capital loss was deemed to be in 1999,
> and since this is a closed year you cannot refile your
> federal return to claim the loss, is there any provision for
> filing the loss claim in a later tax year? Or does the law
> say that the loss will just go unrecorded forever?

You take a loss on worthless securities as of the last day
of the year in which the securities became worthless. The
Treasury regulation uses the term "wholly worthless" and
also does not allow a deduction if the securities have any
recognizable value.

It is highly likely that in 1999 the price probably fell to
a few pennies per share and continued to be offered for sale
until such time the shares were canceled (2001). This would
make 2001 the year to write off any loss.

As to your last question, if the year is closed you can not
amend it to write-off securities that became worthless in
the closed year. This is why it is important to keep track
of your portfolio when companies declare bankruptcy.

For professionals:
The IRS discussed this issue pretty thoroughly in FSA 200226004.
http://www.irs.gov/pub/irs-wd/0226004.pdf

--
Alan
http://taxtopics.net

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#4 06-09-2004, 06:19 AM

CHANGE USERNAME TO westes wrote:

- quote -

> Let's say a public company in which you hold stock declares
> chapter 11 in 1999, and then formally files a reorganization
> plan in 2001 that wipes out all of the ordinary
> shareholders. In what year should you claim that stock as
> a capital loss?

In the year the reorganization plan is approved, which is
2001 or later.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#3 06-09-2004, 05:59 AM

CHANGE USERNAME TO westes <DELETE_westes[at]earthbroadcast.com> wrote:

- quote -

> Let's say a public company in which you hold stock declares
> chapter 11 in 1999, and then formally files a reorganization
> plan in 2001 that wipes out all of the ordinary
> shareholders. In what year should you claim that stock as
> a capital loss?
> In the event that the capital loss was deemed to be in 1999,
> and since this is a closed year you cannot refile your
> federal return to claim the loss, is there any provision for
> filing the loss claim in a later tax year? Or does the law
> say that the loss will just go unrecorded forever?

The loss is for the year in which the stock actually became
worthless.

If that was 1999, file a 1040X and schedule D. And if the
resulting loss needs to be carried forward to 2000 etc, file
1040X's for those years too.

In the case of a stock that you discover becomes worthless,
you have 7 years to amend, not 3.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#2 06-09-2004, 05:59 AM

"CHANGE USERNAME TO westes" <DELETE_westes[at]earthbroadcast.com> wrote:

- quote -

> Let's say a public company in which you hold stock declares
> chapter 11 in 1999, and then formally files a reorganization
> plan in 2001 that wipes out all of the ordinary
> shareholders. In what year should you claim that stock as
> a capital loss?
> In the event that the capital loss was deemed to be in 1999,
> and since this is a closed year you cannot refile your
> federal return to claim the loss, is there any provision for
> filing the loss claim in a later tax year? Or does the law
> say that the loss will just go unrecorded forever?

1) If it were 1999 (and its not) claiming a worthless
security loss is an exception to the 3 year statute of
limitations.
2) Under what you state, it would more likely be 2001
unless new stock was issued as part of the
reorganization.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Boston, MA 02109

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#1 06-09-2004, 05:40 AM

"CHANGE USERNAME TO westes" <DELETE_westes[at]earthbroadcast.com> writes:

- quote -

> Let's say a public company in which you hold stock declares
> chapter 11 in 1999, and then formally files a reorganization
> plan in 2001 that wipes out all of the ordinary
> shareholders. In what year should you claim that stock as
> a capital loss?

2001

- quote -

> In the event that the capital loss was deemed to be in 1999,
> and since this is a closed year you cannot refile your
> federal return to claim the loss, is there any provision for
> filing the loss claim in a later tax year? Or does the law
> say that the loss will just go unrecorded forever?

There's a special 7 year period for making such claims. IRC
6511(d)(1)

Phil Marti
Topeka, KS

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

06-09-2004, 05:40 AM

- quote -

> Let's say a public company in which you hold stock declares
> chapter 11 in 1999, and then formally files a reorganization
> plan in 2001 that wipes out all of the ordinary
> shareholders. In what year should you claim that stock as
> a capital loss?

When the stock became worthless, 2001.

Helen, EA in PA
Member of The Tax Gang
Director, National Assoication of Enrolled Agents
Immediate Past President, PA Society of Enrolled Agents

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

#-1 06-06-2004, 08:23 AM

Let's say a public company in which you hold stock declares
chapter 11 in 1999, and then formally files a reorganization
plan in 2001 that wipes out all of the ordinary
shareholders. In what year should you claim that stock as
a capital loss?

In the event that the capital loss was deemed to be in 1999,
and since this is a closed year you cannot refile your
federal return to claim the loss, is there any provision for
filing the loss claim in a later tax year? Or does the law
say that the loss will just go unrecorded forever?

--
Will
westes AT earthbroadcast.com

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

Similar Threads
Thread	Forum	Replies	Last Post
Capital Gain and Loss notification Joe Smith: In Money 2005, whenever I recorded a sell trade on an investment Money used to alert with a pop up message indicating how much capital gain/loss I...	Microsoft Money	8	07-20-2005 12:18 AM
Cancelled Stock Capital Loss edenbrook: Worldcom emerged from bankruptcy on April 20, 2004 and cancelled its common stock. In the meantime there are several class action suits, notably...	Taxes	1	05-20-2004 04:18 AM
capital loss loophole Shailesh Humbad: Suppose a person, John Doe, holds $10,000 in a taxable investment account, and $10,000 in a non-taxable Roth IRA investment account. During the...	Taxes	2	02-29-2004 06:37 PM
capital loss on inherited IRA Eric: I inherited an IRA from my mother several years ago. This year (2004), I took my minimum distribution (around $5000). My broker rolled over assets...	Taxes	2	02-03-2004 06:01 AM
Time frame for Capital Loss? ? ? Ray Jenkins: I may have waited too late to sell some depressed stock in order to take a capital loss. If I sell on Monday, the settlement date will be in the...	Taxes	4	12-30-2003 07:04 AM

Thread Tools
Show Printable Version Email this Page
Display Modes
Linear Mode Switch to Hybrid Mode Switch to Threaded Mode