As with many tax issues, the guidelines are from a patchwork
of legal precedence. Generally you have to show insolvency
(Liabilities > Assets) and no probable expectation of future
worth. While it's not impossible, courts indicate that it's
hard to prove lack of future worth without an identifying
event such as bankruptcy, cessation of business or corporate
charter, or selling most of the corporate assets.

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"Etienne" <etiennevb[at]hotmail.com> wrote:

- quote -

As long as the investment as any value, even $0.01, you
can't write off the investment. So there needs to be some
evidence that the corporation no longer exists. For example,
if the Secretary of State for the state of incorporation
shows that the corporation is dissolved, that would be
sufficient evidence. This could either be an active or
administrative dissolution.

If you have evidence to suggest that the corporation was a
small business corporation when you invested, you should be
able to claim Section 1244 ordinary loss (on form 4797)
instead of a capital loss. That is much to be preferred. One
reason for Section 1244 is to encourage people to invest in
small businesses.

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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Etienne <etiennevb[at]hotmail.com> wrote:

- quote -

Sure you can; just not on the usual exchanges. If you got a
stock certificate showing ownership, I'll pay you $1 for it
(you pay postage).

- quote -

If it informally discontinues operations (that is, just
stops) that should be good enough.

Seth

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I was wondering when you can consider a loss resulting from
an investment in a private company to be realized and
therefore deductible.

Let's say I invest $50,000 in a start-up private
C-corporation, paying $5 per share. (Not being an accredited
invester, I would be able to do this if I were an officer of
that corporation, or by forming an investment partnership
with other investing employees and have the partnership
invest.)

What if a few years years later, the company is still not
profitable, and the prospects for the company still don't
look good. All invested capital is virtually gone, and the
book value per share of the corporation is less that $0.01
per share.

Since I cannot really sell my shares and take the loss
because it is a private company, at what point can I
actually consider my loss being realized and deduct the loss
for my taxes?

Do I really need to wait until the corporation files for
bancruptcy or formally discontinues its operations?

Something to consider before investing in a private company...

Thanks all,

Etienne

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