- quote -

If the amount is significant, yes.

Seth

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:

- quote -

Only if he wants to know his rights and doesn't want to get
cheated.

Stu

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Stuart A. Bronstein wrote:
- quote -

Therefore, does Seth and Stu concur that OP needs legal
counsel?

ChEAr$,
Harlan

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- quote -

That was my take in general: common stock is mostly
non-assessable (and in the cases where it is, you can always
walk away from it instead of paying the assessment; I'm
thinking of things like co-op apartments).

However, the Superfund environmental laws came later and can
be significantly nastier. I think there's some requirement
that the person must have had some sort of control over the
company, though; if Microsoft software were declared toxic
waste, I don't think they could come after every little
shareholder to pay for the cleanup.

misc.legal.moderated would be a better place to discuss that
issue.

Seth

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:
- quote -

Generally. There might be some sort of operating agreement
whereby the stockholders agree to make additional capital
contributions if the corporation (assuming that's what it
is) needs it.

In any case, if it's a corporation the cost is probably a
capital contribution rather than a deductible expense. The
OP will get the benefit of the additional cost when he
sells.

Stu

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"Shyster1040" <Shyster1040[at]nospamhotmail.com> wrote:

- quote -

I am currently a shareholder. I am being forced to
contribute to the fund as part of them buying my stock. So
I guess I could contribute while I am an owner and factor it
into the basis, or contribute it after and call it a capital
loss. Same effect either way, right?

The way the agreement is written, I get interest paid to me
quarter on my balance (ordinary interest income?) and any
residual funds when the environmental liability has past.
(capital gains?) Do you see any problems there? If the
interest is a problem, I am sure we can change it so that
interest stays in the account.

I appreciate your help.

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Depends. The company's costs may no longer be currently
deductible, either.

The general provision that governs deductibility is Section
162, which permits a deduction for all ordinary and
necessary business expenses incurred during the tax year.
However, even if an expenditure would otherwise be
deductible under Section 162 as a current business expense,
Sections 263 and 263A will nonetheless force the taxpayer to
capitalize that expense into the basis of any capital asset
to the extent that such cost was incurred in acquiring or
permanently improving that capital asset.

As developed under the case-law, if the environmental
problems occurred after the company first acquired the
property, the amounts are deductible as current expenses;
however, if the problems occurred prior to the time the
company acquired the property, then the expenditures will,
generally, have to be capitalized under Section 263 into the
basis of the property which means, if the property is raw
land rather than improvements (usually the case in this
instance), that those amounts aren't recoverable until the
property is sold.

Section 198, prior to its sunset, fixed this issue by making
most of such expenses currently deductible (by giving a
deduction for nondepreciable amounts otherwise required to
be capitalized, and restoring otherwise capitalized
depreciation deductions). Unfortunately, Section 198 is
currently not in force, which means that the general rules
under Section 162 apply.

In your case, however, you're being asked to contribute
money toward those expenses in your role as a (former)
shareholder. If you were a current shareholder, those
amounts would undoubtedly be treated as additional capital
contributions and capitalized into the basis of your stock.
In that case, you would recover these additional amounts for
tax purposes when you either received non-dividend
distributions in excess of your basis, or when you sold the
stock.

That being the case, under the rule of Arrowsmith v.
Commissioner, 344 U.S. 6 (1952), you would analyse it in an
analogous manner - since the additional payments you're
being required to make now would have reduced the amount of
capital gain you would otherwise be required to recognize
upon sale of your stock had you made the payments while you
owned the stock, those payments, if made now, when you are
no longer a shareholder, should have the same general effect
for tax purposes in the year paid. In other words, if you
make a payment now, when you are no longer a shareholder,
that payment should be reported as a capital loss for the
year in which paid, with the same short- or long-term
character as the gain you reported when you disposed of all
of the remaining stock you used to own in the company.

So, to get to the conclusion in a round-about manner, any
payments you make should be currently deductible (provided
you no longer own any of the stock, legally or equitably) as
a capital loss, and will be either long-term or short-term
to the same extent that your original gain or loss on final
disposition of all of your stock was long-term or
short-term.

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Ted wrote:

- quote -

Best to consult legal counsel here. For as I remember it,
they can't DO that. IOW, common stock is non-assessable.

right, Stu? Seth?

ChEAr$,
Harlan Lunsford, EA n LA

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I used to own stock in a company that owns some
environmentally challenged land. The company is coming after
me for part of their remediation costs because I owned stock
when the problem happened. (or so they say...)

Would my expenses in this regard be tax deductible? I am
sure they are deductible to the company, so why not to me?

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