Can a bond/stock investment be written down when a company files bankruptcy?

Dec 14, 2017 5 Replies

I bought some bonds in a Oil industry (CoX). They filed bankruptcy. After negotiations with creditors, CoX was re-organized. I received a few shares of a holding company, a few shares of the operating company, and some Contingent Payment Rights from the operating co. (expires 3/31/2023). The total FMV is about 15% of my original cost for the bonds.



In addition, I also received some 144A security listed under Fixed Income on my brokerage statement -- with no market value. Since this securities is not listed; I can't sell it to take a loss.



Can I write off my original bond purchase -- after allocating some of the basis to the securities that I received -- in a similar fashion that corporations write down their corporate acquisition for permanent reduction in value of the acquisition ???



Or any other suggestions for taking a loss?



TIA


Somewhere in the reorganization documents there should be an explanation of the tax treatment of the reorganization. Without knowing the details, it could be that you recognized a loss immediately on the reorganization and "purchased" the new securities you received, thereby creating a new cost basis in each item. Or, it could be that you have to allocate your original cost basis over the various items received, with gain/loss deferred until you dispose of the new investments.

Ira Smilovitz, EA

In addition, I also received some 144A security listed under Fixed Income on my brokerage statement -- with no market value. Since this securities is not listed; I can't sell it to take a loss.

Can I write off my original bond purchase -- after allocating some of the basis to the securities that I received -- in a similar fashion that corporations write down their corporate acquisition for permanent reduction in value of the acquisition ???

Or any other suggestions for taking a loss? ====== No. The mere filing of bankruptcy does not make the investment worthless. You have to wait until there's a DECISION in the bankruptcy case, even though most (if not all) cases result in the full cancellation of shareholders' equity.

You have 7 years to file an amended return to claim your federal loss.

When a public corporation files bankruptcy, some stock brokers will buy your shares back for a pittance, so you can take the deduction. Ask your broker what their policy is.

This thread has moved off-topic. The OP had purchased bonds in the bankrupt corporation, not stocks. The company already went through reorganization and he already received replacement securities - two different stocks and contingent payment rights - and was trying to determine how to allocate his original cost basis and when/how to recognize loss. It's not a discussion of what you can do if you hold shares of a company in the process of bankruptcy.

Ira Smilovitz, EA

How has this moved off topic, and why would a slight veer off topic be a problem anyway, as other read these threads now and in the future?

Seems the fact that some brokers will buy back shares at a pittance to allow you to take a loss could be of use with respect to the OP's "144A security listed under Fixed Income on my brokerage statement -- with no market value."

Or have a friend buy them for a pittance, if need be.

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