I own some Holmes Harbor munis (Google if you want to see the horrible details) which have been the subject of years of class-action litigation. This year a final appeal to the state supreme court was denied and the lawyers determined that the case is dead. I would like to recognize my loss.
The bonds are held at Fidelity. Fidelity has some sort of procedure to determine whether a security is worthless so it can be "removed" from an account. Unfortunately, after a month or so they determined that the security isn't worthless (though it can't be sold). Or maybe they determined that they can't determine that it is worthless; they won't share any of their research so it's hard to say. They also won't buy it for a penny or such because "Fidelity does not have the capacity to do that" (I thought that was kind of funny).
What's the best strategy to handle this? Can I list the security as worthless on schedule D even though I can't get rid of it? Am I at risk for an argument that the security was actually worthless years ago while it just took years of litigation to determine this?
I remember discussions of stocks that were worthless in the sense that the transaction costs to sell them would exceed the price received. This seems different in that I can't get rid of the bond even if I want to pay.
Dan Lanciani ddl@danlan.*com