Worthless stock transaction

"Dick Adams" wrote

I tell clients that I fired my psychic last year because she wasn't doing a good enough job - she never saw it coming.

Take the loss in the year you first because aware that the stock was worthless. It'll be a hard battle if the IRS audits. They're going to claim that it was worthlesss in the 80's and who knows if it was deducted back then.

-- Paul A. Thomas, CPA Athens, Georgia

You take the loss in the year the stock became worthless. This may or may not be the same as the year the company went out of business. You have seven years (not the usual three) to amend a 1040 return to claim the loss on a worthless security. Ira Smilovitz

IRS requires either a sale or exchange.

For sake of argument, to whom would you sell it?

If there is no market, then IRS does not require a sale, but it is really a de facto "exchange" for zero value when worthless. ChEAr$, Harlan

This is exactly what happened when my father died. He bought stock in the Stardust Hotel in Las Vegas back in the 50s and the certificate was still around. I took it to one of his brokerages and deposited it into his account there. The brokerage told me the stock was worthless. The E & P attorneys gave me no trouble about this. I would expect that the IRS attorneys that look at the 706s would accept any evidence that the corporation was defunct including a page out of the corporate register for the state showing no entry for the corporation in question or showing it suspended or dissolved. Linda Dorfmont E.A., CFP, CSA

\\ From: "D.D. Pallmer" Subject: Withdrawing from a Non Qualified Variable Annuity Before Age 59 1/2 Newsgroups: misc.taxes.moderated Approved: snipped-for-privacy@smart.net Precedence: first-class Organization: (none provided)

Two years ago, my uncle was sold a fixed variable annuity. It paid some teaser interest rate (the bait that Uncle took) but now is paying a paltry 3.45%. I cannot move the investment to an equity sub-account or anything like that. It's stuck at 3.45%. Buying the product was a mistake but not of major proportions, but I was not consulted at the time. Anyway, Uncle recently gifted the annuity to me. Upon transfer of ownership, the insurance company who wrote it told me that they would 1099 my uncle (next January) for the earnings to date. Not very much and Uncle is in a low tax bracket so this is not a problem. Uncle is 88. There is a lockup period on the annuity where a big penalty (from the insurance company, in addition to any tax penalties) hits if you withdraw. Some of the money recently became unlocked, so I withdrew it. The rest comes unlocked in a year. I am 47 years old. A few questions:

1. I assume my basis will be what it was on the day of the gift, since Uncle will be paying taxes on all earnings thru that date. (?)
2. What is the penalty for me withdrawing all or part of the annuity before my own age 59 1/2 ? And what form do I report all of this on? And if one is disabled, is there an exception to the IRS penalty? And if so, what for do I report THAT on? It's just a bad investment that I want to close out as quickly and as cheaply as possible. I think I need to wait for the "lockup period" to end at the very least. But even beyond that, what are the implications of all of this?

My was my understanding that stock becomes "worthless" when you ask your broker to sell it, and they inform you it is worthless.

How long do you have if the security was a small business (capitalized under $1 million, so subject to a much higher immediate deduction limit)? What if you deducted it as a straight capital loss; can you amend to claim the higher limit for three or seven years? Seth