Worthless stock

[S T]

Have a taxpayer with 1099B transactions, no issue there,
but then the T/p informs me that there is an acquisiton of stock and in late 2011 or early 2012 ceases to trade, and still is not trading.

We are not talking alot of $ here - under $ 1,000 - all purchased/traded through ScottTrade. - Clearly shows not trading or worthless on Month to Month Stmts.

Is that sufficient to take the loss on Schedule D as worthless stock, and then if,so, do I mark - Box B - Basis not reported, as Scott Trade did not include in their Annual 1099B report, or mark Box C (cannot check box A or B)

I have already accessed clients transcripts on e-services, and IRS is showing either A or B - so I am thinking this one maybe/might need to be a C code on 8949

Just not sure how all of my learned colleagues are dealing with this issue for worthless stock

Thanks,

Sandy

[FEDUKE404]

Sounds correct

I think you're on the right path.

First thing is to be certain the stock is NOT trading, that it is truly worthless. Scottrade monthly (positions) statements should show something like "no market for XYZ exists as of mm/dd/2013." Because you mentioned the stock may have become worthless in 2011 or 2012 (no market) you may be boxed in to reporting the "sale" in one of those years via an amended return.

Since there is obviously no sale, and no Form 1099-B generated, choice "C" sounds like the logical one.

You will need to jump through the correct hoops to show the worthless "sale" which is normally deemed to have occurred on 12/31/20xx. Most tax software has a code/Q&A that, when used, generates the correct presentation on Form 8949/Sch D for a worthless stock.

FE

[Roberts]

You could also have the client contact Scottrade and they will generate a dollar loss transaction. Meaning Scottrade will buy it from them for $1 which generates a loss on the 1099. Sometimes referred to as a Dollar Write Off.

I've done the early write off in the past without doing this but the problem is eventually the broker will generate a 1099 for the loss if you don't coordinate it.

[FEDUKE404]

Sale vs truly worthless

You could also have the client contact Scottrade and they will generate a dollar loss transaction. Meaning Scottrade will buy it from them for $1 which generates a loss on the 1099. Sometimes referred to as a Dollar Write Off.

I've done the early write off in the past without doing this but the problem is eventually the broker will generate a 1099 for the loss if you don't coordinate it.

I have had clients use a similar process in the past in order to generate a loss. For whatever it's worth, the last time this was suggested to a client they were told their brokerage firm no longer performs such a service. Apparently Scottrade will use something that does generate a 1¢ sale (for an administrative fee of <$10), which clears the stock from the client's account. Such an action DOES generate a Form 1099-B, which would apparently move us back to the Form 8949 "A" or "B" categories.

Using this method is appropriate when the stock is still on life support (such as being on the pink sheets) but still maintains a trading market, no matter how feeble.

The OP states the stock in question is not trading in any market, which presents an entirely different scenario to be considered. Hence, by definition, said stock becomes "worthless" at the end of the appropriate calendar year and no "sale" (regardless of how creative) is necessary.

It should be noted the client cannot just decide "when" (which year) to claim a stock to be worthless. There either has to be an actual sale/disposition (supported by Form 1099-B), or a worthless factual event (documented cessation of trading) which then locks the client into using a specific 12/31/20xx date for claiming the loss.

FE

[Nashville]

Not Worthless

IRS will not acknowledge that a stock is worthless unless a letter is generated from the treasurer stating it is worthless and deemed to be so for tax purposes. I have had a couple stocks whose value was not even published, yet came back. I put $1000 into one of them and after crashing, i got monthly statements from brokerage firm that the stock had "unpublished" value. It began coming back and is now worth about $350.

There is one absolute, foolproof way to take the loss. Sell it to someone for zero or pennies, as long as the buyer is not a related tax party. This locks in the loss and no one can contest it.

[Roberts]

There is one absolute, foolproof way to take the loss. Sell it to someone for zero or pennies, as long as the buyer is not a related tax party. This locks in the loss and no one can contest it.

Exactly. The fact it is no longer trading isn't really relevant. That's why I suggested the dollar loss trade. If the firm wont do it, fire the firm.
A dollar loss trade doesn't require the stock to be trading on an exchange or on self described life support.

[BOB W]

There is only 2 ways to write off a stock that is worthless. 1- Sell it to a willing buyer- broker. 2. Abandonment- You must surrender the stock back to the company that issued the stock.

If the company is no longer exiting you will need proof of date of closing of the company.

[Roberts]

There is only 2 ways to write off a stock that is worthless. 1- Sell it to a willing buyer- broker. 2. Abandonment- You must surrender the stock back to the company that issued the stock.

If the company is no longer exiting you will need proof of date of closing of the company.

So if the company goes through bankruptcy and eliminates their stock, you can't write it off because they haven't closed the company yet?

[S T]

Thanks everyone!
Going to have T/P have Scottrade process as sale or worthless transaction, then we will know for sure and will be reported on the 1099B in 2013.

Sandy