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When a company declares bankruptcy
Old 11-16-2017, 07:34 PM   #1
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When a company declares bankruptcy

I rode Linn all the way down into bankruptcy to the tune of $12k. I was under the impression I would be able to write off the loss against any capital gains BUT Fidelity is telling me the shares have not been officially declared worthless. While Linn no longer trades, I have been granted escrow shares that 'could' be worth something down the road.

I am reading different points of view on how to deal with this: One option is to take the loss and gather as much documentation to show the stock is worthless even though it's not officially worthless.

Other option is to hold tight even though it may take many years to fully resolve.

Anybody gone thru this before?
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Old 11-16-2017, 07:48 PM   #2
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I think you can write it off and then if the "vouchers" have future value declare them as income based on zero purchase price.
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Old 11-16-2017, 07:57 PM   #3
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You can take the cap loss deduction in the tax year the shares become worthless. Since in many cases the exact date of worthlessness is uncertain, if you can today sell your shares for 1 cent, perhaps it's worth it to establish the date of the loss. If you are unable to sell your shares IMO that qualifies as worthless. If you do not take the cap loss during the tax year in which the shares become worthless, you can later file an amended return to do so, provided not more than 3 years have elapsed. After 3 years you cannot take the cap loss deduction.
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Old 11-16-2017, 08:53 PM   #4
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Will fido take the stock off your hands for say a dollar the lot? Then you have accomplished the loss. Wells Fargo Advisors did this for me with several of the folks that were spun out of Verizon.
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Old 11-16-2017, 10:41 PM   #5
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Originally Posted by yomama604 View Post
I rode Linn all the way down into bankruptcy to the tune of $12k. I was under the impression I would be able to write off the loss against any capital gains BUT Fidelity is telling me the shares have not been officially declared worthless. While Linn no longer trades, I have been granted escrow shares that 'could' be worth something down the road.

I am reading different points of view on how to deal with this: One option is to take the loss and gather as much documentation to show the stock is worthless even though it's not officially worthless.

Other option is to hold tight even though it may take many years to fully resolve.

Anybody gone thru this before?
Haven't gone through it but it sounds like you effectively exchanged your common shares for escrow shares and that the escrow shares had a value of zero... so you receive stock with a fair value of $0 in exchange for your Linn shares.

What I would do is to report a sale of your Linn shares for $0 on the date that your common shares became escrow shares.

Was there some sort of transaction on your Fidelity brokerage account statement when this exchange occurred? How does Fidelity show these shares on your brokerage statement and what value do they ascribe to the shares? Presuming they show a zero value, that, plus the fact that the escrow shares are unsalable, should be a reaonable basis to take the loss.

Alternatively, you could see if you can sell the escrow shares for 1c each and that would crystalize your loss beyond question.
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Old 11-17-2017, 03:20 PM   #6
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Though I haven't gone through what you're describing with a public company, I've done some investing in sub prime automotive loans through a private company. A bunch of the loans are in a "recovery account" and are effectively worthless unless, somehow over the next few years, the courts provide judgements against deficient borrowers and those judgements are enforceable. In any case, my CPA (who's pretty conservative and never lets me push the rules) said I could write off these bad loans against capital gains this year.
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Old 11-17-2017, 04:00 PM   #7
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Haven't gone through it but it sounds like you effectively exchanged your common shares for escrow shares and that the escrow shares had a value of zero... so you receive stock with a fair value of $0 in exchange for your Linn shares.

What I would do is to report a sale of your Linn shares for $0 on the date that your common shares became escrow shares.

Was there some sort of transaction on your Fidelity brokerage account statement when this exchange occurred? How does Fidelity show these shares on your brokerage statement and what value do they ascribe to the shares? Presuming they show a zero value, that, plus the fact that the escrow shares are unsalable, should be a reaonable basis to take the loss.

Alternatively, you could see if you can sell the escrow shares for 1c each and that would crystalize your loss beyond question.
This is exactly what I would be looking for as the first step. There are other ways to handle this, but if there is a transaction on your statement, you're as good to go as you need to be. Next would be as others have said, find a way to sell them for zero or some nominal amount. Last, just take the loss and support it with whatever documentation you can. Worse thing that can happen is that a audit questions the loss and to do so would have to present some case that the value was greater than zero. Even then, if it's worth $10, you still have a significant loss and you have to adjust it by $10 (or whatever). There's not much risk in taking the loss.
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Old 11-17-2017, 09:11 PM   #8
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This happened to me early in my investing career with Media Vision. In my case, Schwab paid me $0.01 per share and I took the loss.

This was the first time I put $10k in a single stock. It put me off individual stocks forever and into index funds, where I'm much happier.
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