Worthless Stock: Duck Corporation is owned equally by Harry, Susan and Big Corpo

Question

Worthless Stock: Duck Corporation is owned equally by Harry, Susan and Big Corporation. Harry and Susan are single. In 2007, Harry, Tom and Big, the original investors in Duck, each paid $125,000 for their Duck stock. Susan purchased her stock from Tom in 2010 for $175,000. No adjustments to basis occur after the stock acquisition date. Duck encounters financial difficulties as a result of a lawsuit brought by a customer who suffered personal injuries from using a defective product. Duck files for bankruptcy, and uses all its assets to pay its creditors in 2015. What are the amount and character of each shareholder’s loss?

Explanation / Answer

Harry: Ordinary loss under Sec. 1244 of $50,000 and long-term capital loss of $75,000.

Susan: Long-term capital loss of $175,000.

Big Corporation: long-term capital loss of $125,000.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.