In Pilgrim’s Pride Corp. v. Commissioner , 115 AFTR 2d 2015-930 (CA 5) the fifth circuit overturned the Tax Court in determining an ordinary loss (not capital) on the abandonment of securities. They ruled this because section 1234A(1) only applied to the termination of contractual or derivative rights, and not to the abandonment of capital assets, the Court reversed the Tax Court and rendered judgment in favor of Pilgrim's Pride.
Guidance On Abandonment from the IRS
Abandonment is an event that establishes worthlessness of the securities...
...per Rev. Rul. 2004-58, 2004-1 C.B. 1043, see §601.601(d)(2)(ii)(b). A taxpayer need not relinquish legal title to property in all cases to establish abandonment, in view of the nature of a taxpayer’s rights in stock and other securities these proposed regulations require that to abandon a security, a taxpayer must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for the security. The purpose of these regulations from the IRS was to provide guidance on how to trigger a stock to become absolutely-worthless instead of almost-but-not-quite-worthless.
The key in Pilgrim's Price Corp.
They abandoned the property while it still had significant value. They did not wait for it to be worthless nor did they trigger to the stock to be worthless by their abandonment.
Tax Laws and Court Cases
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