The Court of Appeals for the Fifth Circuit reversed the 2013 Tax Court decision, which held that the taxpayer’s abandonment of securities must be treated as a capital loss under IRC Sec. 1234A. The taxpayer had voluntarily surrendered securities that were worth far less than their original purchase price, but still had significant value. The Fifth Circuit concluded that IRC Sec. 1234A(1) only applies to the termination of contractual or derivative rights, not to the abandonment of capital assets. In this case, the taxpayer abandoned the securities, not a right or obligation with respect to the securities. Therefore, the taxpayer was allowed to deduct an ordinary loss, rather than a capital loss, on its abandonment of securities. Pilgrim’s Pride Corp., 115 AFTR 2d 2015-930 (CA 5).
Hoppe Tax View
There is a planning opportunity for individuals based on this ruling. They may be able to receive an ordinary loss on...
...the abandonment of a stock rather than a capital loss by selling the security or waiting until it becomes worthless. Taxpayers interested in utilizing this position will need to prove that the security had a value prior to abandonment.
Read our post on abandonment here
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View the Tax Law for 26 U.S. Code § 1234A - Gains or losses from certain terminations
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