When is a startup dead so we can claim the loss on shares?

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Freetime76
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When is a startup dead so we can claim the loss on shares?

Post by Freetime76 »

I inherited shares in a startup company that hasn’t done diddly squat for years. I am interested in closing that chapter by claiming the loss as soon as I can in the eyes of the IRS.
- The last SEC filing was Form 10Q 3/31/2019.
- Something like 3K cash on hand (unaudited)
- this 10Q says about 500K in assets and about 11M in short/long term liabilities, plus about 6M in stock deficits.
- stock was purchased for 40K several years ago
- trading volume is zero (for years AFAIK), only on the OTC market, share price says 80 cents, but not a real number obviously
- paper certificates not held at an investment bank, so no tax form generated automatically
- not sure if I’d have to do it, but to change ownership on record, would have to register the sale (I think they used v-stock) with that blasted medallion signature. Ugh.
- no whiff of the company declaring bankruptcy as yet...they keep limping along, somehow.

...thought about selling the piece of paper (stock certificates) to someone for a dollar and then claiming the loss BUT I am spooked by a rule I saw that a person can be fined (an arbitrary amount up to “a lot”) for unduly influencing the share price by dumping a lot of shares.

In case it’s instructive to anyone you know: The whole thing was orchestrated by a dubious character who is financially savvy and knows how to feather he and friends’/family nests ... and the techies went for it. Good people, including a farmer in the Midwest with his life savings put into this business. My dad died (hence the inheritance), but he was openly known as not good with investments. I say that with love. At the time, my mom said why’d you do that?!? He loved the idea, so I rationalize it as well, dad could’ve wasted/spent that on a car or kitchen update :wink: so if working with a startup company made him happy, so be it. He slept well at night, but for me, it’s a weight and reminder I’d like to be rid of.
lakpr
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Re: When is a startup dead so we can claim the loss on shares?

Post by lakpr »

I am not sure if you are allowed to claim the loss, since the "loss" is calculated with respect to the market value of the shares on the date you inherited them (the date of your father's death). Both gains and losses on any investments go to the grave along with the decedent.
bberris
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Re: When is a startup dead so we can claim the loss on shares?

Post by bberris »

Can you arrange a private sale for pennies?
Gill
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Re: When is a startup dead so we can claim the loss on shares?

Post by Gill »

You may not even have a loss. Your basis would normally be the value at the date of death. If that was zero and it currently is zero you would have no opportunity to claim a loss. When was the date of death?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Chuck
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Re: When is a startup dead so we can claim the loss on shares?

Post by Chuck »

Ordinarily you can sell your stake for $1 to your broker, or lawyer (someone at arms-length, not a family member), but I also agree if it was worthless at the time you inherited it, and it's worthless now, then you have no loss.

(Edit: Sorry for your loss of your loss.)
Gill
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Re: When is a startup dead so we can claim the loss on shares?

Post by Gill »

Chuck wrote: Tue Sep 15, 2020 7:32 am Ordinarily you can sell your stake for $1 to your broker, or lawyer (someone at arms-length, not a family member), but I also agree if it was worthless at the time you inherited it, and it's worthless now, then you have no loss.

(Edit: Sorry for your loss of your loss.)
Selling it for a dollar would likely be a long term capital gain. Tragic to lose a $40,000 capital loss but that looks like the result.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
crefwatch
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Re: When is a startup dead so we can claim the loss on shares?

Post by crefwatch »

Vanguard has refused to buy my long-dead stocks (inherited from MIL) for $1 or anything else. Even for Voyager imperialists. We need to find a different solution.
drk
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Re: When is a startup dead so we can claim the loss on shares?

Post by drk »

Maybe consult with a CPA, but I believe you can abandon your interest in the stock:
If you own securities, including stocks, and they become totally worthless, you have a capital loss but not a deduction for bad debt. Worthless securities also include securities that you abandon. To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it.
  • Treat worthless securities as though they were capital assets sold or exchanged on the last day of the tax year.
  • You must determine the holding period to determine if the capital loss is short term (one year or less) or long term (more than one year).
  • Report worthless securities on Form 8949, Part I or Part II, whichever applies. Indicate as a worthless security deduction by writing Worthless in the applicable column of Form 8949.
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alec
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Re: When is a startup dead so we can claim the loss on shares?

Post by alec »

crefwatch wrote: Tue Sep 15, 2020 6:15 pm Vanguard has refused to buy my long-dead stocks (inherited from MIL) for $1 or anything else. Even for Voyager imperialists. We need to find a different solution.
Call Schwab or Fidelity.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
inbox788
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Re: When is a startup dead so we can claim the loss on shares?

Post by inbox788 »

What is your inherited cost basis, and more importantly, what documentation do you have to support that?

How much was the stock worth on the OTC around the date of passing?

If I understand the situation correctly, you inherited a capital investment worth $xyz on [inherited date] that the original owner paid $40k [this amount doesn't matter since step up/down basis is used] on some date [sometime before inherited date - don't think actual date matters]. Anyway, if you can substantiate that the stock you inherited was worth some value and now is worth $0, you should be able to claim that amount.

https://www.irs.gov/publications/p551#e ... 1000257009
https://www.irs.gov/faqs/capital-gains- ... property-1

https://fairmark.com/investment-taxatio ... ecurities/
Topic Author
Freetime76
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Re: When is a startup dead so we can claim the loss on shares?

Post by Freetime76 »

Gill wrote: Tue Sep 15, 2020 7:27 am You may not even have a loss. Your basis would normally be the value at the date of death. If that was zero and it currently is zero you would have no opportunity to claim a loss. When was the date of death?
Gill
DOD was 2010. At the time, the estate value as $4 per share. Penny stock, no trade volume, OTC so no way to sell it for actual returns (if that makes any sense).

It could be sold to a friend, anybody for pennies, but I am worried about that SEC rule.
Topic Author
Freetime76
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Re: When is a startup dead so we can claim the loss on shares?

Post by Freetime76 »

Chuck wrote: Tue Sep 15, 2020 7:32 am Ordinarily you can sell your stake for $1 to your broker, or lawyer (someone at arms-length, not a family member), but I also agree if it was worthless at the time you inherited it, and it's worthless now, then you have no loss.

(Edit: Sorry for your loss of your loss.)
Ha ha, very funny!

I get hives any time someone mentions the genius of penny stocks.

A price was documented when my dad dies, let’s say $4. That was based on an OTC website. The company was taking new investors at a discounted price of, let’s say $2, but I have no documentation on that.
Topic Author
Freetime76
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Re: When is a startup dead so we can claim the loss on shares?

Post by Freetime76 »

Duplicate.
Last edited by Freetime76 on Wed Sep 16, 2020 9:01 am, edited 1 time in total.
Topic Author
Freetime76
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Re: When is a startup dead so we can claim the loss on shares?

Post by Freetime76 »

alec wrote: Tue Sep 15, 2020 6:41 pm
crefwatch wrote: Tue Sep 15, 2020 6:15 pm Vanguard has refused to buy my long-dead stocks (inherited from MIL) for $1 or anything else. Even for Voyager imperialists. We need to find a different solution.
Call Schwab or Fidelity.
I didn’t have any luck with Schwab either, though it was maybe 8 years ago. They wouldn’t consider listing the penny stock in my portfolio unless it was over 1M, I think.

Not that it could’ve been sold anyway. :oops:
Topic Author
Freetime76
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Re: When is a startup dead so we can claim the loss on shares?

Post by Freetime76 »

drk wrote: Tue Sep 15, 2020 6:38 pm Maybe consult with a CPA, but I believe you can abandon your interest in the stock:
If you own securities, including stocks, and they become totally worthless, you have a capital loss but not a deduction for bad debt. Worthless securities also include securities that you abandon. To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it.
  • Treat worthless securities as though they were capital assets sold or exchanged on the last day of the tax year.
  • You must determine the holding period to determine if the capital loss is short term (one year or less) or long term (more than one year).
  • Report worthless securities on Form 8949, Part I or Part II, whichever applies. Indicate as a worthless security deduction by writing Worthless in the applicable column of Form 8949.
Thank you for the link! I hadn’t found that, and we definitely will need a CPA to navigate details.
Topic Author
Freetime76
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Re: When is a startup dead so we can claim the loss on shares?

Post by Freetime76 »

inbox788 wrote: Tue Sep 15, 2020 7:05 pm What is your inherited cost basis, and more importantly, what documentation do you have to support that?

How much was the stock worth on the OTC around the date of passing?

If I understand the situation correctly, you inherited a capital investment worth $xyz on [inherited date] that the original owner paid $40k [this amount doesn't matter since step up/down basis is used] on some date [sometime before inherited date - don't think actual date matters]. Anyway, if you can substantiate that the stock you inherited was worth some value and now is worth $0, you should be able to claim that amount.

https://www.irs.gov/publications/p551#e ... 1000257009
https://www.irs.gov/faqs/capital-gains- ... property-1

https://fairmark.com/investment-taxatio ... ecurities/
Thanks for the links, especially the fairmark writeup...exactly how I feel: I don’t want it and I can’t get rid of it (it says in the article). Am reading tonight. I do have a historic quote of value for the stepped up basis when I received it. It’s 80,000 shares, and I’m not sure if I can show it’s completely worthless yet. Frustrating.
Gill
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Re: When is a startup dead so we can claim the loss on shares?

Post by Gill »

Freetime76 wrote: Wed Sep 16, 2020 8:55 am
Gill wrote: Tue Sep 15, 2020 7:27 am You may not even have a loss. Your basis would normally be the value at the date of death. If that was zero and it currently is zero you would have no opportunity to claim a loss. When was the date of death?
Gill
DOD was 2010. At the time, the estate value as $4 per share. Penny stock, no trade volume, OTC so no way to sell it for actual returns (if that makes any sense).

It could be sold to a friend, anybody for pennies, but I am worried about that SEC rule.
What SEC rule? It's quite unlikely the IRS would question a $4 basis. Did your father pay 50 cents a share and it was worth $4 at the time of his death? You would have difficulty showing it's worthless at this point so best to execute a sale for some nominal consideration.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
inbox788
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Re: When is a startup dead so we can claim the loss on shares?

Post by inbox788 »

Freetime76 wrote: Wed Sep 16, 2020 8:58 amA price was documented when my dad dies, let’s say $4. That was based on an OTC website. The company was taking new investors at a discounted price of, let’s say $2, but I have no documentation on that.
Collect any and all information about the price around 2010. Who and how was the $4 documented? Do you have a printout of the OTC site? While not enough IMO, it might be sufficient to pass the burden to the investigators to prove it wrong. Is there any historic trading at all around 2010 that can be found now? And any filings, 10Q, etc. of new sales around 2010 may be helpful.

The recent 10q filing means that the company was still around in some form, which is good because if they went under more than a few years ago it might be too late. Is there a contact at the company still answering phones or responding to mail? Your financial statements showing insolvency along with inability to identify any company presence may be enough, and for a few shares, I'd take my chances, but if you're trying to write off 5 or 6 digits, you probably want greater certainty.
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BogleFanGal
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Re: When is a startup dead so we can claim the loss on shares?

Post by BogleFanGal »

lakpr wrote: Tue Sep 15, 2020 6:35 am I am not sure if you are allowed to claim the loss, since the "loss" is calculated with respect to the market value of the shares on the date you inherited them (the date of your father's death). Both gains and losses on any investments go to the grave along with the decedent.
Can someone confirm the above? I wanted to sell an inherited stock (worth 1/4 the share price today vs on date of decedents's death) and write off the loss, but was told no losses could be deducted on inherited stock. Was that incorrect?
"Life would be infinitely happier if we could only be born at the age of eighty and gradually approach eighteen." Mark Twain
increment
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Re: When is a startup dead so we can claim the loss on shares?

Post by increment »

For tax purposes, any gain or loss that happened during the deceased person's lifetime no longer has any significance. But the gain or loss since date of death is recognized.

(Strictly speaking, the loss is not "deducted", but gets subtracted from other long-term capital gains, then short-term capital gains, and finally to a limited extent from ordinary income. Any remaining loss is carried over until next tax year.)
Gill
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Re: When is a startup dead so we can claim the loss on shares?

Post by Gill »

BogleFanGal wrote: Wed Sep 16, 2020 1:15 pm
lakpr wrote: Tue Sep 15, 2020 6:35 am I am not sure if you are allowed to claim the loss, since the "loss" is calculated with respect to the market value of the shares on the date you inherited them (the date of your father's death). Both gains and losses on any investments go to the grave along with the decedent.
Can someone confirm the above? I wanted to sell an inherited stock (worth 1/4 the share price today vs on date of decedents's death) and write off the loss, but was told no losses could be deducted on inherited stock. Was that incorrect?
You were told incorrectly or misunderstood. You should have been able to deduct the loss you describe.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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BogleFanGal
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Re: When is a startup dead so we can claim the loss on shares?

Post by BogleFanGal »

Gill wrote: Wed Sep 16, 2020 2:40 pm
BogleFanGal wrote: Wed Sep 16, 2020 1:15 pm
lakpr wrote: Tue Sep 15, 2020 6:35 am I am not sure if you are allowed to claim the loss, since the "loss" is calculated with respect to the market value of the shares on the date you inherited them (the date of your father's death). Both gains and losses on any investments go to the grave along with the decedent.
Can someone confirm the above? I wanted to sell an inherited stock (worth 1/4 the share price today vs on date of decedents's death) and write off the loss, but was told no losses could be deducted on inherited stock. Was that incorrect?
You were told incorrectly or misunderstood. You should have been able to deduct the loss you describe.
Gill
Good to know...thank you. Now I can sell the darn thing. Was going to hold onto it, figuring I had nothing to lose since I couldn't deduct it.
"Life would be infinitely happier if we could only be born at the age of eighty and gradually approach eighteen." Mark Twain
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Freetime76
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Re: When is a startup dead so we can claim the loss on shares?

Post by Freetime76 »

Just to close the loop on this: unfortunately for me, the company still is twitching (website still up, a press release about nothing, a low trade volume of 100 or 1000 shares every so often).

There is a friendly warning on the OTC pink sheets website:
“Warning! This company may not be making material information publicly available
Buying or selling a security on the basis of material nonpublic material information is prohibited under Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b5-1 thereunder. Violators may be subject to civil and criminal penalties.”

I am not going to poke a dying snake right now, so I will check back annually in December to see if they look more dead yet....although I suspect they will move this shell company to house another company in some convoluted array of contracts that aren’t worth my effort to sort through. Sad.

BogleFanGal -glad you can sell off your shares.

Thanks for the input everyone!
inbox788
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Re: When is a startup dead so we can claim the loss on shares?

Post by inbox788 »

Freetime76 wrote: Thu Sep 17, 2020 7:17 am Just to close the loop on this: unfortunately for me, the company still is twitching (website still up, a press release about nothing, a low trade volume of 100 or 1000 shares every so often).
That's good news. It means you have a future write down that you can time with a stock sale if you want to try to plan for it. And that trading volume, low as it is, provides independent evidence of the value at those times.

A website up is pretty meaningless. I have one running for over 10 years that I haven't touched for over 4000 days according to the counter and it's still alive and kicking. Aside from paying the DNS and hosting fees, which can be prepaid many years in advanced, I don't think I've done any updates or maintenance. I could pay for 10 or more years today and die tomorrow and the website might still be around quite a while.

What were the dates of the last 3 press releases?

Any chance you can transfer the shares to a broker that can sell them? Seems kind of silly, but there should be an easier way to deal with rubbish (I'm all for green, but I'm a bit tired sorting all my trash and figuring out where to drive to to best dispose of batteries, lightbulbs, motor oil, television, microwaves, UPS batteries, cell phones, and laptops). It's not like this OTC stock is some sort of radioactive waste, ammonium nitrate, or unwanted timeshare. (or is there some minute residual liability?)

Maybe a charity will accept all the comatose stocks and benefit from the occasional miracle, but someone will have to charge a sufficient fee to cover the accounting and administrative expenses.
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