founders stock worthless ?


J

JohnEyles

In 1997 I invested about $3000 in founders' stock for a
venture started by some folks for whom I'd consulted.
Since then, they've gone through various re-orgs and name
changes too complex for me to comprehend.

Yet, I still own stock in the venture. It is listed on the
London Stock Exchange (under ticker symbol CSD.L). Yet it
is my understanding that the stock cannot actually be bought
and sold at this point.

I am wondering whether it is considered worthless for income
tax purposes ? If I cannot recover any portion of my
investment, then it seems to me that it IS worthless. Thus
I'm tempted to take the loss. Yet, if the company is
ultimately successful, clearly a possibility, then what ?
If I sell it when it becomes tradable, I simply have zero
basis, since I took out all the basis when I declared it
worthless ?

I'm obviously in way over my head here, and maybe my spastic
description of what's transpired is not sufficient to allow
an answer, but I'd appreciare any guidance here.

Thanks, John
 
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S

Stuart A. Bronstein

JohnEyles said:
In 1997 I invested about $3000 in founders' stock for a
venture started by some folks for whom I'd consulted.
Since then, they've gone through various re-orgs and name
changes too complex for me to comprehend.

Yet, I still own stock in the venture. It is listed on the
London Stock Exchange (under ticker symbol CSD.L). Yet it
is my understanding that the stock cannot actually be bought
and sold at this point.

I am wondering whether it is considered worthless for income
tax purposes ?
My guess is that your original stock certificates may not be
able to be sold, but they can probably be traded for current
certificates that can be. Check with a stock broker whose
firm trades on the London exchange. They should be able to
help you out.

Stu
 
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J

joetaxpayer

JohnEyles said:
In 1997 I invested about $3000 in founders' stock for a
venture started by some folks for whom I'd consulted.
Since then, they've gone through various re-orgs and name
changes too complex for me to comprehend.

Yet, I still own stock in the venture. It is listed on the
London Stock Exchange (under ticker symbol CSD.L). Yet it
is my understanding that the stock cannot actually be bought
and sold at this point.

I am wondering whether it is considered worthless for income
tax purposes ? If I cannot recover any portion of my
investment, then it seems to me that it IS worthless. Thus
I'm tempted to take the loss. Yet, if the company is
ultimately successful, clearly a possibility, then what ?
If I sell it when it becomes tradable, I simply have zero
basis, since I took out all the basis when I declared it
worthless ?

I'm obviously in way over my head here, and maybe my spastic
description of what's transpired is not sufficient to allow
an answer, but I'd appreciare any guidance here.
You need to do your diligence to decide if there's any
chance of the company coming back or if in fact it's
worthless. You may not have it both ways, though. To deem
the stock worthless, I believe you must actually 'sell' it.
Last I had a worthless stock, I asked the broker to handle
it and they transacted it even though there's no buyer. I
don't know who then has possession of the worthless shares,
but that was the process. The exception to this is if the
ticker has been cancelled and there's a clear statement that
it's gone. This would happen when, after a bankruptcy, the
bondholders take over and new shares are issued to them and
the old shares deemed worthless.

JOE
 
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S

Seth Breidbart

JohnEyles said:
In 1997 I invested about $3000 in founders' stock for a
venture started by some folks for whom I'd consulted.

Yet, I still own stock in the venture. It is listed on the
London Stock Exchange (under ticker symbol CSD.L). Yet it
is my understanding that the stock cannot actually be bought
and sold at this point.
Why not?
If I sell it when it becomes tradable,
That sounds like there's a temporary trading halt for some
reason; that doesn't make the stock worthless.

If you just want the tax writeoff, you can always sell the
stock for $1 (I think someone here has offered to do that).
If you think there's a reasonable chance it may someday be
worth a lot more than that, then it clearly isn't worthless.

Seth
 
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J

JohnEyles

If you just want the tax writeoff, you can always sell the
stock for $1 (I think someone here has offered to do that).
If you think there's a reasonable chance it may someday be
worth a lot more than that, then it clearly isn't worthless.
Good point - I have no intention of selling it to anyone
for $1 (thanks anyhow folks!) because I paid about $3000 and
I think there *IS* some chance it may actually amount to
something someday.

John
 
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B

Barry Margolin

If you just want the tax writeoff, you can always sell the
Good point - I have no intention of selling it to anyone
for $1 (thanks anyhow folks!) because I paid about $3000 and
I think there *IS* some chance it may actually amount to
something someday.
You can't have it both ways. You only have a tax-related
event on stock when you dispose of it. You can't take the
tax write-off for a worthless share and also hold on to it
hoping for it to have value in the future.

Actually, what you might be able to do is sell the stock for
$1, wait at least 30 days (to avoid the wash sale rule), and
then try to buy it back for that same $1. You'll be able to
declare the capital loss this year. But if the stock does
later amount to something, you'll have a larger capital gain
when you eventually sell it.
 
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