On January 12 of the current year, Barney Corporation, a publicly-held corporation, files for bankruptcy. During the bankruptcy proceedings it is determined that creditors will only receive 10% of what they are owed and that the shareholders will receive nothing. Sheryl, a calendar-year taxpayer, purchased 1,000 shares of Barney Corporation common stock for $7,000 on February 22 of the prior year. What tax issues should Sheryl consider?
The issues are:
1. The earliest date to determine the worthlessness of a stock is the date of filing bankruptcy. The problem did not state whether it was Chapter 7 or Chapter 11, but based on the little that will be returned to the ...
The solution lists four consequences (tax issues) for Sheryl to consider and understand.