Tax News

CCH (cch.taxgroup.com) reports:

  A married couple was properly denied a deduction for suspended passive losses on their S corporation stock because the stock became worthless two years prior to the year asserted by the couple. The couple claimed that the stock became worthless in the year a lawsuit filed by the corporation was settled because they expected that a recovery would have allowed the corporation to resume its prior activities. However, they failed to demonstrate the reasonableness of their belief that the lawsuit represented potential value for the corporation. The couple did not provide any evidence regarding the merits of the lawsuit or how the damages were calculated. Contrary to the couple's assertion, the corporation's hope that it would prevail in the lawsuit was not the same as the corporation's reasonable expectation that its future operations would succeed. Moreover, the private construction projects carried out by a division of the corporation did not demonstrate that the corporation retained any value. There was no evidence of how much work the division was doing, whether it was viable, or whether it could have reasonably generated enough money to allow the corporation to resume its public projects.

  Affirming a DC Ill., decision, 2007-2 USTC ¶50,680.

A. Bilthouse, CA-7, 2009-1 USTC ¶50,158

Other References:

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,001.103

  CCH Reference - 2009FED ¶10,001.43

 
Code Sec. 469

  CCH Reference - 2009FED ¶21,966.70

 
Code Sec. 1366

  CCH Reference - 2009FED ¶32,084.425

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 30,262
CCH Reference - TRC BUSEXP: 30,262.30