Your firm’s client, Samuel Silverstone, invested $80,000 in the stock of a new start-up company that opened a chain of restaurants that specialized in exotic foods called “Gnu-Shu.” As might be expected, this venture has not been very successful and Samuel’s stock has lost its value. Samuel knows that worthless securities are normally treated as a short-term capital loss (STCL), which means the $3,000 annual maximum deduction and other limits apply. While talking to one of his co-investors, he discovers that her tax advisor (Eric McShamus) contents that if a taxpayer “abandons” a security it is not subject to the STCL treatment. Samuel is very excited about this and is anxious to asset that he “abandoned” the Gnu Shu stock so that he can deduct the entire $80,000 loss in the current year.
Your manager at the firm, Eleanor Jennings, has assigned you to research this matter and prepare a memo for her and a letter to the client.
1. Regulation citation and date?
2. Do you need more information?
3. Conclusion?