In a ruling favorable to taxpayers, the Fifth Circuit Court of Appeals in Pilgrim's Pride 1 held that a taxpayer may realize ordinary losses in a pre-2008 abandonment of stock. This decision overturned a Tax Court ruling that, under Internal Revenue Code Section 1234A, taxpayers must treat a surrender of stock as a loss from a sale of an asset.
In the Pilgrim's Pride matter, stock originally purchased for $98.6 million received an offer of only $20 million. Instead of accepting the low offer, the board of directors decided to abandon the securities for no consideration. The Fifth Circuit viewed Section 1234A as applying to a derivative or contractual right with respect to a capital asset and not to the direct ownership of the asset. The Pilgrim's Pride stock was owned directly so it was held that 1234A did not apply.
1 Pilgrim's Pride Corp. v. Commissioner, No. 14-60295 (5th Circ., 2015), Doc. 2015-4658
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