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Abandoned Stock May Be Treated as an Ordinary Loss

Saul Brenner, CPA, J.D., LL.M. 06.03.2015 | eVisor

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

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 | sbrenner@berdonllp.com

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