Memo 1.docx - RESEARCH MEMO DATE FROM Tamalika Ghosh...

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RESEARCH MEMO DATE: AUGUST 22, 2017 FROM: Tamalika Ghosh SUBJECT: Emily Patrick Facts Today I advised Emily with respect to her letter dated August 15 th . She is interested in knowing the tax treatment in respect of her investment losses. Emily Patrick, a resident of Northampton, MA, formed Teal Corporation several years ago. Initial investment involved $200,000 cash in return of stock valued $20,000 and 8% interest bearing bonds maturing in 9 years, valued at $180,000. She receives an annual salary of $60,000 from Teal Corporation. Emily lent an additional $50,000 on open account to the corporation, several years later. Teal Corporation became insolvent and declared bankruptcy in the current year. Hence Emily has asked our firm to assess her tax liability and treatment of her losses for tax purposes. Issues 1. Does the stock investment is in pursuant to § 1244 of the Internal Revenue Code? 2. If not what are the possible tax treatment? Conclusions 1. If the stocks are in pursuant to § 1244 of Internal Revenue Code, an ordinary loss of $20,000 will be accounted for on the worthless stocks.
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