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tax year. However, this loss is available only to original owners of the stock. Because Jackson inherited
the stock, he is not the original owner. Therefore, in this case, no ordinary loss may be deducted. (Note
that Jackson would be allowed a capital loss in the year the stock was deemed entirely worthless. The
capital loss would be deducted under the personal capital loss rules and calculated using the likely
transfer basis of $25,000.)
Choice "b" is incorrect. An ordinary loss is allowed on the worthlessness of Sec. 1244 stock if taken by
an original owner. It appears as if this answer was attempting to "trick" the candidate into choosing this
option (a $3,000 deduction as would be the case if the loss were a capital loss, rather than an ordinary
loss) and not considering that the question referenced the deductibility of an ordinary loss.
Choices "c" and "d" are incorrect. Both these answers utilize either the basis of Jackson's parents or the
fair market value to determine th...
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This note was uploaded on 06/14/2013 for the course ACCOUNTING Regulation taught by Professor Becker during the Fall '10 term at Keller Graduate School of Management.
- Fall '10
- The Land