Question

Need help locating these three question in the IRS publication. Please cite IRS publication # Thank you.

1. If a shareholder holds a stock right past the expiration date, so that it expires and becomes worthless, does the shareholder recognize a deductible loss?
2. If a shareholder sells a stock right, what is the formula for computing his or her basis in the stock right for purposes of determining taxable gain or deductible loss on the sale?
3. If a shareholder exercises a stock right, what is the formula for computing his or her basis in the share of common stock acquired?

Answer 1

1. If a shareholder holds a stock right past the expiration date, so that it expires and becomes worthless, does the shareholder recognize a deductible loss?

A stock is considered as worthless if traded and are considered as abandoned and it can be treated as capital loss while filing the return. A worthless stock will be zero value for you if it still has some value it will not be considered as worthless.

The stock will be reported in Part one and Part two in form 8949 and can be treated as capital loss

2. If a shareholder sells a stock right, what is the formula for computing his or her basis in the stock right for purposes of determining taxable gain or deductible loss on the sale?

This will be calculated through the 'S' CORPORATION STOCK AND DEBT BASIS

3. If a shareholder exercises a stock right, what is the formula for computing his or her basis in the share of common stock acquired?

For calculation of theoretical Rights of a stock the following the formula will be used:

(Stock price – Right subscription price) / Number of rights needed to buy a share.