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Petitioner paid $109,140 in cash and executed a $618,460
note for 6,800 shares of Dondi Financial stock. Respondent
concedes and we find that petitioners' basis in the Dondi
Financial stock was $727,600.
2. Worthlessness
a. Background
Respondent contends that the Dondi Financial stock became
worthless in 1985 or earlier. We disagree, and we conclude that
the Dondi Financial stock became worthless in 1987. We reach
this conclusion regardless of which party has the burden of
proof.
Stock is worthless if it has neither liquidating value nor
potential value. Austin Co. v. Commissioner, 71 T.C. 955, 970
(1979). A corporation's stock has liquidating value if its
assets exceed its liabilities. Id. A corporation's stock has
potential value if there is a reasonable expectation that it will
become valuable in the future. Morton v. Commissioner, 38 B.T.A.
1270, 1278 (1938), affd. 112 F.2d 320 (7th Cir. 1940). A
corporation's stock may be worthless if the corporation declares
bankruptcy, ceases to operate, liquidates, or has a receiver
appointed, because these events can destroy the stock's potential
value. Id.
Whether stock becomes worthless in a particular year is a
question of fact. Boehm v. Commissioner, 326 U.S. 287, 293
(1945); Finney v. Commissioner, 253 F.2d 639, 642 (9th Cir.
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