-6- that after the surrender of the Cirtex stock, Mr. Yei and members of his family did not retain control of Cirtex. Indeed, Cirtex's corporate income tax returns (Forms 1120) for the corporation's fiscal years ended November 30, 1989 and 1990 reflect that Mr. Yei owned more than 50 percent of Cirtex's stock. Petitioners claim, in the alternative, that they are entitled to a $60,000 loss deduction under section 165(a), contending that the Cirtex stock became worthless in 1989. Section 165(a) permits the deduction of any loss sustained during the taxable year that is not compensated for by insurance or otherwise. Section 165(g) provides that if a security which is a capital asset becomes worthless during the taxable year, the loss is treated as a loss from the sale or exchange of a capital asset on the last day of the taxable year. Worthlessness of stock is determined both by lack of liquidating value and the absence of any reasonable expectation that the stock will become valuable in the future. Morton v. Commissioner, 38 B.T.A. 1270 (1938), affd. 112 F.2d 320 (7th Cir. 1940). Certain events such as bankruptcy, cessation of business, liquidation of the corporation, or appointment of a receiver may foreclose an expectation of future value. Id.; see also Austin Co. v. Commissioner, 71 T.C. 955 (1979). In the instant case, no evidence was presented indicating that Cirtex was insolvent in 1989. Nor was any evidence presented as to the occurrence of an identifiable event in 1989 that would foreclose the expectation of future value with respect to thePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
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