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In connection with his argument that G�nther had potential
value as of May 31, 1992, respondent also raises a policy
argument, arguing petitioner’s position creates the possibility
for abuse under section 165(g)(3). According to respondent, a
parent corporation that owns a subsidiary in need of
recapitalization could delay providing funding, declare the stock
worthless, and then recapitalize the company. We reject
respondent’s argument because we do not see any abuse present in
this case. Petitioner faced a very real financial crisis in
1992, which threatened to undermine its own financial stability.
It was not playing games designed to obtain an improper tax
advantage.
4. Conclusion
Under the well-established standards applicable to a
worthless stock loss, it is clear that a taxpayer need not be an
“incorrigible optimist” with respect to his investment. Steadman
v. Commissioner, supra at 378 (quoting United States v. White
Dental Manufacturing Co., 274 U.S. 398 (1927)). We believe that
a prudent businessperson would have concluded that G�nther lacked
both liquidation value and potential value in FYE May 31, 1992.
Petitioner has proven it incurred a worthless stock loss for FYE
1992 in an amount equal to the adjusted basis of its G�nther
stock as of May 31, 1992. We hold that petitioner may deduct
that loss on its consolidated tax return for FYE 1992, the year
the stock became worthless. See sec. 165(g)(1).
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