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additional shares of OTM stock. The $100,000 promissory note
from TMC held by petitioner was canceled.
As of February 8, 1996, the effective date of TMC’s
reorganization plan, OTM common stock had a per share par value
of $.001, and OTM series A convertible preferred stock had a per
share par value of $10.
Set forth below is a summary of the securities petitioner
received in cancellation of the $100,000 promissory note from
TMC:
Securities Received Shares Received Par Value
OTM common stock 2,284 $ 2
OTM convertible preferred 914 9,140
OTM stock warrants 326 --
With the assistance of a certified public accountant in the
preparation of his 1994 Federal income tax return, petitioner
claimed thereon a $100,000 short-term capital loss relating to
the $100,000 TMC promissory note.
On audit, respondent determined that the $100,000 TMC
promissory note was not worthless as of the end of 1994, and
respondent disallowed petitioner’s claimed $100,000 short-term
capital loss relating thereto.
Discussion
Generally, a taxpayer owning a security, such as a corporate
promissory note, which constitutes a capital asset is entitled to
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