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a capital loss in the year in which the security becomes
worthless. Sec. 165(g).
A mere shrinkage, however, in the value of a security does
not give rise to a loss deduction for the taxpayer under section
165(a) if, on the date of the claimed loss, the security has any
recognizable value. Sec. 1.165-4(a), Income Tax Regs.
The worthlessness and the taxable year in which a security
becomes worthless constitute questions of fact on which
petitioner has the burden of proof.1 Boehm v. Commissioner, 326
U.S. 287, 294 (1945).
In order for a security to be treated as worthless, the
security is required to have no present or foreseeable value. In
Morton v. Commissioner, 38 B.T.A. 1270, 1278-1279 (1938), affd.
112 F.2d 320 (7th Cir. 1940), we stated as follows:
The ultimate value of stock, and
conversely its worthlessness, will depend not
only on its current liquidating value, but
also on what value it may acquire in the
future through the foreseeable operations of
the corporation. Both factors of value must
be wiped out before we can definitely fix the
loss. If the assets of the corporation
exceed its liabilities, the stock has a
liquidating value. If its assets are less
than its liabilities but there is a
1 The Internal Revenue Service Restructuring and Reform Act
of 1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added sec.
7491, which in certain circumstances places the burden of proof
on respondent. Sec. 7491 is applicable, however, to court
proceedings arising in connection with examinations commencing
after July 22, 1998. Accordingly, sec. 7491 is inapplicable to
the instant case.
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