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amended return claims a business bad debt deduction (ordinary
loss) for the worthlessness of the $2 million loan.12
The third amended return adds a claim for a worthless stock
loss attributable to the worthlessness of Mr. Rendall’s Solv-Ex
common stock remaining after Merrill Lynch’s sale of the pledged
shares. That deduction results in a pro tanto decrease in the
capital gain and increase in the net loss reported on the first
and second amended returns.
On the Schedule D attached to the fourth amended return,
petitioners omit the gain from Merrill Lynch’s sale of the
pledged Solv-Ex common stock. Instead, they claim a worthless
stock loss equal to Mr. Rendall’s total cost basis in all of his
Solv-Ex shares, including the shares pledged to Merrill Lynch.
In the “Explanation of Changes to Income, Deductions, and
Credits”, petitioners describe the purpose of the fourth amended
return as follows: “To writeoff Solv-Ex worthless stock and
remove sales proceeds [from Merrill Lynch’s sale of the pledged
shares] which taxpayer incorrectly reported.” That change
results in a net capital loss for 1997 (deducted to the extent of
$3,000 pursuant to section 1211(b)) and a substantial increase in
12 The first and second amended returns report the same
1997 net loss. Nonetheless, assuming there was a 1997 bad debt,
the business versus nonbusiness bad debt issue is not moot
because the resolution of that issue directly bears upon the
amount of petitioners’ net operating loss carryback/carryover
from 1997.
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