Re: sponsibility

From: Gordon Mohr (
Date: Mon Apr 02 2001 - 17:48:58 PDT

Jeff Bone writes:
> I forgot the punchline to my hypothetical: in the scenario sketched out, you
> end up owing $180k in taxes on what was a $100k + interest loss. How's that
> for fun? Now, let's say you come out of the SEC period while the stock's at
> $1 a share, and you sell; you've now got a ($100 basis after adjusting for
> previous taxes - $1 proceeds = $99) $990,000 capital loss that you can take.
> Here's the punchline: there's a $3000 cap on per-year capital losses. So,
> for the next 330 years, for all your trouble, you get a $3k itemized
> deduction.
> Wow. Our system is just too cool.

One mitigating factor: you can deduct more than $3000/year in
capital losses, against net capital gains. So to look on the
bright side, in this hypothetical, the poor guy gets his next
$990,000 in lifetime capital gains tax-free.

Separately, a stock-for-stock acquisition does not have to
result in a taxable event for people holding the target
companies' stock. I believe it is usual for deals to be
structured so that the acquired company stock is replaced
with acquiring company stock in a tax-free exchange.

So, a version of this scenario where the hit comes from an
option-exercise AMT would be both more typical and more
troublesome -- because an AMT credit is even harder to
"earn back" against future gains than the capital-loss.

Disclaimer: IANATA.

- Gordon

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