Bruce receives 20 stock rights in a nontaxable distribution. The stock rights have an FMV of $5,000. The common stock with respect to which the rights are issued has a basis of $4,000 and an FMV of $120,000. Bruce allows the stock rights to lapse. He can deduct a loss of
A)$0.
B)$1,000.
C)$5,000.
D)none of the above

Question

Quizplus · Accepted Answer

When stock rights received in a nontaxable distribution are allowed to lapse, no deduction is allowed for the loss. This is because the basis of the rights, for the purpose of determining loss, is considered to be zero.

Bruce Receives 20 Stock Rights in a Nontaxable Distribution