DiLamer Inc. paid $300,000 to purchase 30-year bonds issued by a publicly held foreign corporation. The foreign government recently privatized the corporation and declared that all outstanding corporate debt obligations would not be honored. What is the tax consequence to DiLamer of this bad news?

Question

Quizplus · Accepted Answer

According to IRC Section 165(g)(1), a loss from the abandonment of a capital asset (such as the bonds in this case) is treated as a capital loss. Therefore, the tax consequence to DiLamer of the foreign corporation's decision would be a $300,000 capital loss.