Abada Inc. has a $925,000 basis in 100% of the stock of AbWest Inc., which derives all its income from a manufacturing activity. If Abada determines that the AbWest stock is worthless, it can recognize a $925,000 ordinary loss.

Question

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According to the tax code, a parent company may recognize a loss on the worthlessness of its subsidiary's stock. The loss is treated as an ordinary loss and is deductible in full in the year the stock becomes worthless. Therefore, if Abada determines that AbWest's stock is worthless, it can recognize a $925,000 ordinary loss.

Abada Inc Has a $925,000 Basis in 100% of the Stock