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Subject Author Date
worthless bond Dan Lanciani 04-14-2008
| ---> Re: worthless bond Stuart Bronstei...04-15-2008
| `--> Re: worthless bond Stuart Bronstei...04-17-2008
Posted by Dan Lanciani on April 14, 2008, 5:00 pm
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I own some Holmes Harbor munis (Google if you want to see the horrible
details) which have been the subject of years of class-action litigation.
This year a final appeal to the state supreme court was denied and the
lawyers determined that the case is dead. I would like to recognize my
loss.

The bonds are held at Fidelity. Fidelity has some sort of procedure
to determine whether a security is worthless so it can be "removed"
from an account. Unfortunately, after a month or so they determined
that the security isn't worthless (though it can't be sold). Or
maybe they determined that they can't determine that it is worthless;
they won't share any of their research so it's hard to say. They also
won't buy it for a penny or such because "Fidelity does not have the
capacity to do that" (I thought that was kind of funny).

What's the best strategy to handle this? Can I list the security
as worthless on schedule D even though I can't get rid of it? Am
I at risk for an argument that the security was actually worthless
years ago while it just took years of litigation to determine this?

I remember discussions of stocks that were worthless in the sense
that the transaction costs to sell them would exceed the price
received. This seems different in that I can't get rid of the bond
even if I want to pay.

                                Dan Lanciani
                                ddl@danlan.*com

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Posted by joetaxpayer on April 14, 2008, 5:12 pm
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Dan Lanciani wrote:

> I own some Holmes Harbor munis (Google if you want to see the horrible
> details) which have been the subject of years of class-action litigation.
> This year a final appeal to the state supreme court was denied and the
> lawyers determined that the case is dead. I would like to recognize my
> loss.

If it's not worthless, is it still trading? If it is, just offer to sell
it. If it's not trading, your latest details should be enough to deem it
worthless. I'm surprised Fidelity won't take it out of your account, I
thought most brokers would.
Joe

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Dan Lanciani on April 15, 2008, 2:25 am
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joetaxpayer@nospam.com (joetaxpayer) writes:
|
|
| Dan Lanciani wrote:
|
| > I own some Holmes Harbor munis (Google if you want to see the horrible
| > details) which have been the subject of years of class-action litigation.
| > This year a final appeal to the state supreme court was denied and the
| > lawyers determined that the case is dead. I would like to recognize my
| > loss.
|
| If it's not worthless, is it still trading? If it is, just offer to sell
| it.

I tried to place a market sell order but Fidelity cancelled it almost
immediately saying that there was no market for the bond. It's annoying
that they know _that_ but at the same time say they can't say it's
worthless....

| If it's not trading, your latest details should be enough to deem it
| worthless. I'm surprised Fidelity won't take it out of your account, I
| thought most brokers would.

I've been finding Fidelity less and less helpful over the past few years.
They tell me how great it is for me to be a "Private Access" customer,
but I don't have access to much of anything. Any non-trivial question
seems to yield an answer of "that's what the back office told us and we
can't tell you anything else." I'm seriously thinking about looking for
a replacement. Suggestions? Some things that would be nice:

-I'd like the ability to block unauthorized third-party ACH debits.

-I'd like to be able to sell or transfer portions of a bond position.
(Fidelity merges identical bonds when you buy or transfer in but won't
let you separate them again.)

-If the broker is going to track basis I'd like them to show their work.
(Fidelity appears to make only downward adjustments but they won't disclose
any details of how they arrive at their numbers so it's hard to discuss.)

                                Dan Lanciani
                                ddl@danlan.*com

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Stuart Bronstein on April 15, 2008, 10:20 am
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ddl@danlan.*com (Dan Lanciani) wrote:
> joetaxpayer@nospam.com (joetaxpayer) writes:
>| Dan Lanciani wrote:
>|
>| > I own some Holmes Harbor munis (Google if you want to see the
>| > horrible details) which have been the subject of years of
>| > class-action litigation. This year a final appeal to the state
>| > supreme court was denied and the lawyers determined that the
>| > case is dead. I would like to recognize my loss.
>|
>| If it's not worthless, is it still trading? If it is, just offer
>| to sell it.
>
> I tried to place a market sell order but Fidelity cancelled it
> almost immediately saying that there was no market for the bond.
> It's annoying that they know _that_ but at the same time say they
> can't say it's worthless....

Can you find a friend who will buy it from you for $1?

> -If the broker is going to track basis I'd like them to show their
> work. (Fidelity appears to make only downward adjustments but they
> won't disclose any details of how they arrive at their numbers so
> it's hard to discuss.)

Seems like it's time to find a new broker.

Stu

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Dan Lanciani on April 15, 2008, 11:13 pm
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(Stuart Bronstein) writes:
| ddl@danlan.*com (Dan Lanciani) wrote:

[...]
| > I tried to place a market sell order but Fidelity cancelled it
| > almost immediately saying that there was no market for the bond.
| > It's annoying that they know _that_ but at the same time say they
| > can't say it's worthless....
|
| Can you find a friend who will buy it from you for $1?

I'm going to ask Fidelity if they will let me do that. Like most
munis there days it is in book entry form only so I can't just get
a certificate.

After doing a little more research on worthless security rules I'm
not sure if a nominal sale is really a good idea, though. Comments
I've read seem to suggest that it is more subject to attack than
simply taking a firm stand and declaring the security worthless in
a year when you can point to a specific event that made the security
worthless where it was not previously. The loss on a nominal sale is
apparently disallowed if it can be shown that the security was worthless
in a prior year (just as a worthless claim would be). On the other
hand, even if the security had become worthless in the year of the
nominal sale, the sale may not have been legitimate (why would someone
buy a worthless security?) whereas the worthless claim would have been.

One detail of the timing I would really like to clarify. Commentators
state that you cannot make a worthless security claim as long as there
is litigation pending that might lead to recovery. Does this mean that
the security is not worthless until the litigation is finished (in which
case you make the claim in the year the litigation dies)? Or does it
mean that you have to wait for the litigation to die before making the
claim, but the claim may still be for some past year when the security
actually became worthless? In the latter case it seems that if the
litigation goes on for more than seven years (which might be the case
here) you are out of luck.

                                Dan Lanciani
                                ddl@danlan.*com

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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