With continued bank failings like in June 2010 when the Office of the Comptroller of the Currency closed Granite Community Bank, N.A., and appointed the FDIC as receiver, many investors have suffered investment losses and uncollectible debts.
The FDIC estimates the cost to the Deposit Insurance Fund will be $17.3 million for the Granite Community Bank closing. As receiver, the FDIC entered into a purchase and assumption agreement with Tri Counties Bank, headquartered in Chico, California, to assume all of the deposits of the failed bank.
For individuals suffering financial losses, the deductibility of losses depends on the investment like whether it is a capital asset, and the type of investor like whether it is an individual, corporation. The deduction of losses is governed by IRC§165, the deduction of bad debts is governed by IRC§166.
Investment is a security when defined under IRC§165(g):
• Shares of stock of a corporation;
• Right to subscribe for, or receive, shares of stock of a corporation;
• A bond, debenture, note or other evidence of indebtedness to pay a fixed and determinable sum of money.
For a deduction, the security must be entirely worthless as evidenced by filing of Chapter 7 bankruptcy, or the fact that the liabilities exceed the assets. Losses from worthless securities are from the sale or exchange of a capital asset. When deducting losses, an investor has to prove to the IRS efforts made to recover money invested.
If you have any questions with regard to bankrutpcy, please contact our office at 1-800-303-2964. Rinne Legal is located at 1990 North California Blvd., Walnut Creek, California 94596, with additional offices in Fairfield, Oakland, and Sacramento. Rinne Legal offers free initial consultations.
