Fifth Circuit: Character of loss from abandonment of securities

Character of loss from abandonment of securities

The U.S. Court of Appeals for the Fifth Circuit today reversed an opinion of the Tax Court, and issued a taxpayer-favorable decision holding that the loss from the taxpayer’s abandonment of securities was an ordinary loss.

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The case is: Pilgrim’s Pride Corp. v. Commissioner, No. 14-60295 (5th Cir. February 25, 2015)

In December 2013, the Tax Court held that section 1234A(1) applies to an abandonment loss and requires that the loss be treated as capital. The Fifth Circuit, however, held that section 1234A(1) only applies to the termination of contractual or derivative rights, and not to the abandonment of capital assets.

Accordingly, the Fifth Circuit reversed the Tax Court and held in favor of the taxpayer.

Read today’s 11-page decision [PDF 136 KB] from the Fifth Circuit.

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