A loss may be recognized for tax purposes through an abandonment of property, including a “security,” such as shares of stock in a corporation or a bond or debenture issued by a corporation or governmental entity, intangible property other than a security, and tangible property. In general, the amount of the loss will be the owner’s adjusted basis in the property immediately before the disposition. In the case of a security, an abandonment will be considered to have occurred if the owner “permanently surrender[s] and relinquish[es] all rights in the security and receive[s] no consideration in exchange for the security.”1
It has long been thought that an abandonment may in many cases give rise to an ordinary deduction, rather than a capital loss, which arises upon a “sale or exchange” of a capital asset. The difference in character may be critical in determining the extent of any tax benefit resulting from the abandonment. For example, a capital loss may be used, generally, to offset capital gains only. By contrast, the use of ordinary losses is not so limited, and further savings may result from the rate differential for individuals between long-term capital gains and other income.
