Question

"Angelica incurred a loss in connection with another activity in which she was involved. Five years ago, she formed a new corporation with another associate, Bernie Mayday. She and Bernie each contributed $50,000 to the corporation for one-half of it’s stock. Since then the corporation had conducted no activities as it was waiting for the approval of certain patents it held. Angelica discovered in 2020 that, although the corporation had legally been created, and the money was transferred to it, none of the patents had been approved and Bernie had made off with all of its cash, including the $50,000 she contributed.   Bernie has left the country and there is no money in the corporate account. Please do the research necessary to determine the proper tax treatment for Angelica of the $50,000 loss. Document your research in a memo to the file

Answer 1

Angelica incurred loss in connection with another activity in which she was involved. 5 years ago, she formed a new corporation with another associate, Bernie Mayday. She and Bernie each contributed $50,000 to the corporation for one-half each of it's stock. Since then the corporation had conducted no activities as it was waiting for the approval of certain patents it held. angelica discovered in 2020 that, although the corporation had legally been created, and the money was transferred to it, none of the patents had been approved and Bernie had made off with all of its cash, including the $50,000 she conributed. Bernie has left the country and there is no money in the corporate account.

If we Observe here, it can also come under Voluntarily winding up. If majority shareholders discharge their stocks & Resposibility from the company because of many reasons either the company not gaining profits or the company not running any activities. Share holders have a right to sue to wind up the company.

In the given case, since the corporation started 5 years ago and since then no Activities carried by the company

and Angelica and Bernie both had invetsed 50% each of $50,000 each to the corporation, both have a right to withdraw their stock on mutual discussion. and there will not be any loss to angelica.

And there is no Tax impact on the withdrawn of stock by share holders since the date of incorporation no activities running & approvals pending for certain patents it held.

For Angelica there is no loss or gain

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