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Fig.Co investments

Fig.Co operates by selling shares of upcoming video games in development. The shares themselves don't have a market to be sold, so the return on the investment only comes from dividends.

 

Dividends end once a certain profit level is reached OR 3 consecutive months where a minimum dividend target is not reached. (this may vary from offering to offering, but assume this for my questions).

 

Since these cannot be sold for a profit, I want to make sure whether or not they can still be treated as 'stock' in regards to capital gains losses.

 

From the offering circular: "Fig Game Shares – Pillars of Eternity II should be treated as stock of our Company for U.S. federal income tax purposes. There are, however, no court decisions or other authorities directly bearing on the tax effects of the issuance and classification of stock with the features of Fig Game Shares – Pillars of Eternity II, so the matter is not free from doubt. In addition, the Internal Revenue Service has announced that it will not issue advance rulings on the classification of an instrument with characteristics similar to those of the Fig Game Shares – Pillars of Eternity II. Accordingly, no assurance can be given that the views expressed in this paragraph, if contested, would be sustained by a court. In addition, it is possible that the Internal Revenue Service could successfully assert that the issuance of Fig Game Shares – Pillars of Eternity II could be taxable to us."

 

Whether the shares paid out more in dividends than their cost, once they are confirmed to no longer pay out any dividends are they considered a total loss?

Meaning, can I claim the full $1000/share as a capital loss the year it stops paying dividends since the only return ever realized is considered dividends?

 

(Thank you)

1 Reply
Level 8

Fig.Co investments

That is an interesting question. However is too difficult for a volunteer forum and it seems like it requires complicated legal analysis. The issuer clearly thinks it is such like stock, but gives no reasoning why and cites no legal authority. Issuers/promoters often think things that are beneficial to them. Relying on what you quoted (if it is wrong) will not get you out of accuracy penalties. For a very technical read in the area of what authority one needs see https://www.thetaxadviser.com/issues/2019/jan/substantial-authority-scorecard.html ... taxpayers (rather than tax professionals) may have a slightly lower standard, but I'm not sure of that and can't quickly find authority for that.

 

Before taking the position that they are like stock, you would be well served by getting a professional written opinion from a competent tax attorney. Especially if the amounts involved are not minor.

 

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