RSUs (Granted, Vested, & Taxed) After Company Bankruptcy

[bhendri]

I was awarded RSU grants in 2020, 2021, and 2022, all with a 3 year vesting schedule (1/3 every 12 months). At time of vesting, RSUs were sold to cover taxes and reported on W2.

That company filed for bankruptcy in 2023 and the stock price is currently at $0.00. I have not sold this stock.

Can I claim a tax deduction or credit for 2023 (capital losses?)?

[Rick19744 · Accepted solution]

A few comments:

• Taxpayer's are able to claim a worthless stock deduction
• In order to claim this deduction it must meet certain criteria
  • Must be completely worthless; no partial deduction
  • Should have some identifiable event; termination of business, liquidation, bankruptcy, etc.
  • The taxpayer has the burden of proof
  • The deduction must be taken in the year the capital asset is deemed completely worthless
• In a bankruptcy, sometimes there are proceeds that are paid out at a later date
• Sometimes companies come out of bankruptcy
• I would recommend that you get some type of letter from the company indicating that there will be no proceeds available for shareholder's; since most likely $$ will go to creditors
• So bottom line, you do have the ability to take a worthless stock deduction, but you need to be certain that all of the options to receive any $$ have been closed for shareholder's.
• If you decide to take the worthless stock loss, enter it on the form 8949 just as any other stock; proceeds will be zero and your basis will be what was included in your W-2.  Reflect each year as a separate transaction.
• However, it is not clear from your facts if we are only dealing with 2020 since the 3-year vesting period has not occurred for any of the other years?

[bhendri]

Thanks for pointing me in the right direction @Rick19744 . This sounds like something that fits my situation, just need to determine tax year of the qualifying criteria.

A couple clarifying points and a follow-up question below:

• I had multiple grants in 2020, 2021, and 2022, all with a vesting schedule of 1/3 of shares every 12 months. By end of 2023, 65% of the shares from these grants were vested and the remaining were unvested.
• Regarding the identifiable event:
  • The company filed for Chapter 11 Bankruptcy (Reorganization) in July 2023
  • The company converted from Chapter 11 to Chapter 7 Bankruptcy (Liquidation) in October 2023
  • The Chapter 7 Bankruptcy court case is still ongoing, with a likely conclusion/closure in March 2024
• Regarding the year the capital asset is completely worthless:
  • The stock was delisted from Nasdaq in July 2023
  • The stock price continued trading on the OTC markets and dropped to $0.001 in October 2023.
  • The stock price did not reach $0.000 until January 2024
  • No letter has been sent to stockholder (to my knowledge) regarding the conclusion of Chapter 7 Bankruptcy and any potential proceeds as of today.

Follow-up questions:

• With the above information, would you consider the identifiable event in July 2023 (Chapter 11 filing), October 2023 (Chapter 7 conversion), or still to come in 2024 (Chapter 7 conclusion)?
• With the above information, would you consider the asset to be deemed worthless in July (delisted from Nasdaq), October 2023 ($0.001 share price), January 2024 ($0.000 share price), or still to come in 2024 (Chapter 7 conclusion)?

Thanks so much in advance for the thoughts and I recognize that posts in a forum such as this do not constitute tax advice.

[Rick19744]

I would take the position that the identifiable event was the Chapter 7 filing.

At this point, your stock is worthless.