While researching this question, I discovered that in order to
completely write off an investment in a company that has gone bankrupt
and no longer exists, you must prove to the IRS that the shares are
You and I know that Webvan shut down, filed for bankruptcy, and its
shares no longer trade. But in the eyes of the IRS, its shares aren't
The following snippet is taken from
"Worthless securities are usually the result of an identifiable event
such as a company ceasing operations, filing bankruptcy, or entering
receivership. Those events in themselves don't prove that a security
is worthless. For the IRS, you have to prove that the investment
itself has no value."
So how do you prove that the shares really are worthless, in the event
that you are audited by the IRS?
The same web page provides an example that is similar to your
"You own stock in a company that has declared bankruptcy. You can only
prove that the stock is worthless when it becomes evident that the
secured creditors will receive 100% of the company. This is the
identifiable event of worthlessness, not the bankruptcy filing
Now what is Webvan's situation?
The following snippets are taken from
"Webvan Group Inc. said it has received final bankruptcy court
approval for its plan of liquidation, which sets forth the procedure
by which Webvan and its subsidiaries will distribute their assets to
"The company has said it expects to have some funds available for
distribution to its unsecured creditors, but shareholders will get
So the final result of Webvan's filing for bankruptcy is that its
assets would be distributed to its creditors, but that shareholders
would receive nothing -- in other words, the shares are worthless.
This is the proof that the IRS wants if they were to ever audit your
Now that you can prove your Webvan shares are worthless, the next
thing that you need to determine is for what year you can write off
The first web page that I referenced says the following:
"You can only take a deduction on your tax return in the actual year
that the investment becomes worthless...
For tax purposes, a security is deemed to be worthless on the last day
of the tax year in which it became worthless..."
Since Webvan's liquidation plan took effect on January 15, 2002 (see
http://www.newsfactor.com/perl/story/15769.html), you are able to
write off the loss for tax year 2002, and your sale date will be
December 31, 2002.
Now you can go ahead and make the appropriate entries on the Schedule
D of your tax return. You can download a copy of Schedule D at the
IRS web site:
You can also download the instructions for Schedule D at the IRS web
Any stock that you sold after holding for longer than one year results
in a long term capital gain or loss. Since you said you held Webvan's
stock for a couple of years, you are dealing with a long term capital
loss, so you need to fill out the details under Part II of Schedule D.
Here's what you need to write on line 8:
(a) Description of property: "xxx shares of Webvan" (where xxx
represents the number of shares you held)
(b) Date acquired: the date that you bought the shares
(c) Date sold: "12/31/02"
(d) Sales price: "0"
(e) Cost or other basis: the amount you paid for the shares, including
(f) Gain or (loss): write down the same number that you put in column
(e), and make sure to put the number in parentheses since it is a
Complete the rest of the schedule according to the instructions.
Remember that if the loss is greater than $3000, then you will only be
able to claim a $3000 loss for tax year 2002, and the remaining amount
will be carried over to the next year. If this is the case, then make
sure to save the Capital Loss Carryover Worksheet that you will fill
out in the Schedule D Instructions, because you will need it for next
I hope this helps to answer your question.