Robert W. Delk Dorothy A. Delk Michael W. Delk Mary M. Delk v. Commissioner of Internal Revenue

OPINION

SCHWARZER, Senior District Judge.

Section 165(g)(1) of the Internal Revenue Code provides that when a security held as a capital asset becomes worthless, the resulting loss may be treated as a capital loss. The question before us is whether shareholders who, after their shares in a bankrupt corporation are canceled, contribute capital to the corporation’s reorganization and receive new shares in the reorganized corporation as a consequence of such contribution may recognize loss.

FACTS AND PROCEDURAL BACKGROUND 1

Robert and Michael Delk (the “Delks”), along with other family members and…