(MONEY Magazine) – Q. I'm a shareholder of a bankrupt tech company. I assume my shares are now worthless, but I need confirmation so that I can write it off on my taxes. What exactly do I do? JUDY WILLIAMS, RENO
A. Ahh, the tech bust. When a publicly traded company seems to have tanked for good, shareholders are typically left scrambling for an IRS-approved death certificate. But it seems that tech companies, with their complex licensing and partnering agreements, have made post-boom tax-loss paperwork even more, well, taxing. Your troubled techster, SonicBlue, filed for Chapter 11 bankruptcy protection in San Jose in March 2003, after 10 wacky years creating high-tech graphic accelerators (and who doesn't need those?). Its shares no longer trade. In theory, capturing your loss, about $600, to offset any capital gains is a smart tax move. But the IRS is vague about the documentation you need (check IRS Publication 550 to experience the vagueness yourself). And shareholders must be as sure as they can be that the company won't emerge from Chapter 11 and become profitable again before they take the loss. So tax-savvy shareholders need to be paperwork detectives.
Our first step was to read the bankruptcy file for SonicBlue, where we saw that you had your own personal committee: the Official Committee of the Unsecured Creditor. (Bondholders, the IRS and banks are typically secured creditors in bankruptcies, meaning they are given priority to be repaid; shareholders have no such guarantee.) We called head counsel Craig Rankin for the scoop. He was blunt: "The stock is worthless." Progress! "The documents clearly show that all assets have been sold, so it's acceptable to take the loss." Rankin has forwarded you a courtesy copy of SonicBlue's most recent monthly operating report, a requirement of bankruptcy that lists the latest details on assets and liabilities. This should be enough for the IRS, but check with your own tax adviser. Incidentally, you (or anyone) can get copies of bankruptcy documents at pacer .psc.uscourts.gov for about 7¢ a page.
Q. The credit bureaus show a major blot on my file: a $35,000 federal tax lien. I checked with the IRS, and they say I don't owe that amount. And the county courthouse has no record of it. Can I get it off my credit file? J.B., AKRON
A. Seek and ye shall find. But be careful what you seek: We did a public records search and discovered a tax lien with your name and Social Security number on it on file in the county where you formerly lived. Bummer. This meets the burden of proof required by the credit agencies that the lien is valid.
Your roller-coaster ride was fueled partly by bureaucracy. You contacted the wrong county agency (the courthouse) with the record number furnished by the credit bureaus. Had you been directed to the proper county office, you'd have found the lien.
You sent us a copy of a letter from the IRS showing your current tax liability to be a few thousand bucks, a far cry from that big balance described in the lien. But that's not proof the lien never existed; it simply shows that you've been paying down the balance of your overdue taxes. That's the good news: Once you get current, which looks to be soon, the lien can be discharged. IRS liens can confuse anyone. Taxpayers may know they owe money but may not realize a lien has been filed. And a lien's amount isn't changed once it's filed, so that huge number sits there for lenders to see, even if you owe only a fraction of what you once did.
Next step: Ask the IRS for a free transcript of all your taxpayer activity (not just your current balance). If you still aren't clear what's going on, now might be a good time to ask your attorney for help.