Has anyone dealt with the situation where the company filed Chapter 11 but might emerge from bankruptcy eventually? I'm in a similar boat with about $80k invested in a company that's currently in reorganization. Not sure if I should claim the loss now or wait to see if the stock regains any value after restructuring.

I'm dealing with a very similar situation and really appreciate all the detailed advice here. One additional point that might help - if you have any documentation showing when the delisting actually occurred (like notices from your broker or the exchange), keep those records too. The IRS can be particular about the exact timing of when securities became worthless. Also, for anyone else reading this thread - if you made investments across multiple tax years like the original poster did, it doesn't matter for the worthless securities treatment. You still report the entire loss based on your total cost basis in the year the securities became worthless, not spread across the years you purchased them. The $3,000 annual limitation against ordinary income that was mentioned is key to understand - you can offset unlimited capital gains with your loss, but if you don't have other gains, you're limited to deducting $3,000 per year against regular income with carryforward for the rest.

Don't forget to update your operating agreement! When I sold half of my LLC that owned investment properties, I was so focused on the tax implications that I nearly overlooked updating the operating agreement to reflect the new ownership structure. This is especially important when dealing with debt because you want clarity on who's responsible for what if things go south.

Great question Diego! I went through almost the exact same situation about 18 months ago with my LLC that owned a warehouse property. The key thing to understand is that you're selling an ownership interest in the entity, not transferring debt directly to the new partner. Since your personal guarantee with the bank remains unchanged, there's no debt forgiveness event for tax purposes. The LLC's debt obligations stay with the LLC - they don't disappear or get "forgiven" just because ownership changes. What you're essentially doing is selling half of your equity position while maintaining your full personal liability to the lender. For tax purposes, you'll need to calculate your basis in the 50% interest you're selling (including your share of the LLC's liabilities) and compare that to the $75k you're receiving to determine if you have a capital gain or loss. The fact that you'll have a smaller percentage share of the LLC's future profits doesn't create a taxable debt forgiveness event. I'd definitely recommend getting this documented properly though - both for your records and to make sure the IRS understands the structure if they ever ask questions. The 26 CFR 1.1001-3 regulation you mentioned is on the right track, but since you're not modifying the original loan terms or your guarantee, it shouldn't apply to create a taxable event.

According to the National Taxpayer Advocate's report from January 2024 (https://www.taxpayeradvocate.irs.gov/reports/), the average processing time for 4800C verification cases is currently 9.2 weeks after document receipt. However, I'm slightly worried because they also mentioned that cases requiring additional review can take up to 16 weeks. You might want to check your transcript weekly for the 971 code which indicates they're actively working on your case.

I went through this exact situation last year and can share some specifics that might help. After submitting my 4800C verification docs via certified mail, it took exactly 7 weeks and 2 days to see the TC 571 release code on my transcript. The key thing I learned is that the "received" date on your certified mail receipt isn't when they actually input your documents into their system - there's usually another 5-7 business days for internal processing before they even assign it to a reviewer. I'd recommend checking your transcript every Friday since they typically update over weekends. Also, if you haven't already, make sure you included Form 4506-T with your verification package as some service centers are requiring it even when the letter doesn't explicitly mention it.

Has anyone else gotten a CP2000 notice before? I had a similar situation last year where I forgot to report some income. Return was accepted no problem, then 8 months later I got a CP2000 notice saying they found a discrepancy between what I reported and what was reported to them. They automatically calculated the additional tax I owed plus interest.

Just to add some perspective - your $750 in unreported income probably won't trigger a major issue, but it's definitely worth addressing proactively. The IRS gets copies of payment records from apps like Venmo, PayPal, Square, etc., so if any of those cash payments went through digital platforms, they likely already have that information. Even if it was all truly cash with no paper trail, filing an amended return shows good faith effort to comply. The additional tax on $750 of self-employment income would probably be around $100-150 depending on your tax bracket, plus maybe some interest. Much better to handle it yourself than wait and potentially face accuracy penalties later. I'd recommend keeping better records going forward - even a simple spreadsheet or phone notes can help track cash payments as they happen. Makes tax time so much less stressful!

Anyone know if having Box 7 filled out increases audit risk? I'm in the exact same situation with a university 1099-NEC.

I had the exact same thing happen with my university 1099-NEC last year! They put the same amount in Box 1 and Box 7, which confused me because I was just doing research work, not selling any products. After calling their payroll department, they admitted it was a system error on their end. Apparently their accounting software automatically fills Box 7 when certain contract codes are used, even when it doesn't apply. They said they'd try to send a corrected form but it would take weeks. I ended up just filing with the incorrect form since the Box 1 amount was right, and I haven't had any issues. The IRS only cares that you report the income correctly, not that the university made a clerical error on boxes that don't affect your tax calculation. One tip though - keep a record of your communication with the university about the error, just in case the IRS ever questions it. I saved the email where they acknowledged the mistake.