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I was a founder in a startup firm and ceded my stock at no…

I was a founder...

I was a founder in a startup firm and ceded my stock at no cost to the other founders. The bank required my name be removed on a line of credit. Do I need to report anything on my taxes? Is removing my name a taxable debt cancellation?

Accountant's Assistant: What state are you in? It matters because laws vary by location.

Montana

Accountant's Assistant: What steps have you taken so far?

None. Just orally agreed to give up ownership shares.

Accountant's Assistant: Anything else you want the lawyer to know before I connect you?

No,that is it

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Answered in 38 minutes by:
3/25/2018
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,086
Experience: 35 years tax experience, including four years at a Big 4 firm.
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Hi from Just Answer. I'mCustomer and can assist.

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Customer reply replied 3 months ago
Great.
Customer reply replied 3 months ago
I don't do phone calls- hard of hearing.

The general answer would be that you might have a taxable loss, not a gain, but it depends on other factors.

If the business operated at loss, and you ceded your stock in exchange for no consideration but debt relief from the company debt, you could have a taxable gain, debt forgiveness income.

Such a transfer can't be done orally, it must be in writing to be binding. It should also address the debt relief you received.

A complete review of your situation requires more information from you that I can't request publicly. I can make an offer of Premium Service for a phone call to explore your specifics and advise.

Let me know if that works for you.

Customer/p>
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Then I might suggest email. That works if you choose to scan documents, and still maintain private communications.

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Offer posted. Private email address available after agreement.

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Customer reply replied 3 months ago
Give me some time to gather my info and I'll get back to you

OK.

PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,086
Experience: 35 years tax experience, including four years at a Big 4 firm.
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PDtax and 87 other Tax Specialists are ready to help you
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Customer reply replied 3 months ago
I've sent the agreement (it was in writing after all). The company did not have any profits. The line of credit I was on was for $200,000 and was paid in full by the company.
Customer reply replied 3 months ago
Did you receive the document I uploaded?

I see it now. I'll review and get in touch later today.

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Customer reply replied 3 months ago
ok, thanks.

I read over the agreement. It mentions consideration given, but none was mentioned. You are entitled to a tax loss for any money invested to acquire the shares, or services rendered in exchange for shaes, which you lost when the shares were exchanged June 2017.

Your loss would be reported as a cpaital loss, unless the corporation elected under IRC 1244 to be treated as a small business that gets ordinary loss treatment for such investments. This is normally elected when the corporation is opened. You should review the corporate records to see if such an election was made.

Beyond that, you mentioned that you were released from corporate debt as a guarantor. The agreement does not mention that at all.

Unless the existing loan is in imminent danger of default, and the release was granted that would have a current tangible value, releasing you as a guarantor is not taxable. I assume the corporation and others remain liable for the debt, and you did not report the business was in financial trouble.

So, you could report a tax loss on the cancellation of stock, likely as a capital loss (or ordinary if IRC 1244 applies). Report the 'sale' with a selling price of $0 and a cost basis of your investment in the shares.

I hope that covers things for you. Thanks for allowing me to assist in this issue, and thanks for using Just Answer. I'mCustomer

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