client's stock losses due to a broker's bankruptcy

[HOPE2]

Before I set on, just a note of thanks for all the help community members have given to those who always have questions.

How should a client's stock losses due to a broker's bankruptcy be reported on their tax return, and are there any specific IRS rules or forms to consider?

[Jim-from-Ohio]

What was the nature of the loss?  Stock went to zero or money just gone? Wasn't the account covered by the clearing house.. Pershing, National Financial Services, etc.

[George4Tacks]

The stocks are possibly still there. The SEC will often step in and take care of the investor as best they can. You (or the client) need to do more research. 

https://www.investopedia.com/articles/investing/050515/what-happens-when-stock-broker-goes-bust.asp#....

[HOPE2]

Yes, Puxin Ltd is considered bankrupt as of April 2022, when a Cayman Islands court ordered the company to be wound up following a creditors' petition, effectively placing it in liquidation. 

Key points about Puxin Ltd's bankruptcy:

• Court order: The Grand Court of the Cayman Islands issued a winding-up order against Puxin Ltd.
• Reason: A creditors' petition was filed against the company.
• Status: Currently considered in official liquidation.

[BobKamman]

My Google search shows that Puxin is a Chinese company in receivership, not a broker.  "Trading of the American depositary shares representing the Company’s ordinary shares has been suspended by the New York Stock Exchange as of May 3, 2022."  

[Skylane]

In general, you can’t take a loss on a stock until it is sold or declared worthless. 

[abctax55]

So..... in what year should this loss be reported?  2022?  2023?  2024?  @HOPE2  What year tax return are you working on?

[BobKamman]

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@abctax55 wrote:

So..... in what year should this loss be reported?  2022?  2023?  2024?  @HOPE2  What year tax return are you working on?

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Not much news from the Cayman Islands about the status of this liquidation, but buy me a ticket and I'll go there to check it out. (No, it's not pronounced the same.)  Certainly looks like a 2022 loss, subject to $3,000 annual limit so might require a couple of amended returns and what's left being reported on 2024.  I think the liquidation was done at the request of a creditor, who probably didn't get 100% of debt, so shareholders would be left with nothing.  

[abctax55]

@BobKamman 

I'm happy to go as your sidekick to do further research 😉

I'm curious to hear from @HOPE2 as to what year she was working on/what year she was planning on taking the loss.

[Accountant-Man]

Should this be a theft loss?

[BobKamman]

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@Accountant-Man wrote:

Should this be a theft loss?

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Companies go out of business all the time.  This was a high flyer, if you wanted to risk investing in a Chinese private education business, this was the place to do it.  If the client thinks it's the broker's fault, then consider a FINRA claim for inappropriate advice.  

[HOPE2]

Sure, but I called my client to get more information about the year and the amount. She did not answer. She might be on vacation, and you are helping me resolve the issue. I am sorry.

I only filled her 2023 tax return and she did not tell me anything at that time.