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[[Where a subchapter s corp goes out of business and the only stockholder still has some basis in the
stock can this be written off using the worthless stock method or should another method be used]]

It is almost certain that when the corporation was formed, "Section 1244" treatment was elected for the original stock purchased. This Section 1244 treatment gives you a much more favorable tax treatment than a simple worthless stock deduction.

You can read more about Section 1244 stock in IRS Publication 550 at the IRS web site. But basically, a loss on a sale or exchange of stock is normally a capital loss. Because a capital loss recognized by an individual is applied, first, against capital gain (which is currently subject to tax at a maximum marginal rate which is lower than that on ordinary income), and, to the extent it exceeds capital gains recognized during the year, is subject to limitations on deductibility, capital loss treatment is less advantageous than ordinary deduction treatment.
Fortunately, the tax law allows ordinary loss treatment on certain losses with respect to stock of small corporations. In general, this special treatment is only available if the following conditions are satisfied:

1 As of the time the stock was issued, the aggregate amount that was received by the issuing corporation for stock, as contributions to capital and as paid-in surplus must not have exceeded $1 million.

2 The stock must have been issued for money or property (but not as compensation for services).

3 For the five years before the loss was sustained, the corporation must not have received 50% or more of its receipts from certain passive sources.

4 In any year, the total loss treated as ordinary under these rules cannot be more than $50,000 (or $100,000 if you file a joint return).

Hope this helps...
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