Abstract The article presents information on the study, The Determination of Worthless Securities Under Internal Revenue Code Section 165(g): Empirical Evidence From Judicial Decisions, by Bob G. Kilpatrick. Section 165(g) of the Internal Revenue Code provides that when a security which is a capital asset becomes worthless during a taxable year, the loss which results is treated as a loss from the sale or exchange of a capital asset occurring on the last day of the taxable year. The primary objective of this dissertation was to identify significant events, and the timing of those events, used by the Tax Court in determining the timing of a security's worthlessness. Logit analysis was employed to determine the relative importance of the specific events used in deciding the outcome of 84 Tax Court cases over the period 1926-82. A secondary objective was to compare the logit and discriminant analyses in terms of their abilities to classify the outcomes of the cases identified for the study. Five factors were found to be significant in deter-mining the timing of a claim. In addition, tests for temporal stability indicated that these five variables were stable over the time period analyzed. The implications are that taxpayers and the government can use these results lo evaluate the probability of a favorable decision by the Tax Court before any litigation is initiated, thereby reducing litigation and related costs to each party.
Philip J. Harmelink (Sat,) studied this question.