Threaders Short and Tall,
My research on this topic continues, but I believe that the following is accurate.
When a person shorts a stock, s/he borrows the stock from a broker and sells it. From the IRS point of view, the proceeds of that sale constitute a loan, and thus not income -- so no tax liability.
When the short is "covered" - the person buys back the same number of shares, and returns them to the broker - then the transaction is complete. If the person has made a profit, then there are tax consequences.
However: if the Company that has been shorted goes bankrupt, its shares are worthless; the brokerage does not want the borrowed shares paid back. The person who shorted the stock (and of course has the proceeds) thus has that money, but no tax liability. Now I do not know how long this status continues. At a minimum, one has the use of the money for a long time, tax-free; it is possible that there is never a tax liability - it is considered "borrowed money" forever.
Can anyone help on this issue? Is the money tax-free forever?
The relevance of all this should be obvious. IF there is a significant short interest in PRLN, then a number of people have been fervently hoping for our Company to go bankrupt. (Whether anyone took any steps to encourage it is an different, and VERY interesting question . . ..) And IF there is a significant short interest, those people have to be pretty concerned about current events - and are, I suspect, likely to (run for) "cover" in the near future.
Jonathan |
