Bankruptcy on Your Taxes: How to Report Losses from Failed Media Investments

When a Company Folds, Your Taxes Don’t—Here’s How to Report the Loss

If you held equity or debt in a company that reorganized or collapsed—like investors in the recently rebooted Vice Media—you’re likely facing confusing tax choices. You want to know whether you have a deductible loss, taxable income from debt cancellation, or a carryforward to use later. This guide walks through the practical steps to report losses tied to bankruptcy reorganizations in 2026, what forms to watch for, and how to document everything for the IRS.

Topline: What most investors need to do first

Start with three actions today (inverted pyramid: most important first):

1. Get the bankruptcy plan and effective date. The bankruptcy court’s plan of reorganization and its confirmation/effective date usually determine the tax year and the nature of the tax event.
2. Gather broker 1099s and issuer notices. Brokers or the reorganized company often send Forms 1099-B, 1099-C, or other tax statements describing exchanges, cancellations, or distributions.
3. Decide whether the security is worthless, exchanged in a tax-free reorganization, or resulted in cancellation of debt (COD) income. Each has different reporting rules and forms.

Why this matters in 2026: recent trends that affect investor taxes

Restructurings spiked in media, tech, and consumer sectors in 2024–2025 as higher interest rates and shifting ad markets forced fresh capital structures. Capital markets volatility and complex debt arrangements mean more investors face multi-faceted tax outcomes from corporate reorganizations.

Tax authorities have been paying closer attention to bankruptcy-related tax positions in recent filing cycles. That means clean documentation and using the right forms matters more than ever — treat your file like an investigation record and preserve a clear chain of custody for documents (chain of custody practices are a helpful model).

Common investor scenarios after a bankruptcy reorganization

Below are the typical outcomes for holders of stock and debt. For each you’ll find the practical tax implications and the forms to use.

1) Stock becomes worthless (common-stock holders)

When common equity is wiped out by a reorganization and you receive nothing (or trivial amounts), you may have a worthless security deduction.

• Tax treatment: A worthless stock is treated as sold on the last day of the tax year for a capital loss under IRC §165(g).
• How to report: Report as a capital loss on Form 8949 (if required) and Schedule D of Form 1040. If you can prove the stock became worthless in a prior year, you can amend that year’s return.
• Evidence needed: bankruptcy plan language showing extinguishment, court order, trustee notices, and broker statements showing zero value.
• Practical note: If you cannot pinpoint an exact date, the IRS accepts the last day of the tax year as the deemed date of worthlessness.

2) Debt is canceled or reduced (bondholders & creditors)

When a creditor accepts a reduction in principal, receives less than owed, or has debt discharged, the difference can be cancellation of debt (COD) income—taxable unless an exclusion applies.

• Tax treatment: COD income is generally ordinary income but is excluded if discharged in a Title 11 bankruptcy case (IRC §108(a)(1)(A)). If the exclusion applies, you may need to reduce tax attributes (basis, loss carryforwards) unless another exclusion (insolvency) applies.
• How to report: If the issuer sends a Form 1099‑C, compare it to your records. To claim the bankruptcy exclusion, file Form 982 to reduce or exclude COD income. If you are insolvent, you may also use Form 982 but must fill out the insolvency worksheet.
• Evidence needed: Bankruptcy court filings, proof you held the debt before the bankruptcy, debtors’ discharge orders, and any 1099‑C/issuer communications.

3) You receive new securities in a tax-free reorganization

Many Chapter 11 plans are structured as qualifying corporate reorganizations under IRC §368. If the plan qualifies as a tax‑free reorganization, holders who get new stock often get carryover basis instead of an immediate loss or gain.

• Tax treatment: In a true tax‑free reorganization, basis generally transfers to the new shares (carryover basis). If you receive cash (boot) in addition to stock, you may recognize gain (or sometimes loss) to the extent of the boot.
• How to report: Brokers or the reorganized company should provide statements. If you don't receive a 1099 showing a sale or gain, document the plan as a tax-free exchange and preserve acquisition and basis records for future sales. Media and issuer disclosures often explain the plan’s tax treatment — review anyone’s public tax analysis, especially for media companies (newsroom disclosures often include helpful notes).
• Practical note: Many reorganizations are partially taxable—read the plan tax analysis included in court filings to know whether the transaction is tax‑free.

4) You exchanged debt for equity (creditor-to-equity swaps)

Creditors sometimes accept equity in the reorganized company. The tax result depends on whether the swap is part of a tax-free reorganization or treated as an exchange.

• Tax treatment: If tax-free, you get carryover basis. If taxable, the exchange of debt for equity can produce gain or loss under IRC §1001 based on the fair market value (FMV) of the new equity compared to your adjusted basis in the debt.
• How to report: If taxable, report gain/loss on Form 8949 / Schedule D. If tax-free, retain court documents and plan descriptions proving the reorg status and your basis in the new instruments. Treat your file like a governed workflow — clear versioned records and indexed exhibits help when the IRS asks for support (modular workflows illustrate good practices).

Forms you’ll almost certainly encounter (quick reference)

• Form 1099‑B — broker reporting of sales or exchanges of securities.
• Form 1099‑C — cancellation of debt reporting.
• Form 8949 and Schedule D (Form 1040) — reporting capital gains and losses.
• Form 982 — to exclude COD income due to bankruptcy or insolvency.
• IRS Pub 544 (Sales and Other Dispositions of Assets) — helpful guidance on dispositions.

Step-by-step filing checklist for 2026

Follow this practical sequence. Keep copies of everything in a single folder (digital and paper) so you can substantiate your position if the IRS asks.

1. Download the Plan of Reorganization and confirmation order. Note the plan’s effective date—this often determines the tax year and the nature of the exchange or discharge.
2. Collect issuer and broker documents. 1099s, transaction records, and trustee notices. If you didn’t receive a 1099 but the plan generated a tax event, you still must report it. Use structured document practices so you can search notices quickly (chain‑of‑custody approaches help).
3. Classify your position: worthless stock, COD, tax‑free reorg, taxable exchange, or a mix (e.g., debt swapped for stock plus cash). Follow a consistent classification workflow (model workflows are helpful).
4. Prepare supporting evidence: valuation reports (if any), correspondence about claim acceptance, and bankruptcy schedules showing creditor lists.
5. Complete forms: Form 8949 + Schedule D for capital gains/losses; Form 982 if excluding COD income; attach statements and a short explanation of the bankruptcy event to your return.
6. Consider amending prior returns if you can show the security was worthless in an earlier year (attach the same bankruptcy evidence). Legal teams sometimes use docs‑as‑code methods to assemble amendment exhibits (docs‑as‑code).
7. Keep a carryforward worksheet. Track unused capital losses—remember the $3,000 annual net capital loss limit against ordinary income (for individuals). Carryovers last indefinitely. Investors often keep a dedicated spreadsheet or capital‑loss ledger (see investor guides on investment recordkeeping approaches).

Practical examples

Example A — Common stock worthlessness (retail investor)

Anna bought Vice Media common stock for $12,000 (basis). The bankruptcy plan extinguished her shares and she received nothing. The plan effective date was January 15, 2026.

Tax action: Anna treats the stock as worthless as of December 31, 2026 (or the plan effective date if she prefers). She reports a $12,000 long‑term capital loss on Form 8949 / Schedule D. She uses $3,000 of that loss against ordinary income in 2026 and carries $9,000 forward.

Example B — Bondholder swapped for new stock (creditor)

Ben held $50,000 face value of Vice Media bonds acquired in 2020 for $48,000. Under the plan he received new stock with an FMV of $20,000 plus $2,000 cash. The plan qualifies as a tax-free reorganization for some claim classes, but creditors who received cash are treated as recognizing gain to the extent of boot.

Tax action: Ben recognizes gain equal to the cash received to the extent it exceeds his adjusted basis allocated to the discharged portion. If the transaction is partially taxable, he records the exchange on Form 8949 and Schedule D. He documents the plan’s tax analysis and retains brokerage and plan documents (media and issuer tax notes can be useful — see newsroom disclosures and issuer filings).

Common traps and how to avoid them

• Trap: Relying only on a 1099. Brokers can misreport dates or amounts. Cross‑check with plan documents and file correctly even if 1099s are incomplete or missing.
• Trap: Missing the bankruptcy exclusion for COD income. If you qualify for the Title 11 bankruptcy exclusion, you must file Form 982 to avoid being taxed on discharged amounts (compare issuer statements to 1099s).
• Trap: Wash sale surprises. If you sold the failed stock at a loss, and bought substantially identical stock within 30 days before or after the sale, the wash sale rule could disallow the loss. Receiving new stock in a reorganization typically is not a purchase that triggers wash sale, but buying shares on the open market within the 61‑day window will.
• Trap: Failing to preserve basis documents for new shares. If you receive new equity in the reorganized company and later sell it, you’ll need your carryover basis or the allocation for boot to compute gain/loss. Good record conventions matter — treat plan exhibits like governed content (publishing workflows are a useful analog).

Recordkeeping checklist (print and keep)

• Copy of Plan of Reorganization and confirmation order
• Trustee or company distribution notices
• Brokers’ trade confirmations and account statements
• All Forms 1099 (B, C, etc.) and issuer letters
• Valuation workpapers (if you commissioned any)
• Correspondence showing claim allowance or disallowance
• Detailed worksheet showing computation of basis, boot, and recognized gain/loss

When to get professional help

If any of the following apply, consult a tax pro (CPA or tax attorney) with bankruptcy experience:

• Large losses or COD amounts (six figures or more).
• Complex plans with mixed cash + stock distributions or interclass allocations.
• Unclear plan tax characterization (taxable vs tax‑free).
• Potential state tax consequences (state COD and loss rules differ).
• Trust or entity-level holdings with carryback/carryforward implications.

“Documentation is everything—court documents and the plan of reorganization often control the tax result.”

Looking ahead: 2026 considerations for investors

As restructuring activity continues in media and tech, expect more hybrid outcomes: partial tax-free treatment combined with boot, complicated allocations across creditor classes, and greater scrutiny by tax authorities. Stay proactive:

• Watch for issuer tax analyses attached to disclosure statements—these explain how the plan expects to treat distributions for tax purposes. Media and issuer disclosure teams increasingly publish tax notes alongside filings (see newsroom/issuer examples).
• Expect brokers to improve 1099 accuracy after feedback in 2024–2025 filing cycles, but verify everything yourself.
• Consider tax-loss harvesting strategies earlier in the year if you anticipate a company’s collapse—don’t let timing surprises cost you deductions. Cost planning and cash management play into timing decisions (cost playbook concepts apply).

Final checklist before you file

1. Confirm the plan effective date and what you actually received (cash, new stock, nothing).
2. Match broker 1099s to your records and the plan documents.
3. Decide whether to claim a worthless security deduction or report a taxable exchange.
4. If COD income arose, prepare Form 982 if an exclusion applies.
5. Attach a short explanatory statement to your return summarizing the bankruptcy event and cite the plan and court order.

Resources

• IRS instructions for Form 8949 and Schedule D
• IRS Form 982 instructions (cancellation of debt)
• Bankruptcy court docket and Plan of Reorganization for the relevant case
• Your brokerage’s tax reporting help center

Case note: Vice Media—what investors should watch in 2026

Vice Media’s 2023–2025 restructuring and its early‑2026 reboot illustrate how reorganizations shift investor outcomes. Some prior shareholders lost most or all of their common equity; certain creditors received new equity as part of the reorganized capital structure. As Vice builds new leadership and a studio strategy, holders of reorg equity should track basis carryforwards, future sale reporting, and any 1099s the company or broker issues when distributions occur. For broader market context, review recent analysis on capital markets and forensics.

Takeaway: Organize documentation, classify the tax event, and be precise on your return

If you lost money on a bankruptcy reorganization, you can often claim a capital loss or exclude COD income under the bankruptcy exception—but only if you document the event and use the right forms. In 2026’s active restructuring landscape, small mistakes or missing paperwork can turn an otherwise straightforward deduction into an audit flag. Use consistent documentation practices and observable records (observability) where possible.

Next steps (call to action)

Download our free “Bankruptcy Tax Reporting Checklist for Investors” and use it while you pull together plan documents and 1099s. If you have a complex swap or six‑figure exposure, schedule a 30‑minute consultation with a CPA who specializes in bankruptcy tax matters to confirm whether to file Form 982 or report a worthless security. For legal document workflows and assembling exhibits, see notes on docs-as-code for legal teams.

Get organized now—your tax position after a reorganization depends on records and timing.

Related Reading

• Capital Markets in 2026: Volatility Arbitrage, Digital Forensics and the New Trust Stack
• Docs‑as‑Code for Legal Teams: An Advanced Playbook for 2026 Workflows
• Chain of Custody in Distributed Systems: Advanced Strategies for 2026 Investigations
• How Newsrooms Built for 2026 Ship Faster, Safer Stories: Edge Delivery, JS Moves, and Membership Payments
• Behind the Scenes: How a Craft Syrup Brand Maintains ‘DIY’ Culture at Scale
• Google’s Gmail Decision: Why Moving to a Custom Domain Email Is Now Critical (and How to Do It)
• Small Production, Big Subscribers: What Goalhanger’s Growth Means for Space Podcasts
• Discoverability 2026: How to Build Authority Before People Search
• How to Use Smart Plugs to Protect Your PC During Storms and Power Surges