Premier Cru files for bankruptcy

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stefan
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Re: Premier Cru files for bankruptcy

Post by stefan »

David, thanks for the useful links.

BTW: For those of you who have a casual or substantive interest in the PC bankruptcy: if you take away David's posts from the WB board, there are no essential posts and at most only 3-4 posts that have any useful information re the PC bankruptcy. I could have saved several hours by not reading the thread, which now totals 135 pages.
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Re: Premier Cru files for bankruptcy

Post by JimHow »

I think the rubber is going to hit the road if/when the corporate veil is pierced.
If I'm reading this correctly, John Fox himself is a creditor.
That takes some cahones.
This guy must have a set on him the size of Mt. Rushmore to attempt even a fraction of this with a straight face.
The bigger the lie….
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Re: Premier Cru files for bankruptcy

Post by Tom In DC »

Thanks for the links and details, DavidG - I am indeed on the list of crediots!
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Re: Premier Cru files for bankruptcy

Post by JimHow »

Debts incurred fraudulently are non-dischargeable.
I don't know much about corporate bankruptcies but I have to believe there are going to be many objections to the dischargeability of these obligations.
In addition to his Ponzi scheme Fox needs to be real careful not to commit bankruptcy fraud.
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Re: Premier Cru files for bankruptcy

Post by JimHow »

There should be a 341 creditors meeting scheduled by now, as well as a date set for filing of objections to dischargeability. All that information will go out by regular mail to all creditors listed. I'd be curious to know those dates David if you hear any of the lawyers talking about it on the WB site.
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Re: Premier Cru files for bankruptcy

Post by DavidG »

I'm fortunate not to be on the creditors' list, but Tom says that he is and I assume Stefan is from his posts. I would assume that they would receive any creditor's meeting notice if they have the correct address on file (home vs some other shipping address?). To be clear, I haven't pored over the 1400 pages of the filing to see who's on there. I've seen posts on Wine Berserkers suggesting that there are some whose names are on the list despite being owed nothing, and others who are owed something whose names are not on the list. Like the SOFA, I think the filing was a rush job to meet a deadline and that it is less than 100% accurate.

What does "dischargeability" mean in layman's terms? Is a dischargeable debt one that they get out of via bankruptcy? While a non-dischargeable debt is still owed despite bankruptcy?
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JimHow
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Re: Premier Cru files for bankruptcy

Post by JimHow »

Yes that's correct.
Generally speaking, unless the trustee has a problem with something in the petition, all of the unsecured debts listed on the petition will be discharged completely.
The trustee will identify and collect the "non-exempt" assets of the bankruptcy estate.
After the costs of administration, the trustee will attempt to turn any non-exempt assets into cash (by selling any inventory at auction, etc.).
If funds are available (looks like pennies on th dollar at this point, well less than 10%, probably basically 0%), the trustee will notify all of the creditors
The creditors -- Bill, Tom, Jeff Leve, Bob Parker, Ed, MikeP, Jim Grandison, Itzhak Perlman, etc., etc., etc. -- will have the opportunity to file "proofs of claims" against the estate.
The trustee will then distribute the proceeds in amounts commensurate with the value of each claim relative to its percentage of all claims filed.
Those who don't file claims will receive nothing.

To me, the interesting story will be whether any of the creditors will file objections to the dischargability of the debts. That will then put the bankruptcy into litigation before the bankruptcy judge and will hold up the ultimate order of discharge. It is here where allegations of fraud can be raised, where attempts to pierce the corporate veil can be made directly against Fox and Ortega and their personal assets, etc.
Lawyers for the creditors can conduct interrogations of the debtors separate from the one that will be conducted by the trustee at the 341 creditors meeting.
Again, I don't do corporate bankruptcies -- I believe Howard does -- but I believe this part is similar to the process that we see in individual Chapter 7 bankruptcies.
I have to believe that the lawyers of the big six-figure creditors are going to try to muck things up through this post-petition process by arguing that fraud occurred and that, therefore, their debts are not discharged.

Again, I say this with the caveat that I normally do much smaller individual Chapter 7 bankruptcies, involving credit card debts, medical bills, car repossessions, etc.

I'll be surprised if this ends up being what is normally a smooth, uneventful Chapter 7 process. I really believe very serious felonies were committed here. If I were on the creditors list I would file a criminal complaint addressed to the Alameda County Sheriff's Department, Berkeley Police Department, California Attorney General's Office (Consumer Fraud Unit?) and the criminal division of the appropriate U.S. Attorney's Office (in San Francisco?). Is there evidence that anybody has yet filed criminal complaints and that criminal investigation case numbers have been assigned?
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Re: Premier Cru files for bankruptcy

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It's sad, just today I got assigned to represent a guy who was charged with a Class C felony Theft of Services (punishable by up to 5 years in prison) and Class D misdemeanor Negotiating a Worthless Instrument (punishable by up to 364 days in prison) because he wrote a bad check for $750.00. What a country.
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Re: Premier Cru files for bankruptcy

Post by DavidG »

I believe that Don Cornwell is talking to the FBI about PC. Lots of potential for Federal charges here I would think with all the business they did in multiple states.

At least one person has filed a complaint with the California Atty Genl.

Hard to imagine any scenario in which the principals avoid criminal prosecution. Does the law go after the employees to get them to flip on Fox? Employees must have known for some time that something was rotten even if they were just doing their jobs. Everyone talks about John Fox, but what was Ortega's role?
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Re: Premier Cru files for bankruptcy

Post by DavidG »

JimHow wrote:It's sad, just today I got assigned to represent a guy who was charged with a Class C felony Theft of Services (punishable by up to 5 years in prison) and Class D misdemeanor Negotiating a Worthless Instrument (punishable by up to 364 days in prison) because he wrote a bad check for $750.00. What a country.
How many investment bankers, mortgage brokers or robo-signers involved in the biggest financial meltdown in recorded history went to jail? Just sayin'...
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Re: Premier Cru files for bankruptcy

Post by JimHow »

I have no idea what the answer is, just thinking out loud, but I'm wondering if it was wise to file for bankruptcy at this point.
Fox is going to have to testify under oath to a lot of financial dealings as part of the bankruptcy process, subjecting himself to exposure for perjury and bankruptcy fraud if he is not truthful.
If there is a possibility of criminal charges, it might have been wiser to plead the fifth to at least some of these questions.
I'm wondering what the rush was to file a corporate bankruptcy.
If personal assets were exposed that might be another story. But why the rush to file a corporate bankruptcy, and expose yourself to questions under oath, when serious criminal charges may be on the horizon?
In fact, I would think it is very possible that law enforcement is following the bankruptcy practice very closely.
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Re: Premier Cru files for bankruptcy

Post by AKR »

JimHow wrote:It's sad, just today I got assigned to represent a guy who was charged with a Class C felony Theft of Services (punishable by up to 5 years in prison) and Class D misdemeanor Negotiating a Worthless Instrument (punishable by up to 364 days in prison) because he wrote a bad check for $750.00. What a country.
Supposedly PC bounced a 1mm bucks worth of checks alone in the last year.
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Re: Premier Cru files for bankruptcy

Post by DavidG »

That ought to be worth a few years behind bars.
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Re: Premier Cru files for bankruptcy

Post by JCNorthway »

I found my name on the list - my one case of 2010 GPL that I will never see. :(
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JimHow
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Re: Premier Cru files for bankruptcy

Post by JimHow »

That is so infuriating to me, and I haven't bought from them since 2006.
I used to spend $10,000+ per year at PC in the first half of the last decade, but it was 100% in stock.
I never once bought from them on pre arrival.
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Re: Premier Cru files for bankruptcy

Post by AKR »

I think there were two kinds of pre arrivals

legit stuff what was actually in the transit chain that was priced cheap, but rationally, and generally of the categories of off vintages, odd balls, auction finds, closeouts, grey market specials etc.

the funding transactions which were never going to be delivered upon in intent, but if customers pressured enough, maybe they would get something, or a substitution.

the mix of sales probably had elements of both at all times, but tilted toward the latter increasingly once jaded buyers realized that saving $5-$25 on a vin ordinaire wasn't worth the PC aggravation. But people would accept this for the vin unobtainium.

Perhaps it was a deliberate strategy to deliver a few of the unobtainiums so that people would chime in on wine boards saying they had gotten something when people bellyached.
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Re: Premier Cru files for bankruptcy

Post by JimHow »

The years are becoming a jumble to me. I've bought exactly one bottle from Premier Cru in the past 10 years. It was the 1955 Gruaud Larose that I brought to a Stuart dinner, I can't remember which convention it was, though, whether it was Sonoma in '06 or San Francisco in help me out here, was it '12?

I know it was at the dinner that Jay brought the 1986 Mouton, the wine that provided the greatest finish I have ever experienced. Was that in Sonoma that you brought that wine, Jay, or was it in SF?

I'm pretty sure it was John Fox himself who sold me that '55 GL.
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Re: Premier Cru files for bankruptcy

Post by JimHow »

So I've had a chance to take a closer look at the Premier Cru petition.

Some of the stuff in there is just weird, not adding up.

1. Nobody ever answered my question I raised earlier, and I haven't had time to look it up: How does this compare to the Rare LLC fiasco? I'm sensing that this is a massively bigger fraud. But I have no idea. I mean, $70 million dollars, for crying out loud. Have you checked out the names on that creditors matrix? I mean, there are famous people on there! So, regardless of how it compares to Rare or any other wine fraud/bankruptcy, by any measure it seems like a BIG one. So… My question then, is this: If we have such a massive bankruptcy, why has PC hired what appears to be some sort of store front solo practitioner to do the job? There is also a second lawyer listed on the petition. Why? Why wouldn't Mr. Seventy Million Dollar Man lawyer up with some big San Francisco firm with 300 lawyers, etc.? Looks like they've hired some "guy" -- I have no reason to question his credentials, but he seems small time -- to do a job that seems to have international, earth-moving consequences.

2. And what is up with these strange payments to the bankruptcy lawyers? It looks like they made an odd payment of $14,284 on 12/9/15 and another odd payment of $3,216 on 12/18/15 to the Law Offices of Stephen D. Finestone in SF, for a total of $17,500.00. Before that, on 12/8/15, the paid the odd amount of $10,671.00 to Pachulski Stang et al in SF. A quick google search indicates both firms seem to specialize in bankruptcy.

3. At this time I guess I'll raise the question I raised earlier: Why the rush to file? We are talking about a completely leveraged corporation. There is no evidence that Fox and Ortega are filing individually. They can always do that later. So why file? Why force Fox to testify under oath in the bankruptcy proceeding, when surely they must know that he faces at least some risk of criminal liability? Now Fox is going to have to testify under oath at the creditors meeting and almost certainly at other examinations during oncoming bankruptcy litigation, and anything he says can and will be used against him in any criminal proceeding. If he pleads the fifth in this prematurely filed bankruptcy, then the bankruptcy will likely be dismissed. Strange. I mean, why even file a corporate bankruptcy at all? Why not just dissolve the corporation and let the creditors get their judgments and pick at whatever remains? The real issue here is the PERSONAL liability, if any, of the two principals.

4. Why does Schedule F end in the "B"s? Why is "Bruce Lewis" the last name on Schedule F? The creditors matrix contains thousands of more names than Schedule F. Why? Schedule F and the creditors matrix should pretty much match up. It seems like Finestone's secretary just stopped and decided not to fill out the rest of the petition, and they filed a badly incomplete petition electronically with the bankruptcy court. But why? This is a corporate bankruptcy. What assets in the corporation would be levied, attached, garnished or liened? It makes no sense to me. If this were a personal bankruptcy -- for example, John Fox individually and dba Premier Cru, Fox-Ortega,etc. -- then that might be a different situation. So clearly just looking at Schedule F, as well as the Statement of Financial Affairs, it is very clear to me that a substantial amendment to the petition must be in the works.

5. Probably the most significant piece of information yet to come will be in part 2, question 3 of the Statement of Financial Affairs: "Certain payments or transfers to creditors within 90 days before filing this case." This should contain some very interesting information. Right now they've simply listed: "To be provided." There seems to be a lot of discussion about "clawbacks" over on the WB site. I don't think there are going to be any clawbacks.

6. Looking at the 10 lawsuits against PC, at least one refers to the Defendants as "Fox Ortega Enterprises et al." This suit seems to involve a claim against Fox and Ortega personally. It will be interesting to see if that claim is stayed by the bankruptcy court.

7. A quick look on google didn't shed much light on the trustee. The $70 million dollar question will be whether he determines there has been fraud. If so, he may report to the judge accordingly, and the entire bankruptcy could be dismissed. Also, the creditors will have 60 days following the creditors meeting to file objections to the dischargability of debts. I have to believe this is going to happen, at least with some of the bigger creditors. I have no idea what is going to happen with the 10 lawsuits. I'm assuming the plaintiffs will seek relief from stay and will attempt to get judgments. The big question will be whether they can go after Fox and Ortega individually, and whether there will be anything left over to go after.

8. And what is up with their $6,500,000 in inventory on site????? I mean, how can that be? Inventory -- ON SITE -- can only mean that they have $6.5 million dollars of YOUR wine sitting THERE, In Berkley California, right???? Can it mean anything else? This is completely bizarre to me. Why was this not delivered to customers? Why was some wine delivered right through December, but not this 6.5 mil?

There are other questions I have about the petition, but I'm too tired. Maybe I'll visit tomorrow night.

The bottom line: This appears to be a massive, massive criminal fraud. I think we are only scratching the surface of the depth of this scam. Surely by now a creditors meeting has been scheduled. Bill, Tom, et al, can you let us know when you receive your notices in the mail, I'm fascinated to see where this epic swindle ends up.
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Re: Premier Cru files for bankruptcy

Post by AKR »

Just playing devil's advocate here, even if aggrieved creditors get claims/judgments at the end of a convoluted, expensive process that are nondischargeable in bk, then they need the set of circumstances to be all of the below

a) Fox, Ortega etc. don't get criminally pursued
b) they stay in the US
c) start making money again

Those seem unlikely.

If these guys had assets that could be grabbed by piercing the corporate veil they would have gotten more expensive advisors.

I think the money was destroyed when they filled peoples orders. Selling an 05 Bdx for $250 that gets 100 pts, and not having a source for it, and then covering that for $700 after 5 years destroys a lot of capital, even if not quickly.

When people wonder where the money went, sure some of it went into excessive salaries and compensation, and the building, and fast cars and DRC. But lots just went out the front door, right back to customers.

Of course some guys left the party at the bar, before the tab was delivered.

====

I think Fox ends up in HK, selling futures to Chinese, under a different name. Might take him a few years to get there after the legal travails are over.
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Re: Premier Cru files for bankruptcy

Post by Gerry M. »

I have no dog in this fight especially since I never bought so much as one bottle from PC. I have numerous friends who swore by them for years but something always seemed skeevy about the entire operation. I'm an accountant by trade and the business model never added up and most of the reasons have been articulated by others either here or on Bezerkers. I feel badly for anyone who lost money with them but I cant help but remember that old line that if somthing, in this case pricing, seems too good to be true it usually is. The music kept playing as long as the futures market boomed but with the fallout of the economy in 2009 and followed by three weak vintages in Bordeaux the futures market has shrunk considerably and the cash stream has evaporated.

I have a couple of college friends of mine that have been with the FBI for nearly 30 years and have spent the majority of their careers investigating fraud through forensic accounting, one of whom worked on the Madoff case. From what I've read, if the FBI is involved the real story and depth of any fraud will be revealed. I won't repeat what they said since its still speculation on their part at this point. However, I suspect the money trail and transaction timing will end in a criminal prosecution.
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Re: Premier Cru files for bankruptcy

Post by DavidG »

Jim, the rest of Schedule F and the answers to your other questions...

... they're all pre-arrival.

... on the water.

... waiting to fill a container.

I think we've got enough from PC to fill a container. But it ain't a container full of wine.
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Re: Premier Cru files for bankruptcy

Post by DavidG »

Gerry, I think you are spot on.

Before the filing, I wondered if the California Attorney General or the FBI would be interested. But at $70 million, I bet they are plenty interested.
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Re: Premier Cru files for bankruptcy

Post by hm$ »

I am happy to disseminate whatever filings you want to see -- just pm me. Jim, the forms changed in 12/15 -- you would not recognize them, but there's no such thing as dischargeability litigation in a corporate case. I would also tell you from practical experience that first day (or even first month) filings are pretty inaccurate. They will get fixed over time, probably more than once.

hm$
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Re: Premier Cru files for bankruptcy

Post by hm$ »

Pachulski Stang is a top-tier corporate bankruptcy firm with an impeccable reputation -- I am confident they showed Mr. Fox the door after they depleted his retainer.

hm$
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Re: Premier Cru files for bankruptcy

Post by JimHow »

That's good to know Howard. I indeed did not recognize those forms, they're nothing like what I've typically seen in my personal Chapter 7s. I'm dying to see how this unfolds.
So Arv I think you explained somewhere that Fox's expensive house is heavily mortgaged? There's no equity there?
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Re: Premier Cru files for bankruptcy

Post by AKR »

I'd heard, but have not confirmed myself, that the house and place of business have more liens than market value.

It might surprise people in other parts of the country, but this isn't such a weird/rare/unusual thing in California.

All of this just seems to me to suggest that there isn't a magical pile of money that has been squirrelled away.

Although I've thought a cautious soon to be deadbeat might pursue the OJ tactic and load up their bk remote vehicles like retirement accounts.
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Re: Premier Cru files for bankruptcy

Post by JScott »

I tend to favor the idea that this was a slow bleed over many years. I can't remember the first time I bought from them - many years ago - but I never had a purchase I didn't have to chase repeatedly. Always felt like you weren't getting your order until you called repeatedly and complained, even from the beginning.

Obviously many people are not going to be made whole here. My other thought for friends here is that maybe this will be pursued criminally. I'm not an attorney and don't play one on TV, but if this goes that direction I believe at least there may be a tax write off for theft. Jim? Other wiser legal minds?
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Re: Premier Cru files for bankruptcy

Post by hm$ »

I think this would only be deductible to the extent it exceeds 10% of AGI.

hm$
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Re: Premier Cru files for bankruptcy

Post by JScott »

hm$ wrote:I think this would only be deductible to the extent it exceeds 10% of AGI.

hm$
That sounds accurate. And unfortunate. What a mess.
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JimHow
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Re: Premier Cru files for bankruptcy

Post by JimHow »

What a disaster.
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RDD
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Re: Premier Cru files for bankruptcy

Post by RDD »

Sure seems like a big mess.
Also seems to involve a lot more people than Cloverleaf, Rare or Carolina Wine Co.
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Re: Premier Cru files for bankruptcy

Post by stefan »

How can one claim theft if there is no prosecution of Fox and Ortega?

Could one claim a capital or casualty loss? A capital loss would be better, of course.
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Re: Premier Cru files for bankruptcy

Post by AKR »

stefan wrote:How can one claim theft if there is no prosecution of Fox and Ortega?

Could one claim a capital or casualty loss? A capital loss would be better, of course.
Capital loss would require that the items be used not for consumption but for income generating capacity.

Had a loss denied over that a few years ago.

What's crazy is that capital gains is due on home sales, in some cases when used for primary residence. But a capital loss on a home cannot be used to offset those same kinds of gains.
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Re: Premier Cru files for bankruptcy

Post by stefan »

So if you sell wine for a profit, you pay capital gains of 25%, but if you sell it for a loss, you get no relief?

Maybe with all the bottles I have I can claim that I am ITB. :)
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Re: Premier Cru files for bankruptcy

Post by jal »

stefan wrote:So if you sell wine for a profit, you pay capital gains of 25%, but if you sell it for a loss, you get no relief?

i don't know if that will work and I'm no accountant, so take that with a healthy dose of skepticism, Stefan, but what if you sold enough wine at a profit at the same time as declare a loss on the wines you never received? They should offset one another and you may not have to pay capital gains taxes on the gains.

Check with a tax accountant please. What do I know?
Best

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Re: Premier Cru files for bankruptcy

Post by AKR »

If you sell wine for a profit, if it was not held as a capital asset, it should not be taxable gain.

However as a practical matter, wine brokers do not issue 1099's at year end.

I do not think one needs a prosecution to file a casualty loss for theft. Get a police report though and/or denied insurance claim.

The precise rules on that make it hard to claim though. One might be able to find a year when taxable in come is low in retirement and then try that then.

Maybe take a year in between working at salaried job, versus drawing a pension / savings withdrawals.

There can be some opportunities to be 'smart' about taxes in the time zone between age 55 and 70 when RMDs for tax def accounts start.
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Re: Premier Cru files for bankruptcy

Post by stefan »

Jacques, that thought had occurred to me. I have never sold a bottle of wine, but maybe it is time to engage in that.

>>
If you sell wine for a profit, if it was not held as a capital asset, it should not be taxable gain.
>>

Really? I thought that it was subject to the 25% capital gains tax on real property, Arv.

>>
Maybe take a year in between working at salaried job, versus drawing a pension / savings withdrawals.
>>

I plan to die with my boots on. Moreover, mandatory withdrawals from my 403(b) (I am 71) plus social security plus the fixed retirement I am already drawing exceeds my gross taxable income from my teacher's salary.

Chase personnel say that Chase will give me a charge back for purchases since July, 2014 but will make an investigation whether they should stick. Chase has not done that yet, though. I have not yet contacted my insurance agent.

Anyway, my PC loss is pretty small compared to the loss I suffered today in the stock market.
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Re: Premier Cru files for bankruptcy

Post by DavidG »

I agree with Arv that you shouldn't need a conviction to claim a loss for tax purposes. I also like Jacques' advice that the loss might be usable as an offset to gains on sale of wine, but ask the accountant.

As to your last comment... Holy crap, time to buy stocks...
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Re: Premier Cru files for bankruptcy

Post by AKR »

One of the things the auction houses / brokers may state is that they generally do not issue 1099's, so even if one takes the view that personal property is subject to cap gains tax, reporting/compliance is effectively voluntary.

Now if one was doing this for a huge volume of wine and it started being reliable enough, your CPA might suggest that its a business, and proceeds now are earned income.

Don't think is something one has to worry about in the context of being a typical collector/consumer/enthusiast.

This IRS pub has an overview for taking theft deductions

https://www.irs.gov/taxtopics/tc515.html

There is a special pub for Ponzi schemes, but it seems a stretch that PC would be grouped into that.

https://www.irs.gov/uac/Help-for-Victim ... nt-Schemes

I think the main route for taking a tax loss would be to a) find a way to delay recognition of the loss as there may be some civil recovery, restitution who knows and then b) manage income down for a strategic year so the 10% test can be overcome. Those don't seem easy but a person on the cusp of retirement should have more routes to get to that place than regular W2 wage slaves.
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Re: Premier Cru files for bankruptcy

Post by jal »

stefan wrote: Anyway, my PC loss is pretty small compared to the loss I suffered today in the stock market.
Paper losses. Unless you realized the loss by selling today. Still painful, though.
Best

Jacques
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