Cotton & Western Mining Inc. (CWRN)

[JohnCM]

You can't claim a loss for stock until it's worthless. Completely worthless. And this is the heart of the problem.

A stock that's in serious enough trouble will fail to meet the requirements for trading on a stock exchange. It will be delisted, which means you can no longer sell these shares in a normal transaction. For a period of time, though, it's likely that speculators will be willing to purchase shares at some dirt-cheap price, hoping they'll end up having at least a little value. Bids for these shares may be available through a quotation system known as the pink sheets. As a result, your shares are not completely worthless. They're just nearly worthless.

If you're in this situation, you may be able to establish your loss by selling the shares for a nominal amount. Even if there are no buyers, your broker may be willing to purchase the shares for a dollar. Too often, though, the cost of selling the shares is greater than the amount you can receive in a sale, and in some cases there isn't any practical way at all to make a sale. You're left in a kind of tax purgatory where you can't claim the loss until it finally becomes clear that the value of the shares has fallen all the way to zero.