Clean Corporation runs a chain of dry cleaners. Borax is used heavily in COMMUNICATIONS Clean’s dry cleaning process and has been in short supply several times in the past. Several years ago, Clean Corporation bought a controlling interest in Dig Corporation—a borax mining concern—to assure Clean of a continuous supply of borax if another shortage developed. Clean has just sold the stock at a loss because Dig is in difficult financial straits and because Clean has obtained an alternative source of borax.
What is the nature of Clean’s loss on the disposition of the Dig Corporation stock?
Write a letter to the controller, Salvio Guitterez, that contains your advice and prepare a memo for the tax files. The mailing address of Clean Corporation is 4455 Whitman Way, San Mateo, CA 44589.