Probably — but not on silence alone. A loss on a private investment gets reported one of two ways: you claim the position became worthless in a specific year, or you dispose of it in a dated sale. Silence from the company doesn't do either for you. It leaves you holding a position with no market, no buyer, and no paperwork, and the question of which year unanswered. This page explains what each path requires so you can bring the right facts to your tax advisor.
Why "went silent" is the hard case
The clean cases are rare. A formal dissolution, a bankruptcy filing, or a final K-1 marked "final" gives you an identifiable event and a year to attach it to. Most dead startup positions don't end that way. The founders stop answering. The investor updates stop. There's no letter, no final K-1, and no notice that the company closed — just a line on your books that has said the same thing for three years.
That leaves you unable to answer the two questions any loss claim turns on: Is it actually worth nothing? And when did that happen? A company that has gone quiet might have wound up informally, or it might be sitting on a small balance with one part-time employee. From the outside you can't tell, and the IRS doesn't take your word for it.
Path one: claim it as worthless
Under §165, a security that becomes wholly worthless during the year is treated as sold on the last day of that year. Two things have to be true, and you have to be able to show both:
- Total worthlessness. Not "probably dead," not "no realistic chance of recovery." No value at all, including no liquidation value and no prospect of a future payment.
- A specific year. Worthlessness is tied to an identifiable event — a filing, a dissolution, a written statement from the company. If the position went worthless in an earlier year than the one you claim, the deduction belongs to that earlier year, and you may need to amend.
For a company that simply went quiet, both are difficult. There's no event to point to, and no way to rule out residual value. Some advisors will take the position anyway with a well-documented file; others won't. The statute of limitations for worthless-security claims is longer than usual (seven years) precisely because the year is so often disputed.
For a SAFE that never converted, or a convertible note that will never be repaid, there's an added question of what kind of loss it is — capital loss, nonbusiness bad debt, or something else — that depends on how the instrument is characterized. That is squarely your advisor's call.
Path two: sell it
A sale is a different kind of event. Under §1001, disposing of a position to a buyer for consideration produces a realized gain or loss on the date of the sale, reported on Form 8949 and Schedule D like any other sale. The questions that make the worthlessness path hard — is it truly zero, and when did it become zero — don't arise in the same form, because you aren't claiming zero; you're reporting what you sold it for and when.
The catch is finding a buyer. There is no market for a defunct startup's common stock or an unconverted SAFE, and the sale has to be real: an unrelated party, actual consideration, an executed agreement, and a transfer you can document. A sale to a family member, an entity you control, or a friend who hands the shares back later doesn't qualify.
This is the gap DivestMe exists for. DivestMe, LLC is an independent, unrelated buyer. It purchases the position from you for $1.00 under a counter-signed Asset Sale Agreement, which creates a dated disposition. You pay a flat, disclosed service fee of $150 per position for the documentation; the $1.00 is the purchase price, not the fee. You get the executed agreement, a Certificate of Completion, and a record your preparer can attach to the return. Whether that sale produces a deductible loss on your return, and in what character, is still your advisor's determination — DivestMe documents the sale and does not decide eligibility.
What your advisor will need either way
Gather these before the conversation; they’re the same for both paths:
- What you bought, and from whom: stock, preferred, SAFE, note, LLC or LP interest.
- Cost basis — what you actually paid, plus any later contributions.
- Acquisition date, and the subscription or SAFE document itself.
- Every communication from the company since, including the last one.
- Any K-1 or 1099 ever received, and the last year one arrived.
- Whether the stock might be §1244 small-business stock (possible ordinary-loss treatment, subject to limits your advisor will check).
Timing
A sale counts for the year it closes. A disposition executed on December 31 belongs to that year; one executed on January 1 belongs to the next. If you and your advisor decide a sale is the right path and you want the loss in the current year, the paperwork has to be complete before year-end — not started.
If you think the position may have gone worthless in a prior year, raise that with your advisor before doing anything else. That’s a separate question with its own answer.