3.26 Ark. Code R. 51-425
Bonds, when determined to be worthless, may be treated as bad debts to the amount actually paid for them. Bonds of an insolvent corporation secured only by a mortgage from which, on foreclosure, nothing is realized for the bondholders, are regarded as worthless no later than the tax year of the foreclosure sale. No deduction for a bad debt is allowable in computing a bondholder's income for any subsequent tax years.
A taxpayer (other than a dealer in securities) possessing debts evidenced by bonds or other similar obligations, cannot deduct from gross income any losses on account of market fluctuations that occur prior to maturity of the debt instruments. However, when a taxpayer determines upon maturity that it will recover none or only a part of the debt evidenced by the bonds or other similar obligations, the taxpayer may deduct the uncollectible part of such debt. In order for this deduction to be properly taken, the taxpayer must include with its return an explanation or other proof which substantiates the deduction.
3.26 Ark. Code R. 51-425