To determine if you should mark your capital gains transaction as worthless, you must check the public company market value. Worthless securities will have a market value of zero.
Worthless securities are stocks, stock rights, and bonds that became completely worthless during the tax year. Although penny stocks have comparatively little market value, they are not considered worthless.
The IRS recommends investors account for worthless securities as if they were capital assets that had been dumped or exchanged on the last day of the tax year. The holding period determines whether the loss is short-term or long-term.