diff --git a/JoshHeaps.Net/Content/Socialism/capital-accounts.md b/JoshHeaps.Net/Content/Socialism/capital-accounts.md
index 15b4dec..ec8f34f 100644
--- a/JoshHeaps.Net/Content/Socialism/capital-accounts.md
+++ b/JoshHeaps.Net/Content/Socialism/capital-accounts.md
@@ -139,7 +139,7 @@ A payout system can also be used to strip a failing firm. People who see trouble
 - **Credits that aren't taxed until paid follow stricter rules.** Lower-income members' nonqualified credits are paused only if an accountant finds that paying them would put the co-op at risk, not just for the loan terms or the cash minimum. They're paid as soon as it wouldn't, even ahead of the note below. That's an exception to treating the same year's credits the same, because federal rules on deferred pay require it ([How a Locked Co-op Is Taxed](taxes.md#credits-taxed-later-the-deferred-pay-rules)).
 - **After two years, a pause becomes a debt with a schedule.** Whatever is still unpaid becomes a note the co-op repays in equal parts over five years, still behind its lenders, and the [insurance pool](savings-guarantee.md) covers former members' insured amounts if the co-op fails. So the worst case for a member who leaves is a long wait: up to seven years for the last credit, plus the pause, plus the note. The co-op's bylaws have to say so in plain words.
 - **Losses are spread evenly.** When a loss is charged to members' accounts, it's charged to every year's credits that haven't been paid yet, in proportion, not to the newest or the oldest first. So the timing of payouts can't be used to dodge a loss.
-- **Payouts rank behind the co-op's lenders.** In a bankruptcy, members' accounts are paid only after the co-op's creditors. That's the honest cost of being an owner, and it's the main reason for the one-year-of-pay cap.
+- **Payouts rank behind the co-op's lenders.** In a bankruptcy, members' accounts are paid only after the co-op's creditors. That's the honest cost of being an owner, and it's the main reason for the one-year-of-pay cap. The tax relief on a lost account is slow, too: members were taxed on the credits in full, but can probably deduct only $3,000 a year of the loss, unless Congress passes the fix the model asks for ([How a Locked Co-op Is Taxed](taxes.md#if-the-co-op-fails)).
 - **Accounts can't be cashed in early, sold, pledged or borrowed against,** from the co-op or anyone else. That would just be an early withdrawal by another name. It also keeps the account from counting against public benefits' savings limits before it's paid ([How a Locked Co-op Is Taxed](taxes.md#benefits)). The only transfers are to a named person on death and a court's division in a divorce.
 - **Savings are insured, up to a point.** Every locked co-op belongs to a members' savings insurance pool, paid for by the co-ops. It covers workers' final unpaid wages, former members' unpaid payouts up to $50,000, and a protected slice of current members' accounts. See [Protecting Members' Savings](savings-guarantee.md).
 - **No other savings in the co-op.** A co-op can't take deposits from its members or sell them bonds. A member's only money in the co-op is their account.
diff --git a/JoshHeaps.Net/Content/Socialism/open-problems.md b/JoshHeaps.Net/Content/Socialism/open-problems.md
index 9b7838b..dcf1ced 100644
--- a/JoshHeaps.Net/Content/Socialism/open-problems.md
+++ b/JoshHeaps.Net/Content/Socialism/open-problems.md
@@ -31,7 +31,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.
 
 14. **Drift toward the safest co-ops.** *(Partly answered.)* A bank that lends only to co-ops can still lend mostly to the safe ones, like consultancies started by people with savings, as America's co-op bank did. [Who the Bank Lends To](who-gets-loans.md) sets aside $90 million of the loan money for co-ops in lower-paid work, which goes back to the general pool only if the reviewers certify the bank handled those applications fairly. Results are reported for that group and for first-time owners without much wealth, and the verdict has to say which kinds of co-ops it covers. Still open: the set-aside makes money available but can't make groups apply; it can be used mostly on work just under the average wage; first-time owners without wealth get reporting, not money; and in work whose prices are set by Medicaid or contractors, a failure may say more about the price than about co-ops.
 
-15. **Taxes.** *(Partly answered.)* A locked co-op is a corporation that pays tax once on members' profit shares, under the part of the tax code written for co-ops. [How a Locked Co-op Is Taxed](taxes.md) fits the model to it: profit is shared per hour worked, workers who aren't members get a share too, wages reach the going rate before any profit is shared, and charges come out of the current year's share before older, already-taxed balances. Still open: nobody has ruled that a co-op with an outside lock-holder and a reserve that goes to the federation counts as a co-op for tax purposes; whether profit shares owe payroll tax is unsettled; the ramp no longer shields senior members from new hires unless it's paid as wages; workers without work authorization can't be members; the kept reserve pays 21% even though nobody owns it; and following the deferred-pay rules for lower-income members' untaxed credits could be read as conceding that the credits are pay.
+15. **Taxes.** *(Partly answered.)* A locked co-op is a corporation that pays tax once on members' profit shares, under the part of the tax code written for co-ops. [How a Locked Co-op Is Taxed](taxes.md) fits the model to it: profit is shared per hour worked, workers who aren't members get a share too, wages reach the going rate before any profit is shared, and charges come out of the current year's share before older, already-taxed balances. Still open: nobody has ruled that a co-op with an outside lock-holder and a reserve that goes to the federation counts as a co-op for tax purposes; whether profit shares owe payroll tax is unsettled; the ramp no longer shields senior members from new hires unless it's paid as wages; workers without work authorization can't be members; the kept reserve pays 21% even though nobody owns it; following the deferred-pay rules for lower-income members' untaxed credits could be read as conceding that the credits are pay; and a member who loses their account when a co-op fails can probably deduct only $3,000 a year of it, after being taxed on it in full, until Congress refunds that tax.
 
 11. **Federal or state?** *(Mostly answered.)* The test stays federal, because one bank with one plan makes one clean experiment. Any state can copy the bank under the same published rules, reported separately, and a model state law protects the lock for co-ops that choose it ([The Lock in State Law](lock-state-law.md); [Making It Last](durability.md#federal-test-state-copies)). No state has adopted anything like it, and a co-op organized in a state that hasn't relies on its charter alone. Still open: whether a few state lenders sharing one plan would have been the stronger experiment after all, since the most durable public bank in America, North Dakota's, is a state bank.
 
diff --git a/JoshHeaps.Net/Content/Socialism/taxes.md b/JoshHeaps.Net/Content/Socialism/taxes.md
index a44bae1..bb89677 100644
--- a/JoshHeaps.Net/Content/Socialism/taxes.md
+++ b/JoshHeaps.Net/Content/Socialism/taxes.md
@@ -113,6 +113,32 @@ A nonqualified credit isn't taxed until it's paid, years after the work. Federal
 - **Small balances follow a rule set in advance.** Paying a whole balance early is allowed if it's under a federal limit well above the $2,000 used here, pays out everything the co-op owes that person under every similar deferred arrangement, and the co-op's decision is in writing by the payment date (§ 1.409A-3(j)(4)(v)). So the plan counts all of a person's nonqualified credits together, and the board records the decision at each payout.
 - **If a co-op gets it wrong, it fixes it and pays the cost.** It first uses the IRS's correction program, which cuts or removes the extra tax for mistakes fixed quickly ([IRS Notice 2008-113](https://www.irs.gov/pub/irs-drop/n-08-113.pdf)). Whatever extra tax and interest remain, the co-op pays, grossed up for the tax on that payment. That payment is wages, so it goes through payroll, and it's paid by the end of the year after the member pays the tax (§ 1.409A-3(i)(1)(v)). It doesn't make up for public benefits a member loses when years of income land at once.
 
+### If the co-op fails
+
+Members pay ordinary income tax on account credits in the year they're made. If the co-op fails and the account is lost, the loss is probably a capital loss, which is worth much less. A credit written as stock, or as a registered certificate of what the co-op owes, is a "security" for this purpose, and a worthless security counts as a capital loss ([§ 165(g)](https://www.law.cornell.edu/uscode/text/26/165)). A credit that's neither is probably a personal debt gone bad, also a capital loss ([§ 166(d)](https://www.law.cornell.edu/uscode/text/26/166)). A member could argue the credit was tied to their job, which the law treats as a business debt. But for an employee that's a miscellaneous itemized deduction, and those are suspended for good ([§ 67(h)](https://www.law.cornell.edu/uscode/text/26/67)), so that route is worth nothing. Capital losses beyond any capital gains offset only $3,000 a year of other income, and the rest carries forward ([§ 1211(b)](https://www.law.cornell.edu/uscode/text/26/1211)). Some states are harsher.
+
+So a member who loses $20,000 deducts $3,000 a year for seven years, unless they have capital gains to set it against. For a low-paid member who owes little income tax, the deduction is worth little. They were taxed in full on money they couldn't take out, and get little back when it's lost.
+
+The small-business stock rule, which lets owners take up to $50,000 a year of such a loss against any income ([§ 1244](https://www.law.cornell.edu/uscode/text/26/1244)), probably doesn't help. It covers only stock issued for money or property, and Treasury's rules say stock issued for services doesn't count ([26 C.F.R. § 1.1244(c)-1(d)](https://www.law.cornell.edu/cfr/text/26/1.1244(c)-1)). Credits are figured by hours worked. It also stops applying once a company has taken in $1 million for its stock, which a mid-sized co-op passes in a few years. And it helps most the members who pay the most tax.
+
+**Less exposure first.** The model's main answer is to keep less taxed money at risk:
+
+- **Losses hit this year's share first.** Charges come out of the current year's profit share, which hasn't been taxed yet, before they reach older balances ([above](#capital-accounts)). That part of a loss costs members nothing in tax.
+- **Accounts are capped** at one year's pay, and at least a fifth of each year's share, half by default, is paid in cash.
+- **The insurance pool** covers former members' insured amounts and a protected part of current accounts ([Protecting Members' Savings](savings-guarantee.md)).
+- **Once the Labor Department answers** on pension law, credits taxed only when paid could be offered more widely. A credit that was never taxed can't be lost after tax.
+
+**Then a general fix.** The law the bank needs anyway also gives back the tax a worker actually paid on money they had no right to take out, when their employer's failure wipes it out. It's figured from the worker's own past returns and refundable, so it's worth the same to a low-paid member as a high-paid one. It isn't only for co-ops: any worker taxed on pay their employer held back and lost gets the same. It applies only to failures under a court's supervision. Credits made in the last year before the failure count only if the co-op's outside accountant has already checked that year's books.
+
+**Timing.**
+
+- **The pool comes first.** While a claim on the pool is pending, the loss usually can't be claimed yet. A member claims whatever the pool doesn't cover once it has decided. If the pool pays after a member has already deducted the loss, that payment is taxable to the extent the deduction saved them tax ([§ 111](https://www.law.cornell.edu/uscode/text/26/111)).
+- **Members have seven years.** Claims for refunds based on worthless securities or bad debts can be made up to seven years after the return was due ([§ 6511(d)(1)](https://www.law.cornell.edu/uscode/text/26/6511)), because the year a loss happens is often unclear.
+- **Members get the facts in writing.** The trustee or the pool sends each person their account balance, what they got back and when, and the key dates in the case. It can't decide the tax year for them. The co-op's [benefits check](#what-the-co-op-and-federation-do) helps them file.
+- **Losses charged while the co-op is running** can't be deducted when they're charged. They show up only when the account is finally paid out for less than was taxed, probably as a capital loss.
+
+Credits taxed only when paid were never taxed, so there's no loss to claim on them.
+
 ## Payroll tax on profit shares
 
 Wages carry payroll tax, about 15% in all, split between the co-op and the worker. Whether patronage dividends paid to worker-members do too is unsettled. The likelier challenge is that profit divided by hours worked is really wages. A second theory is that it's self-employment income. The IRS has claimed the second against members of at least one worker co-op, then backed down when challenged, without a published explanation ([Gregory Wilson, co-op tax lawyer](http://www.gwilson.com/documents/Article4(PatronageDivTax).pdf)). His argument: a member paid a fair wage through payroll is like a shareholder who works for the company, and a shareholder's dividends don't carry payroll tax. The wages-first rule is built to support that argument, and the model makes the same argument under state wage laws, though not every law sees it the same way ([Owners Are Still Workers](labor-law.md#is-the-profit-share-pay)).
@@ -156,7 +182,7 @@ The IRS gives binding answers on specific facts, called private letter rulings,
 
 - **The first pilot co-ops ask, and the bank pays.** They ask whether the co-op operates on a cooperative basis with the lock and the reserve, whether the per-hour profit shares and the ramp count as patronage dividends, whether the founding share is deductible as pay, whether profit shares carry payroll tax when wages meet the going rate, how charges moved back to the reserve are taxed, and whether the deferred-pay rules, or the payroll-tax rule for deferred pay ([26 U.S.C. § 3121(v)(2)](https://www.law.cornell.edu/uscode/text/26/3121)), apply to nonqualified credits at all.
 - **Until then, every co-op uses the rules on this page, and gets a tax lawyer's opinion on its bylaws.** None of them depends on a ruling to work.
-- **Congress settles it.** The bank's own law needs Congress anyway, and so does [the bankruptcy amendment](bankruptcy.md). That law also says a locked co-op that meets these rules operates on a cooperative basis, and that its profit shares aren't wages for members paid at least the going rate. That's a statement of how existing law applies, not a lower tax rate.
+- **Congress settles it.** The bank's own law needs Congress anyway, and so does [the bankruptcy amendment](bankruptcy.md). That law also says a locked co-op that meets these rules operates on a cooperative basis, and that its profit shares aren't wages for members paid at least the going rate. That part is a statement of how existing law applies, not a lower tax rate. The same law also makes one real change, open to any employer's workers: it refunds the tax they paid on money they lose when their employer fails ([If the co-op fails](#if-the-co-op-fails)).
 
 ## How this compares with other businesses