§ 1244. Losses on small business stock
(a)
General rule
In the case of an individual, a loss on section
1244 stock issued to such individual or to a partnership which would (but for this section) be treated as a loss from the sale or exchange of a capital asset shall, to the extent provided in this section, be treated as an ordinary loss.
(b)
Maximum amount for any taxable year
For any taxable year the aggregate amount treated by the taxpayer by reason of this section as an ordinary loss shall not exceed—
(2)
$100,000, in the case of a husband and wife filing a joint return for such year under section
6013.
(c)
Section
1244 stock defined
(1)
In general
For purposes of this section, the term “section
1244 stock” means stock in a domestic corporation if—
(B)
such stock was issued by such corporation for money or other property (other than stock and securities), and
(C)
such corporation, during the period of its 5 most recent taxable years ending before the date the loss on such stock was sustained, derived more than 50 percent of its aggregate gross receipts from sources other than royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities.
(2)
Rules for application of paragraph (1)(C)
(A)
Period taken into account with respect to new corporations
For purposes of paragraph (1)(C), if the corporation has not been in existence for 5 taxable years ending before the date the loss on the stock was sustained, there shall be substituted for such 5-year period—
(B)
Gross receipts from sales of securities
For purposes of paragraph (1)(C), gross receipts from the sales or exchanges of stock or securities shall be taken into account only to the extent of gains therefrom.
(3)
Small business corporation defined
(A)
In general
For purposes of this section, a corporation shall be treated as a small business corporation if the aggregate amount of money and other property received by the corporation for stock, as a contribution to capital, and as paid-in surplus, does not exceed $1,000,000. The determination under the preceding sentence shall be made as of the time of the issuance of the stock in question but shall include amounts received for such stock and for all stock theretofore issued.
(B)
Amount taken into account with respect to property
For purposes of subparagraph (A), the amount taken into account with respect to any property other than money shall be the amount equal to the adjusted basis to the corporation of such property for determining gain, reduced by any liability to which the property was subject or which was assumed by the corporation. The determination under the preceding sentence shall be made as of the time the property was received by the corporation.
(d)
Special rules
(1)
Limitations on amount of ordinary loss
(A)
Contributions of property having basis in excess of value
If—
(ii)
the basis of such stock in the hands of the taxpayer is determined by reference to the basis in his hands of such property, and
(iii)
the adjusted basis (for determining loss) of such property immediately before the exchange exceeded its fair market value at such time,
then in computing the amount of the loss on such stock for purposes of this section the basis of such stock shall be reduced by an amount equal to the excess described in clause (iii).
(B)
Increases in basis
In computing the amount of the loss on stock for purposes of this section, any increase in the basis of such stock (through contributions to the capital of the corporation, or otherwise) shall be treated as allocable to stock which is not section
1244 stock.
(2)
Recapitalizations, changes in name, etc.
To the extent provided in regulations prescribed by the Secretary, stock in a corporation, the basis of which (in the hands of a taxpayer) is determined in whole or in part by reference to the basis in his hands of stock in such corporation which meets the requirements of subsection (c)(1) (other than subparagraph (C) thereof), or which is received in a reorganization described in section
368
(a)(1)(F) in exchange for stock which meets such requirements, shall be treated as meeting such requirements. For purposes of paragraphs (1)(C) and (3)(A) of subsection (c), a successor corporation in a reorganization described in section
368
(a)(1)(F) shall be treated as the same corporation as its predecessor.
(3)
Relationship to net operating loss deduction
For purposes of section
172 (relating to the net operating loss deduction), any amount of loss treated by reason of this section as an ordinary loss shall be treated as attributable to a trade or business of the taxpayer.
(e)
Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.