26 U.S.C. § 1244
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.
For any taxable year the aggregate amount treated by the taxpayer by reason of this section as an ordinary loss shall not exceed-
For purposes of this section, the term "section 1244 stock" means stock in a domestic corporation if-
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-
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.
Paragraph (1)(C) shall not apply with respect to any corporation if, for the period taken into account for purposes of paragraph (1)(C), the amount of the deductions allowed by this chapter (other than by sections 172, 243, and 245) exceeds the amount of gross income.
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.
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.
If-
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).
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.
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.
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.
For purposes of this section, the term "individual" does not include a trust or estate.
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.
26 U.S.C. § 1244
EDITORIAL NOTES
AMENDMENTS2014-Subsec. (c)(2)(C). Pub. L. 113-295 struck out "244," after "243,".1984-Subsecs. (c)(1), (d)(2). Pub. L. 98-369 substituted "stock in a" for "common stock in a". 1978-Subsec. (b). Pub. L. 95-600, §345(b), substituted in par. (1) "$50,000" for "$25,000" and in par. (2) "$100,000" for "$50,000".Subsec. (c). Pub. L. 95-600, §345(a), (c), among other changes, substituted provisions permitting a corporation to issue common stock under the provisions of this section without a written plan for provisions requiring that a written plan to issue section 1244 stock must be adopted by the issuing corporation and increased the amount of section 1244 stock that a qualified small business corporation may issue from $500,000 to $1,000,000.Subsec. (d)(2). Pub. L. 95-600, §345(d), substituted "subparagraph (C)" for "subparagraph (E)" and "paragraphs (1)(C) and (3)(A)" for "paragraphs (1)(E) and (2)(A)". 1976-Subsecs. (a), (b). Pub. L. 94-455, §1901(b)(3)(G), substituted "an ordinary loss" for "a loss from the sale or exchange of an asset which is not a capital asset". Subsec. (c)(1)(E). Pub. L. 94-455, §1901(b)(1)(W), struck out reference to section 242 of this title.Subsec. (d)(2). Pub. L. 94-455, §1906(b)(13)(A), struck out "or his delegate" after "Secretary".Subsec. (d)(3). Pub. L. 94-455, §1901(b)(3)(G), substituted "an ordinary loss" for "a loss from the sale or exchange of an asset which is not a capital asset".
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113-295 not applicable to preferred stock issued before Oct. 1, 1942 (determined in the same manner as under section 247 of this title as in effect before its repeal by Pub. L. 113-295), see section 221(a)(41)(K) of Pub. L. 113-295, set out as a note under section 172 of this title.Except as otherwise provided in section 221(a) of Pub. L. 113-295, amendment by Pub. L. 113-295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113-295, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98-369, div. A, title IV, §481(b), July 18, 1984, 98 Stat. 847, provided that: "The amendment made by subsection (a) [amending this section] shall apply to stock issued after the date of the enactment of this Act [July 18, 1984] in taxable years ending after such date."
EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95-600, title III, §345(e), Nov. 6, 1978, 92 Stat. 2845, as amended by Pub. L. 96-222, title I, §103(a)(9), Apr. 1, 1980, 94 Stat. 212, provided that:"(1) IN GENERAL.-Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to stock issued after November 6, 1978."(2) SUBSECTION (b).-The amendments made by subsection (b) [amending this section] shall apply to taxable years beginning after December 31, 1978. "(3) TRANSITIONAL RULE FOR SUBSECTION (b).-In the case of a taxable year which includes November 6, 1978, the amendments made by subsection (b) [amending this section] shall apply with respect to stock issued after such date."
EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1901(b)(1)(W), (3)(G) of Pub. L. 94-455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as a note under section 2 of this title.
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- joint return
- The term "joint return" means a single return made jointly under section 6013 by a husband and wife.
- stock
- The term "stock" includes shares in an association, joint-stock company, or insurance company.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- taxpayer
- The term "taxpayer" means any person subject to any internal revenue tax.
- trade or business
- The term "trade or business" includes the performance of the functions of a public office.