Question

Requirements for § 1244 Stock. During the year, X, who is single, sold stock and realized a loss. For each of the following situations, indicate whether § 1244 would apply to the taxpayer's stock loss. Unless otherwise indicated, Code § 1244 applies. The stock was that issued to X when she incorporated her business several years а. ago. b. The stock was that of General Motors Corporation and was purchased last year. X inherited the stock from her grandfather, who had started the company ten years ago d. X is a corporate taxpayer. X acquired her stock interest in 2009. The other four owners had acquired their interest for $250,000 each in 2004 f. с. е. The loss was $60,000

Answer 1

Application of 1244 in each of the below situations is as follows:-

A. The stock was that issued to X when she incorporated her business several years ago:- As X is the individual and original shareholder of the stock, hence as section 1244 would apply to X.

B. The stock was that of General motor and was purchased last year:- Basically section 1244 deals with the tax treatment of losses arising from sales, liquidation etc. of common stock in a small business corporation. Such a corporation is defined in terms of its capital structure. Restrictions are placed on the aggregate amount received by the corporation for its stock, or as capital or surplus contributions, and on the amount of equity capital of the corporation. First, the corporation may not receive an aggregate amount of money or other property in excess of $500,000 after June 30, 1958, for its stock, as a contribution to capital, and as paid-in surplus. Secondly, the equity capital of the corporation cannot exceed $1,000,000.The general motor is not a small business corporation hence 1244 would not be qualified here

C. In this situation, X is not the Original shareholder as she has inherited the stocks from her Grandfather. So section 1244 cannot be applied here.

D. Section 1244 applies to individuals and partnerships. If X is a corporate taxpayer then section 1244 would not apply.

E. X can claim her loss in section 1244. As it is applicable to partnerships as well.

F. For any taxable year, the aggregate amount treated by the taxpayer by reason of this section as an ordinary loss shall not exceed—

$50,000, or

$100,000, in the case of a husband and wife filing a joint return for such year under section 6013.

Any excess over $50,000 is treated as a capital loss and must comply with the rules for capital losses.

Hence in this situation 50000 is allowed as per section 1244 and balance 10000 is Capital loss and shall be treated accordingly