[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1242-1]

[Page 334]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1242-1  Losses on small business investment company stock.

    (a) In general. Any taxpayer who sustains a loss for a taxable year 
beginning after September 2, 1958, as a result of the worthlessness, or 
from the sale or exchange, of the stock of a small business investment 
company (whether or not such stock was originally issued to such 
taxpayer) shall treat such loss as a loss from the sale or exchange of 
property which is not a capital asset, if at the time of such loss:
    (1) The company which issued the stock is licensed to operate as a 
small business investment company pursuant to regulations promulgated by 
the Small Business Administration (13 CFR part 107), and
    (2) Such loss would, but for the provisions of section 1242, be a 
loss from the sale or exchange of a capital asset.
    (b) Treatment of losses for purposes of section 172. For the 
purposes of section 172 (relating to the net operating loss deduction), 
any amount of loss treated by reason of section 1242 as a loss from the 
sale or exchange of property which is not a capital asset shall be 
treated as attributable to the trade or business of the taxpayer. 
Accordingly, the limitation of section 172(d)(4) on the allowance of 
nonbusiness deductions in computing a net operating loss shall not apply 
to any loss with respect to the stock of a small business investment 
company as described in paragraph (a) of this section. See section 
172(d) and Sec. 1.172-3.
    (c) Statement to be filed with return. A taxpayer claiming a 
deduction for a loss on the stock of a small business investment company 
shall file with his income tax return a statement containing: The name 
and address of the small business investment company which issued the 
stock, the number of shares, basis, and selling price of the stock with 
respect to which the loss is claimed, the respective dates of purchase 
and sale of such stock, or the reason for its worthlessness and 
approximate date thereof. For the rules applicable in determining the 
worthlessness of securities, see section 165 and the regulations 
thereunder.

[T.D. 6500, 25 FR 12022, Nov. 26, 1960]