[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: 26CFR1.1243-1]

[Page 334-335]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1243-1  Loss of small business investment company.

    (a) In general--(1) Taxable years beginning after July 11, 1969. For 
taxable years beginning after July 11, 1969, a small business investment 
company to which section 582(c) applies, and which sustains a loss as a 
result of the worthlessness, or on the sale or exchange, of the stock of 
a small business concern (as defined in section 103(5) of the Small 
Business Investment Act of 1958, as amended (15 U.S.C. 662(5)) and in 13 
CFR 107.3), shall treat such loss as a loss from the sale or exchange of 
property which is not a capital asset if:
    (i) The stock was issued pursuant to the conversion privilege of the 
convertible debentures acquired in accordance with the provisions of 
section 304 of the Small Business Investment Act of 1958 (15 U.S.C. 684) 
and the regulations thereunder.
    (ii) Such loss would, but for the provisions of section 1243, be a 
loss from the sale or exchange of a capital asset, and
    (iii) At the time of the loss, the company is licensed to operate as 
a small business investment company pursuant to regulations promulgated 
by the Small Business Administration (13 CFR part 107).

If section 582(c) does not apply for the taxable year, see subparagraph 
(2) of this paragraph.
    (2) Taxable years beginning before July 11, 1974. For taxable years 
beginning after September 2, 1958, but before July 11, 1974, a small 
business investment company to which section 582(c) does not apply, and 
which sustains a loss as a result of the worthlessness, or on the sale 
or exchange, of the securities of a small business concern (as defined 
in section 103(5) of the Small Business Investment Act of 1958, as 
amended (15 U.S.C. 662(5)) and in 13 CFR 107.3), shall treat such loss 
as a loss from the sale

[[Page 335]]

or exchange of property which is not a capital asset if:
    (i) The securities are either the convertible debentures, or the 
stock issued pursuant to the conversion privilege thereof, acquired in 
accordance with the provisions of section 304 of the Small Business 
Investment Act of 1958 (15 U.S.C. 684) and the regulations thereunder.
    (ii) Such loss would, but for the provisions of this subparagraph, 
be a loss from the sale or exchange of a capital asset, and
    (iii) At the time of the loss, the company is licensed to operate as 
a small business investment company pursuant to regulations promulgated 
by the Small Business Administration (13 CFR part 107).

If section 582(c) applies for the taxable year, see subparagraph (1) of 
this paragraph.
    (b) Material to be filed with return. A small business investment 
company which claims a deduction for a loss on the convertible 
debentures (pursuant to paragraph (a)(2) of this section) or stock 
(pursuant to paragraph (a) (1) or (2) of this section) of a small 
business concern shall submit with its income tax return a statement 
that it is a Federal licensee under the Small Business Investment Act of 
1958 (15 U.S.C. chapter 14B). The statement shall also set forth: the 
name and address of the small business concern with respect to whose 
securities the loss was sustained, the number of shares of stock or the 
number and denomination of debentures with respect to which the loss is 
claimed, the basis and selling price thereof, and the respective dates 
of purchase and sale of the securities, or the reason for their 
worthlessness and the approximate date thereof. For the rules applicable 
in determining the worthlessness of securities, see section 165 and the 
regulations thereunder.

[T.D. 7171, 37 FR 5621, Mar. 17, 1972]