[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: 26CFR1.1244(d)-4]

[Page 348-349]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1244(d)-4  Net operating loss deduction.

    (a) General rule. For purpose of section 172, relating to the net 
operating loss deduction, any amount of loss that is treated as an 
ordinary loss under section 1244 (taking into account the annual dollar 
limitation of that section) shall be treated as attributable to the 
trade or business of the taxpayer. Therefore, this loss is allowable in 
determining the taxpayer's net operating loss for a taxable year and is 
not subject to the application of section 172(d)(4), relating to 
nonbusiness deductions. A taxpayer may deduct the maximum of ordinary 
loss permitted under section 1244(b) even though all or a portion of the 
taxpayer's net operating loss carryback or carryover for the taxable 
year was, when incurred, a loss on section 1244 stock.
    (b) Example. The provisions of this section may be illustrated by 
the following example:

    Example: A, a single individual, computes a net operating loss of 
$15,000 for 1980 in accordance with the rules of Sec. 1.172-3, relating 
to net operating loss in case of a taxpayer other than a corporation. 
Included within

[[Page 349]]

A's computation of this net operating loss is a deduction arising under 
section 1244 for a loss on small business stock. A had no taxable income 
in 1977, 1978, or 1979. Assume that A can carry over the entire $15,000 
loss under the rules of section 172. In 1981 A has gross income of 
$75,000 and again sustains a loss on section 1244 stock. The amount of 
A's 1981 loss on section 1244 stock is $50,000. A may deduct the full 
$50,000 as an ordinary loss under section 1244 and the full $15,000 as a 
net operating loss carryover in 1981.

[T.D. 7779, 46 FR 29473, June 2, 1981]