[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.543-2]

[Page 263-264]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.543-2  Limitation on gross income and personal holding company 
income in transactions involving stocks, securities, and commodities.

    (a) Under section 543(b)(1) the gains which are to be included in 
gross income, and in personal holding company income with respect to 
transactions described in section 543(a)(2) and paragraph (b)(5) of 
Sec. 1.543-1, shall be the net gains from the sale or exchange of stock 
or securities. If there is an excess of losses over gains from such 
transactions, such excess (or net loss) shall not be used to reduce 
gross income or personal holding company income for purposes of the 
personal holding company tax. Similarly, under section 543(b)(2) the 
gains which are to be included in gross income, and in personal holding 
company income with respect to transactions described in section 
543(a)(3) and paragraph (b)(6) of Sec. 1.543-1, shall be the net gains 
from commodity transactions which reflect personal holding company 
income. Any excess of losses over gains from such transactions 
(resulting in a net loss) shall not be used to reduce gross income or 
personal holding company income. The capital loss carryover under

[[Page 264]]

section 1212 shall not be taken into account.
    (b) The application of section 543(b) may be illustrated by the 
following examples:

    Example 1. The P Corporation, not a regular dealer in stocks and 
securities, received rentals of $250,000 for its property from a 25-
percent shareholder, and also had gains of $50,000 during the taxable 
year from the sale of stocks and securities. It also had losses on the 
sale of stocks and securities in the amount of $30,000. Accordingly, P 
Corporation had gross income during the taxable year of $270,000 
($250,000 plus $20,000 net gain from the sales of stocks and 
securities). It had personal holding company income of $20,000. (The 
rentals of $250,000 would not be personal holding company income under 
section 543(a)(6) since the personal holding company income of the 
corporation, $20,000 (after excluding any such income described in 
section 543(a)(6)), is not more than 10 percent of its gross income.)
    Example 2. The R Corporation, not a regular dealer in stocks or 
securities, realized total gains during the taxable year of $900,000 
from commodity futures transactions and $200,000 from the sales of 
stocks and securities. It also sustained total losses of $1,000,000 on 
such commodity futures transactions, resulting in a net gain for the 
taxable year or $100,000. None of the commodity futures transactions are 
hedging or other types of futures transactions excluded from the 
application of section 543(a)(3). No part of the loss on commodity 
futures transactions is to be taken into account in determining personal 
holding company income and gross income for personal holding company tax 
purposes for the taxable year. The full amount of the $200,000 in gains 
from the sales of stocks and securities is to be included in personal 
holding company income and in gross income for personal holding company 
tax purposes for the taxable year.