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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Does IRS section 1244 stock issued to individuals include corporation

Resolved Question:

Does IRS section 1244 stock issued to individuals include corporation ownership of said stock
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.


Sure, as long as it does meet the definition of 1244. THe Corp, the individual and the shares themselves have certain requirements:

For the corporation: aggregate capital must not have exceeded $1 million when the stock was issued ... and the corporation must not get more than 50% of its income from passive.

For the shareholder: He/she must have (1) PAID for the stock and not received it as compensation, and (2) only individual shareholders who purchase the stock directly from the company qualify for the special tax treatment

That tax treatment being: losses from the sale of shares to be deducted as ordinary losses instead of as capital losses ... up to a maximum of $50,000 for individual tax returns or $100,000 for joint returns.


Hope this helps

Lane

Positive feedback (or an “accept”) is highly appreciated. That’s how we’re paid. BUT, if you need CLARIFICATION, COME BACK here


Expert:  Lane replied 1 year ago.


Here's the section of the instructions for form 4797 (used to report the loss) that applies to 1244:





"Section 1244 (Small Business) Stock

Individuals report ordinary losses from the sale or exchange (including worthlessness) of section 1244 (small business) stock on line 10.

To qualify as section 1244 stock, all six of the following requirements must be met.

You acquired the stock after June 30, 1958, upon original issuance of the shares from a domestic corporation (or the stock was acquired by a partnership in which you were a partner continuously from the date the stock was issued until the time of the loss).

If the stock was issued before November 7, 1978, it was issued under a written plan that met the requirements of Regulations section 1.1244(c)-1(f), and when that plan was adopted, the corporation was treated as a small business corporation under Regulations section 1.1244(c)-2(c).

If the stock was issued after November 6, 1978, the corporation was treated as a small business corporation at the time the stock was issued under Regulations section 1.1244(c)-2(b). To be treated as a small business corporation, the total amount of money and other property received by the corporation for its stock as a contribution to capital and paid-in surplus generally may not exceed $1 million.

The stock was issued for money or other property (excluding stock or securities).

The corporation, for its 5 most recent tax years ending before the date of the loss, derived more than 50% of its gross receipts from sources other than royalties, rents, dividends, interest, annuities, and gains from sales and exchanges of stocks or securities. If the corporation was in existence for at least 1 tax year but fewer than 5 tax years ending before the date of the loss, the 50% test applies for the tax years ending before that date. If the corporation was not in existence for at least 1 tax year ending before the date of the loss, the 50% test applies for the entire period ending before that date. The 50% test does not apply if the corporation's deductions (other than the net operating loss and dividends-received deductions) exceeded its gross income during the applicable period. But this exception to the 50% test applies only if the corporation was largely an operating company within the 5 most recent tax years ending before the date of the loss (or, if less, the entire period the corporation was in existence).

If the stock was issued before July 19, 1984, it must have been common stock.

The maximum amount that may be treated as an ordinary loss on Form 4797 is $50,000 ($100,000 if married filing jointly). Special rules may limit the amount of your ordinary loss if (a) you received section 1244 stock in exchange for property with a basis in excess of its FMV or (b) your stock basis increased because of contributions to capital or otherwise. See Pub. 550 for more details.

Attach a computation of the loss from the sale or exchange of section 1244 property. On line 10, enter “Losses on Section 1244 (Small Business Stock),” in column (a), and enter the allowable loss in column (g). Report on Schedule D losses in excess of the maximum amount that may be treated as an ordinary loss (and all gains) from the sale or exchange of section 1244 stock. Individuals, see the instructions for Form 8949.

Keep adequate records to distinguish section 1244 stock from any other stock owned in the same corporation."





And here's a link to the full instruction set for form 4797:

http://www.irs.gov/instructions/i4797/ar01.html



And finally, here's form 4797:

http://www.irs.gov/pub/irs-pdf/f4797.pdf



Lane




Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3725
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 6 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.


Thank you Howard.


To ask for me again, just say “For NPVAdvisor” at the beginning of you question OR enter it here:

http://www.justanswer.com/finance/expert-npvadvisor/


…pleasure working with you.

Lane

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