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a capital asset. The aggregate amount of the loss that may be
treated as an ordinary loss pursuant to section 1244 cannot
exceed $100,000 (in the case of a husband and wife filing a joint
return). Sec. 1244(b). The term "section 1244 stock" is defined
to mean stock of a domestic corporation where: (1) At the time of
the stock's issuance, the corporation had not received money or
other property in excess of $1 million for its stock, as a
contribution to capital, or as paid-in surplus; (2) the stock was
issued for money or other property (other than stock or
securities); and (3) the corporation during its most recent 5
taxable years (or, if less, the period during which the
corporation has been in existence) derived more than 50 percent
of its aggregate gross income from sources other than royalties,
rents, dividends, interest, annuities, and sales or exchanges of
stocks or securities. The third test, however, does not apply
where the amount of deductions allowed exceeds the amount of the
corporation's gross income. Sec. 1244(c). The Commissioner is
authorized to prescribe the regulations necessary to carry out
the purposes of section 1244. Sec. 1244(e). Pursuant to that
authority, the Commissioner has issued regulations requiring a
taxpayer to have records sufficient to establish that the
taxpayer is entitled to the loss claimed and satisfies the
requirements of section 1244.4 Sec. 1.1244(e)-1(b), Income Tax
4 The Commissioner's regulations previously required
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Last modified: May 25, 2011