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OPINION
A. Whether Petitioner’s FabuGlass Stock Qualifies as Section
1244 Stock
1. Requirements for Section 1244 Stock
Generally, when corporate stock becomes worthless, the loss
is a capital loss. However, an individual who has what would
otherwise be a capital loss on stock that qualifies as section
1244 stock may treat up to $50,000 ($100,000 in the case of a
joint return) of the loss as an ordinary loss. Sec. 1244(a),
(b), (d)(1)(B). Section 1244 stock is stock of a domestic
corporation if: (1) At the time that stock is issued, 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 5 most recent taxable years (or, if less, the period during
which the corporation has been in existence) ending before the
date the loss in question was sustained, derived more than 50
percent of its aggregate gross receipts from sources other than
royalties, rents, dividends, interest, annuities, and sales or
exchanges of stocks or securities. Sec. 1244(c)(1). The gross
receipts requirement does not apply if, for the 5-year period
described above, the amount of deductions allowed by Chapter 1
(other than by sections 172, 243, 244, and 245) exceeds the
amount of the corporation’s gross income. Sec. 1244(c)(2)(C).
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Last modified: May 25, 2011