72 S T A T. ]
PUBLIC LAW 85-866-SEPT. 2, 1958
1677
of gains therefrom); except that this subparagraph shall not apply with respect to any corporation if, for the period referred to, the amount of the deductions allowed by this chapter (other than by sections 172, 242, 243, 244, and 245) ^^^ use 172.242exceed the amount of gross income. Such term does not include stock if issued (pursuant to the plan referred to in subparagraph (A)) after a subsequent offering of stock has been made by the corporation. "(2)
SMALL BUSINESS CORPORATION DEFINED.—For purposes of
this section, a corporation shall be treated as a small business corporation if at the time of the adoption of the plan— " (A) the sum of— " (i) the aggregate amount which may be offered under the plan, plus "(ii) the aggregate amount of money and other property (taken into account in an amount, as of the time received by the corporation, equal to the adjusted basis to the corporation of such property for determining gain, reduced by any liabilities to which the property was subject or which were assumed by the corporation at such time) received by the corporation after June 30, 1958, for stock, as a contribution to capital, and as paid-in surplus, does not exceed $500,000; and " (B) the sum of— " (i) the aggregate amount which may be offered under the plan, plus "(ii) the equity capital of the corporation (determined on the date of the adoption of the plan), does not exceed $1,000,000. For purposes of subparagraph (B), the equity capital of a corporation is the sum of its money and other property (in an amount equal to the adjusted basis of such property for determining gain), less the amount of its indebtedness (other than indebtedness to shareholders). "(d)
SPECIAL RULES.— " (1) LIMITATIONS ON AMOUNT or ORDINARY LOSS.— " (A) CONTRIBUTIONS OF PROPERTY HAVING BASIS IN EXCESS OF VALUE.—If—
" (i) section 1244 stock was issued in exchange for property, "(ii) the basis of such stock in the hands of the taxpayer is determined by reference to the basis in his hands of such property, and " (iii) the adjusted basis (for determining loss) of such property immediately before the exchange exceeded its fair market value at such time, then in computing the amount of the loss on such stock for purposes of this section the basis of such stock shall be reduced by an amount equal to the excess described in clause (iii). " (B) INCREASES IN BASIS.—In computing the amount of the loss on stock for purposes of this section, any increase in the basis of such stock (through contributions to the capital of the corporation, or otherwise) shall be treated as allocable to stock which is not section 1244 stock. "(2) RECAPITALIZATIONS, CHANGES IN NAME, ETC.—To the extent provided in regulations prescribed by the Secretary or his delegate, common stock in a corporation, the basis of which (in the
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