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26 USC 368.

PUBLIC LAW 85-866-SEPT. 2, 1958

[72 S T A T.

hands of a taxpayer) is determined in whole or in part by reference to the basis in his hands of stock in such corporation which meets the requirements of subsection (c)(1) (other than subparagraph (E) thereof), or which is received in a reorganization described in section 368(a)(1)(F) in exchange for stock which meets such requirements, shall be treated as meeting such requirements. For purposes of paragraphs (1)(E) and (2)(A) of subsection (c), a successor corporation in a reorganization described in section 368(a)(1)(F) shall be treated as the same corporation as its predecessor. " (3) RELATIONSHIP TO NET OPERATING LOSS DEDUCTION.—For pur-

26 USC 172.

poses of section 172 (relating to the net operating loss deduction), any amount of loss treated by reason of this section as a loss from the sale or exchange of an asset which is not a capital asset shall be treated as attributable to a trade or business of the taxpayer. "(4) INDIVIDUAL DEFINED.—For purposes of this section, the term 'individual' does not include a trust or estate. "(e) REGULATIONS.—The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section." (c) TECHNICAL AMENDMENT.—The table of sections for such part IV is amended by adding at the end thereof the following new item: "Sec. 1244. Losses on small business stock." SEC. 203. THREE-YEAR NET OPERATING LOSS CARRYBACK.

26 USC 172.

(a) ALLOWANCE.—Paragraph (1), and so much of paragraph (2) as precedes the third sentence thereof, of section 172(b) of the Interj^oi Revenue Code of 1954 (relating to net operating loss deduction) are amended to read as follows: " (b) N E T OPERATING Loss CARRYBACKS AND CARRYOVERS.— "(1)

YEARS TO WHICH LOSS MAY BE CARRIED.—A net operating

loss for any taxable year ending after December 31, 1957, shall be— " (A) a net operating loss carryback to each of the 3 taxable years preceding the taxable year of such loss, and " (B) a net operating loss carryover to each of the 5 taxable years following the taxable year of such loss. "(2) AMOUNT OF CARRYBACKS AND CARRYOVERS.—Except as provided in subsection (i), the entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the 'loss year') shall be carried to the earliest of the 8 taxable years to which (by reason of subparagraphs (A) and (B) of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other 7 taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried." (b) TAXABLE YEARS BEGINNING I N 1957 AND ENDING IN 1958.— Section 172 of such Code is amended by relettering subsection (i) as subsection (j), and by inserting after subsection (h) (as added by section 64 of this Act) the following new subsection: "(i) NING

CARRYBACK or N E T OPERATING I ^ S S FOR TAXABLE YEARS BEGININ 1957 AND ENDING IN 1958.—In the case of a taxable year

beginning in 1957 and ending in 1958, the amount of any net operating loss for such year which shall be carried to the third preceding taxable year is the amount which bears the same ratio to such net operating loss as the number of days in the loss year after December 31, 1957, bears to the total number of days in such year. In determining the amount carried to any other taxable year, the reduction for the third taxable year preceding the loss year shall not exceed the portion

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