Page:United States Statutes at Large Volume 92 Part 3.djvu/184

 92 STAT. 2816 26 USC 704. 26 USC 704 ""Infra.

26 USC 709 "<'*^26 USC 465. 26 USC 461 et seq-

26 USC 465.

PUBLIC LAW 95-600—NOV. 6, 1978 (1) IN GENERAL.—Subsection (d) of section 704 is amended by striking out the last 2 sentences. (2) TRANSITIONAL RULE.—In the case of a loss which was not allowed for any taxable year by reason of the last 2 sentences of section 704(d) of the Internal Revenue Code of 1954 (as in effect before the date of the enactment of this Act), such loss shall be treated as a deduction (subject to section 465(a) of such Code) for the first taxable year beginning after December 31, 1978. Section 465(a) of such Code (as amended by this section) shall not apply with respect to partnership liabilities to which the last 2 sentences of section 704(d) of such Code (as in effect on the day before the date of enactment of this Act) did not apply because of the provisions of section 213(f)(2) of the Tax Reform Act of 1976. (c) CLERICAL AMENDMENTS.— (1) The heading of section 465 is amended to read as follows: "SEC. 465. DEDUCTIONS LIMITED TO AMOUNT AT RISK." (2) The table of sections for subpart C of part II of subchapter E of chapter 1 is amended by striking out "in case of certain activities" in the item relating to section 465. SEC. 202. EXTENSION OF AT RISK PROVISIONS TO CLOSELY HELD CORPORATIONS. Subsection (a) of section 465 (relating to deductions limited to amount at risk) is amended to read as follows: "(a) LIMITATION TO AMOUNT AT RISK.—

26 USC 1371. 26 USC 542. 26 USC 544.

26 USC 465.

"(1) IN GENERAL.—In the case of— "(A) an individual, "(B) an electing small business corporation (as defined in section 1371(b)), and "(C) a corporation with respect to which the stock ownership requirement of paragraph (2) of section 542(a) (determined by reference to the rules contained in section 318 rather than under section 544) is met, engaged in an activity to which this section applies, any loss from such activity for the taxable year shall be allowed only to the extent of the aggregate amount with respect to which the taxpayer is at risk (within the meaning of subsection Qa)) for such activity at the close of the taxable year. "(2) DEDUCTION IN SUCCEEDING YEAR.—Any loss from an activity to which this section applies not allowed under this section for the taxable year shall be treated as a deduction allocable to such activity in the first succeeding taxable year." SEC. 203. RECAPTURE OF LOSSES WHERE AMOUNT AT RISK IS LESS THAN ZERO. Section 465 (relating to deductions limited to amount at risk) is amended by adding at the end thereof the following new subsection: "(e) RECAPTURE OF LOSSES WHERE AMOUNT AT RISK Is LESS THAN ZERO.—

"(1) IN GENERAL.— If zero exceeds the amount for which the taxpayer is at risk in any activity at the close of any taxable year— "(A) the taxpayer shall include in his gross income for such taxable year (as income from such activity) an amount equal to such excess, and

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