Discussion:Section 1244 Stock

If a taxpayer had a small S Corporation business that has been discontinued and S corporation is being dissolved there are some great possible tax advantages, if the stock was issued under IRC 1244. To qualify for this treatment, the following requirements must be met:

1) Money and property received by the S Corporation for its original contribution to capital or paid-in capital did not exceed $1 million;

2) The owner of the stock is an individual or a partnership;

3) The owner of the stock is the individual or the partnership that the stock was originally issued to;

4) The stock was issued by a domestic corporation;

5) The shareholder contributed money or property, other than stock or securities, in exchange for the stock;

6) If the stock was issued prior to July 19, 1984, it must be common stock;

7) The stock is not convertible into other securities;

8) During the five years prior to the loss, the corporation did not derive more than 50 percent of its gross income from interest, dividends, rents, royalties, annuities, and sales of stocks and securities;

9) If the stock was issued before November 7, 1978, a written plan adopting IRC Section 1244 must have been in place;

10) The corporation must maintain records to show that a loss qualifies under IRC 1244.