Updated Code Section 1202

107 STAT. 422 PUBLIC LAW 103-66-AUG. 10, 1993

(c) EFFECTIVE DATE.-The amendments made by this section shall  apply  to  taxable  years  beginning  after  December  31, 1993.

Subpart B-Capital Gain Provisions

SEC. 13113. 50-PERCENT EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS STOCK. (Before February 17, 2009)

75-PERCENT EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS STOCK. (Between February 17, 2009 & September 26, 2010)

100-PERCENT EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS STOCK. (After September 27, 2010)

(a) GENERAL RULE.-Part I of subchapter P of chapter 1 (relating to capital gains and losses) is amended by adding at the end thereof the following new section:

“SEC. 1202. 50, 75, or 100-PERCENT EXCLUSION FOR GAIN FROM CERTAIN SMALL BUSINESS STOCK.

“(a) 50, 75, or 100 PERCENT EXCLUSION.-ln the case of a taxpayer other than a corporation, gross income shall not include 50, 75, or 100 percent  of any gain from the sale or exchange of qualified  small  business stock held for more than 5 years.

“(b) PER-ISSUER LIMITATION ON TAXPAYER’S ELIGIBLE GAIN.-

“(1) IN GENERAL.-H the taxpayer has  eligible  gain  for the taxable year from 1  or  more  dispositions  o  stock  issued by any corporation, the aggregate amount of such gain from dispositions of stock issued by  such  corporation  which  may be taken into account under  subsection  (a)  for  the  taxable year shall not exceed the greater of-

“(A) $10,000,000 reduced by the aggregate amount of eligible gain taken into account by the taxpayer under subsection (a) for prior taxable years and attributable to dispositions of stock issued by such corporation, or

“(B) 10 times the aggregate adjusted basis of ed small business stock issued by such corporation and disposed by the taxpayer during the taxable year.

For purposes of subparagraph (B), the adjusted basis of any stock shall be determined without regard to any addition to basis after the date on which such stock was originally issued. “(2) ELIGIBLE GAIN.-For purposes of this subsection, the term ‘eligible gain’ means any gain from  the  sale or exchange of qualified small business stock held for more than 5 years.

“(3)TREATMENT OF MARRIED INDIVIDUALS.-

“(A) SEPARATE Returns.- In the case of a separate return by a married individual, paragraph (l)(A) shall be applied by substituting ‘$5,000,000’ for ‘$10,000,000’.

“(B) Allocation OF EXCLUSION.-in the case of any joint return, the amount of gain taken into account under subsection (a) shall be allocated equally between the spouses for purposes of applying this subsection to subse­ quent taxable years.

“(C) MARITAL STATUS.-For purposes of this subsection, marital   status   shall   be   determined    under   section  7703.

“(c) QUALIFIED  SMALL BUSINESS STOCK.-For  purposes of this section-

“(c) IN GENERAL.-Except as otherwise provided in this section, the term ‘qualified small business stock’ means any stock in a C corporation which is originally  issued  after the date of the enactment of the Revenue Reconciliation Act of 1993, if-

“(A) as  of  the  date  of  issuance,  such  corporation  is a qualified small business, and

“(B) except as provided in subsections (f) and (h), such stock is acquired by the taxpayer at its original issue (directly or through an underwriter}-

“(i) in exchange for money or other property (not including stock), or

“(ii) as compensation for services provided to such corporations (other than services performed as an underwriter of such stock).

“(2) ACTIVE BUSINESS REQUIREMENT; ETC.-

“(A) IN GENERAL.-Stock in a corporation shall not be treated as qualified small business stock unless, during substantially all of the taxpayer’s holding period for such stock, such corporation meets the active business requirements of subsection (e) and such corporation is a C corporation.

“(B) SPECIAL RULE FOR CERTAIN SMALL BUSINESS INVESTMENT COMPANIES.-

“(i) WAIVER OF ACTIVE BUSINESS REQUIREMENT.­

Notwithstanding any provision of subsection (e), a corporation shall be treated as meeting the active business requirements of such subsection for any period during which such corporation qualifies as a specialized small business investment company.

“(ii) SPECIALIZED SMALL BUSINESS INVESTMENT

COMPANY.- For purposes of clause (i), the term ‘specialized small business investment company’  means  any eligible corporation (as defined in subsection (e)(4)) which is licensed to operate under  section  301(d) of the Small Business Investment Act of  1958  (as in effect on May 13, 1993).

“(3) CERTAIN PURCHASES BY CORPORATION OF ITS OWN STOCK.-

“(A) REDEMPTIONS FROM TAXPAYER OR RELATED PER­SON.-

Stock acquired by the taxpayer shall not be treated as qualified small business stock if, at any time during the 4-year  period  beginning on  the  date 2 years before the issuance of such stock, the corporation issuing such stock purchased (directly or indirectly) any of its stock from the taxpayer or from a person related (within the meaning of section 267(b) or 707(b)) to the taxpayer.

“(B) SIGNIFICANT REDEMPTIONS.-Stock issued by a corporation shall not be  treated  as qualified  business  stock if, during the 2-year period beginning on the date 1 year before the issuance of such  stock, such corporation  made 1 or more purchases of its stock with an  aggregate value  (as of the time of the respective purchases) exceeding 5 percent of the aggregate  value  of all  of  its  stock  as  of the beginning of such 2-year period.

“(C) TREATMENT OF CERTAIN TRANSACTIONS.-

If any transaction is treated under section 304(a) as a distribution in redemption of the stock of any corporation, for purposes of subparagraphs (A) and (B), such corporation shall be treated as purchasing an amount of its  stock  equal  to the amount treated as such a distribution under section 304(a).

“(d)  QUALIFIED  SMALL BUSINESS.-For purposes of this section- 69-1940 – 94 – 15 : QL. 3 Part 1

“(l) IN GENERAL.-The term ‘qualified small business’ means any domestic corporation which is a C corporation if-

“(A) the aggregate gross  assets  of such corporation (or any predecessor thereof at all times  on  or after the date of the enactment of  the  Revenue Reconciliation Act of 1993 and before the issuance did not exceed $50,000,000, “(B) the aggregate gross assets of such corporation immediately after the issuance (determined by taking into account amounts received in the issuance) do not exceed

$50,000,000, and Reports. “(C) such corporation agrees to submit such reports to the Secretary and to shareholders as the Secretary may require to carry out the purposes of this section.

“(2) AGGREGATE GROSS ASSETS.-

“(A) IN GENERAL.-For purposes of paragraph (1), the term ‘aggregate gross assets’ means the  amount  of  cash and the aggregate adjusted basis of other property  held by the corporation.

“(B) TREATMENT OF CONTRIBUTED PROPERTY.-For pur­

poses of subparagraph (A), the adjusted basis of any property contributed to the  corporation  (or other property with a basis determined in whole  or  in  part  by  reference  to the adjusted basis of property so contributed) shall be determined as if the basis of the  property  contributed  to the corporation (immediately after such contribution) were equal to its fair market value as of the time of such contribution.

“(3) AGGREGATION RULES.-

“(A) IN GENERAL.-All corporations which are members of the same parent-subsidiary controlled  group shall  be treated as  1  corporation  for  purposes  of this  subsection. “(B) PARENT-SUBSIDIARY CONTROLLED GROUP.-For purposes of subparagraph (A), the term ‘parent-subsidiary controlled group’ means any controlled group of corporations as defined in section 1563(a)(1), except that-

“(i) ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears in section 1563(a)(l), and

“(ii)section 1563(a)(4) shall not apply.

“(e) ACTIVE BUSINESS REQUIREMENT. –

“(1) IN GENERAL. -For purposes of subsection (c)(2), the requirements of this subsection are met by a corporation  for  any period if during such period-

“(A) at least 80 percent (by value) of the assets of such corporation are used by such corporation in the active conduct of 1 or more qualified trades or businesses, and

“(B) such corporation is an eligible corporation.

“(2) SPECIAL RULE FOR CERTAIN ACTIVITIES. –

For purposes of paragraph (1), if, in connection with any future qualified trade or business, a corporation is engaged in-

“(A) start-up activities described in section 195(c)(l)(A), “(B) activities resulting in the payment or incurring of expenditures which may be treated as research and experimental expenditures under section 174, or

“(C) activities with respect to in-house research expenses described in section 4l(b)(4), assets used in such activities shall be treated as used in the active conduct of a qualified trade or business. Any determination under this paragraph shall be made without regard to whether a corporation has any gross income from such activities at the time of the determination.

“(3) QUALIFIED TRADE OR BUSINESS. -For purposes of this subsection, the term ‘qualified trade or business means any trade or business other than-

“(A) any trade or business involving the  performance  of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1  or  more of its employees,

“(B) any banking, insurance, financing, leasing, investing, or similar business

“(C) any farming business (including the business of raising or harvesting trees),

“(D) any business involving the production or extraction of products of a character with respect to which a deduction is allowable under section 613 or 613A, and “(E) any business of operating a hotel, motel, res­taurant, or similar business.

“(4) ELIGIBLE CORPORATION. -For purposes of this sub section, the term ‘eligible corporation’ means any domestic corporation; except that such term shall not include-

“(A) a DISC or former DISC,

“(B) a corporation with respect to which an election under section 936 is in effect or which has a direct or indirect subsidiary with respect to which such an  election is in effect,

“(C) a regulated investment company, real estate investment trust, or REMIC, and

“(D) a cooperative.

“(5) STOCK IN OTHER CORPORATIONS. –

“(A) Look-THRU IN CASE OF SUBSIDIARIES. -For purposes of this subsection, stock and debt in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary’s assets, and to conduct its ratable share of the subsidiary’s activities.

“(B) PORTFOLIO STOCK OR SECURITIES. -A corporation shall be treated as failing to meet the requirements of paragraph (1) for any period during which more than 10 percent of the value of its assets (m excess of liabilities) consists of stock or securities in other corporations which are not subsidiaries of such corporation (other than assets described in paragraph (6)).

“(C) Subsidiary.-For purposes of this paragraph, a corporation shall be considered a subsidiary if the parent owns more than 50 percent of the combined voting power of all classes of stock entitled to vote, or more than 50 percent in value of all outstanding stock, of such corporation.

“(6) WORKING CAPITAL-For purposes of paragraph (l)(A), any assets which-

“(A) are held as a part of the reasonably required working capital needs of a qualified trade or business  of the Corporation, or

“(B) are held for investment and are reasonably expected to be used within 2 years to finance research and experimentation in a qualified trade or business or increases in working capital needs of a qualified trade  or business, shall be treated  as  used in  the  active  conduct  of  a qualified trade or business.  For periods after the corporation has been in existence for at  least 2 years, in  no event may be than 50 percent  of the  assets of the  corporation qualify as  used   in the active conduct of a qualified trade or business by reason of this paragraph.

“(7)Maximum REAL ESTATE HOLDINGS.-A corporation shall not be treated as meeting the requirements of paragraph (1) for any _period during which more than 10 percent of the total value of its assets consists of real property which is not used in the active conduct of a qualified trade or business. For purposes of the preceding sentence, the ownership of dealing m, or renting of real property shall not be treated<1 as the active conduct of a qualified trade or business.

“(8) COMPUTER SOFTWARE ROYALTIES. -For purposes of paragraph (1), rights to computer software which produces active business computer software royalties (within the meaning of section 543(<1)(l)) shall be treated as an  asset  used  in the active conduct of a trade or business.

“(f) STOCK ACQUIRED ON CONVERSION OF OTHER STOCK.-

If any stock in a corporation is acquired solely through the conversion of other stock in such corporation which is qualified small business stock in the hands of the taxpayer-

“(1) the stock so acquired shall be treated as qualified small business stock in the hands of the taxpayer, and

“(2) the stock so acquired shall be treated as having been held during the period during which the converted stock was held.

“(g)TREATMENT OF PASS-THRU ENTITIES. –

“(1) IN GENERAL.-If any amount included in gross income by reason of holding an interest  in  a  pass-thru  entity  meets the requirements of paragraph (2)-

“(A) such amount shall be treated as gain described in subsection (a), and

“(B) for purposes of applying subsection (b), such amount shall be treated as gain from a disposition of stock in the corporation issuing the stock disposed of by the pass-thru  entity  and  the  taxpayer’s   proportionate  share of the adjusted basis of the pass-thru entity in such stock shall be taken into account.

“(2) REQUIREMENTS. – An amount meets the requirements of this paragraph if-

“(A) such amount is attributable to gain on the sale or exchange the pass-thru entity of stock which is qualified small business stock in the hands of such entity (determined by treating such entity as an individual) and which was held by such entity for more than 5 years, and

“(B) such amount is included in  the  gross  income of the taxpayer by reason of the holding of an interest in such an entity which was held by the taxpayer on the date on which such pass-thru entity acquired such stock and at all times thereafter before the disposition of such stock by such pass-thru entity.

“(3) LIMITATION BASED ON INTEREST ORIGINALLY HELD BY

TAXPAYER. -Paragraph (1) shall not  apply  to  any  amount to the extent such amount exceeds the amount to which paragraph

(1) would have applied if such amount were determined by reference to the interest the taxpayer held in the pass-thru entity on the date the qualified small business stock was acquired.

“(4) PASS-THRU ENTITY. -For purposes of this subsection, the term ‘pass-thru entity’ means-­

“(A) any partnership,

“(B)any S corporation,

“(C) any regulated investment company, and

“(D) any common trust fund.

“(h) CERTAIN TAX-FREE AND OTHER TRANSFERS. -For purposes of this section-

“(1) IN GENERAL. – ln the case of a transfer described in paragraph (2), the transferee shall be treated a&-

“(A) having acquired such stock in the same manner as the transferor, and

“(B) having held such stock during any continuous period immediately preceding the transfer during  which it was held (or treated as held  under  this subsection)  by the transferor.

“(2) DESCRIPTION OF TRANSFERS. -A transfer is described in this subsection if such transfer is­

“(A) by gift,

“(B)at death, or

“(C) from a partnership to a partner of stock with respect to which requirements similar to the requirements of subsection (g) are met at the time of the transfer (without regard to the 5-year holding period requirement).

“(3) CERTAIN RULES MADE APPLICABLE. – Rules similar to the rules of section 1244(d)(2) shall apply for purposes of this section.

“(4) INCORPORATIONS AND REORGANIZATIONS INVOLVING

NONQUALIFIED STOCK. –

“(A) IN GENERAL.-ln the case of a  transaction described in section 351 or a reorganization described in section 368, if qualified small business stock is exchanged for other stock which would not qualify u qualified small business stock but for this subparagraph, such other stock shall be treated as qualified small business stock acquired on the date on which the exchanged stock was acquired. “(B) Limitation. –  This  section shall apply to gain from the sale or exchange of stock treated as qualified small business stock by reason of subparagraph (A) only to the extent of the gain which would have been recognized at the time of the transfer  described  in  subparagraph  (A) if section 351 or 368 had not applied at such time. The preceding sentence shall not apply if the stock which is treated as qualified small business stock by reason of subparagraph (A) is issued by a corporation which (as of the time of the transfer described in subparagraph (A) is a qualified small business.

(C) SUCCESSIVE APPLICATION.-For purposes of this paragraph, stock treated as _qualified small business stock under subparagraph (A) shall be so treated for subsequent transactions or reorganizations, except that  the  limitation of subparagraph (B) shall be  applied  as  of  the  time  of the first transfer to which such limitation applied (deter­ mined after the application of the second sentence of subparagraph (B)).

“(D) Control TEST.- In the case of a transaction described in section 351, this paragraph shall apply only if, immediately after the transaction, the corporation issuing the stock owns directly or indirectly stock representing control (within the meaning of section 368(c)) of the cor- poration whose stock was exchanged.

“(i)BASIS RULES. -For purposes of this section-

“(1) STOCK EXCHANGED FOR PROPERTY. -ln the case where the taxpayer transfers property (other than money or stock) to a corporation in exchange for stock in such corporation (A)such stock shall be treated as having been acquired by the taxpayer on the date of such exchange, and

“(B) the basis of such stock in the hands of the taxpayer shall in no event be less than the fair market value of  the property exchanged.

“(2) TREATMENT OF CONTRIBUTIONS TO CAPITAL. – if the adjusted basis of any qualified small business stock is adjusted by reason of any contribution to capital after the date on which such stock was originally issued, in determining the amount of the adjustment by reason of such contribution, the basis of the contributed _property shall in no event be treated as less than its fair market value on the date of the contribution.

“(j) TREATMENT OF CERTAIN SHORT POSITIONS. –

“(l) IN GENERAL.-If the taxpayer has an offsetting short position with respect to any qualified small business stock, subsection (a) shall not apply to any gain from the sale or exchange of such stock unless-

“(A) such stock was held by the taxpayer for more than 5 years as of the first day on which there was such a short position, and

“(B) the taxpayer elects to recognize gain as if such stock were sold on such a first day for its fair market value.  “(2) OFFSETTING SHORT POSITION. – For purposes of paragraph (1), the taxpayer shall be treated as having an offsetting short position with respect to any qualified small business

stock if-

“(A) the taxpayer has made a short sale of substantially identical property,

“(B) the taxpayer has acquired an option to sell substantially identical property at a fixed price, or

“(C) to the extent provided in regulations, the taxpayer has entered into any other transaction which substantially reduces the risk of loss from holding such qualified s business stock. For purposes of the preceding sentence, any reference to the taxpayer shall be treated as including a reference to any person who is related (within the meaning of section 267(b) or 707(b)) to the taxpayer.

“(k) REGULATIONS. -The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations to prevent the avoidance of the purposes of this section through split-ups, shell corporations, partnerships, or otherwise.”

(b) ONE-HALF OF EXCLUSION TREATED AS PREFERENCE FOR

Minimum TAX.-

Cl) IN GENERAL. –Subsection (a) of section 57 (relating to 26 use 57 items of tax preference) is amended by adding at the end thereof the following new paragraph:

“(8) Exclusion FOR GAINS ON SALE OF CERTAIN SMALL

BUSINESS STOCK. -An amount equal to one-half of the amount excluded from gross income for the taxable year under section 1202.”

(2) CONFORMING AMENDMENT. –Subclause (II) of section 53(d)(1)(B)(ii) is amended by striking “and (6) and inserting “(6), and (8)”.

(c) PENALTY FOR FAILURE To COMPLY WITH REPORTING REQUIREMENTS. –Section 6652 is amended by inserting before the last subsection thereof the following new subsection:

“(k) FAILURE to MAKE REPORTS REQUIRED UNDER SECTION

1202.-In the case of a failure to make a report  required  under section 1202(d)(1)(C) which contains the information required by such section on the date prescribed therefor (determined with regard to any extension of time for filing), there shall be paid (on  notice and demand  by  the  Secretary  and  in  the  same  manner  as  tax) by the person failing to make such report, an amount equal to $50 for each report with respect to which there was such a failure. In the case of any failure due to negligence or intentional disregard, the preceding sentence shall be applied by substituting ‘$100’ for ‘$50. In the case of a report covering periods in 2 or more years, the penalty_ determined under preceding provisions of this subsection shall be multiplied by the number of such years.”

(d) Conforming AMENDMENTS. –

(l)(A) Section 172(d)(2) (relating to modifications with respect to net operating loss deduction)  is  amended  to read as follows:

“(2) CAPITAL GAINS AND LOSSES OF TAXPAYERS OTHER THAN

CORPORATIONS. -ln the case of a taxpayer other than a corporation-

“(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includible on account of gains from sales or exchanges of capital assets; and ·

“(B) the exclusion provided by section 1202 shall not be allowed.”

(B) Subparagraph (B) of section 172(d)(4) is amended by inserting”, (2)(B),” after “paragraph (1)”.

(2) Paragraph (4) of section 642(c) is amended to read

as follows:

“(4) Adjustments.-To the extent that the amount otherwise allowable as a deduction under this subsection consists of gain described in section 1202(a), proper adjustment shall be made for any exclusion allowable to the estate or trust under section 1202. In the case of a trust, the deduction allowed by this subsection shall be subject to section 681 (relating to unrelated business income).”

(3) Paragraph (3) of section 643(a) is amended by adding at the end thereof the following new sentence: “The exclusion under section 1202 shall not be taken into account.”.

(4) Paragraph (4) of section 691(c) is amended by striking

“1201, and 1211 and inserting “1201, 1202, and 1211”.

(5) The second sentence of paragraph (2) of section 871(a) is amended by inserting “such gains and losses shall be determined without regard to section 1202 and” after “except that…

(6) The table of sections for part I of subchapter P of chapter 1 is amended by adding after the item relating to section 1201 the following new item:

“Sec. 1202. 50, 75, or 100-percent exclusion for gain from certain •small business stock.”

(e) Effective DATE. -The amendments made by this section shall apply to stock issued after the date  of  the  enactment  of  this Act.

SEC. 18114. ROLLOVER OP GAIN FROM SALE OF PUBLICLY TRADED SECURITIES INTO SPECIALIZED SMALL BUSINESS INVESTMENT COMPANIES.

(a) IN GENERAL. -Part Ill of subchapter O of chapter 1 (relating to common nontaxable exchanges) is amended by adding at the end the following new section:

“SEC. 1044, ROLLOVER OF PUBLICLY TRADED SECURITIES GAIN INTO> SPECIALIZED SMALL BUSINESS INVESTMENT COMPANIES.

“(a) NONRECOGNITION OF GAIN. -ln the case of the  sale of any publicly traded securities with respect  to  which  the  taxpayer elects the_  application  of  this  section,  gain  from  such  sale  shall be recognized only to the extent  that  the amount  realized  on  such sale exceeds-

“(1) the cost of any common stock or partnership interest in a specialized small business investment company purchased by the taxpayer during the 60-day period beginning on the date of such sale, reduced by

“(2) any portion of such cost previously taken into account under this section.

This section shall not apply to any gain which is treated as ordinary income for purposes of this subtitle.

“(b) LIMITATIONS. –

“(1) LIMITATION ON INDIVIDUALS. -in the case of an individual, the amount of gain which may be excluded under sub­ section (a) for any taxable year shall not  exceed  the  lesser of-

 “(A)$50,000, or

“(B) $500,000, reduced by the amount of gain excluded under subsection (a) for all preceding taxable years.

“(2) LIMITATION ON c CORPORATIONS. -in the case of a C corporation, the amount of gain which may be excluded under subsection (a) for any taxable year shall not  exceed the lesser of-

“(A)$250,000, or

“(B) $1,000,000, reduced by the amount of gain excluded under subsection (a) for all preceding taxable years.

“(3) SPECIAL RULES FOR MARRIED INDIVIDUALS.-For purposes of this subsection-

“(A) SEPARATE RETURNS. – In the case of a separate return by a married individual, paragraph (1) shall be applied by substituting ‘$25,000’ for ‘$50,000’ and ‘$250,000’ for ‘$500,000’.

“(B) Allocation OF GAIN. -ln the case of any joint return , the amount of gain excluded under subsection (a) for any taxable year shall  be  allocated  equally  between the spouses for purposes of applying this subsection to subsequent taxable years.

“(C) MARITAL STATUS. – For purposes of this subsection, marital status shall be determined under section 7703.

“(4) SPECIAL RULES FOR c  CORPORATION.-   For   purposes  of this subsection- “(A) all corporations which are members of the same controlled group of corporations (within the meaning of section 52{a)) shall be treated as 1 taxpayer, and

“(B) any gain excluded under subsection (a) by a predecessor of any C corporation shall be treated as having been excluded by such C corporation.

“(c) DEFINITIONS AND SPECIAL RULES.- For purposes of this section- “(1) Publicly TRADED SECURITIES.-The term ‘publicly traded securities’ means securities which are traded on an established securities market.

“(2) Purchase.-The term ‘purchase’ has the meaning given such term by section 1043(b)(4).

“(3) SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY. ¬

The term ‘specialized small  business  investment  company’ means any_ partnership or CORPORATION which is  licensed  by the Small Business Administration under section 301(d) of the Small Business Investment Act  of  1958  (as  in  effect  on  May 13, 1993).

“{4) CERTAIN ENTITIES NOT ELIGIBLE. – This section shall not apply to any estate, trust,  partnership,  or  S  corporation. “(d) BASIS ADJUSTMENTS. -lf gain  from  any  sale is  not recog­nized by reason of subsection (a), such  gain  shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any common stock or partnership interest in any specialized small business investment company which is purchased by the taxpayer during the 60-day period described in subsection (a). This subsection shall not apply for purposes of section 1202.”

(b) CONFORMING AMENDMENT.-Paragraph (24) of section 1016(a) is amended- (1) by striking “section 1043” and inserting “section 1043 or 1044”, and (2) by striking “section 1043(c)” and inserting “section 1043(c) or 1044(d), as the case may be”.

(c) CLERICAL AMENDMENT.-The table of sections for part III of subchapter O of chapter 1  is  amended  by  adding  at  the  end the following new item:

“Sec. 1044 . Rollover or publicly traded securities gain into specialized small business investment companies.•

(d) EFFECTIVE DATE.-The amendments made by this section shall apply to sales on and after the date of the enactment of  this Act, m taxable years ending on and after such date.

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