What are the requirements for shareholders to be eligible for Section 1244 Stock treatment?
In order for a corporation and its shareholders to be eligible for Section 1244 Stock, the IRS has stated that the following tests must be met;
1. The amount of money and/or property the corporation received for stock, a contribution to capital, and paid-in capital does not exceed $1,000,000.
2. A shareholder claiming a loss on the sale or exchange of Section 1244 Stock purchased the stock from the corporation as an original issue and is an individual or partnership.
3. The issued stock must be either common stock or preferred stock.
4. The issued stock was paid for with money or property, not services or other stock or securities.
5. The corporation derived over 50% of its total gross receipts from sources other than rents, royalties, dividends, interest, annuities, or proceeds from sales or exchanges of securities either for the 5 years prior to the year in which the loss occurred or since the corporation’s inception, if it has not been in existence for 5 years.