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TITLE 26-INTERNAL REVENUE CODE (f) Capital losses Losses from sales or exchanges of capital assets shall be allowed only to the extent al- lowed in sections 1211 and 1212. (g) Worthless securities (1) General rule If any security which is a capital asset be- comes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset. (2) Security defined For purposes of this subsection, the term "security" means- (A) a share of stock in a corporation; (B) a right to subscribe for, or to receive, a share of stock in a corporation; or (C) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or politi- cal subdivision thereof, with interest cou- pons or in registered form. (3) Securities in affiliated corporation For purposes of paragraph (1), any security in a corporation affiliated with a taxpayer which is a domestic corporation shall not be treated as a capital asset. For purposes of the preceding sentence, a corporation shall be treated as affiliated with the taxpayer only if- (A) stock possessing at least 80 percent of the voting power of all classes of its stock and at least 80 percent of each class of its nonvoting stock is owned directly by the taxpayer, and (B) more than 90 percent of the aggregate of its gross receipts for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the corporation in the ordinary course of its operating busi- ness), dividends, interest (except interest re- ceived on deferred purchase price of operat- iiig assets sold), annuities, and gains from sales or exchanges of stocks and securities. In computing gross receipts for purposes of the preceding sentence, gross receipts from sales or exchanges of stocks and securities shall be taken into account only to the extent of gains therefrom. As used in subparagraph (A), the term "stock" does not include non- voting stock which is limited and preferred as to dividends. (h) Disaster losses Notwithstanding the provisions of subsection (a), any loss attributable to a disaster occurring in an area subsequently determined by the President of the United States to warrant assis- tance by the Federal Government under the Di- saster Relief Act of 1974 may, at the election of the taxpayer, be deducted for the taxable year immediately preceding the taxable year in which the disaster occurred. Such deduction shall not be in excess of so much of the loss as would have been deductible in the taxable year in which the casualty occurred, based on facts existing at the date the taxpayer claims the loss. If an election is made under this subsec- tion, the casualty resulting in the loss will be deemed to have occurred in the taxable year for which the deduction is claimed. (1) Cross references (1) For special rule for banks with respect to worthless securities, see section 582. (2) For disallowance of deduction for worthlessness of securities to which subsection (g)(2)(C) applies, if issued by a political party or similar organization, see section 271. (3) For special rule for losses on stock in a small busi- ness investment company, see section 1242. (4) For special rule for losses of a small business in- vestment company, see section 1243. (5) For special rule for losses on small business stock, see section 1244. (Aug. 16, 1954, ch. 736, 68A Stat. 49; Sept. 2, 1958, Pub. L. 85-866, title I, §§7, 57(c)(1), title II, § 202(a), 72 Stat. 1608, 1646, 1676; Mar. 31, 1962, Pub. L. 87-426, § 2(a), 76 Stat. 51; Feb. 26, 1964, Pub. L. 88-272, title II, §§ 208(a), 238, 78 Stat. 43, 128; June 30, 1964, Pub. L. 88-348, § 3(a), 78 Stat. 237; Dec. 31, 1970, Pub. L. 91-606, title III, §301(h), 84 Stat. 1759; Jan. 12, 1971, Pub. L. 91-677, § l(a), 84 Stat. 2061; Jan. 12, 1971, Pub. L. 91-687, § 1, 84 Stat. 2071; July 1, 1972, Pub. L. 92-336, § 2(a), 86 Stat. 406; Aug. 29, 1972, Pub. L. 92-418, § 2(a), 86 Stat. 656, 657; May 22, 1974, Pub. L. 93-288, title VI, § 602(h), 88 Stat. 164; Oct. 4, 1976, Pub. L. 94-455, title XIX, § 1901(a)(26), 90 Stat. 1767.) REFERENCES IN TEXT The Disaster Relief Act of 1974, referred to in subsec. (h), is Pub. L. 93-288, May 22, 1974, 88 Stat. 143, as amended, which is classified principally to chapter 68 (§5121 et seq.) of Title 42, The Public wHealth and Welfare. For complete plassification. of *this Act to the Code, see Short Title note under sec- tion 5121 of Title V and Ta~ies volume. AMENDMENTS 1976-Subsec. (I). Pub. L. 94-455 redesignated former subsec. (J) as subsec. (I). Former subsec. (i), which re- lated to property confiscated by Cuba, was struck out. 1974-Subsec. (h). Pub. L. 93-288 substituted "Disas- ter Relief Act of 1974" for "Disaster Relief Act of 1970". 1972-Subsec. (h). Pub. L. 92-418 struck out par. (1) provisions relating to the losses attributable to a disas- ter occurring during the period following the close of the taxable year and on or before the time prescribed by law for filing the income tax return for the taxable year without regard to any extension of time, elimi- nated par. (2) designation, and inserted "attributable to a disaster" preceding "occurring In an area", and at the end of the second sentence, added "based on facts existing at the date the taxpayer claims the loss". Subsec. (h)(1). Pub. L. 92-336 substituted provisions relating to losses attributable to a disaster which occurs during the period after the close of the taxable year and on or before the last day of the 6th calendar month beginning after the close of the taxable year, for provisions relating to losses attributable to a disas- ter which occurs during the period following the close of the taxable year and on or before the time pre- scribed by law for filing the income tax return for the taxable year, determined without regard to any exten- sion of time. 1971-Subsee. (g)(3). Pub. L. 91-687 substituted "stock possessing at least 80 percent of the voting power of all classes of its stock and at least 80 percent of each class of its nonvoting stock" for "at least 95 percent of each class of its stock" in subpar. (A), and inserted at the end of the subsection the sentence pro- viding that the term "stock", as used in subpar. (A), does not include nonvoting stock which is limited and preferred as to dividends. § 165 Page 148