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TITLE 26-INTERNAL REVENUE CODE ness actively conducted by the taxpayer in a foreign country or possession of the United States or as a result of the disposition of stock or obligations of a corporation in which the taxpayer owned at least 10 per- cent of the voting stock. For purposes of subparagraph (C), stock owned, directly or indirectly, by or for a for- eign corporation, shall be considered as being proportionately owned by its shareholders. (e) Transitional rules for carrybacks and carryovers for taxpayers on the per-country limitation (1) Application of subsection This subsection shall apply only to a tax- payer who is on the per-country limitation for his last taxable year beginning before Janu- ary 1, 1976. (2) Carryovers to years beginning after December 31, 1975 In the case of any taxpayer to whom this subsection applies, any carryover from a tax- able year beginning before January 1, 1976, may be used in taxable years beginning after December 31, 1975, to the extent provided in subsection (c), but only to the extent such carryover could have been used in such suc- ceeding taxable years if the per-country limi- tation continued to apply to all taxable years beginning after December 31, 1975. (3) Carrybacks to years beginning before January 1, 1976 In the case of any taxpayer to whom this subsection applies, any carryback from a tax- able year beginning after December 31, 1975, may be used in taxable years beginning before January 1, 1976, to the extent provided in subsection (c), but only to the extent such carryback could have been used in such pre- ceding taxable year if the per-country limita- tion continued to apply to all taxable years beginning after December 31, 1975. (4) Application of limitations For purposes of this subsection- (A) the overall limitation shall be applied before the per-country limitation, and (B) where the amount of any carryback or carryover is reduced by the overall limita- tion, the reduction shall be allocated to the amounts carried from each country or pos- session in proportion to the taxes paid or accrued to such country or possession in the taxable year from which such amount is being carried. (f) Recapture of overall foreign loss (1) General rule For purposes of this subpart and section 936, in the case of any taxpayer who sustains an overall foreign loss for any taxabie year, that portion of the taxpayer's taxable income from sources without the United States for each succeeding taxable year which is equal to the lesser of- (A) the amount of such loss (to the extent not used under this paragraph in prior tax- able years), or (B) 50 percent (or such larger percent as the taxpayer may choose) of the taxpayer's taxable income from sources without the United States for such succeeding taxable year, shall be treated as income from sources within the United States (and not as income from sources without the United States). (2) Overall foreign loss defined For purposes of this subsection, the term "overall foreign loss" means the amount by which the gross income for the taxable year from sources without the United States (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account- (A) any net operating loss deduction al- lowable for such year under section 172(a) or any capital loss carrybacks and car- ryovers to such year under section 1212, and (B) any- (i) foreign expropriation loss for such year, as defined in section 172(h), or (ii) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft, to the extent such loss is not compensated for by insurance or otherwise. (3) Dispositions (A) In general For purposes of this chapter, if property which has been used predominantly with- out the United States in a trade or business is disposed of during any taxable year- (i) the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)), shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposi- tion, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer's adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and (ii) paragraph (1) shall be applied with respect to such income by substituting "100 percent" for "50 percent". In determining for purposes of this subpar- agraph whether the predominant use of any property has been without the United States, there shall be taken into account use during the 3-year period ending on the date of the disposition (or, if shorter, the period during which the property has been used in the trade or business). (B) Disposition defined and special rules (i) For purposes of this subsection, the term "disposition" includes a sale, ex- change, distribution, or gift of property whether or not gain or loss is recognized on the transfer. (ii) Any taxable income recognized solely by reason of subparagraph (A) shall have the same characterization it would have § 904 Page 582