Page 683

TITLE 26-INTERNAL REVENUE CODE struction, in whole or in part, theft or seizure, or requisition or condemnation of (A) proper- ty used in the trade or business or (B) capital assets held for more than 9 months shall be considered losses from a compulsory cr invol- untary conversion. In the case of any involuntary conversion (sub- ject to the provisions of this subsection but for this sentence) arising from fire, storm, ship- wreck, or other casualty, or from theft, of any property used in the trade or business or of any capital asset held for more than 9 months, this subsection shall not apply to such conversion (whether resulting in gain or loss) if during the taxable year the recognized losses from such conversions exceed the recognized gains from such conversions. (b) Definition of property used In the trade or busi- ness For purposes of this section- (1) General rule The term "property used in the trade or business" means property used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, held for more than 9 months, and real property used in the trade or business, held for more than 9 months, which is not- (A) property of a kind which would prop- erly be includible in the inventory of the taxpayer if on hand at the close of the tax- able year, (B) property held by the taxpayer primar- ily for sale to customers in the ordinary course of his trade or business, or (C) a copyright, a literary, musical, or ar- tistic composition, a letter or memorandum, or similar property, held by a taxpayer de- scribed in paragraph (3) of section 1221. (2) Timber, coal, or domestic iron ore Such term includes timber, coal, and iron ore with respect to which section 631 applies. (3) Livestock Such term includes- (A) cattle and horses, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes, and held by him for 24 months or more from the date of acquisition, and (B) other livestock, regardless of age, held by the taxpayer for draft, breeding, dairy, or sporting purposes, and held by him for 12 months or more from the date of acquisi- tion. Such term does not include poultry. (4) Unharvested crop In the case of an unharvested crop on land used in the trade or business and held for more than 9 months, if the crop and the land are sold or exchanged (or compulsorily or in- voluntarily converted) at the same time and to the same person, the crop shall be consid- ered as "property used in the trade or busi- ness." (Aug. 16, 1954, ch. 736, 68A Stat. 325; Sept. 2, 1958, Pub. L. 85-866, title I, §49(a), 72 Stat. 1642; Feb. 26, 1964, Pub. L. 88-272, title II, § 227(a)(2), 78 Stat. 97; Dec. 30, 1969, Pub. L. 91- 172, title II, § 212(b)(1), title V, §§ 514(b)(2), 516(b), 83 Stat. 571, 643, 646; Oct. 4, 1976, Pub. L. 94-455, title XIV, § 1402(b)(1)(R), 90 Stat. 1732.) TAXABLE YEARS AFTER 1977 Section amended by Pub. L. 94-455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, effective with respect to taxable years begin- ning after Dec. 31, 1977, by substituting "1 year"for "9 months". AMENDMENTS 1976-Pub. L. 94-455, § 1402(b)(1)(R), provided that in subsecs. (a), first and last sentences, (a)(2), and (b) (1), (4), "6 months" would be changed to "9 months" for taxable years beginning in 1977. 1969--Subsec. (a). Pub. L. 91-172, § 516(b), provided that casualty (or theft) losses with respect to deprecia. ble property and real estate used in trade or business and capital assets held for the production of income as well as personal assets are to be consolidated with ca- sualty (or theft) gains with respect to this type of property and if the casualty losses exceed the casualty gains, the net loss is treated as an ordinary loss with- out regard to whether there may be noncasualty gains under this section, but, if the casualty gains exceed the casualty losses, the net gain is treated as a gain under this section and must be consolidated with other gains and losses under this section. Subsec. (b)(1)(C). Pub. L. 91-172, § 514(b)(2), added refefence to a letter or memorandum. Subsec. (b)(3). Pub. L. 91-172, § 212(b)(1), redesignat- ed existing provisions as subpar. (B) and added subpar. (A). 1964-Subsec. (b)(2). Pub. L. 88-272 inserted the ref- erence to iron ore in the text, and to domestic iron ore, in the paragraph catchline. 1958-Subsec. (a). Pub. L. 85-866 added provisions re- specting casualty losses sustained upon certain unin- sured property. EFFECTIVE DATE OF 1976 AMENDMENT Section 1402(b)(1) of Pub. L. 94-455 provided in part that the substitution in subsecs. (a), first and last sen- tences, (a)(2), and (b)(1) of this section of "9 months" for "6 months" by section 1402 (b)(1)(R) of Pub. L. 94- 455 is effective with respect to taxable years beginning in 1977. EFFECTIVE DATE OF 1969 AMENDMENT Amendment of subsec. (a) by section 516(b) of Pub. L. 91-172 applicable to taxable years beginning after Dec. 31, 1969, see section 516(d)(2) of Pub. L. 91-172, set out as an Effective Date of 1969 Amendment note under section 1001 of this title. Amendment of subsec. (b)(1)(C) by section 514(b)(2) of Pub. L. 91-172 applicable to sales and other disposi- tions occurring after July 25, 1969, see section 514(c) of Pub. L. 91-172, set out as an Effective Date of 1969 Amendment note under section 1221 of this title. Section 212(b)(2) of Pub. L. 91-172 provided that: "The amendments made by paragraph (1) [amending subsec. (b)(3) of this section] shall apply to livestock acquired after December 31, 1969." EFFECTIVE DATE OF 1964 AMENDMENT Amendment by Pub. L. 88-272 applicable with re- spect to amounts received or accrued in taxable years beginning after Dec. 31, 1963, attributable to iron ore mined in such years, see section 227(c) of Pub. L. 88- 272, set out as an Effective Date of 1964 Amendment note under section 272 of this title. EFFECTIVE DATE OF 1958 AMENDMENT Section 49(b) of Pub. L. 85-866 provided that: "The amendment made by subsection (a) [to subsec. (a) of this section] shall apply to taxable years beginning after December 31, 1957." Page 683 § 1231