Page 693

TITLE 26-INTERNAL REVENUE CODE Section 168, referred to in text, was repealed by Pub. L. 94-455, § 1951(a)(4)(A). AMENDMENTS 1976-Pub. L. 94-455, §§ 1901(b)(3)(K), 1951(c)(2)(A), substituted "ordinary income" for "gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231" and "(as in effect before its repeal by the Tax Reform Act of 1976)" for "(relating to amortization deduction of emergency facilities)" following "section 168". § 1239. Gain from sale of depreciable property be. tween certain related taxpayers (a) Treatment of gain as ordinary income In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167. (b) Related persons For purposes of subsection (a), the term "re- lated persons" means- (1) a husband and wife, (2) an individual and a corporation 80 per- cent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or (3) two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual. (c) Constructive ownership of stock Section 318 shall apply in determining the ownership of stock for purposes of this section, except that sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50-percent limitation contained therein. (Aug. 16, 1954, ch. 736, 68A Stat. 332; Sept. 2, 1958, Pub. L. 85-866, title I, § 56, 72 Stat. 1645; Oct. 4, 1976, Pub. L. 94-455, title XXI, § 2129(a), 90 Stat. 1922.) AMENDMENTS 1976-Pub. L. 94-455 substituted in the heading "sale of depreciable property between certain related taxpayers" for "sale of certain property between spouses or between an individual and a controlled cor- poration". Subsec. (a). Pub. L. 94-455 substituted provisions for transactions bet~veen related persons for such transac- tions (1) between a husband and wife; or (2) between an individual and a corporation more than 80 percent in value of the outstanding stock of which is owned by such individual, his spouse, and his minor children and minor grandchildren and "any gain recognized to the transferee shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167" for "any gain recognized to the transferor from the sale or exchange of such property shall be consid- ered as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231. Subsec. (b). Pub. L. 94-455 substituted definition of "related persons" for prior provision making the sec- tion applicable only to sales or exchanges of deprecia- ble property. Subsec. (c). Pub. L. 94-455 substituted provision re- specting constructive ownership of stock for prior pro- vision making the section inapplicable with respect to sales or exchanges made on or before May 3, 1951. 1958-Subsec. (c). Pub. L. 85-866 added subsec. (c). ErncrxvE DATE OF 1976 AMENDMENT Section 2129(b) of Pub. L. 94-455 provided that: "The amendment made by this section [to this sec. tion] shall apply to sales or exchanges after the date of the enactment of this Act [Oct. 4. 1976]. For pur. poses of the preceding sentence, a sale or exchange is considered to have occurred on or before such date of enactment if such sale or exchange is made pursuant to a binding contract entered into on or before that date." [§ 1240. Repealed. Pub. L. 94-455, title XIX, § 1901(a) (139), Oct. 4, 1976, 90 Stat. 17871 Section, act Aug. 16, 1954, ch. 736, 68A Stat. 332 re- lated to taxability to employee of termination pay- ments. EFFECTIVE DATE OF REPEAL Repeai by section 1901(a)(139) of Pub. L. 94-455 ap- plicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. § 1241. Cancellation of lease or distributor's agree- ment Amounts received by a lessee for the cancella- tion of a lease, or by a distributor of goods for the cancellation of a distributor's agreement (if the distributor has a substantial capital invest- ment in the distributorship), shall be consid- ered as amounts received in exchange for such lease or agreement. (Aug. 16, 1954, ch. 736, 68A Stat. 333.) CROss REFERENCES Computation for services as gross income, see section 61 of this title. § 1242. Losses on small business investment company stock If- (1) a loss is on stock in a small business in- vestment company operating under the Small Business Investment Act of 1958, and (2) such loss would (but for this section) be a loss from the sale or exchange of a capital asset, then such loss shall be treated as an ordinary loss. For purposes of section 172 (relating to the net operating loss deduction) any amount of loss treated by reason of this section as an ordi- nary loss shall be treated as attributable to a trade or business of the taxpayer. (Added Pub. L. 85-866, title I, § 57(a), Sept. 2, 1958, 72 Stat. 1645, and amended Pub. L. 94- 455, title XIX, § 1901(b)(3)(F), Oct. 4, 1976, 90 Stat. 1793.) ERENcEs IN TEXT The Small Business Investment Act of 1958, referred to in cl. (1), is Pub. L. 85-699, Aug. 21, 1958. 72 Stat. 689, as amended, which is classified principally to chapter 14B (§ 661 et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see Short Title note set out under section 661 of Title 15 and Tables volume. AMENDMENTS 1976-Pub. L. 94-455 substituted "an ordinary loss" for "a loss from the sale or exchange of property which Is not a capital asset", each time appearing. 71-999 0 - 78 - 46 (Vol. 7) Page 693 § 1242