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107 STAT. 428 PUBLIC LAW 103-66—AUG. 10, 1993 of the time of the transfer described in subparagraph (A)) is a qualified small business. ^(C) SUCCESSIVE APPUCATION.—For piirposes of this paragraph, stock treated as qualified small business stock under subparagraph (A) shall be so treated for subsequent transactions or reorganizations, except that the limitation of subparagraph (B) shall be applied as of the time of the first transfer to which such limitation applied (deter- mined after the application of the second sentence of subparagraph (B)). **(D) CONTROL TEST.—In the case of a trsuisaction described in section 351, this paragraph shall apply only if, immediately after the transaction, the corporation issu- ing the stock owns directly or indirectly stock representing control (within the meaning of section 368(c)) of the cor- poration whose stock was exchanged. **(i) BASIS RULES.—For purposes of this section— **(1) STOCK EXCHANGED FOR PROPERTY.—In the case where the taxpayer transfers property (other than money or stock) to a corporation in exchange for stock in such corporation— (A) such stock shall be treated as having been acquired by the taxpayer on the date of such exchange, and "(B) the basis of such stock in the hands of the taxpayer shall in no event be less than the fair market value of the property exchanged. "(2) TREATMENT OF CONTRIBUTIONS TO CAPITAL.—If the adjusted basis of any qualified small business stock is adjusted by reason of any contribution to capital after the date on which such stock was originally issued, in determining the amount of the adjustment by reason of such contribution, the basis of the contributed property shall in no event be treated as less than its fair market value on the date of the contribu- tion, "(j) TREATMENT OF CERTAIN SHORT POSITIONS.— "(1) IN GENERAL.—If the taxpayer has an offsetting short position with respect to any qualified small business stock, subsection (a) shall not apply to any gain from the sale or exchange of such stock unless— ''(A) such stock was held by the taxpayer for more than 5 years as of the first day on which there was such a short position, and ''(B) the taxpayer elects to recognize gain as if such stock were sold on such first day for its fair market value. "(2) OFFSETTING SHORT POSITION.—^For purposes of para- graph (1), the taxpayer shall be treated as having an offsetting short position with respect to any qualified small business stock if— ''(A) the taxpayer has made a short sale of substantially identical property, "(B) the taxpayer has acquired an option to sell substantially identical property at a fixed price, or "(C) to the extent provided in regulations, the taxpayer has entered into any other transaction which substantially reduces the risk of loss from holding such qualified small business stock. For purposes of the preceding sentence, any reference to the taxpayer shall be treated as including a reference to any person