Page 4
552. (For the purpose of determining the ownership of stock,
in applying this paragraph, see section 267.)

Gain on sales by a “‘controlled”’ corporation.—In the
case of a sale or exchange, directly or indirectly, of property
between an individual and a corporation more than 80 per-
cent in value of the outstanding stock of which is owned by
such individual, his spouse, and his minor children and minor
grandchildren, any gain recognized to the transferor from
such sale or exchange shall be treated as gain from the sale
or exchange of property which is neither a capital asset nor
property described in section 1231, if such property in the
hands of the transferee is depreciable under section 167.
Section 1239.

Gains and losses from involuntary conversion and
from the sale or exchange of certain property used in the
trade or business.—The term “property used in the trade or
business," as used in section 1231, means property which
has been held more than 6 months, which is used in the trade
or business, and which is either real property or property
subject to depreciation under section 167, and which is not
(a) property of a kind which would properly be includible in
the inventory of the taxpayer if on hand at the close of the
taxable year, (b) property held by the taxpayer primarily
for sale to customers in the ordinary course of its trade or
business, or (c) certain copyrights or similar properties. Such
term also includes timber and coal with respect to which
section 631 applies as well as unharvested crops to which
section 1231 (b) (4) applies. Such term also includes livestock
(but not poultry) held for draft, breeding, or dairy purposes
and held for 12 months or more from the date of acquisition.

Section 1231 provides special treatment for the gains and
losses upon the sale or exchange of “‘property used in the
trade or business’’ and upon the compulsory or involuntary
conversion of (1) such property and (2) capital assets held for
more than 6 months. Such gains and losses during the taxable
year are treated as gains and losses from the sale or exchange
of capital assets held for more than 6 months, if the aggregate
of such gains exceeds the aggregate of such losses. If, how-
ever, such gains do not exceed such losses, such gains and
losses shall not be treated as gains and losses from the sale or
exchange of capital assets.

In determining whether gains do or do not exceed losses,
it is necessary to include the gains and losses to the extent
that they would be included if they were all ordinary gains
and losses. The limitation of section 1211 on the deductibility
of capital losses does not operate to exclude any such losses
from the computation as to the excess of gains over losses, but
all such losses are included in full.

For special treatment of gain or loss upon the cutting of
timber, or upon the disposal of timber or coal under a con-
tract by which the owner retains an economic interest in such
timber or coal, see section 631.

Alternative tax.—If for any taxable year the net long-term
capital gain exceeds the net short-term capital loss, or if there
is only a net long-term capital gain, section 1201 imposes an
alternative tax in lieu or the normal tax and surtax imposed
upon taxable income, if any, only if such tax is less than the
tax imposed by section 11 (relating to normal tax and surtax
on corporations), sections 821 and 831 (relating to normal
tax and surtax on insurance companies, other than life

insurance companies), or section 511 (a) (1) (relating to
taxation of business income of certain organizations described
in section 511 (a) (2)). The alternative tax is the sum of (1) a
partial tax, computed at the normal tax and surtax rates on
the taxable income decreased by the amount of the excess of
the net long-term capital gain over the net short-term capital
loss, and (2) 25 percent of such excess.

If the corporation computes an alternative tax under
section 1201 and is entitled to special deductions for dividends
received (sections 243, 244, 245); the special deduction for
dividends paid (section 247); the special deduction for a
Western Hemisphere trade corporation (section 922); or the
special deduction for a China Trade Act corporation (section
941) the amount to be entered on line 13 shall be computed
as follows:

(1) Add back to the taxable income (line 41, page 3,

Form 1120) any deductions claimed in lines 30 or 35 to
39, inclusive, page 3, Form 1120, under the authority
of sections 941, 243, 244, 245, 247, and 922.

(2) Subtract from this total the excess of net long-term
capital gain over net short-term capital loss (line 9 of
Schedule D).

Recompute the special deductions allowable under
sections 243, 244, 245, 247, 922, and 941. For the
purpose of this recomputation, the term “taxable
income’’ employed in these sections and in section 246
shall be considered to be the result in (2) above.

Subtract from the result in (2) above the special
deductions recomputed in (3) above and enter the
difference, plus line 35, page 3, Form 1120, on line 13.

Bonds, etc., losses of banks.—In the case of a bank, as
defined in section 581, if the losses in the taxable year from
sales or exchanges of bonds, debentures, notes, or certificates,
or other evidences of indebtedness, issued by any corporation
(including one issued by a government or political subdivision
thereof) with interest coupons or in registered form, exceed
the gains from such sales or exchanges, such excess shall be
considered as an ordinary loss and deductible in full against
other income. Section 582.

Dealers in securities. Capital gains and ordinary
losses.—Under the provisions of section 1236, gain by a
dealer in securities from the sale or exchange of a security,
as defined in section 1236, shall in no event be considered
as gain from the sale or exchange of a capital asset unless
(a) the security was, before the expiration of the thirtieth day
after the date of its acquisition, clearly identified in the
dealer's records as a security held for investment or, if ac-
quired before October 20, 1951, was so identitied before
November 20, 1951; and (b) the security was not, at any time
after the expiration of such thirtieth day, held by the dealer
primarily for sale to customers in the ordinary course of trade
or business. A loss from the sale or exchange of a security
shall, if section 582 (c) is not applicable, be considered a
capital loss if at any time after November 19, 1951, the
security was clearly identified in the dealer's records as a
security held for investment.

Short sales of capital assets.—TFor rules regarding tax
consequences of certain short sales of stock or other securities
(including those dealt with on a “when issued’’ basis), and
transactions in commodity futures, see section 1233,

3

(4)

Additional Instructions For Insurance Companies Using This Schedule

Companies taxable under section 831 and having losses
from capital assets sold or exchanged in order to obtain funds
to meet abnormal insurance losses, etc., shall attach a
schedule corresponding to Schedule E, Form 1120M.

For companies taxable under section 831 or section 821
(a) (1) or (b), “net capital loss’ means the amount by which
the losses for the taxable year from sales or exchanges of
capital assets exceed the sum of the gains from such sales
or exchanges and the lesser of (1) the taxable income (com-
puted without regard to gains or losses from sales or ex-
changes of capital assets or to the deduction for partially

tax-exempt interest provided in section 242) or (2) losses
from the sale or exchange of capital assets sold or exchanged
to obtain funds to meet abnormal insurance losses and to
provide for the payment of dividends and similar distribu-
tions to policyholders.

For companies taxable under section 821 (a) (1) or (b),
all references to “‘line’’ numbers, Form 1120, shall be con-
sidered as references to the appropriate “item” or ‘line’
in Form 1120M. It will be necessary for such companies to
substitute for lines 14, 15, and 16 of Schedule D a compu-
tation conforming to that on pages 2 and 3 of Form 1120M.

16—71972-1 U. 5. GOVERNMENT PAINTING OFFICE


U.S. TREASURY DEPARTMENT—INTERNAL REVENUE SERVICE.

SCHEDULE D SCHEDULE OF GAINS AND LOSSES FROM SALES 1955
(Form 1120) OR EXCHANGES OF PROPERTY

FOR CALENDAR YEAR 1955
or other taxable year beginning , 1955, and ending , 195

Name and address

(@) CAPITAL ASSETS

b, Date c. Date e, Depreciation Allowed (or | f. Cost or Other Basis and h. Gain
sot i i- \= \ ‘or Loss (Column d
a, Description of Property Acquired | “Sold 4. Gross Sales Price | allowable Since, Aeguist- | Costotimpravements Sub- |g, Expense of Sole | plus column e fess the sum
Mo, Day Yr.) Mo. Day Yr. (Attach schedule) March 1, 1913 ‘of columns f and g)

Short-Term Capital Gains and Losses—Assets Held for Not More Than 6 Months

$. $. 8 $.

2. Unused capital loss carryover from five preceding taxable years (attach statement)
3. Total of short-term capital gains or losses or difference between short-term capital gains and losses.

Long-Term Capital Gains and Losses—Assets Held for More Than 6 Months

$.. $... .|$...

5. Total of long-term capital gains or losses or difference between long-term capital gains and losses.............. $

Summary of Capital Gains and Losses

Gain or Loss To Be Taken Into Account

Classification

a. Gain b. Loss
6. Net short-term capital gain or loss from line 3 .|8. 8.
7. Net long-term capital gain or loss from line § .{s. 8.
8. Net short-term capital gain (line 6, col. a) reduced by any net long-term capital loss (line 7,
col. b). Enter here and on line 13 (a), page 2, Form 1120. .|s. XXX XXX XXX X
9. Net longterm capital gain (line 7, col. a) reduced by any net shortterm capital loss (line 6,
col. b). Enter here and on line 13 (b), page 2, Form 1120 8, XXXXXXXEXX

10. Excess of losses over gains in lines 6 and 7. This excess is not allowable. ... xxxxxxxxxx |$

16—71972-1


Page 2
Alternative Tax Computation for Calendar Year 1988 and Taxable Years Ending on or Before March 31, 1956
For other taxable years attach Form 1120FY

11. Line 42, page 3, Form 1120... Taree eee eETeRES ESS SET STTRESSPUSESSTEEESERSS $..
(When deductions are allowable ictions| 3, 247, 441, disregard lines 11 and 12 and compute tax
(yiitnsaees cf the alternative lee fine 13} according fo the “Altorntive tax Inatruclions on page 4)
12. Net long-term capital gain reduced by any net short-term capital loss (line 9 of summary) . :
13. Line 11 minus line 12. . |.

14. If amount of line 13 is:
(a) Not over $28,000—
Enter 30 percent of line 13 (32 percent if a consolidated return)
(b) Over $25,000—
Enter 52 percent of line 13 (54 percent if a consolidated return) .
Subtract $5,500 and enter difference. —_—
18. Adjustment for partially tax-exempt interest; enter 30 percent of line 35, page 3, Form 1120, but not in excess of 30

percent of line 13 above
16. Partial tax (line 14 less line 15).
17. 25 percent of line 12
18. Alternative tax (line 16 plus line 17)
19, Normal tax and surtax (line 45, page 3, Form 1120). .
20. Income tax (line 18 or 19, whichever is lesser). Enter here and on line 46, page 3, Form 1120...........-... s

(II) PROPERTY OTHER THAN CAPITAL ASSETS

b. Date | cDate ¢, Daprcition Allowedor| {. Gost or Other Basis and h, Gain or Loss (Column 4
2. Description of Property Acquied | “Sold” | 4. Gross Sales Price | allowable) Sings, Acquis. | Costo!imprevementsSub- |g expense of Sale | plus column else the sum
Mo. Day Yr.|Mo. Day Yr. ‘attach schedule) March 1, 1913 of columns f and g)

Total net gain (or loss). Enter here and on line 13 (c), page 2, Form 1120.

State with respect to each item of property reported in Schedule D (1) and (II): (1) How property was acquired -.
(2) Whether at time of sale or exchange—(Check appropriate block(s))

(a) purchaser owned directly or indirectly (b) where purchaser was a corporation, more (©) where purchaser was a corporation,
more than SO percent in value of your than 50 percent in value of its capital stock more than 50 percent in value of its capital
outstanding stock. and 5Q percent in value of your capital stock stock was owned directly or indirectly by you.

was owned directly or indirectly by or for the
same individual or his family, an:

State name and address of purchaser .....

U.S. GOVERNMENT PRINTING OFFICE ;1955—0-355204


Detach
before

Page 3

INSTRUCTIONS
(References are to the Internal Revenue Code)

Gains and losses from sales or exchanges of capital
assets and other property.—Report sales or exchanges of
capital assets and sales or exchanges of property other than
capital assets in Schedule D. Every sale or exchange of
property, even though no gain or loss may be indicated, must
be reported in detail.

Losses from sales or exchanges of capital assets shall be
allowed only to the extent of gains from such sales or ex-
changes. However, the amount of a net capital loss sustained
in any taxable year may be carried over to each of the five
succeeding taxable years and treated in each such succeed-
ing taxable year as a short-term capital loss to the extent
not allowed as a deduction against any net capital gains
of any taxable year intervening between the taxable year
in which the net capital loss was sustained and the taxable
year to which carried.

Definition of capital assets.—The term ‘‘capital assets”
means property held by the taxpayer (whether or not con-
nected with its trade or business), but does not include (1)
stock in trade of the taxpayer or other property of a kind
which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers
in the ordinary course of its trade or business; or (2) property
used in the trade or business, of a character which is subject
to the allowance for depreciation provided in section 167,
or real property used in the trade or business of the taxpayer;
or (3) certain copyrights, literary, musical, or artistic compo-
sitions, or similar properties; or (4) accounts or notes receiv-
able acquired in the ordinary course of trade or business
for services rendered or from the sale of property described
in (1) above; or (5) an obligation of the United States or
any of its possessions, or of a State or Territory, or any
political subdivision thereof, or of the District of Columbia,
issued on or alter March 1, 1941, on a discount basis and
payable without interest at a fixed maturity date not exceed-
ing 1 year from the date of issue.

Classification of capital gains and losses. The phrase
“short-term” applies to the category of gains and losses
arising from the sale or exchange of capital assets held for
6 months or less, and the phrase “long-term” to the category
of gains and losses arising from the sale or exchange of
capital assets held for more than 6 months.

Enter full description of each item of property sold or ex-
changed, even though no gain or loss may be indicated.
Such description should include the following facts: (a) For
real estate, location and description of land, description of
improvements, details explaining depreciation; (b) for bonds
or other evidences of indebtedness, name of issuing corpora-
tion, description of the particular issue, denomination, and
amount; (c) for stocks, name of issuing corporation, class of
stock, number of shares, and capital changes affecting
basis (nontaxable stock dividends, other nontaxable distri-
butions, stock rights, etc.).

The “'basis’’ for the property is not subject to the same rule
for reporting gains as for losses, if the property was acquired
before March 1, 1913. If the property sold or exchanged was
acquired prior to March 1, 1913, the basis for determining
GAIN is the cost or the fair market value as of March 1, 1913,
adjusted as provided in section 1016, whichever is greater,
but in determining LOSS the basis is cost so adjusted. If
property was acquired after February 28, 1913, basis for
both gain and loss is the cost of such property, except as
otherwise provided. The exceptions arise chiefly where
property was acquired by bequest, gift, tax-free exchange,
involuntary conversion, or wash sale of stock; see sections
1014, 1015, 1031, 1033, and 1091, respectively. If the
amount shown as the basis is other than actual cash cost of
the property sold or exchanged, full details must be furnished
regarding the acquisition of the property.

Enter in column “e,'' the amount of depreciation, ex-
haustion, wear and tear, obsolescence, amortization and
depletion in respect of the property. This amount shall be
the sum of the following:

(a) The amount of depreciation, exhaustion, wear and
tear, obsolescence, amortization, and depletion which has
been allowed (but not less than the amount allowable) in
respect of such property since date of acquisition, or since
February 28, 1913, if the property was acquired before that
date. For any period after December 31, 1951, the amount
of depreciation, etc., allowed (and which is in excess of the
amount allowable) shall be disregarded to the extent that
such excess does not result in a reduction for any taxable
year of the taxpayer's income or excess profits taxes. In
respect of any period after February 28, 1913, and before
January 1, 1952, the taxpayer may disregard depreciation,
etc., which was in excess of the amount allowable and
which did not result in reduction of income or excess profits
taxes only if an election is made in accordance with regula-
tions. See section 1020; and

(b) The amount of depreciation, exhaustion, wear and
tear, obsolescence, amortization, and depletion actually
sustained prior to March 1, 1913, if the property was ac-
quired before that date.

Subsequent improvements to be entered in column “‘f'’
include expenditures for additions, improvements, renewals,
and replacements made to restore the property or prolong
its useful life. Do not include ordinary repairs, interest, or
taxes in column "f’’ or elsewhere in computing gain or loss.

If emergency facilities are sold or exchanged, see section
238.

Losses on securities becoming worthless.—If any secur-
ities (as defined below) become worthless within the taxable
year and are capital assets, the loss resulting therefrom shall,
in the case of a taxpayer other than a bank, as defined in
section 581, be considered as a loss from the sale or exchange,
on the last day of such taxable year, of capital assets.
Section 165 (g) (1).

Definition of security.—For the purpose of determining
capital losses under section 165, the term ‘'security’’ means
a share of stock in a corporation; a right to subscribe for,
or to receive, a share of stock in a corporation; or a bond,
debenture, note, or certificate, or other evidence of indebted-
ness, issued by a corporation or by a government or political
subdivision thereof, with interest coupons or in registered
form. However, securities issued by certain affiliated corpo-
rations shall not be deemed capital assets. Section 165 (g) (3).

Losses not allowable.—-No loss shall be recognized in
any sale or other disposition of shares of stock or securities
where there has been acquired substantially identical stock
or securities, or there has been entered into a contract or
option to acquire substantially identical stock or securities,
within 30 days before or after the date of such sale or dispo-
sition, except in cases of dealers in stocks and securities which
have sustained the loss in a transaction made in the ordinary
course of business. Section 1091.

Except in the case of distributions in liquidation, no
deduction shall be allowed in respect of losses from sales or
exchanges of property, directly or indirectly, between an
individual and a corporation in which such individual owns,
directly or indirectly, more than 50 percent in value of the
outstanding stock; or (except in the case of distributions in
liquidation) between two corporations more than 50 percent
in value of the outstanding stock of each of which is owned,
directly or indirectly, by or for the same individual, if either
one of such corporations, with respect to the taxable year of
the corporation preceding the date of the sale or exchange
was, under the law applicable to such taxable year, (1) a
personal holding company, as defined in section 542, or (2)
a foreign personal holding company, as defined in section