Page 4

nized 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 busi-
ness.—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
() 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 drait, 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 prop-
erty 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, however, 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.
The total shown on line 2 determines whether the items reflected
therein represent a long-term capital gain or an ordinary loss. The
total must be entered on the first line of the appropriate Schedules
of Part II or Part II.

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

Long-term capital gains from regulated investment com-
panies.—Include in income as a long-term capital gain the amount
the corporation has been notified constitutes its share of the undis-
tributed capital gains of a regulated investment company. See
specific instruction 32 of Form 1120, for method of claiming credit of
tax paid on such gains.

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 of the normal tax and surtax imposed upon taxable income, if
any, only if such tax is less than the tax imposed by section 11 (re-
lating 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 in-
come decreased by the amount of the excess of the net long-term
capital gain over the net shortterm 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 corpora-
tion (section 922), or the special deduction for a China Trade Act
corporation (section 941), such special deductions are to be based
upon taxable income including the excess of net long-term capital
gain over net short-term capital loss.

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 in-
debtedness, issued by any corporation (including one issued by a
government or political subdivision thereof) 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 acquired before
October 20, 1951, was so identified 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.—For rules regarding tax conse-
quences 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,

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 corre-
sponding to Schedule B, Form 1120M. -

For companies taxable under section 831 or section 821, “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 (computed without regard to gains or losses from sales or
exchanges 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 divi-
dends and similar distributions to policyholders.

For companies taxable under section 821, all references to “‘line”
numbers, Form 1120, shall be considered as references to the appro-
priate “line” in Form 1120M.

Life insurance companies taxable under section 802, see Schedule
D orm 1120L).

Hx U.S. GOVERNMENT PRINTING OFFICE : 1961—O-600807


U.S. TREASURY DEPARTMENT—INTERNAL REVENUE SERVICE.

SCHEDULE D | SCHEDULE OF GAINS AND LOSSES FROM SALES
(Form 1120) OR EXCHANGES OF PROPERTY | 1961

FOR CALENDAR YEAR 1961
or other taxable year beginning , 1961, and ending 119

Name and address Employer identification number

PART I,—SALE OR EXCHANGE OF PROPERTY UNDER SECTION 1231 (See Instructions—page 4)

e. Depreciation Allowed | {-, Gost or Other Basis

b. Date Acquired c. Date Sold d. Gross Sales Price | (or allowable) Since. | 2"4 Cost of Improve- hh Gain of Loss (Column
Mio. Day Yr. | Mo. Day Yr.

‘a. Description of Property ments Subsequent to | g. Expense of Sale | d plus column eless the
(Con Acasa, Sum of columns and g)

2. Total (If gain, enter on line 6 below; if loss, enter on line 1, Part III)...

PART II.—CAPITAL ASSETS
Short-Term Capital Gains and Losses—Assets Held for Not More Than 6 Months

4, Unused capital loss carryover from five preceding taxable years (attach statement)

8. 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

7. 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

a. Gain b. Loss

Classification

8, Net short-term capital gain or loss from line 5... . ss esses eee ence eee e eee e eee r eens

9. Net long-term capital gain or loss from line 7
10. Net short-term capital gain (line 8, col. a) reduced by any net long-term capital loss (line 9,
col. b). Enter here and on line 1, Part IV, page 2.......... see eee eee ete e ences XXXXXXXXX

11. Netlong-term capital gain (line 9, col. a) reduced by any net short-term capital loss (line 8,
col. b). Enter here and on line 2, Part IV, page 2

XXXXXXXEX

12. Excess of losses over gains in lines 8 and 9. This excess is not allowable. xxxxxxxxx



Page 2 Alternative Tax Computation for Calendar Year 1961

13, Line 1, Tax Computation, page 3, Form 1120...
14. Net long-term capital gain reduced by any net short-term capital loss (line 11 of summary, page 1).
15, Line 13 minus line 14.. .
16. If amount of line 15 is:
(a) Not over $25,000—
Enter 30 percent of line 15 (32 percent if a consolidated return) .....sssseeeeseeeceeerneeeneeeee

() Over $25,000—

Enter 82 percent of line 15 (54 percent if a consolidated return) ............
Subtract $5,500 and enter difference......6.. 60. 0cecceeeeeceeeee eee eeens 5,500.00

17. Adjustment for partially tax-exempt interest; enter 30 percent of line 1, Schedule I, page 3, Form 1120, but not
in excess of 30 percent of line 15 Gbove........cseeceeeeeeeeeeeeteeeeeeeeseteteuseeeeeseees

18, Partial tax (line 16 less line 17).
19. 25 percent of line 14
20. Alternative tax (line 18 plus line 19)
21. Normal tax and surtax (line 4, Tax Computation, page 3, Form 1120).
22, Income tax (line 20 or 21, whichever is lesser), Enter here and on line 5, Tax Computation, page 3, Form 1120.

PART III.—PROPERTY OTHER THAN CAPITAL ASSETS

| f. Cost or Other Basis
e, Depreciation Allowed

Description of Propert b, Date Acquired c. Date Sold d. Gross Sales Price | (or allowable) Since | 2nd Cost of Improve-

a, Description of Property | ‘Mio. Day Yr. | Mo. Day Yr. (Contract price) | Acquisition or March 1,) Menge Soe

1913 Attach schedule}| Acguistion or

ments Subsequent to |g. Expense of Sale

fh. Gain or Loss

(Column d plus column
e less the sum of

columns f and g)

Total net gain (or loss). Enter here and on line 3, Part IV, below........ +s ++1 ene

PART IV.—TOTAL SCHEDULE D GAINS AND LOSSES

1, Net short-term capital gain from Part II, page 1, line 10........ se eeeeneeeeneeeeetees teeeeee
2. Net long-term capital gain from Part II, page 1, line 11......... eee eee rere ee eee eee eee ee eee eee eee
3. Net gain (loss) other than capital assets from Part III, page 2, line 2........sseeeeeeeeeeeeee ste e eee eeeeee

4. Total (lines 1-3). Enter here and on Form 1120, page 1, line 9..

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

(©) where purchaser was a corporation,

o® urchaser owned directly or indi- (b) where purchaser was a corporation,
rectly more than 50 percent in value more than 50 percent in value of its cap- more than 50 percent in value of its cap-
of your outstanding stock, ital stock and 50 percent in value of your ital stock was owned directly or indirectly
capital stock was owned directly or indi- by you.
rectly by or for the same individual or his
family, and

(3) Name and address of purchaser



INSTRUCTIONS

Page 3

(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 exchanges. 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 succeeding 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 connected with its
trade or business), but does not include (1) stock in trade of the tax-
payer 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 compositions, or similar properties; or (4) accounts
or notes receivable acquired in the ordinary course of trade or busi-
ness 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 pos-
sessions, or of a State, or any political subdivision thereof, or of the
District of Columbia, issued on or after March 1, 1941, on a dis-
count basis and payable without interest at a fixed maturity date
not exceeding 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 exchanged,
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 corporation, description of the particular issue, denomina-
tion, and amount; (c) for stocks, name of issuing corporation, class of
stock, number of shares, and capital changes affecting basis (non-
taxable stock dividends, other nontaxable distributions, stock rights,
etc.).

The “basis” for the property is not subject to the same rule for re-
porting 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 con-
version, 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, exhaustion, 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 tax-
payer 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
regulations. 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 acquired before that date.

Subsequent improvements to be entered in column "” include ex-
penditures for additions, improvements, renewals, and replace-
ments made to restore the property or prolong its useful life Do not
include ordinary repairs, interest, or taxes in column “f’ or else-
where in computing gain or loss.

If emergency facilities are sold or exchanged, see section 1238,

Losses on securities becoming worthless.—If any securities
(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 @ corporation; or a bond, debenture, note, or certificate, or
other evidence of indebtedness, issued by a corporation or by a gov-
ernment or political subdivision thereof, with interest coupons or in
registered form. However, securities issued by certain affiliated
corporations 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 disposition, 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. per-
cent in value of the outstanding stock; or (except in the case of distri-
butions in liquidation) between two corporations more than 50 per-
cent 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 corpora-
tion preceding the date of the sale or exchange was, under the law
applicable io such taxable year, (1) a personal holding company,
as defined in section 542, or (2) a foreign personal holding company,
as defined in section 552. (For the purpose of determining the owner-
ship 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 percent in value of the
outstanding stock of which is owned by such individual, his spouse,
and his minor children and minor grandchildren, any gain recog-