Deducting losses in S corporations will be the subject of a future article. As most of the readers of this magazine probably started their businesses after that date, this article will only discuss the rules that have been in effect since then. The Rules For Section 1244 Section 1244 only gives relief to the original owners of the corporation. If you acquired your stock in the corporation from someone else, you are not eligible for Section 1244 relief. Your stock must be common stock, not preferred stock.
Common stock gives the owner a right to a pro rata share of the distributed profits.
Preferred stock give the owner the right to receive a preferential share of the distributed profits. Your stock must have been issued by a U.S. corporation, not a foreign corporation. For example, a corporation organized under Illinois law would be a U.S. corporation, while a corporation organized under Canadian law would be a Canadian corporation. Your stock must have been issued in exchange for cash or other property. For an example, let's return to our editor.