Title 26, Internal Revenue CodeRelease 119-110
§1243 Loss of Small Business Investment Company
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter P — Capital Gains and Losses › PART IV — SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES › § 1243
Summary
Treat certain losses on converted stock as ordinary losses for tax purposes. If a small business investment company converted debentures it bought under section 304 of the Small Business Investment Act of 1958 into stock, and that stock later suffers a loss that would otherwise be a capital loss, the company must treat that loss as an ordinary loss.
Full Legal Text
Title 26, §1243
Internal Revenue Code, Source: USLM XML via OLRC
In the case of a small business investment company operating under the Small Business Investment Act of 1958, if—
(1)a loss is on stock received pursuant to the conversion privilege of convertible debentures acquired pursuant to section 304 of 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.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The Small Business Investment Act of 1958, referred to in text, is Pub. L. 85–699, Aug. 21, 1958, 72 Stat. 689, which is classified principally to chapter 14B (§ 661 et seq.) of Title 15, Commerce and Trade. section 304 of the Small Business Investment Act of 1958, is classified to section 684 of Title 15. For complete classification of this Act to the Code, see
Short Title
note set out under section 661 of Title 15 and Tables.
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”. 1969—Par. (1). Pub. L. 91–172 substituted “stock received pursuant to the conversion privilege of convertible debentures” for “convertible debentures (including stock received pursuant to the conversion privilege)”.
Statutory Notes and Related Subsidiaries
Effective Date
of 1976 AmendmentAmendment by Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.
Effective Date
of 1969 AmendmentAmendment by Pub. L. 91–172 applicable to taxable years beginning after July 11, 1969, see section 433(d) of Pub. L. 91–172, set out as a note under section 582 of this title.
Effective Date
Section applicable with respect to taxable years beginning after Sept. 2, 1958, see section 57(d) of Pub. L. 85–866, set out as an
Effective Date
of 1958 Amendment note under section 243 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 1243
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110