SMALL BUSINESS INVESTMENT COMPANIES.

SEC. 57. SMALL BUSINESS INVESTMENT COMPANIES. (a) Losses on Small Business Investment Company Stock and Losses of Small Business Investment Companies.—Part. IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by adding at the end thereof the following new sections: “SEC. 1242. LOSSES ON SMALL BUSINESS INVESTMENT COMPANY STOCK. “If— “(1) a loss is on stock in a small business investment company operating under 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 a loss from the sale or exchange of property which is not a capital asset. For purposes of section 172 (relating to the net operating loss deduction) any amount of loss treated by reason of this section as a loss from the sale or exchange of property which is not a capital asset shall be treated as attributable to a trade or business of the taxpayer. “SEC. 1243. LOSS OF SMALL BUSINESS INVESTMENT COMPANY. “In the case of a small business investment company operating under the Small Business Investment Act of 1958, if— “(1) a loss is on convertible debentures (including stock received pursuant to the conversion privilege) 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 a loss from the sale or exchange of property which is not a capital asset.” (b) Dividends Received by Small Business Investment Companies.—Section 243 (relating to dividends received by corporations) is amended— (1) by striking out in subsection (a) “In the case of a corporation” and inserting in lieu thereof “In the case of a corporation (other than a small business investment company operating under the Small Business Investment Act of 1958) ”; (2) by redesignating subsection (b) as (c), and by inserting after subsection (a) the following new subsection: “(b) Small Business Investment Companies.—In the case of a small business investment company operating under the Small Business Investment Act of 1958, there shall be allowed as a deduction an amount equal to 100 percent of the amount received as dividends (other than dividends described in paragraph (1) of section 244, relating to dividends on preferred stock of a public utility) from a domestic corporation which is subject to taxation under this chapter.”; and 72 Stat. 1646 (3) by striking out in subsection (c) (as redesignated by paragraph (2)) “subsection (a)” and inserting in lieu thereof “subsections (a) and (b)”. (c) Technical Amendments.— (1) Section 165 (h) (relating to deduction for losses) is amended by adding at the end thereof the following new paragraphs: “(3) For special rule for losses on stock in a small business investment company, see section 1242. “(4) For special rule for losses of a small business investment company, see section 1243.” (2) Section 246 (b) (1) (relating to limitation on aggregate amount of deductions for dividends received by corporations) is amended by striking out “243” each place it appears therein and inserting in lieu thereof “243 (a)”. (3) The table of sections for part IV of subchapter P of chapter 1 is amended by adding at the end thereof “Sec. 1242. Losses on small business investment company stock. “Sec. 1243. Loss of small business investment company.” (d) Effective Date.—The amendments made by this section shall apply with respect to taxable years beginning after the date of the enactment of this Act.