(3) Organizations expending at least 50 percent of donor's contributions.

An organization shall be an organization referred to in paragraph (2) (C), with respect to any charitable contribution, only if—

(A) not later than the close of the third year after the organization's taxable year in which the contribution is received (or before such later time as the Secretary or his delegate may allow upon good cause shown by such organization), such organization expends an amount equal to at least 50 percent of such contribution for

(i) the active conduct of the activities constituting the purpose or function for which it is organized and operated,

(ii) assets which are directly devoted to such active conduct,

(iii) contributions to organizations which are described in subsection (b) (1) (A) or in paragraph (2) (B) of this subsection, or

(iv) any combination of the foregoing; and (B) for the period beginning with the taxable year in which such contribution is received and ending with the taxable year in which subparagraph (A) is satisfied with respect to such contribution, such organization expends all of its net income (determined without regard to capital gains and losses) for the purposes described in clauses (i), (ii), (iii), and (iv) of subparagraph (A).

If the taxpayer so elects (at such time and in such manner as the Secretary or his delegate by regulations prescribes) with respect to contributions made by him to any organization, then, in applying subparagraph (B) with respect to contributions made by him to such organization during his taxable year for which such election is made and during all his subsequent taxable years, amounts expended by the organization after the close of any of its taxable years and on or before the 15th day of the third month following the close of such taxable year shall be treated as expended during such taxable year.

(4) Disqualifying transactions.

An organization shall be an organization referred to in subparagraph (B) or (C) of paragraph (2) only if at no time during the period consisting of the organization's taxable year in which the contribution is received, its 3 preceding taxable years, and its 3 succeeding taxable years, such organization—

(A) lends any part of its income or corpus to, (B) pays compensation (other than reasonable compensation for personal services actually rendered) to,

(C) makes any of its services available on a preferential basis to,

(D) purchases more than a minimal amount of securities or other property from, or

(E) sells more than a minimal amount of securities or other property to,

the donor of such contribution, any member of his family (as defined in section 267(c) (4)), any employee of the donor, any officer or employee of a corporation in which he owns (directly or indirectly) 50 percent or more in value of the out

standing stock, or any partner or employee of a partnership in which he owns (directly or indirectly) 50 percent or more of the capital interest or profits interest. This paragraph shall not apply to transactions occurring on or before the date of the enactment of the Revenue Act of 1964. (h) Disallowance of deductions in certain cases.

(1) For disallowance of deductions in case of contributions or gifts to charitable organizations engaging in prohibited transactions, see section 503 (e).

(2) For disallowance of deductions for contributions to or for the use of communist controlled organizations, see section 11 (a) of the Internal Security Act of 1950 (64 Stat. 996; 50 U. S. C. 790).

(i) Other cross references.

(1) For charitable contributions of estates and trusts, see section 642 (c).

(2) For nondeductibility of contributions by common trust funds, see section 584.

(3) For charitable contributions of partners, see section 702.

(4) For charitable contributions of nonresident aliens, see section 873.

(5) For treatment of gifts for benefit of or use in connection with the Naval Academy as gifts to or for the use of the United States, see section 3 of the Act of March 31, 1944 (58 Stat. 135; 34 U. S. C. 1115b).

(6) For treatment of gifts for benefit of the library of the Post Office Department as gifts to or for the use of the United States, see section 2 of the Act of August 8, 1946 (60 Stat. 924; 5 U. S. C. 393).

(7) For treatment of gifts accepted by the Secretary of State under the Foreign Service Act of 1946 as gifts to or for the use of the United States, see section 1021 (e) of that Act (60 Stat. 1032; 22 U. S. C. 809 (e)).

(8) For treatment of gifts of money accepted by the Attorney General for credit to the "Commissary Funds Federal Prisons" as gifts to or for the use of the United States, see section 2 of the Act of May 15, 1952 (66 Stat. 73, as amended by the Act of July 9, 1952, 66 Stat. 479, 31 U. S. C. 725s-4). (Aug. 16, 1954, ch. 736, 68A Stat. 58; Aug. 7, 1956, ch. 1031, § 1, 70 Stat. 1117; Sept. 2, 1958, Pub. L. 85866, title I, §§ 10(a), 11, 12, 72 Stat. 1609, 1610; Sept. 14, 1960, Pub. L. 86-779, § 7(a), 74 Stat. 1002; Oct. 16, 1962, Pub. L. 87-834, § 13(d), 76 Stat. 1034; Oct. 23, 1962, Pub. L. 87-858, § 2(a), (b), 76 Stat. 1134; Feb. 26, 1964, Pub. L. 88-272, title II, §§ 209(a), (b), (c) (1), (d) (1), (e), 231(b) (1), 78 Stat. 43, 45-47, 105.)

REFERENCES IN TEXT

The Revenue Act of 1964, referred to in subsec. (g). means Pub. L. 89-272. For classification of Pub. L. 88272, see Short Title note under section 1 of this title.

Section 3 of Act March 31, 1944 (58 Stat. 135, 34 U.S.C. 1115b), referred to in par. (5) of subsec. (1), was repealed by act Aug. 10, 1956, ch. 1041, § 53, 70A Stat. 741. See section 6973 of Title 10, Armed Forces.

Section 2 of the Act of August 8, 1946 (60 Stat. 924; 5 U.S.C. 293), referred to in par. (6) of subsec. (1), was repealed by Pub. L. 86-682, § 12(c), Sept. 2, 1960, 74 Stat. 708. See section 2101 of Title 39, The Postal Service. AMENDMENTS

1964 Subsec. (b)(1)(A)(v), (vi), (2), (5). Pub. L. 88-272, § 209(a), (c)(1), (d)(1), added clauses (v) and (vi) in par. (1) (A), and par. (5), and in par. (2), extended the 2-year carryforward of unused charitable contributions to 5 years and changed the method of computation by including the aggregate of the excess contributions made in taxable years before the contribution year, in clause (1), and the references to the third, fourth or fifth succeeding years in clause (ii).

Subsec. (e). Pub. L. 88-272, § 231(b)(1), substituted "certain property" for "section 1245 property" in the subsection catchline, and inserted the reference to section 1250 (a) in the text.

Subsec. (f). Pub. L. 88–272, § 209(e), added subsec.(f). Former subsec. (f) redesignated (h).

Subsec. (g). Pub. L. 88-272, § 209 (b), added subsec. (g). Former subsec. (g) redesignated (1).

Subsec. (h). Pub. L. 88-272, 209(e), redesignated former subsec. (f) ( as (h).

Subsec. (1). Pub. L. 88-272, § 209(e), redesignated former subsec. (g) as (1).

1962-Subsec. (b)(1)(A)(iv). Pub. L. 87-858, § 2(a), added clause (iv).

Subsec. (b) (1) (B). Pub. L. 87-858, § 2(b), substituted "any charitable contributions described in subparagraph (A)" for "any charitable contributions to the organizations described in clauses (i), (ii), and (iii).”

Subsec. (e). Pub. L. 87-834 added subsec. (e) and redesignated former subsec. (e) as (f).

Subsecs. (f), (g). Pub. L. 87-834 redesignated former subsecs. (e) and (f) as (f) and (g), respectively.

1960 Subsec. (c). Pub. L. 86-779, § 7(a) (1), added the sentence additionally defining the term "charitable contribution" for the purposes of the section.

Subsec. (d). Pub. L. 86-779, § 7(a)(2), added subsec. (d). Former subsec. (d) redesignated (e).

Subsecs. (e) and (f). Pub. L. 86-779, § 7(a) (2), redesignated former subsecs. (d) and (e) as (e) and (f).

1958 Subsec. (b)(1)(C). Pub. L. 85-866, § 10(a), added sentence allowing substitution, in lieu of amount of tax paid during year, amount of tax paid in respect of such year, provided amount so included in the year in respect of which payment was made be not included in any other year.

Subsec. (b) (3). Pub. L. 85-866, § 11, added subsec. (b) (3).

Subsec. (b) (4). Pub. L. 85-866, § 12, added subsec. (b) (4).

1956 Subsec. (b)(1) (A) (iii). Act Aug. 7, 1956, § 1, provided for the allowance, as deductions, of contributions to medical research organizations.

EFFECTIVE DATE OF 1964 AMENDMENT

Section 209 (f) of Pub. L. 88-272 provided that:

"(1) The amendments made by subsections (a), (b), and (c) [to this section, and sections 545(b)(2) and 556(b)(2) of this title], shall apply with respect to contributions which are paid in taxable years beginning after December 31, 1963.

"(2) The amendments made by subsection (d) [to subsec. (b)(2) of this section, and section 381 of this title] shall apply to taxable years beginning after December 31, 1963, with respect to contributions which are paid (or treated as paid under section 170(a)(2) of the Internal Revenue Code of 1954) in taxable years beginning after December 31, 1961.

"(3) The amendments made by subsection (e) [to subsec. (f) of this title] shall apply to transfers of future interests made after December 31, 1953, in taxable years ending after such date, except that such amendments shall not apply to any transfer of a future interest made before July 1, 1964, where—

"(A) the sole intervening interest or right is a nontransferable life interest reserved by the donor, or

"(B) in the case of a joint gift by husband and wife, the sole intervening interest or right is a nontransferable life interest reserved by the donors which expires not later than the death of whichever of such donors dies later.

For purposes of the exception contained in the preceding sentence, a right to make a transfer of the reserved life interest to the donee of the future interest shall not be treated as making a life interest transferable."

Amendment of subsec. (e) by Pub. L. 88-272 applicable to dispositions after Dec. 31, 1963, in taxable years ending after such date, see section 231(c) of Pub. L. 88272, set out as a note under section 1250 of this title.

EFFECTIVE DATE OF 1962 AMENDMENTS

Section 2(c) of Pub. L. 87-858 provided that: "The amendments made by subsections (a) and (b) [to subsec. (b) (1) (A) and (B) of this section] shall apply to taxable years beginning after December 31, 1960."

Subsec. (e) of this section applicable to taxable years beginning after Dec. 31, 1962, see section 13(g) of Pub. L. 87-834, set out as a note under section 1245 of this title.

EFFECTIVE DATE OF 1960 AMENDMENT Amendment of section by Pub. L. 86-779 applicable with respect to taxable years beginning after Dec. 31, 1959, see section 7(c) of Pub. L. 86-779, set out as a note under section 162 of this title.

EFFECTIVE DATE OF 1958 AMENDMENT Section 10 (b) of Pub. L. 85-866 provided that: "The amendment made by subsection (a) [to subsec. (b) (1)

(C) of this section] shall apply with respect to taxable years beginning after December 31, 1957."

Subsec. (b)(3) of this section applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1 (c) of Pub. L. 85-866, set out as a note under section 165 of this title.

Section 12 (b) of Pub. L. 85-866 provided that: "The amendment made by subsection (a) [which added subsec. (b) (4) of this section] shall apply to taxable years ending after December 31, 1957, but only with respect to charitable contributions made after such date." EFFECTIVE DATE OF 1956 AMENDMENT

Section 2 of act Aug. 7, 1956, provided that: "The amendment made by this Act [to subsec. (b) (1) (A) (iii) ] shall apply only with respect to taxable years beginning after December 31, 1955."

DEDUCTION OF CONTRIBUTIONS TO CERTAIN ORGANIZATIONS FOR JUDICIAL REFORM

Section 29 of Pub. L. 87-834 provided that:

"For purposes of section 170 of the Internal Revenue Code of 1954 [this section] (relating to deduction for charitable, etc., contributions and gifts), a contribution or gift made after December 31, 1961, with respect to a referendum occurring during the calendar year 1962 to or for the use of any nonprofit organization created and operated exclusively

"(1) to consider proposals for the reorganization of the judicial branch of the government of any State of the United States or political subdivision of such State, and

"(2) to provide information, make recommendations, and seek public support or opposition as to such proposals,

shall be treated as a charitable contribution if no part of the net earnings of such organization inures to the benefit of any private shareholder or individual. The provisions of the preceding sentence shall not apply to any organization which participates in, or intervenes in, any political campaign on behalf of any candidate for public office."

CROSS REFERENCES

Application of subsec. (b) (5) of this section to charitable contributions paid in a taxable year in which taxpayer elects to compute income from an employment under former sections 1301 and 1307 of the Internal Revenue Code of 1954, see section 232(g) of Pub. L. 88-272, set out as a note under section 1301 of this title.

Charitable and similar gifts deductible from amount of gift, see section 2522 of this title.

Charitable deduction for nonresident alien individual, see section 873 (c) of this title.

Contributions and gifts excepted as business expense, see section 162 (b) of this title.

Contributions by employer to employees' pension plan, see section 404 of this title.

Gifts and bequests accepted by Secretary of Commerce under Bureau of Standards Act as gifts and bequests to United States, see section 278a of Title 15, Commerce and Trade.

Taxable year deduction to be taken, see section 461 of this title.

Transfers to charitable uses deductible from gross estate, see section 2106 (a) (2) of this title.

§ 171. Amortizable bond premium. (a) General rule.

In the case of any bond, as defined in subsection (d), the following rules shall apply to the amortizable bond premium (determined under subsection (b)) on the bond:

(1) Interest wholly or partially taxable.

In the case of a bond (other than a bond the interest on which is excludable from gross income). the amount of the amortizable bond premium for the taxable year shall be allowed as a deduction.

(2) Interest wholly tax-exempt.

In the case of any bond the interest on which is excludable from gross income, no deduction shall be allowed for the amortizable bond premium for the taxable year.

(3) Adjustment of credit or deduction for interest partially tax-exempt.

(A) Individuals.

In the case of any bond the interest on which is allowable as a credit under section 35, the amount which would otherwise be taken into account in computing such credit shall be reduced by the amount of the amortizable bond premium for the taxable year.

(B) Corporations.

In the case of any bond the interest on which is allowable as a deduction under section 242, such deduction shall be reduced by the amount of the amortizable bond premium for the taxable year.

(4) Cross reference.

For adjustment to basis on account of amortizable bond premium, see section 1016 (a) (5).

(b) Amortizable bond premium.

(1) Amount of bond premium.

For purposes of paragraph (2), the amount of bond premium, in the case of the holder of any bond, shall be determined

(A) with reference to the amount of the basis (for determining loss on sale or exchange) of such bond,

(B) (i) with reference to the amount payable on maturity or on earlier call date, in the case of any bond other than a bond to which clause (ii) or (iii) applies,

(ii) with reference to the amount payable on maturity (or if it results in a smaller amortizable bond premium attributable to the period to earlier call date, with reference to the amount payable on earlier call date), in the case of any bond described in subsection (c) (1) (B) which is acquired after December 31. 1957, or

(iii) with reference to the amount payable on maturity, in the case of any bond described in subsection (c) (1) (B) which was acquired after January 22, 1954, and before January 1, 1958, but only if such bond was issued after January 22, 1951, and has a call date not more than 3 years after the date of such issue, and

(C) with adjustments proper to reflect unamortized bond premium, with respect to the bond, for the period before the date as of which subsection (a) becomes applicable with respect to the taxpayer with respect to such bond. In no case shall the amount of bond premium on a convertible bond include any amount attributable to the conversion features of the bond.

(2) Amount amortizable.

The amortizable bond premium of the taxable year shall be the amount of the bond premium attributable to such year. In the case of a bond to which paragraph (1) (B) (ii) or (iii) applies and which has a call date, the amount of bond

premium attributable to the taxable year in which the bond is called shall include an amount equal to the excess of the amount of the adjusted basis (for determining loss on sale or exchange) of such bond as of the beginning of the taxable year over the amount received on redemption of the bond or (if greater) the amount payable on maturity.

(3) Method of determination.

The determinations required under paragraphs (1) and (2) shall be made

(A) in accordance with the method of amortizing bond premium regularly employed by the holder of the bond, if such method is reasonable; (B) in all other cases, in accordance with regulations prescribing reasonable methods of amortizing bond premium prescribed by the Secretary or his delegate.

(c) Election as to taxable and partially taxable bonds. (1) Eligibility to elect; bonds with respect to which election permitted.

This section shall apply with respect to the following classes of taxpayers with respect to the following classes of bonds only if the taxpayer has elected to have this section apply:

(A) Partially tax-exempt.

In the case of a taxpayer other than a corporation, bonds with respect to the interest on which the credit provided in section 35 is allowable; and

(B) Wholly taxable.

In the case of any taxpayer, bonds the interest on which is not excludable from gross income but with respect to which the credit provided in section 35, or the deduction provided in section 242, is not allowable.

(2) Manner and effect of election.

The election authorized under this subsection shall be made in accordance with such regulations as the Secretary or his delegate shall prescribe. If such election is made with respect to any bond (described in paragraph (1)) of the taxpayer, it shall also apply to all such bonds held by the taxpayer at the beginning of the first taxable year to which the election applies and to all such bonds thereafter acquired by him and shall be binding for all subsequent taxable years with respect to all such bonds of the taxpayer, unless, on application by the taxpayer, the Secretary or his delegate permits him, subject to such conditions as the Secretary or his delegate deems necessary, to revoke such election. In the case of bonds held by a common trust fund, as defined in section 584 (a), or by a foreign personal holding company, as defined in section 552, the election authorized under this subsection shall be exercisable with respect to such bonds only by the common trust fund or foreign personal holding company. In case of bonds held by an estate or trust, the election authorized under this subsection shall be exercisable with respect to such bonds only by the fiduciary. (d) Bond defined.

For purposes of this section, the term "bond" means any bond, debenture, note, or certificate or

other evidence of indebtedness, issued by any corporation and bearing interest (including any like obligation issued by a government or political subdivision thereof), but does not include any such obligation which constitutes stock in trade of the taxpayer or any such obligation 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 any such obligation held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.

(e) Dealers in tax-exempt securities.

For special rules applicable, in the case of dealers in securities, with respect to premium attributable to certain wholly tax-exempt securities, see section 75.

(Aug. 16, 1954, ch. 736, 68A Stat. 61; Sept. 2, 1958, Pub. L. 85-866, title I, § 13 (a), 72 Stat. 1610.)

AMENDMENTS

1958-Subsec. (b)(1)(B). Pub. L. 85-866, § 13(a)(1), substituted ", in the case of any bond other than a bond to which clause (ii) or (iii) applies" for "(but in the case of bonds described in subsection (c) (1) (B) issued after January 22, 1951, and acquired after January 22, 1954, only if such earlier call date is a date more than 3 years after the date of such issue), and", designated such provision as cl. (i), and added cl. (ii) and (iii).

Subsec. (b) (2). Pub. L. 85-866, § 13(a) (2), substituted "In the case of a bond to which paragraph (1)(B) (ii) or (iii) applies and which has a call date," for "In the case of a bond described in subsection (c) (1) (B) issued after January 22, 1951, and acquired after January 22, 1954, which has a call date not more than 3 years after the date of such issue," in the second sentence.

EFFECTIVE DATE OF 1958 AMENDMENT

Section 13 (b) of Pub. L. 85-866 provided that: "The amendments made by subsection (a) [to subsecs. (b) (1) (B), (2) of this section] shall apply with respect to taxable years ending after December 31, 1957."

CROSS REFERENCES

Partially tax-exempt interest received by individuals as credit, see section 35 of this title.

§ 172. Net operating loss deduction. (a) Deduction allowed.

There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of (1) the net operating loss carryovers to such year, plus (2) the net operating loss carrybacks to such year. For purposes of this subtitle, the term "net operating loss deduction" means the deduction allowed by this subsection.

(b) Net operating loss carrybacks and carryovers. (1) Years to which loss may be carried.

(A) (i) Except as provided in clause (ii) and in subparagraph (D), a net operating loss for any taxable year ending after December 31, 1957, shall be a net operating loss carry back to each of the 3 taxable years preceding the taxable year of such loss.

(ii) In the case of a taxpayer with respect to a taxable year ending on or after December 31, 1962, for which a certification has been issued under section 317 of the Trade Expansion Act of 1962, a net operating loss for such taxable year shall be a net operating loss carryback to each of the 5 taxable years preceding the taxable year of such loss.

(B) Except as provided in subparagraphs (C) and (D), a net operating loss for any taxable year ending after December 31, 1955, shall be a

net operating loss carryover to each of the 5 taxable years following the taxable year of such loss.

(C) In the case of a taxpayer which is a regulated transportation corporation (as defined in subsection (j) (1)), a net operating loss for any taxable year ending after December 31, 1955, shall (except as provided in subsection (j)) be a net operating loss carryover to each of the 7 taxable years following the taxable year of such loss.

(D) In the case of a taxpayer which has a foreign expropriation loss (as defined in subsection (k)) for any taxable year ending after December 31, 1958, the portion of the net operating loss for such year attributable to such foreign expropriation loss shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss and shall be a net operating loss carryover to each of the 10 taxable years following the taxable year of such loss.

(2) Amount of carrybacks and carryovers.

Except as provided in subsections (i) and (j), the entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the "loss year") shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall be computed

(A) with the modifications specified in subsection (d) other than paragraphs (1), (4), and (6) thereof; and

(B) by determining the amount of the net operating loss deduction

(i) without regard to the net operating loss for the loss year or for any taxable year thereafter, and

(ii) without regard to that portion, if any, of a net operating loss for a taxable year attributable to a foreign expropriation loss, if such portion may not, under paragraph (1) (D), be carried back to such prior taxable year,

and the taxable income so computed shall not be considered to be less than zero. For purposes of this paragraph, if a portion of the net operating loss for the loss year is attributable to a foreign expropriation loss to which paragraph (1) (D) applies, such portion shall be considered to be a separate net operating loss for such year to be applied after the other portion of such net operating loss.

(3) Special rules.

(A) Paragraph (1)(A) (ii) shall apply only if

(i) there has been filed, at such time and in such manner as may be prescribed by the Secretary or his delegate, a notice of filing

of the application under section 317 of the Trade Expansion Act of 1962 for tax assistance, and, after its issuance, a copy of the certification under such section, and

(ii) the taxpayer consents in writing to the assessment, within such period as may be agreed upon with the Secretary or his delegate, of any deficiency for any year to the extent attributable to the disallowance of a deduction previously allowed with respect to such net operating loss, even though at the time of filing such consent the assessment of such deficiency would otherwise be prevented by the operation of any law or rule of law.

(B) In the case of

(i) a partnership and its partners, or

(ii) an electing small business corporation under subchapter S and its shareholders, paragraph (1)(A) (ii) shall apply as determined under regulations prescribed by the Secretary or his delegate. Such paragraph shall apply to a net operating loss of a partner or such a shareholder only if it arose predominantly from losses in respect of which certifications under section 317 of the Trade Expansion Act of 1962 were filed under this section.

(C) Paragraph (1)(D) shall apply only if— (i) the foreign expropriation loss (as defined in subsection (k) for the taxable year equals or exceeds 50 percent of the net operating loss for the taxable year,

(ii) in the case of a foreign expropriation loss for a taxable year ending after December 31, 1963, the taxpayer elects (at such time and in such manner as the Secretary or his delegate by regulations prescribes) to have paragraph (1) (D) apply, and

(iii) in the case of a foreign expropriation loss for a taxable year ending after December 31, 1958, and before January 1, 1964, the taxpayer elects (in such manner as the Secretary or his delegate by regulations prescribes) on or before December 31, 1965, to have paragraph (1) (D) apply.

(D) If a taxpayer makes an election under subparagraph (C) (iii), then (notwithstanding any law or rule of law), with respect to any taxable year ending before January 1, 1964, affected by the election—

(i) the time for making or changing any choice or election under subpart A of part III of subchapter N (relating to foreign tax credit) shall not expire before January 1, 1966,

(ii) any deficiency attributable to the election under subparagraph (C) (iii) or to the application of clause (i) of this subparagraph may be assessed at any time before January 1, 1969, and

(iii) refund or credit of any overpayment attributable to the election under subparagraph (C) (iii) or to the application of clause (i) of this subparagraph may be made or allowed if claim therefor is filed before January 1, 1969.

(c) Net operating loss defined.

For purposes of this section, the term "net operating loss" means (for any taxable year ending after December 31, 1953) the excess of the deductions allowed by this chapter over the gross income. Such excess shall be computed with the modifications specified in subsection (d).

(d) Modifications.

The modifications referred to in this section are as follows:

(1) Net operating loss deduction.

No net operating loss deduction shall be allowed.

(2) Capital gains and losses of taxpayers other than corporations.

In the case of a taxpayer other than a corporation

(A) the amount deductible on account of losses from sales or exchanges of capital assets shall not exceed the amount includible on account of gains from sales or exchanges of capital assets; and

(B) the deduction for long-term capital gains provided by section 1202 shall not be allowed.

(3) Deduction for personal exemptions.

No deduction shall be allowed under section 151 (relating to personal exemptions). No deduction in lieu of any such deduction shall be allowed. (4) Nonbusiness deductions of taxpayers other than corporations.

In the case of a taxpayer other than a corporation, the deductions allowable by this chapter which are not attributable to a taxpayer's trade or business shall be allowed only to the extent of the amount of the gross income not derived from such trade or business. For purposes of the preceding sentence

(A) any gain or loss from the sale or other disposition of—

(i) property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167,

or

(ii) real property used in the trade or business,

shall be treated as attributable to the trade or business;

(B) the modifications specified in paragraphs (1), (2) (B), and (3) shall be taken into account;

(C) any deduction allowable under section 165 (c) (3) (relating to casualty losses) shall not be taken into account; and

(D) any deduction allowed under section 404 or section 405(c) to the extent attributable to contributions which are made on behalf of an individual who is an employee within the meaning of section 401(c) (1) shall not be treated as attributable to the trade or business of such individual.

(5) Special deductions for corporations.

No deduction shall be allowed under section 242 (relating to partially tax-exempt interest) or