IRS proposes removing filing requirement for small business ordinary loss claim.

In a move to eliminate the paperwork burden for small businesses, the Internal Revenue Service has proposed removing the requirement of filing an extra information statement when claiming an ordinary loss on small business stock.

Under existing regulations, a taxpayer claiming an ordinary loss on small business stock must file an information statement with the return for the year the loss occurs. Proposed rulemaking (CO-46-94) would permit an individual to treat a limited amount of loss on Internal Revenue Code section 1244 stock as ordinary loss. A taxpayer still would bear the burden of proof that the deduction is proper. but the IRS and the Treasury have determined that denying ordinary loss treatment under the section solely because a taxpayer fails to file the regulations section 1.1244(e)-1(b) information statement is not necessary to achieve the section's purposes.

Michael J. Knight, CPA, a partner of Michael J. Knight & Co., Fairfield, Connecticut, says the change is beneficial simply because it relieves complexity. "The burden of proof is still on the taxpayer, but individuals who know about 1244 and forget to include the attachment shouldn't be penalized to the extent of losing the deduction." The regulations are proposed to be effective for open taxable years beginning after December 31, 1953, the effective date of the original section 1244 regulations.

For further information or to find out where to submit comments, call Kirsten L. Simpson at [phone].