(1) If a taxpayer elects or has elected under Section 23854 and 23854.1 of the Bank and Corporation Tax Law of 1954, to include in its gross income the amount of a loan from the Commodity Credit Corporation for the income year in which it is received, then--

1. (A) No part of the amount realized by the Commodity Credit Corporation upon the sale or other disposition of the commodity pledged for such loan shall be recognized as income to the taxpayer, unless the taxpayer receives an amount in addition to that advanced to it as the loan, in which event such additional amount shall be included in the gross income of the taxpayer for the income year in which it is received, and
2. (B) No deductible loss to the taxpayer shall be recognized on account of any deficiency realized by the Commodity Credit Corporation on such loan if the taxpayer was relieved from liability for such deficiency.

(2) The application of paragraph (1) of this regulation may be illustrated by the following example:

EXAMPLE. Corporation A, a taxpayer who elected for its income year 1956 to include in gross income amounts received as loans from the Commodity Credit Corporation, received as loans $500 in 1956, $700 in 1957, and $900 in 1958. In 1960 all the pledged commodity was sold by the Commodity Credit Corporation for an amount $100 and $200 less than the loans with respect to the commodity pledged in 1956 and 1957, respectively, and for an amount $150 greater than the loan with the respect to the commodity pledged in 1958. Corporation A, in making its return for 1960, shall include in gross income the sum of $150 if it is received during that year, but will not be allowed a deduction for the deficiencies of $100 and $200 unless it is required to satisfy such deficiencies and does satisfy them during that year.

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** This regulation is substantially the same as Section 26 CFR 1.77-2.