In United States v. Foster Lumber Co., the U.S. Supreme Court, in a 5-4 decision, held that a § 1722 net operating loss deduction is absorbed by both ordinary and capital gains portions of taxable income, even though it does not reduce capital gains subject to tax in the §1201 alternative tax method.
"Capital Gains As Well As Ordinary Income Absorb Net Operating Loss Deductions,"
Mercer Law Review: Vol. 28:
3, Article 10.
Available at: https://digitalcommons.law.mercer.edu/jour_mlr/vol28/iss3/10