PUB. LAW 183

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP57-00384R001200010007-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 32
• Document Creation Date: December 20, 2016
• Document Release Date: July 11, 2001
• Sequence Number: 7
• Content Type: REGULATION

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(b) AMENDMENT OF SECTION 22 (b) (10).-Section 22 (b) (10)
'(relating to income from discharge of indebtedness of a railroad cor-
poration) is hereby amended by striking out "December 31, 1951" and
inserting in lieu thereof "December 31, 1954".
SEC. 305. COMPENSATION OF CERTAIN MEMBERS OF THE ARMED
FORCES.
(a) AMENDMENT OF SECTION 22 (b) (13).-Section 22 (b) (13)
(relating to exclusion from gross income of compensation of certain
members of the armed forces) is hereby amended by striking out sub-
paragraphs (A) and (B) and inserting in lieu thereof the following:
" A Enlisted Personnel.-Compensation received for
active service as a member below the grade of commissioned
officer in the armed forces of the United States for any month
during any part of which such member-
"M served in a combat zone after June 24, 1950,
and prior to January 1, 1954, or
"(ii) was hospitalized as a result of wounds, disease,
or injury incurred while serving in a combat zone prior
to January 1, 1954; but this clause shall not apply for
any month during any part of which there are no coin-
batant activities in any combat zone as determined under
subparagraph (C) (iii) of this paragraph.
"(B) Commissioned Officers.-So much of the compen-
sation as does not exceed $200 received for active service as a
commissioned officer in the armed forces of the United States
for any month during any part of which such officer-
"(i) served in a combat zone after June 24, 1950, and
prior to January 1, 1954, or
"(ii) was hospitalized as a result of wounds, disease,
or injury incurred while serving in a combat zone prior
to January 1, 1954; but this clause shall not apply for
any month during any part of which there are no com-
batant activities iiiany combat zone as determined under
subparagraph (C) (iii) of this paragraph."
(b) DEFINITION OF SERVICE IN COMBAT ZONE.-Clause (iii) of section
22,{b) (13) (C) is hereby amended by striking out "such zone; and"
and inserting in lieu thereof "such zone, except that June 25, 1950,
shall be considered the date of the commencing of combatant activities
in the combat zone designated in Executive Order 10195; and".
(C) WITHHOLDING ON WAGES.-Section 1621 (a) (1) (relating to
definition of the term "wages") is hereby amended to read as follows:
"(1) for active service as a member of the armed forces of the
United States performed prior to January 1, 1954, in a month
for which such member is entitled to the benefits of section 22
(b) (13), or"
(d) EFFECTIVE DATES.-The amendments made,by subsections (a)
and (b) shall be applicable to taxable years ending after June 24,
1950. The amendment made by subsection (c) shall be applicable
with respect to wages paid after the tenth day following the date of
the enactment of this Act.
SEC. 306. INVOLUNTARY LIQUIDATION AND REPLACEMENT OF INVEN-
TORY.
(a) AMENDMENT OF SECTION 22 (d) (6) (F) (iii).-Section 22 (d)
(6) (F) (iii) (relating to replacement of inventory involuntarily
liquidated) is hereby amended by striking out the last sentence and
inserting in lieu thereof the following : "If, for any taxable year end-
ing after June 30, 1950, and prior to January 1, 1953, subparagraph
(C) is applicable with respect to involuntary liquidations of goods
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of the same class subject to the provisions of both subparagraph (A)
and this subparagraph, the involuntary liquidations of such goods sub-
ject to the provisions of this subparagraph shall be considered for
the purpose of subparagraph (C) as having occurred prior to the
involuntary liquidations of such goods subject to the provisions of
subparagraph (A). For the purpose of this clause, and with respect
to the taxable years covered by this subparagraph, the reference in
subparagraph (E) to section 734 (d) shall be taken as a reference to
section 452 (d)."
(b) EFFECTIVE DATE.-The amendment made by subsection (a)
shall be applicable with respect to taxable years ending after June
30, 1950.
SEC. 307. MEDICAL EXPENSES.
(a) AMENDMENT OF SECTION 23 (x).-Section 23 (x) (relating
to medical, dental, etc., expenses) is hereby amended-to read as
follows :
"(X) MEDICAL,'DENTAL, ETC.. ExeENsES.-Expenses paid during the
taxable year, not compensated for by insurance or otherwise, for
medical care of the taxpayer, his, spouse, or a dependent specified in
section 25 (b) (3)-
"(1) If neither the taxpayer nor his spouse has attained the age
of 65 before the close of the taxable year, to the extent that such
expenses, exceed 5 per centum of the adjusted gross income; or
"(2) If either the taxpayer or his spouse has attained the age
of 65 before the close of the taxable year, (A) the amount of such
expenses for the care of the taxpayer and his spouse and (B) the
amount by which such expenses for the care of such' dependents
exceed .5) per centum of the adjusted gross income.
The deduction under this subsection shall not be in excess of $1,250
multiplied by the number of exemptions allowed under section 25 (b)
for the taxable year (exclusive of exemptions allowed under section
25 (b) (1) (B) or (C), with a maximum deduction of $2,500, except
that the maximum deduction shall be $5,000 in the case of a joint
return of husband and wife under section 51 (b). The term `medical
care', as used in this subsection, shall include amounts paid for the
diagnosis, cure, mitigation, treatment, or prevention of disease, or
f th ur ose of .ffc etin any structure or function of the body
or e
p p
(including amounts paid or accident or health insurance). The
determination of whether ail individual is married at any time during
the taxable year shall be made in accord?uice with the provisions of
section 51 (b) (5)."
(b) EFrr:cTIVE DATE.-Tile amendment made by this section shall
be applicable with respect to taxable years beginning after December
31, 1950.
SEC. 308. STANDARD DEDUCTION.
(a) METHOD OF ELECTION.-Subparagraphs (A) and (B) of section
23 (aa) (3) (relating to optional standard deduction for individuals)
are hereby amended by striking out the word "only"; and subpara-
graph (C) of section 23 (aa) (3) is hereby amended to read as follows:
(C) If the taxpayer upon making his return fails to
signify, in the manner provided by subparagraph (A) or
(B), his election to take the standard deduction, such failure
shall be considered his election not to take the standard
deduction."
(b) CHANGE OF ELECTION.-Section 23 (aa) is hereby amended by
ad, ing at the end thereof the following ~ new paragraph :
"(7) CHANGE OF ELECTION.. -Under regulations prescribed by
the Secretary, a change of an election to take, or not to take, the
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standard deduction for any taxable year may be made after the
filing of the return for such year. If the spouse of the taxpayer
filed a separate return for any taxable year corresponding, for
the purposes of paragraph (4) to the taxable year of the tax-
payer, the change shall not be allowed unless, in accordance with
such regulations-
"(A) the spouse makes a change of election with respect
to the standard deduction for the taxable year covered in
such separate return, consistent with the change of election
sought by the taxpayer, and
"(B) the taxpayer and his spouse consent in writing to the
assessment, within such period as may be agreed upon with
the Secretary, of any deficiency, to the extent attributable to
such change of election, even though at the time of the filing
of such consent the assessment of such deficiency would other-
wise be prevented by the operation of any law or rule of law.
This paragraph shall not apply if the tax liability of the tax-
payer s spouse, fo the taxable year corresponding (for the pur-
poses of paragraph (4)) to the taxable year of the taxpayer, has
been compromised under the provisions of section 3761.'
(c) EFFECTIVE DATE.-The amendments made by this section shall
be applicable only with respect to taxable years beginning after De-
cember 31, 1949.
SEC. 309. EXPENDITURES IN THE DEVELOPMENT OF MINES.
(a) DEDUCTION OF EXPENDITURES.-SeCtiOn 23 (relating to deduc-
tions from gross income) is hereby amended by adding at the end
thereof the following new subsection :
"(cc) DEVELOPMENT OF MINES.-
"(1) IN GENERAL.-Except as provided in paragraph (2), all
expenditures paid or incurred during the taxable year for the
development of a mine or other natural deposit (other than an
oil or gas well) if paid or incurred after December 31, 1950, and
after the existence of ores or minerals in commercially market-
able quantities has been disclosed. This subsection shall not apply
to expenditures for the acquisition or improvement of property
of a character which is subject to the allowance for depreciation
provided in section 23 (1), but allowances for depreciation shall
be considered, for 'the purposes of this subsection, as expenditures.
"(2) ELECTION OF TAXPAYER.-At the election of the taxpayer,
made in accordance with regulations prescribed by the Secretary,
expenditures described in paragraph (1) paid or incurred during
the taxable year shall be treated as deferred expenses and shall
be deductible on a ratable basis as the units of produced ores or
minerals benefited by such expenditures are sold. In the case of
such expenditures paid or incurred during the development stage
of the mine or deposit, the election shall apply only with respect
to the excess of such expenditures during the taxable year over
the net receipts during the taxable year from the ores or minerals
produced from such mine or deposit. The election under this
paragraph, if made, must be for the total amount of such expendi-
tures, or the total amount of such excess, as the case may be, with
respect to the mine or deposit, and shall be binding for such
taxable year.
"(3) ADJUSTED BASIS OF MINE OR DEPOSIT.-The amount of
expenditures which are treated under paragraph (2) as deferred
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expenses shall be taken into account in computing the adjusted
basis of the mine or deposit, except that such amount, and the
adjustments to basis provided in section 113 (b) (1) (J), shall
be disregarded in determining the adjusted basis of the property
for the purpose of computing a deduction for depletion under
section 114."
(b) ADJUSTED BASIS FOR DETERMINING GAIN OR Loss UPON SALE
OR EXCHANGE.-Section 113 (b) (1) (relating to adjusted basis of
property) is hereby amended by adding at the end thereof the
following subparagraph :
"(J) for amounts allowed as deductions as deferred
expenses under section 23 (cc) (2) (relating to certain
expenditures in the development of mines) and resulting in
a reduction of the taxpayer's taxes under this chapter, but.
not less than the amounts allowable under such section for
the taxable year and prior years." 2 to
(c) TECHNICAL AMENDMENT.-Section 24 (a) O (relating
items not deductible) is hereby amended by adding after the word
"estate" the following: ", except expenditures for the development
of mines or deposits deductible under section 23 (cc)yy".
shall
after Dce mb er this 31, 1950.
(d) aEFFECTIVE ATE.-The pplicable to taxable years ending amendments
be aSEC. 310. GROSS INCOME OF DEPENDENT OF TAXPAYER.
(a) INCREASE IN AMOUNT OF GROSS INCOME PERMITTED.-Section
25 (b) (1) (D) (relating to exemptions for dependents of taxpayer)
is hereby amended by striking out "$500" and inserting in lieu thereof
"$600".
(b) EFFECTIVE DATE.-The amendment made by subsection (a) shall
be applicable only with respect to taxable years beginning after
December 31, 1950.
SEC. 311. CREDIT FOR DIVIDENDS RECEIVED.
(a) DIVIDENDS FROM FOREIGN CORPORATION ENGAGED IN TRADE OR
BUSINESS IN TIIE UNITED STATES.-Section 26 (b) (relating to divi-
dends received credit) is hereby amended by inserting after paragraph
(2) the following new paragraph :
"(3) DIVIDENDS RECEIVED FP.OM CERTAIN FOREIGN CORPORATIONS.-
In the case of dividends received from a foreign corporation (other
than a foreign personal holding company) which is subject to
taxation under this chapter, if, for. an uninterrupted period of not
less than 36 months ending with the close of such foreign corpora-
tion's taxable year in which such dividends are paid (or, if the
corporation has not been in existence for 36 months at the close of
such taxable year, for the period the foreign corporation has been
in existence as of the close of such taxable year) such foreign
corporation has been engaged in trade or business within the
United States and has derived 50 per centum or more of its gross
income from sources within the United States-
"(A) an amount equal to 85 per centum of the dividends
received out of its earnings or profits specified in clause (2)
of the first sentence of section 115 (a), but such amount shall
not exceed an amount which bears the same ratio to 85 per
centum of such dividends received out of such earnings or
profits as the gross income of such foreign corporation for
the taxable year from sources within the United States bears
to its gross income from all sources for such taxable year, and
"(B) an amount equal to 85 per centum of the dividends
received out of that part of its earnings or profits specified in
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clause (1) of the first sentence of section 115 (a) accumulated
after the beginning of such uninterrupted period, but such
amount shall not exceed an amount which bears the same ratio
to 85 per centum of such dividends received out of such
accumulated earnings or profits as the gross income of such
foreign corporation from sources within the United States
for the portion of such uninterrupted period ending at the
beginning of such taxable year bears to its gross income from
all sources for such portion of such uninterrupted period.
For determination of earnings or profits distributed in any taxable
year, see section 115 (b)."
(by) TECHNICAL AMENDMENT.-Section 119 (a) (2) (B) (relating
to rules as to source of income in the case of ividends) is hereby
amended by inserting before the semicolon at the end thereof the
following: "to the extent exceeding the amount which is 100/85ths of
the amount of the credit allowable under section 26 (b) in respect of
such dividends".
(c) EFFECTIvE DATE.-The amendments made by this section shall
be applicable only with respect to taxable years beginning after
December 31, 1950.
SEC. 312. JOINT RETURN AFTER FILING SEPARATE RETURN.
(a) CHANGE OF ELECTION.-Section 51 of the Internal Revenue Code
(relating to making of individual returns) is hereby amended by
adding at the end thereof the following new subsection :
"(g) JOINT RETURN AFTER FILING SEPARATE RETURN.-
"(1) IN G"ENERAL.-If an individual has filed a separate return
for a taxable year for which a joint return could have been made
by him and his spouse under subsection (b) of this section, and
the time prescribed by law for filing the return for such taxable
year has expired, such individual anc?i his spouse may nevertheless
make a joint return for such taxable year. A joint return filed
by the husband and wife in such a case shall constitute the return
of the husband and wife for such taxable year, and all payments,
credits, refunds, or other repayments made or allowed with respect
to the separate return of either spouse for such taxable year shall
be taken into account in determining the extent to which the tax
based upon the joint return has been paid.
"(2) PAYMENTS REQUIRED BEFORE JOINT RETURN CAN BE MADE.-
A joint return can be made under paragraph (1) only if there is
paid in full at or before the time of the filing oft e joint return-
"(A) all amounts previously assessed with respect to either
spouse for such taxable year;
"(B) all amounts shown as the tax by either spouse upon
his separate return for such taxable year; and
"(C) any amount determined, at the time of the filing of
the joint return, as a deficiency with respect to either spouse
for such taxable year if, prior to such filing, a notice under
section 272 (a) of such deficiency has been mailed.
"(3) TIME FOR MAKING JOINT RETURN.-A joint return cannot
be made under paragraph (1)-
"(A) after the expiration of three years from the last
date prescribed by law for filing the return for such taxable
year (determined without regard to any extension of time
granted to either spouse),; "(B) after there has been mailed to either spouse, with
respect to such taxable year, a notice of deficiency under
section 272 (a), if the spouse, as to such notice, files a petition
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with the Tax Court of the United States within the time
prescribed in such section;
"(C) after either spouse has commenced a suit in any
court for the recovery of any part of the tax for such taxable
year; or
"(D) after either spouse has entered into a closing agree-
ment under section 3760 with respect to such taxable year,
or after any civil or. criminal case arising against either
spouse with respect to such taxable year has been com-
promised under section 3761.
"(4 ELECTIONS MADE IN SEPARATE RETURN.-If a joint return
is made under this subsection, any election (other than the elec-
tion to file a separate return) made by either spouse in his sepa-
rate return for such taxable year with respect to the treatment
of any income, deduction, or credit of such spouse shall not'be
changed in the making of the. joint return where such election
would have been irrevocable f the joint return had not been
made.
"(5) DEATH or SPOUSE.--If a joint return is made under this
subsection after the death of either spouse, such return with
respect to the decedent can be made only by his executor or
.administrator.
"(6) ADDITIONS To THE TAx.-Where the amount shown as the
tax by the husband and wife on a joint return made under this
subsection exceeds the aggregate of the amounts shown as the
tax upon the separate return of each spouse-
"(A) Negligence: If any part of such excess is attribu-
table to negligence or intentional disregard of rules and regu-
lations (but without intent to defraud) at the time of the
making of such separate return, then 5 per centum of the
total amount of such excess shall be assessed, collected, and
paid in the same manner as if it were a deficiency;
"(B) Fraud.-If any part of such excess is attributable
to fraud with intent to evade tax at the time of the making
of such separate return, then 50 per centum of the total
amount of such excess shall be so assessed, collected, and
paid, in lieu of the 50 per centum addition to the tax pro-
vided in section 3612 (d) (2).
"(7) RULES FOR APPLICATION or SECTIONS 275 AND 291: For
the purposes of section 275 (relating to period of limitations upon
assessment and collection), and for the purposes of section 201
(relating to delinquent returns), a joint return made under this
subsection shall be deemed to have been filed-
"(A) where both spouses filed separate returns prior to
making the joint return-on the, date the last separate re-
turn was filed (but not earlier than the last date prescribed
by law for filing the return of either spouse) ;
"(B) where only one spouse filed a separate return prior
to the making of the joint return, and the other spouse had
less than $600 of gross income for such taxable year-on the
date of the filing of such separate return (but not earlier
than the last date prescribed by law for the filing of such
separate return) ; or
"(C) where only one spouse filed a separate return prior
to the making of the joint-return, and the other spouse had
gross income of $600 or more for such taxable year-on the
date of the filing of such joint return.
"(8) RULE FOR APPLICATION OF SECTION 322.--For the purposes
of section 322 (relating to refunds and creditsj, a joint return
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made under this subsection shall be deemed to have been filed on
the last date prescribed by law for filing the return for such tax-
able year (determined without regard to any extension of time
granted to either spouse) .
"(9) ADDITIONAL TIME FOR ASSESSMENT.-If a point return is
made under this subsection, the period of limitations provided in
sections 275 and 276. on the making of assessments and the begin-
ning of distraint or a proceeding in court for collection shall with
respect to such return Include one year immediately after the
date of the filing of such joint return computed without regard
to the provisions of paragraph (7) of t its subsection).
"(10) RULE FOR APPLICATION OF SECTION 3809 (a).-For the pur-
poses of section 3809 (a) (relating to criminal penalties in the case'
of fraudulent returns) the term `return' includes a separate re-
turn filed by a spouse with respect to a taxable year for which a
joint return is made under this subsection after the filing of such
separate return."
(b) EFTECTIVE DATE.-The amendment made by subsection (a). shall
be applicable only with respect to taxable years beginning after
December 31, 1950.
SEC. 313. MUTUAL SAVINGS BANKS, BUILDING AND LOAN ASSOCIA-
TIONS, COOPERATIVE BANKS.
(a) MUTUAL SAVINGS BANKS.-Section 101 (2) (relating to exemp-
tion from tax of mutual savings banks) is hereby repealed.
(b) BUILDING AND LOAN ASSOCIATIONS AND COOPERATIVE BANKS.-
Section 101 (4) (relating to exemption from tax of building and loan
associations and cooperative banks) is hereby amended to read as
follows :
"(4) Credit unions without capital stock organized and oper-
ated for mutual purposes and without profit; and corporations or
associations without capital stock organized prior to September 1,
1951, and operated for mutual purposes and without profit for .
the purpose of providing reserve funds for, and insurance of,
shares or deposits in-
"(A) domestic buildin and loan associations,
"(B) coo erative bans without capital stock organized
e
for mutual purposes. and without profit, or
and operat
"(C) mutual savings banks not having capital stock rep-
resented by shares;".
(c) EXEMPTIONS FROM EXCESS PROFITS TAx.-Section 454 (corpora-
tions exempt from the excess profits tax) is hereby amended by adding
at the end thereof the following:
"(h) Any mutual savings bank not having capital stock represented
by shares, any domestic building and loan association (as defined in
section 3797 (a) (19) ), and any cooperative bank without capital stock
organized and operated for mutual purposes and without profit."
(d) FEDERAL SAVINGS AND LOAN ASSOCIATIONS.-Section 5 (h) of
the Home Owners' Loan Act of 1933, as amended (12 U. S. C. 1464
(h)), is hereby amended by striking out "date)" and inserting in lieu
thereof the following: "date, and except, in the case of taxable years
beginning after December 31, 1951, income, war-profits, and excess-
profits taxes)".
(e) BAD DEBT RESER.vES.-Section 23 (k) (1) (relating to deduction
from gross income of bad debts) is hereby amended by adding at the
end thereof thle following: "In the case of a mutual savings bank not
having capital stock represented by shares, a domestic building and
loan association, and a cooperative bank without capital stock organ-
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ized and operated for mutual purposes and without profit, the
reasonable addition to a reserve for bad debts shall be determined
with due regard to, the amount of the taxpayer's surplus or bad debt
reserves existing at the elose of December 31, 1951. In the case of a
taxpayer described in the preceding sentence, the reasonable addition
to a reserve for bad debts for any taxable year shall in no case be less.
than the amount determined by the taxpayer as the reasonable addi-
tion for such year; except that the amount determined by the taxpayer
under. this sentence shall not be greater than the lesser of (A) the
amount of its net income for the taxable year, computed without regard
to this subsection, or (B) the amount by which 12 per centum of the
total deposits or withdrawable accounts of its depositors at the close
of such year exceeds the sum of its surplus, undivided profits, and
reserves at the beginning of the taxable year." .
(f) DIVIDENDS PAID To DEPOSITORS.-Section 23 (r) (relating to
the deduction from gross income of certain dividends paid by banking
corporations) is hereby amended to read as follows :
"(r) DIVIDENDS PAID BY BANKING CORPORATIONS.-
"(1) In the case of mutual savings banks, cooperative banks,
and domestic building and loan associations, amounts paid to, or
credited to the accounts of, depositors or holders of accounts as
dividends on their deposits or withdrawable accounts, if such
amounts paid or credited are withdrawable on demand subject
only to customary notice of intention to withdraw.
"(2) For deduction of dividends paid by certain other banking
corporations, see section 121."
(g) DEDUCTION FOR REPAYMENT OF CERTAIN LOANS.-Section 23
(relating to deductions from gross income) is hereby amended by
adding at the end thereof the following:
"(dd) REPAYMENT BY MUTUAL SAVINGS BANKS, ETC., OF CERTAIN
LOANS.-In the case of a mutual.savings bank not having capital stock
represented by shares a domestic building and loan association, or a
cooperative bank without capital stock organized and operated for
mutual purposes and without profit, amounts paid by the taxpayer
during the taxable year in repayment of loans made prior to September
1, 1951, by (1) the United States or any' agency or instrumentality
thereof which is wholly owned by the United States, or (2) any mutual
fund established under the authority of the laws cf any State."
(h) DEFINITION OF BANK.-Section 104 (a) (relating to definition of
bank) is hereby amended by inserting. at the end thereof the following:
"Such term also means a domestic building and loan association."
(i) DEFINITION OF DOMESTIC BUILDING AND LOAN ASSOCIATION.-
Section 3797 (a) (relating to definitions for the purposes of the Inter-
nal Revenue Code) is hereby amended by adding at the end thereof the
following new paragraph:
"(19) DOMESTIC BUILDING AND LOAN ASSOCIATION.-TZIe term
`domestic building and loan association' means a domestic build-
ing and loan association, a domestic savings and loan association,
and a Federal savings and loan association, substantially all the
business of which is confined to making loans to members."
(j) EFFECTIVE DATE.-The amendments made by this section shall
be applicable only with respect to taxable years beginning after
December 31, 1951.
SEC. 314. INCOME TAX TREATMENT OF EXEMPT COOPERATIVES.
(a) AMENDMENT OF SECTION 101 (12).-Section 101 (12) is hereby
amended as follows :
(1) By inserting after "(12)" the following: "(A)".
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42) By inserting after such paragraph the following :
(B) An organization exempt from taxation under the pro-
visions of subparagraph (A) shall be subject to the taxes imposed
by sections 13 and 15, or section 117 (c) (1), except that in
computing the net income of such an organization there shall be
allowed as deductions from gross income (in addition to other
deductions allowable under section 23)-
"(i) amounts paid as dividends during the taxable year
upon its capital stock, and
.4 (ii) amounts allocated during the taxable year to patrons
with respect to its income not derived from patronage.
(whether or not such income was derived during such taxable
year) whether paid.in cash, merchandise, capital stock, revolv-
ing fund certificates, retain certificates, certificates of
indebtedness, letters of advice, or in some other manner that
discloses to each patron the dollar amount allocated to him.
Allocations made after the close of the taxable year and, on
or before the fifteenth day of the ninth month following the
close of such year shall be considered as made on the last day
of such taxable year to -the extent the allocations are attribu-
table to income derived before the close of such year.
Patronage dividends, refunds, and rebates to patrons with respect
to their patronage in the same or preceding years (whether paid
in cash, merchandise, capital stock, revolving fund certificates,
retain certificates, certificates of indebtedness, letters of advice, or
in some other manner that discloses to each patron the dollar
amount of such dividend, refund, or rebate) shall be taken into
account in computing net income in the same manner as in the
case of a cooperative organization not exempt under subpara-
graph (A). Such dividends, refunds, and rebates made after the
close of the taxable year and on or before the 15th (lay of the ninth
month following the close of such year shall be considered as made
on the last day of such taxable. year to the extent the dividends,
refunds, or rebates, are attributable to patronage occurring before
the close of such year."
(b) TECHNICAL AMENDMENTS.-
(1) Section 101 is hereby amended by striking out "Except as
provided in supplement. U" and inserting in lieu thereof the fol-
lowing: "Except as provided in paragraph (12) (B) and in sup-
plement U".
(2) The last sentence of section 101 is hereby amended by
striking out "Notwithstanding supplement U" and inserting
in lieu thereof "Notwithstanding paragraph (12) (B) and
supplement U".
(c) INFORMATION RETURNS.---Seetloii 148 (relating to information
by corporations) is hereby amended by adding at the end thereof the
following :
"(f) PATRONAGE DIVIDENDS.-Any corporation allocating amounts
as patronage dividends, rebates, or refunds (whether in cash mer-
chandise, capital stock, revolving fund certificates, retain certificates.
certificates of indebtedness, letters of advice, or in some other manner
that discloses to each patron the amount of such dividend, refund, or
rebate) shall render a correct return stating (1) the name and address
of each patron to whom it has made such allocations amounting to
$100 or more during the calendar year, and (2) the amount of such
allocations to each patron. If required by the Secretary, any such
corporation shall render a correct return of all patronage dividends,
rebates, or refunds made during the calendar year to its patrons.
This subsection shall not apply in the case of any corporation (includ-
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ing any cooperative or nonprofit corporation engaged in rural electri-
fication) exempt from taxation under section 101 (10) or (11) or in
the case of any corporation subject to a tax imposed by supplement G."
(d) EFFECTIVE DATE.-The amendments made by subsections (a)
and (b) of this section shall be applicable only with respect to taxable
years, beginning after December 31,'1951. The amendment made by
subsection (c) shall be applicable to the calendar year 1951 and
subsequent calendar years.
SEC. 315. SURTAX ON CORPORATIONS IMPROPERLY ACCUMULATING
SURPLUS.
(a) LONG-TERM CAPITAL GAINs.-Section 102 (d) (1) (relating to
de nition of section 102 net income) is hereby amended by adding at
the end thereof the following new subparagraph :
"(D) Long: Term Capital Gains.-The excess of the net
long-term capital gain for the taxable year over the net short-
term capital loss for such year, minus the taxes imposed by
this chapter attributable to such excess. The taxes attribu-
table to such excess shall be an amount equal to the difference
between (i) the taxes imposed by this chapter (except the tax
imposed by this section) for such year and (II) such taxes
computed for such year without including suchh excess in net
income."
(b) EFFEOTIvE DATE.-The amendment made by subsection (a) shall
be applicable only with respect to taxable years beginning after
December 31, 1950.
SEC. 316. ELECTION AS TO RECOGNITION OF GAIN IN CERTAIN COR-
PORATE LIQUIDATIONS.
(a) AMENDMENT OF SECTION 112 (b) (7).-Section 112 (b) (7)
(relating to recognition of gain in certain corporate liquidations) is
hereby amended by strikinq. out in subparagraph (A) (ii) "1951" and
by inserting in lieu thereof ` 1951 or 1952".
(b) BASIS OF PROPERTY.-Section 113 (a) (18) (relating to basis of
property received in certain corporate liquidations) is amended by
striking out "the Revenue Act of 1950" and by inserting in lieu thereof
"any revenue act".
(c) EFFEcTIVE DATE.-The amendments made by this section shall
be applicable only to taxable years ending after December 31, 1951.
SEC. 317. CERTAIN DISTRIBUTIONS OF STOCK ON REORGANIZATION.
(a) DISTRIBUTIONS NOT IN LIQUIDATION.-Section 112 (b) (relating
to nonrecognition of gain or loss in the case of certain exchanges) is
hereby amended by adding at the end thereof the following new
paragra h :
"(11) DISTRIBUTION OF STOCK NOT IN LIQUIDATION.-If there is
distributed, in pursuance of a plan of reorganization, to a share-
holder of a corporation which is a party to the reorganization,
stock (other than preferred stock) in another corporation which
is a party to the reorganization, without the surrender by such
shareholder of stock, no gain to the distributee from the receipt
of such stock shall be recognized unless it appears that (A) any
corporation which is a party to such reorganization was not
intended to continue the active conduct of a trade or business
after such reorganization, or (B) the corporation whose stock is
distributed was used principally as a device for the distribution of
earnings and profits to the shareholders of any corporation a party
to the reorganization."
(b) BASIS of STOCK.-Section 113 (a) (relating to unadjusted basis
for determining gain or loss) is hereby amended by adding at the end
thereof the following new paragraph:.
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"(23) TAX-FREE DISTRIBUTIONS.-If the property consists of
stock distributed after the date of the enactment of the Revenue
Act of 1951 to a taxpayer in connection with a transaction de-
scribed in section 112 (b) (11 (hereinafter in this paragraph
called `new stock'), or consists of stock in respect of which such dis-
tribution was made (hereinafter in this paragraph called `old
stock'), then the basis of the new stock and of the old stock, respec-'
tively, shall, in the shareholder's hands, be determined by allocat-
ing between the old stock and the new stock the adjusted basis of
the old stock; such allocation to be made under regulations pre-
scribed by the Secretary."
(c) EFFECTIVE DATE.-The amendments made by this section shall
be applicable with respect to taxable years ending after the date of the
enactment of this Act, but shall apply only with respect to distribu-
tions of stock made after such date.
SEC. 318. GAIN FROM SALE OR EXCHANGE OF TAXPAYER'S RESIDENCE.
(a) NONRECOGNITION OF GAIN IN CERTAIN CASES.-Section 112 (re-
lating to recognition of gain or loss) is hereby amended by adding at
the end thereof the following new subsection :
"(n) GAIN FROM SALE OR EXCHANGE OF RESIDENCE:
"(1) NONRECOGNITION OF GAIN.-If property (hereinafter in
this subsection called `old residence') used by the taxpayer as
his principal residence is sold by him and, within a period
beginning one year prior to the date of such sale and ending one
year after such date, property (hereinafter in this subsection
called `new residence') is purchased and used by the taxpayer as
his principal residence, gain (if any) from such sale shall be
recognized only to the extent that the taxpayer's selling price
of the old residence exceeds the taxpayer's cost of purchasing
the new residence.
"(2) RULES FOR APPLICATION OF SUBSECTION.-For the purposes
of this subsection :
"(A) An exchange by the taxpayer of his residence for
other property shall be considered as a sale of such residence,
and the acquisition of a residence upon the exchange of
property shall be considered as a purchase of such residence.
"(B) If the taxpayer's residence (as a result of its destruc-
tion in whole or in part, theft, or seizure) is compulsorily
or involuntarily converted into property or into money, such
destruction, theft, or seizure shall be considered as a sale of
the residence; and if the residence is so converted into prop-
erty which is used by the taxpayer as his residence, such
conversion shall be considered as a purchase of such property
by the taxpayer.
"(C) In the case of an exchange or conversion described in
subparagraph (A) or (B), in determining the extent to which
the selling price of the old residence exceeds the taxpayer's
cost of purchasing the new residence, the amount realized
by the taxpayer upon such exchange or conversion shall be
considered the selling price of the old residence.
"(D) A residence any part of which was constructed or
reconstructed by the taxpayer shall be considered as pur-
chased by the taxpayer. In determining the taxpayer's cost
of purchasing a residence, there shall be included only so
much of his cost as is attributable to the acquisition, con-
struction, reconstruction, and improvements made which are
properly chargeable to capital account, during the period
specified in paragraph (1).
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"(E) If a residence is purchased by the taxpayer prior to
the date of his sale of the old residence, the purchased resi-
dence shall not be treated as his new residence if sold or other-
wise disposed of by him prior to the date of the sale of the
old residence.
"(F) If the taxpayer, during the period described in para-
ggrraph (1) purchases more than one residence which is used
by him as ins principal residence at soma time within one year
after the date of the sale of the old residence, only the last of
such residences so used by him after the date of such sale all
constitute the new residence. If within the one year referred
to in the preceding sentence property used by the taxpayer
as his principal residence is destroyed, stolen, seized, requi-
sitioned, or condemned, or is sold or exchanged under threat
or imminence thereof, then for the purposes of the preceding
sentence such one year shall be considered as ending with the
date of such destruction, theft, seizure, requisition, condem-
nation sale, or exchange.
"(G) In the case of a new residence the construction of
which was commenced by the taxpayer prior to the expira-
tion of one year-after the date of the sale of the old residence,
the period specified in paragraph (1), and the one year
referred to in subparagraph (F) of this paragraph, shall be
considered as including a period of 1S months beginning
with the date of the sale of the old residence.
"(3) LIMITATION.-The provisions of paragraph (1) shall not
be applicable with respect to the sale of the taxpayer's residence
if within one year prior to the date of such sale the taxpayer sold
at a gain other property used by him as his principal residence,
and any part of such gain was not recognized by reason of the pro-
visions of paragraph (1), For the purposes of this paragraph, the
destruction, theft, seizipfe, requisition, or condemnation of prop-
erty or the sale or exchange of property under threat or imminence
thereof, shall not be considered as a sale of such property.
"(4) BASIS OF NEW RE$IDJNCE. Where the purchase of a new
residence results under paragraph (1), in th\ nonrecognition of
gain upon the saie of an old residence; in detern, ling the adjusted
basis of the new residence as of any time following the sale of the
old residence, the adjustments to basis shall include a reduction
by an amount equal to the amount of the gain not so recognized
upon the sale of the old residence. For this purpose, the amount
of the gain not so recognized upon the sale of the old residence
includes only so much of such gain as is not recognized by reason
of the cost, up to such time, of purchasing the new residence.
"(5) TENANT-STOCKHOLDER IN A COOPERATIVE APARTMENT CORPO-
RATIoN.-For the purposes of this subsection, section 113 (b) (1)
(K), and section 117 (h) (7), references to property used by the
taxpayer as his principal residence, and references to the residence
of a taxpayer, shall include stock held by a tenant-stockholder
(as defined in section 23 (z) (2)) in a cooperative apartment (as
defined in such section) if-
"(A) in the case of stock sold, the apartment which the
taxpayer was entitled to occupy as such stockholder was used
by him as his principal residence, and
"(B) in the case of stock purchased, the taxpayer used as
his principal residence the apartment which he was entitled
to occupy as such stockholder.
"(6) HIusiiAND AND WIFE.-If the taxpayer and his spouse, in
accordance with regulations which shall be prescribed by the See-
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retary pursuant to this paragraph, consent to the application of
subpara aph (B) of this paragraph, then-
"A) for the purposes of this subsection, the words 'tax-
payer's selling price of the old residence' shall mean the sell-
ing price (of the taxpayer, or of the taxpayer and his spouse)
of the old residence, and the words 'taxpayer's cost of purchas-
ing the new residence' shall mean the cost (to the taxpayer,
his spouse, or both) of purchasing the new residence (whether'
held by the taxpayer, his spouse, or the taxpayer and his
spouse) ; and
"(B) so much of the gain upon the sale of the old residence
as is not recognized solely by reason of this paragraph, and
so much of the adjustment under paragraph (4) to the basis
of the new residence as results solely from this paragraph,
shall be allocated between the taxpayer and his spouse as
provided in such regulations.
This paragraph shall apply only if the old residence and the new
residence are each used by the taxpayer and his spouse as their
principal residence. In case the taxpayer and his spouse do not
consent to the application of subparagraph (B) of this paragraph,
then the recognition of gain upon the sale of the old residence
shall be determined under this subsection without regard to the
rules provided in this paragraph.
"(7) STATUTE OF LIMITATIONS.-If the' taxpayer during a
taxable year sells at a gain property used by him as his priicipal
residence, then-
"(A) the statutory period for the assessment of any
deficiency attributable to any part of such gain shall not
expire prior to the expiration of three years from the date
.the Secretary is notified by the taxpayer (in such manner
as the Secretary may by regulations prescribe) of-
"(i) the taxpayer's cost of purchasing the new resi-
dence which the taxpayer claims results in nonrecog-
nition of any part of such gain,
"(ii) the taxpayer's intention not to purchase a new
residence within the period specified in paragraph (1), or
"(iii) a failure to make such purchase within such
period; and
"(B) such deficiency may be assessed prior to the expira-
tion of such three-year period notwithstanding the provisions
of any other law or rule of law which would otherwise
prevent such assessment."
(b) TECHNICAL AMENDMENTS.
(1) Section 112 (f) (relating to involuntary conversions) is
hereby amended by adding at the end thereof the following:
"This subsection shall not apply, in the case of property used
by the taxpayer as his principal residence, if the destruction, theft,
seizure, requisition, or condemnation of the residence, or the sale
or exchange of such residence under threat or imminence thereof,
occurred after December 31, 1950."
(2) Section 113 (a) (9) (relating to basis of property acquired
as a result of involuntary conversions) is" hereby amended by
adding at the end thereof the following: "This paragraph shall
not apply in respect of property acquired as a result of a compul-
sory or involuntary conversion of property used by the taxpayer
as his principal residence if the destruction, theft, seizure, requi-
sition, or condemnation of such residence, or the sale or exchange
of such residence under threat or imminence thereof, occurred
after December 31, 1950."
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(3) Section 113 (b) (1) (relating to adjusted basis of property)
is hereby amended by adding at the end thereof the following now
subparagraph:
"(K) in the case of a residence the acquisition of which
resulted, under the provisions of section' 112 (n), in the non-
recognition of any part of the gain realized upon the sale,
exchange, or involuntary conversion of another residence, to
the extent provided in section 112 (ii) (4)."
(4) Section 117 (h) (relating to determination of holding
period) is hereby amended by adding at the end thereof the
following new paragraph :
"(7) In determining the period for which- the taxpayer has
held a residence, the acquisition of which resulted under section
112 (n) in the nonrecognition of any part of the gain realized on
the sale, exchange, or involuntary conversion of another residence,
there shall be included the period for which such other residence
had been held as of the date of such sale, exchange, or involuntary
conversion."
(5) Section 276 (relating to period of limitation upon assess-
ment and collection) is hereby amended by adding at the end
thereof the following:
"(e) GAIN UPON SALE OR EXCHANGE OF RESIDENCE: In the case of
a deficiency described in section 112 (n) (7), such deficiency may be
assessed at any time prior to the expiration of the time therein
provided."
(c) EFFECTIVE DATE.-The amendments made by this section shall
be applicable to taxable years ending after December 31, 1950, but the
provisions of section 112 (n) (1) and (6) of the Internal Revenue
Code shall apply only with respect to residences sold (within the
meaning of such section) after such date.
SEC. 31,9. PERCENTAGE DEPLETION.
(a) ALLOWANCE' OF PERCENTAGE DEPLETION.--SO much of paragraph
(4) of section 114 (b) as precedes the last sentence of subparagraph
A) is hereby amended to read as follows:
"(4) PERCENTAGE DEPLETION FOR COAL AND METAL MINES AND FOR
CERTAIN OTHER MINES AND NATURAL MINERAL DEPOSITS.-
"(A) IN GENERAL.-The allowance for depletion under
section, 23 (m) in the case of the following mines and other
natural deposits shall be-
"(i) in the case of sand, gravel, slate, stone (including
pumice and scoria), brick and tile clay, shale, oyster shell,
clam shell, granite, marble, sodium chloride, and, if from
brine wells, calcium chloride, magnesium chloride, and
bromine, 5 per centum,
"(ii) in the case of coal, asbestos, brueite, dolomite,
magnesite, perlite, wollastonite, calcium carbonates, and
magnesium carbonates, 10 per centum,
"(iii) in the case of metal mines, aplite, bauxite, fluor-
spar, flake graphite, vermiculite, beryl, garnet, feldspar,
mica, tale (including pyrophyllite), lepidolite, spodu-
mene, barite, ball clay, sagger clay, china clay, phosphate
rock, rock asphalt, trona; bentonite, gilsonite, thenardite,
borax, fuller's earth, tripoli, refractory and fire clay,
quartzite, diatomaceous earth, metallurgical grade lime-
stone, chemical grade limestone, and potash, 15 per
centum, and
"(iv) in the case of sulfur, 23 per centum,
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of the gross income front the property during the taxable
year, excluding from such gross income an amount equal to
any rents-or royalties paid or incurred by the taxpayer in
respect of the property."
(b) TECHNICAL AMENDMENT.-SO much of paragraph (2) of section
114 (b) as precedes "discovered by the taxpayer after February 28,
1913" Is hereby amended to read as follows :
"(2) DIscovERY VALUE IN THE CASE Or MINES.--In the case of
mines (except mines in respect of which percentage depletion is
allowable under paragraph (4 of this subsection) ".
(c) ErrEcrlvn DATE.-The amendments made by this section shall
be applicable only with respect to taxable years beginning after
December 31, 1950.
SEC. 320. REDEMPTION OF STOCK TO PAY DEATH TAXES.
(a) AMENDMENT OF SECTION 115 (g) (3).-Section 115 (g) (3)
(relating to redemption of stock to pay death taxes) is hereby amended
by striking out "50 per centum of the value of the net estate" and
inserting in lieu thereof "35 per centum of the value of the gross
estate".
(b) ErrxcrivE DATE.-The amendment made by subsection (a)
shall be applicable to taxable years ending on or after the date of the
enactment of this Act, but shall apply only to amounts distributed
on or after such date.
SEC. 321. EARNED INCOME FROM SOURCES WITHOUT THE UNITED
STATES.
(a) EXCLUSION FROM GROSS INCOME.-SeCtiOll 116 (a) (relating to
earned income from sources without the United States) is hereby
amended by striking out paragraphs (1) and (2) and inserting in
lieu thereoi~ the following:
"(1) BONA FIDE RESIDENT OF FOREIGN COUNTRY.-Iii the case of
an individual citizen of the United States, who establishes to the
satisfaction of the Secretary that lie has been a bona fide resident
of a foreign country or countries for an uninterrupted period
which includes an entire taxable year, amounts received from
sources without the United States (except amounts- paid by the
United States or any agency thereof) if such amounts constitute
earned income (as defined in paragraph (3)) attributable to
such period; but such individual shall not be allowed as a deduc-
tion from his gross income any deductions properly allocable to or
chargeable against amounts excluded from gross income under
this paragraph.
"(2) PRESENCE IN FOREIGN COUNTRY FOR 17 MONTHS: In the case
of an individual citizen of the United States, who during any
period of 18 consecutive months is present in a foreign country or
countries during at least 510 full days in such eriod, amounts
received from sources without. the United States ((except amounts
paid by the United States or any agency thereof) if such amounts
constitute earned income (as defined in paragraph (3)) attribut-
able to such period; but such individual shall not be allowed as
a deduction from his gross income any deductions properly
allocable to or chargeable against amounts excluded from gross
income under this paragraph."
(b) WITHHOLDING or TAX ON WAGES: Section 1621 (a) (8) (A)
(relating to definition of wages) is hereby amended to read as follows:
"(A.) for services for an employer (other than the United
States or any agency thereof) performed in a foreign country
by a citizen of the United States, if at the time of the pay-
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ment of such remuneration the employer is required by the
law of any foreign country to withhold income tax upon such
remuneration, or it is reasonable to believe that such remuner-
ation will be excluded from gross income under the provisions
of section 116 (a) (1) or (2),or".
(c) FFFECTIvn DATES.-The amendment made by subsection (a)
shall be applicable to taxable years beginning after December 31, 1950,
The amendment made by subsection (b) shall be applicable with respect
to wages paid on or after January 1, 1952.
SEC. 322. CAPITAL GAINS AND LOSSES.
.(a) TREATMENT OF LONG-TERM CAPITAL GAINS AND LOSSES.--
(1) AMENDMENT OF SECTION 23.-Section 23 (relating to deduc-
t the end
ddi
d b
ng a
y a
tions from gross income) is hereby amende
thereof the following new subsection :
"(ee) LONG-TERM CAPITAL GAINS.-In the case of a taxpayer other
than a corporation, the deduction for long-term capital gains provided
in section 117 (b)."
(2) AMENDMENT OF SECTION 117 (b): Section 117 -(b) (relating
to treatment of long-term capital gains and losses) is hereby
amended to read as follows:
"(b) DEDUCTION FRoM GROSS INCOME.-In the case of a taxpayer
other than ?a corporation, if for any taxable year the net long-term
capital gain exceeds the net short-term capital loss, 50 per centum of
the amount of such excess shall be a deduction from gross income. In
the case of an estate or trust, the deduction shall be computed by exclud-
ing the portion (if any), of the gains for the taxable year from sales or
exchanges of capital assets, which, under section 162 (b) or (c), is
includible by the income beneficiaries as gain derived from the sale or
exchange of capital assets."
(b) ALTERNATIVE TAX.-Section 117 (c) (2) (relating to alternative
tax) is hereby amended to read as follows:
"(2) OTHER TAXPAYERS.-If for any taxable year the net long-
term capital gain of any taxpayer (other than a corporation)
exceeds the net short-term capital loss, there shall be levied, col-
lected, and paid, in lieu of the tax imposed by sections 11 and 12
(or, in the case of certain tax-exempt trusts, in lieu of the tax
imposed by section 421), a tax determined as follows, if and only
if such tax is less than the tax imposed by such sections :
"(A) A partial tax shall first be computed upon the net
income reduced by an amount equal to 50 per centum of such
excess, at the rates and in the manner as if this subsection had
not been enacted.
"(B) There shall then be ascertained an amount equal to
25 per centum of the excess of the net long-term capital gain
the net short-term capital loss. In the case of any tax-
over
able year beginning after October 31, 1951, and before
November 1, 1953, there shall be ascertained, in lieu of the
amount computed under the preceding sentence, an amount
equal to 26 per centum of the excess of the net long-term
capital gain over the net short-term capital loss.
`(C) The total tax shall be the partial tax computed urmder
subparagramh (A) plus the amount computed under subpara-
graph (B).'
(c) TECHNICAL AMENDMENTS.-
(1) AMENDMENT OF SECTION 22 (n).-Section 22 (n) (relating
to the definition of adjusted gross income) is hereby amended by
striking out the word "and at the end of pparagraph (5), by
striking out the period at the end of paragraph (6) and inserting
in lieu thereof "; and", and by inserting after paragraph (6) the
following new paragraph :
"(7) I oNG-TERM CAPITAL GAINS.-The deduction allowed by sec-
tion 23 (ee)."
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(2) AMENDMENT Or SECTION 117 (a).-Paragraphs (2) and (4)
of section 117 (a) (relating to definitions of short-term capital
gain and long-term capital gain) are each hereby amended by
striking out ` net income" and inserting in lieu thereof "gross
income .
(3) AMENDMENT OF SECTION 117 (j).-Section 117 (j) (2) (A)
relating to gains and losses from involuntary conversion and
from the sale or exchange of certain property used in the trade or
business) is hereby amended to read as follows :
"(A) In determining under this paragraph whether gains
exceed losses, the gains described therein shall be included
only if and to the extent taken into account in computing gross
income and the losses described therein shall be included only
if and to the extent taken into account in computing net
income, except that subsection (d) shall not apply."
(4) AMENDMENT OF SECTION 122 (d) (4).-Section 122 (d) (-1)
(relating to computation of net operating loss deduction) is
hereby amended to read as follows:
``(4) 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 such sales or exchanges. The deduc-
tion provided in section 23 (ee) shall not be allowed."
(J) AMENDMENT or SECTION 162 (a).-Section 162 (ii) (relat-
ing to computation of net income of estates and trusts) is.hereby
amended by striking out the semicolon and inserting in lieu
thereof a period and the following: "Where any amount of the
income so paid or set aside is attributable to gain from the sale
or exchange of capital assets held for more than six months,
proper adjustment of the deduction otherwise allowable under
this subsection shall be made for apy deduction allowable to the
trust under section 23 (cc) ;".
(d) EFFECTivi, DATE.-The amendments made by this section shall
be applicable only with respect to taxable years beginning on or after
the date of the enactment of this Act. In determining under section
117 (e) of the Internal Revenue Code the amount of the carryover
to a taxable year beginning on or after such date, of the capital loss
for a taxable year beginning before such (late, such amendiiients shall
not affect the computation of the amount of the net capital loss or of
the net capital gain for any taxable year beginning before such date.
SEC. 323. SALE OF LAND WITH UNHARVESTED CROP.
(a) TREATMENT or GAIN OR Loss.-Section 117(j) (relating to sale
or exchange of property used in the trade or business) is hereby
:trended -
(1) By inserting immediately before the period at the end of
the second sentence of paragraph (1) thereof the following: "and
unharvested crops to which paragraph (3) is applicable"; and
(2) By adding at the end thereof a new paragraph to read as
follows :
"(3) SALE OF LAND WITH UNHARVESTED CROP.-In the case of an
unharvested crop on land used in the trade or business and held
for more than 6 months, if the crop and the land are sold or
exchanged (or compulsorily or involuntarily converted as
described in paragraph (2)) at the same time and to the same
person, the crop shall be considered as `property used in the trade
or business'."
(b) TREATMENT OF DEDUCTIONS.-
, AMENDMENT or SECTION 24.-Section 24 (relating to items
not deductible) is hereby amended by adding at the end thereof
a new subsection to read as follows :
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"(f) SALE OF LAND WITH UNHARVESTED CROP; Where an unhar-
vested crop sold b the taxpayer is considered under the provisions of
section 117 (j) (3) as `property used in the trade or business', in com-
puting net income no deduction (whether or not for the taxable year
of the sale and whether for expenses, depreciation, or otherwise)
attributable to the production of such cro shall be allowed."
(2) AMENDMENT.OFSECTION 113 (b)) (1).-Section 113 (b) (1)
(relating to adjustments to basis) is hereby amended by adding
at the end thereof a new subparagraph to read as follows :
" L) for deductions to the extent disallowed under section
24 (f), notwithstanding the provisions of any other sub-
paragraph of this paragraph."
(c) EFFECTIVE DATE.-The amendment. made by subsection (a
shall be applicable only with respect to sales, exchanges, and con-
versions, occurring in taxable years beginning after December 31,
1950. The amendments made by subsection (b) shall be applicable
to any taxable year for which a deduction is disallowed by reason of
sales, exchanges, or conversions to which subsection (a) is applicable.
SEC. 324. SALES OF LIVESTOCK.
Section 117 (j) (1) is hereby amended by adding at the end thereof
the following new sentences: "Such term also includes livestock,
regardless of age, held by the taxpayer for draft, breeding, or dairy
purposes, and held by him for 12 months or more from the date of
acquisition. Such term does not include poultry." The first sentence
added to section 117 (j) (1) by the amendment made by this section
shall be applicable with respect to taxable years beginning after
December 31, 1941, except that the extension of the holding period from
6 to 12 months shall be applicable only with respect to taxable years
beginning after December 31, 1950. The second sentence added to
section 117 (j) (1) by the amendment made by this section shall be
applicable only with respect to taxable years beginning after December
31, 1950.
SEC. 325. TAX TREATMENT OF COAL ROYALTIES.
(a) DEFINITION OF PROPERTY USED IN THE TRADE OR BUSINESS.-
Section 117 (j) (1) (relating to the definition of property used in the
trade or business) is hereby amended by adding after the word "tim-
ber" in the second sentence thereof the following : "or coal".
(b) GAIN OR Loss UPON CERTAIN DISPOSALS OF TIMBER OR COAL.--
Section 117 (k) (2) (relating to the disposal of timber) is hereby
amended to read as follows :
"(2).In the case of the disposal of timber or coal (including
lignite), held for more than 6 months prior to such disposal, by
the owner thereof under any form or type of contract by virtue of
which the owner retains an* economic interest in such timber or
coal, the difference between,the. amount received for such timber
or coal and the adjusted depletion basis thereof shall be con-
sidered as though it were a gain-or loss, as the case may be, upon
the sale of such timber or coal. Such owner shall not be entitled
to the allowance for percentage depletion provided for in section
114 (b) (4) with respect to such coal. This paragraph shall not
apply to income realized by the owner as a co-adventurer, partner,
or principal in the mining of such coal. The date of disposal of
such coal shall be deemed to be the date such coal is mined. In
determining the gross income, the adjusted gross income, or the
net income of the lessee, the deductions allowable with respect
to rents and royalties shall be determined without regard. to the
provisions of this paragraph. This. paragraph shall have no
application, in the case of coal, for the purposes of applying see-
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tion 102 or subchapter A of chapter 2 (including the computation
under section 117 (c) (1) of a tax in lieu of the tax imposed by
section 500)."
(C) CLERICAL AMENDMENT.-The heading to section 117 (k) (relat-
ing to the gain or loss upon the cutting of timber) is hereby amended
to read as follows: "(k) GAIN OR Loss IN THE CASE OF TIMBER OR
COAL.-" ~''1
(d) TECHNICAL AMENDMENT: Section 481 (a) 4) is hereby
amended by striking out "cutting or disposal of timber' and inserting
in lieu thereof "cutting of timber, or the disposal of timber or coal,".
(e) CONFORMING AMENDMENTS:
(1) Section 433 (relating to computation of excess profits net
income) is hereby amended by inserting at the end thereof the
following new subsection :
"(d) GAIN OR Loss UPON CERTAIN DISPOSALS OF COAL IN BASE
PERIOD.-For the purpose of subsection (b), the excess profits net
income shall be computed as if the provisions of section 117 (j) and
(k) (2) which relate to disposals of coal were a part of the law appli-
cable to the taxable year for which excess profits net income is com-
puted."
(2) Section 440 (a) (1) (relating to definition of "inadmissible
assets".) is hereby amended by striking out "and" at the end of sub-
paragraph A ; by striking out the period at the end of sub-
paragraph (B) and inserting in lieu thereof "; and"; and by
adding at the end thereof the following new subparagraph :
"(C) The economic interest referred to in the provisions
of section 117 (k) (2) relating to coal if the taxpayer is
subject to such provisions with respect to the income from
such coal."
(3) The amendments made by this subsection shall be appli-
cable in computing the tax under subchapter D of chapter 1 for
taxable years ending after December 31, 1950.
(f) EFl?ECTIVE DATE.-Except as provided in subsection (e), the
amendments made by this section shall be applicable only with respect
to taxable years ending after December 31, 1950 (whether the contract
was made on, before, or after such date), but shall apply only with
respect to amounts received or accrued after such date.
SEC. 326. COLLAPSIBLE CORPORATIONS.
(a) Definitions with Respect to Collapsible Corporations.-Section
117 (m) (2) (relating to definitions with respect to collapsible corpo-
rations) is hereby amended to read as follows:
"(2) DEFINITIONS:
"(A) For the purposes of this subsection, the term `col-
lapsible corporation' means a corporation formed or availed
of principally for the manufacture, construction or produc-
tion of property, for the purchase of property which (in the
hands of the corporation) is property described in subsec-
tion (a) (1) (A), or for the holding of stock. in a corpora-
tion so formed or availed of, with a view to-
"(i) the sale or exchange of stock by its shareholders
(whether in liquidation or otherwise), or a distribution
to its shareholders, prior to the realization by the cor-
poration manufacturing, constructing, producing, or
purchasing the property of a substantial part of the
net income to be derived from such property, and
"(ii) the realization by such shareholders of gain
attributable to such property.
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"(B) For the purposes of subparagraph (A), a corpora-
tion shall be deemed to have manufactured, constructed,
produced, or purchased property, if-
"(i) it engaged in the manufacture, construction, or
production of such property to any extent,
"(ii) it holds property having a basis determined, in
whole or in part, by reference to the cost of such property
in the hands of a person who manufactured, constructed,
produced, or purchased the property, or
"(iii) it holds property having a basis determined,
in. whole or in part, by reference to the cost of property.
manufactured, constructed, produced, or purchased by
the corporation."
(b)) LIMITATIONS ON APPLICATION OF SECTION 117, (m).-Subpara
graphs (A), (B), and (C) of section 117 m (3) (relating to the
limitations on the application of section 117 (m)) are hereby amended
to read as follows :
"(A) this subsection shall not apply unless, at any time
after the commencement of the manufacture, construction,
or production of the property, or at the time of the purchase
of the property described in subsection (a) (1) (A) or at
any time thereafter, such shareholder (i) owned (or was
considered as owning) more than 10 per centum in value
of the outstanding stock of the corporation, or (ii) owned
stock which was considered as owned at such time by another
shareholder who then owned (or was considered as owning)
more than 10 per centum in value of the outstanding stock
of the corporation ;
"(B) this subsection shall not apply to the gain recog-
nized during a taxable year unless more than 70 per centum
of such gain is attributable to the property so manufactured,
constructed, produced, or purchased; and
"(C) this subsection shall not apply to gain realized after
the expiration of three years following the completion of
such manufacture, construction, production, or purchase."
(c) EFFECTIVE DATE.-The amendments made by this section shall
be applicable to taxable years ending after August 31, 1951, but shall
be applicable only with respect to gains realized after such date. The
determination of the tax treatment of gains realized prior to Septem-
ber 1, 1951, shall be made as if this section had not been enacted and
without inferences drawn from the fact that the amendments to sec-
tion 117 (m) made by this section are not expressly made applicable
to gains realized prior to September 1, 1951, and without inferences
drawn from the limitations contained in section 117 (m), as amended
by this section.
SEC. 327. DEALERS IN SECURITIES-CAPITAL GAINS AND ORDINARY
LOSSES.
Effective with respect fo sales or exchanges made after the expira-
tion of the thirtieth day after the date of the enactment of this Act,
section 117 is hereby amended by adding at the end thereof the follow-
ing new subsection :
"(n) DEALERS IN SECURITIES.-
"(1) CAPITAL GAINS.-Gain by a dealer in securities from the
sale or exchange of any security shall in no event be considered
as gain from the sale or exchange of a capital asset unless-
"(A) the security was, prior to the expiration of the thir-
tieth day after the date of its acquisition or after the date of
the enactment of the Revenue Act of 1951 (whichever is
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the later), clearly identified in the dealer's records as a
security held for investment; and
"(B) the security was not, at any time after the expiration
of such thirtieth day, held by such dealer primarily for sale
to customers in the ordinary course of his trade . or. business.
(2) ORDINARY LOSSES.-Loss by a dealer in securities from
the sale or exchange of any security shall, except as otherwise
provided in subsection (i) (relating to bond, etc., losses of banks),
in no event be considered as loss from the sale or exchange of
property which is not a capital asset if at any time after the
thirtieth day following the date of the enactment of the Revenue
Act of 1951 the security was clearly identified in the dealer's rec-
ords as a security held for investment.
"(3) DEFINITION OF srCURITY.-For the purposes of this sub-
section the term `security' means any share of stock in any cor-
poration, certificate of stock or interest in any corporation, note,
bond, debenture, or evidence of indebtedness, or any evidence of an
interest in or right to subscribe to or purchase any of the fore-
going."
SEC. 328. TREATMENT OF GAIN ON SALES OF CERTAIN PROPERTY
BETWEEN SPOUSES AND BETWEEN AN INDIVIDUAL. AND
A CONTROLLED CORPORATION.
(a) DISALLOWANCE OF CAPITAL GAIN TREATMENT.-Section 117
(relating to capital gains and losses) is hereby amended by adding at
the end thereof the following new subsection :
"(o) GAIN FROM SALE OF CERTAIN PROPERTY BETWEEN SPOUSES OR
BLVRYEEN AN INDIVIDUAL AND A CONTROLLED CORPORATION:
"(1) TREATMENT OF GAIN AS ORDINARY INCOME.-In the case
of a sale or exchange, directly or indirectly, of property described
in paragra h (2)-
A) between a husband and wife; or
"(B) between an individual and a corporation more than
80 per centum in value of the outstanding stock of which is
owned by such individual, his spouse, and his minor children
and minor grandchildren;
any gain recognized to the transferor from the skate or exchange of
such property shall be considered as gain from the sale or exchange
of property which is neither a capital asset nor property described
in subsection (j).
"(2) SUBSECTION APPLICABLE ONLY TO SALES OR EXCHANGES OF
DEPRECIABLE PROPERTY.-This subsection shall apply only in the
case of a sale or exchange of property by a transferor which in
the hands of the transferee is property of a character which is stib-
ject to the allowance for depreciation provided in section 23 (1)."
(b) EFFECTIVE DATE.-The amendment made by subsection (a)
shall be applicable with respect to taxable years ending after April 30,
1951, but shall apply only with respect to sales or exchanges made
after May 3, 1951.
SEC. 329. RECEIPTS OF CERTAIN TERMINATION PAYMENTS BY EM-
PLOYEE.
(a) TAXABILITY TO EMPLOYEE AS CAPITAL GAIN.-Section 117 of the
Internal Revenue Code is hereby amended by adding at the end thereof
the following subsection :
"(p) TAXABILITY To EMPLOYEE OF TERMINATION PAYMENTS;
Amounts received from the assignment or release by an employee,
after more than twenty years' employment, of all his rights to receive,
after termination of his employment and for a period of not less than
five years (or for a period ending with his death), a percentage of
future profits or receipts of his employer shall be considered an amount
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received from the sale or exchange of a capital asset held for more
than six months, if such rights were included in the terms of the
employment of such employee for not less than twelve years, and if
the total of the amounts received for such assignment or release are
received in one taxable year and after the termination of such
employment."
(b) EITECTIVE DATE.-The amendment made by this section shall
be applicable with respect to taxable years beginning after December
31,1950.
SEC. 330. NET OPERATING LOSS CARRY-OVER.
(a) Loss roR TAXABLE YEAR BEGINNING BEronE 1948.-So much
of subparagraph (A) of section 122 (b) (2) (relating to the amount
of carry-overs) as precedes "the taxpayer" is hereby amended to read
as follows:
"(A) Loss for Taxable Year Beginning Before 1948.-
Except as provided in subparagraph (D), if for any taxable
year beginning before January 1, 1048,".
(b) ALLOWANCE Or TIIREE-YEAR LOSS CARRY-OVER FROM TAXABLL
YEARS 1948-1949.-Section 122 (b) (2) (relating to the amount of
carry-over) is hereby amended by adding after subparagraph (B) the
following new subparagraphs:
"(C) Loss for Taxable Year Beginning After December
31, 1947, and Before January 1,1950.-If for any taxable year
beginning after December 31, 1947, and before January 1,
1950, the taxpayer has a net operating loss, such net operating
loss shall be a net operating loss carry-over for each of the
three succeeding taxable years, except that the carry-over in'
the case of each such succeeding taxable year (other than the
first succeeding taxable year) shall be the excess, if any, of
the amount of such net operating loss over the sum of the net
income for each of the intervening years computed-
"(i) with the exceptions; additions, and limitations
provided in subsection (d) (1), (2), (4), and (6), and
"(ii) by determining the net operating loss deduction
for each intervening taxable year without regard to such
net operating loss or to the net operating loss for any
succeeding taxable year and without regard to any
reduction specified in subsection (c).
For the purpose of the preceding sentence, the net operating
loss for any taxable year beginning after December 31, 1947,
and before January 1, 1950, shall be reduced by the sum of
the net income for each of the two preceding taxable years
computed-
"(iii) with the exceptions, additions, and limitations
provided in subsection (d) (1), (2), (4), and (6), and
"(iv) by determining the net operating loss deduction
without regard to such net operating loss or to the net
operating loss for the succeeding taxable year, and with-
out regard to any reduction specified in subsection (c).
"(D) Loss for Taxable Year Beginning After December
31, 1946, and Before January 1, 1948, in the Case of a Cor-
poration Which Commenced Business After December 31,
1945.-If for any taxable year beginning after December 31,
1946, and before January 1, 1948, a corporation which com-
nienced business after December 31, 1945, has a net operating
loss, such net operating loss shall be a net operating loss
carry-over for each of the three succeeding taxable years,
except that the carry-over in the case of each such succeeding
taxable year (other than the first succeeding taxable year)
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shall be the excess, if any, of the amount of such net operating
loss over the suin of the net income for each of the intervening
years computed-
"Q) with the exceptions, additions, and limitations
provided in subsection (d) (1), (2), (4), and (6), and
"(ii) by determining the net operating loss deduction
for each intervening taxable year without regard to such
net operating loss or to the net operating loss for any
succeeding taxable year and without regard to any
reduction specified in subsection (c).
For the purpose of the preceding sentence, the net operating
loss for any taxable year beginning after December 31, 194fi,
shall be reduced by the sum of the net income for each of the
two preceding taxable years computed-
"(iii) with the exceptions, additions, and limitations
provided in subsection (d) (1), (2), (4), and (6), and
"(iv) by determining the net operating loss deduction
without regard to such net operating loss or to the net
operating loss for the succeeding taxable year, and with-
out regard to any reduction specified in subsection (c)."
(c) EFFECTIVE DATE.-The amendments made by this section shall
be applicable in computing the net operating loss deduction for taxable
years beginning after December 31,1948.
SEC. 331. STOCK OPTIONS.
(a) OPTION StBJECT TO STocicHOLDER APPROVAL: SCCtiOn 130A (d)
(relating to definition of restricted stock option) is hereby amended
by striking out "As used in" and inserting "For the purposes of" and
by adding at the end thereof the following:
"(5) STOCKHOLDER APPROVAL.-If the grant of an option is sub-
ject to approval by stockholders, the date of grant-of the option
shall be determined as if the option had not been subject to such
approval."
(b) EFFECTIVE DATE.-The amendment made by subsection (a) shall
be effective as if it had been enacted as part of section 218 of the
Revenue Act of 190Q.
SEC. 332. CREDIT FOR TAXES OF FOREIGN CORPORATIONS.
(a) FOREIGN SUBSIDIARY OF A DOMESTIC CORPORATION: EffeCtiVO
with respect to dividends received by a domestic corporation from a
foreign corporation during taxable years beginning after December 31,
1950, the first sentence of section 131 (f) (1) is hereby amended by
striking out "a majority" and inserting in lieu thereof "at least 10 per
centum".
(b) FOREIGN SUBSIDIARY OF A FOREIGN CORPORATION: Effective with
respect to dividends received by a foreign corporation from another
foreign corporation in taxable years beginning after December 31, 1950,
section 131 (f) (2) is hereby amended by striking out "all the voting
stock (except qualifying shares)" and inserting in lieu thereof "50 per
centum or more of the voting stock".
(C) CLERICAL AMENDMENT; SO much of section 131 (f) (1) as
precedes the first sentence thereof is hereby amended to read as folllows :
"(f) `TAXES OF FOREIGN CORPORATION.-
(1) TREATMENT OF TAXES PAID BY FOREIGN CORPORATION.-"
SEC. 333. INFORMATION AT SOURCE ON PAYMENTS OF INTEREST.
Section 147 (a) is hereby amended by striking out "interest," in the
first sentence. Section 147 (b) is hereby amended to read as follows:
"(b) RETURNS REGARDLESS OF AMOUNT OF PAYMENT.--Such returns
may be required, regardless of amounts, (1) in the case of payments of
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interest, and (2) in the case of collections of items (not payable in the
United States) of interest upon the bonds of foreign countries and
interest upon the bonds of and dividends from foreign corporations by
persons undertaking as a matter of business or for profit the collection
of foreign payments of such interest or dividends by means of coupons,
checks, or bills of exchange."
SEC. 334. ABATEMENT OF INCOME TAX FOR CERTAIN MEMBERS OF
ARMED FORCES UPON DEATH.
Supplement D of chapter 1 of the Internal Revenue Code (relating
to returns and payment of tax) is hereby amended by adding at the
end thereof the following new section :
"SEC. 154. INCOME TAXES OF MEMBERS OF ARMED FORCES UPON
DEATH.
"In the case of any individual who dies after June 24, 1950, and
prior to January 1, 1954, while in active service as a member of the
Armed Forces of the United States, if such death occurred while
serving in a combat zone (as determined under section 22 (b) (13))
or as a result of wounds, disease, or injury incurred while so serving-
"(a) the tax imposed by this chapter shall not apply with
respect to the taxable year. in which falls the date of his death,
or with respect to any prior taxable year ending on or after the
first day he so served in a combat zone after June 24, 1950; and
"(b) the tax under this chapter and under the corresponding
title of each prior revenue law for taxable years preceding those
specified in clause (a) which is unpaid at the date of his death
(including interest, additions to the tax, and additional amounts)
shall not be assessed, and if assessed the assessment shall be abated,
and if collected shall be credited or refui ded as an overpayment."
SEC. 335. EMPLOYEES' TRUSTS.
(a) AMENDMENT OF SECTION 165 (b).-Section 165 (b) (relating to
taxability of beneficiary on distributions from an emp oyees' trust)
is hereby ? amended by adding at the end thereof the following new
sentence : "Where such total distributions include securities of the
employer corporation, there shall be excluded from such excess the
net unrealized appreciation attributable to that part of the total dis-
tributions which consists of the securities of the employer corporation
so distributed. The amount of such net unrealized appreciation and
the resulting adjustments to basis of the securities of the employer
corporation so distributed shall be determined in accordance with
regulations which shall be prescribed by the Secretary. For pur-
poses of this subsection, the term `securities' means only shares of stock
and bonds or debentures issued by a corporation with interest coupons
or in registered form, and the term `securities of the employer cor-
poration includes securities of a parent or subsidiary corporation (as
defined in section 130A (d) (2) and (3)) of the employer corporation."
(b) EFFzCTIvz DATE.-The amendment made by this section shall
be applicable with respect to distributions made after December 31,
1950.
SEC. 336. LIFE INSURANCE COMPANIES.
(a) TAx FOR 1951.-Section 201 (a) (1) (relating to imposition of
tax on life insurance companies) is hereby amended by adding at the
end thereof the following: "In lieu of the taxes imposed by the pre-
ceding sentence, there shall be levied, collected, and paid for taxable
years'beginning in 1951 upon the 1951 adjusted normal-tax net income
(as defined in section 203A) of every life insurance company a tax
equal to the sum of the following:
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pl "33/4 per centum of the amount thereof not in excess of $200,000,
"61/2 per centum of the amount thereof in excess of $200,000."
(b) ADJUSTED NORMAL-TAX NET INCOME FOR 1951.-Chapter 1 is
hereby amended by inserting after section 203 the following new sec-.
tion :
"SEC. 203A. 1951 ADJUSTED NORMAL-TAX NET INCOME.
"(a) 1951 ADJUSTED NORMAL-TAX NET INCOME: For the purposes
of section 201, the term '1951 adjusted normal-tax net income' means
the normal-tax net income plus eight times the amount of the adjust-
ment for certain reserves provided in section 202 (c) and minus the
reserve interest credit, if any, provided in subsection (b) of this sec-
tion.
"(b) RESERVE INTEREST CREDIT.-For the purposes of subsection
(a), the reserve interest credit shall be an amount determined as
follows :
"(1) Divide the amount of the adjusted net income (as defined
in subsection (c) ) by the amount of the required interest (as
defined in subsection (d) ).
"(2) If the quotient obtained in paragraph (1) is 1.05 or more,
the reserve interest credit shall be zero.
"(3) If the quotient obtained in paragraph (1) is 1.00 or less,
the reserve interest credit shall be an amount equal to 50 per
centum of the normal-tax net income.
"(4) If the quotient obtained in paragraph (1) is more than
1.00 but less than 1.05, the reserve interest credit shall be the
amount obtained by multiplying the normal-tax net income by
10 times the difference between the figures 1.05 and such quotient.
"(c) ADJUSTED NET INCOME.-For the purposes of subsection (b)
(1), the term `adjusted net income' means the net income computed
without any deduction for tax-free interest minus 50 per centum of
the amount of the adjustment for certain reserves provided in sec-
tion 202 (c).
"(d) REQUIRED INTEREST.-For the purposes of subsection (b) (1),
the term `required interest' means the total of-
"(1) The sum of the amounts obtained by multiplyin (A)
each rate of interest assumed in computing the taxpayers life
insurance reserves by (B) the means of the amounts of the tax-
payer's adjusted reserves computed at that rate at the beginning
and end of the taxable year,
"(2) 2 per centum of the reserve for deferred dividends, and
"(3) Interest paid."
(c) TECHNICAL AMENDMENTS:
(1) Section 433 (a) (1) (H) (relating to excess profits net
income of life insurance companies) is Hereby amended by chang-
ing the semicolon at the end thereof to a period and by inserting
thereafter the following: "In the case of taxable years beginning
in 1951, there shall be used, in lieu of the figure referred to in
clause (i) of the first sentence of this subparagraph, the figure
.87;".
(2) Section 201 (f) (relating to disallowance of double
deductions) is hereby amended by striking out "or 203" and
inserting in lieu thereof ", 203, or 203A".
(d) EFFECTIVE DATE.-The amendments made by this section shall
be applicable to taxable years beginning in 1951.
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SEC. 337. TAX TREATMENT OF CERTAIN INVESTMENT COMPANIES.
(a) INCLUSION OP CERTAIN REGISTERED MANAGEMENT COMPANIES
IN TIIE DEFINITION OF REGULATED INVESTMENT COMPANY.-Section
361 (relating to definition of regulated investment companies) is
hereby amended by adding at the end thereof the following new sub-
section :
"(C) CERTAIN INVESTMENT COMPANIES.-If the Securities and Ex-
change Commission determines in accordance with regulations issued
by it, and certifies to the Secretary not more than 60 days prior to the
close of the taxable year of a registered management investment com-
pany, that such investment company is principally engaged in the
furnishing of capital to other corporations which are principally
engaged in the development or exploitation of inventions, techno-
logical improvements, new processes, or products not previously gen-
erally available, such investment company may, in the computation of
50 per centum of the value of its assets under subparagraph (A) of
subsection (b) (3) for any quarter of such taxable year, include the
value of any securities of an issuer, notwithstanding the fact that
such investment company holds more than 10 per centum of the out-
standing voting securities of such issuer, but only if the investment
company has not continuously held any security of such issuer (or of
any predecessor company of such issuer as determined under regula-
tions prescribed by the Secretary) for 10 or more years preceding such
quarter of such taxable year. The provisions of this subsection shall
not apply at the close of any quarter of a taxable year to an invest-
ment company if at the close of such quarter more than 25 per centum
of the value of its total assets is represented by securities of issuers
with respect to each of which the investment company holds more
than 10 per centum of the outstanding voting securities of such issuer
and in respect of each of which or any predecessor thereof the invest-
ment company has continuously held any security for 10 or more
years preceding such quarter unless the value of its total assets so
represented is reduced to 25 per centum or less within 30 days after the
close of such quarter. The terms used in this subsection shall have the
same meaning as in subsection (b) (3) of this section. For the pur-
poses of this subsection, unless the Securities and Exchange Commis-
sion determines otherwise, a corporation shall be considered to be
principally engaged in the development or exploitation of inventions,
technological improvements, new processes, or products not previ-
ously generally available, for at least 10 years after the date of the
first ac uisition of any security in such corporation or any predecessor
thereof by such investment company if at the date of such acquisition
the corporation or its predecessor was principally so engaged, and
an investment company shall be considered at any date to be fur-
nishing capital to any company whose securities it holds if within
10 years prior to such date it has acquired any of such securities,
or any securities surrendered' in exchange therefor, from such other
company or predecessor thereof. For the purposes of the cer-
tification hereunder, the Securities and Exchange Commission shall
have authority to issue such rules, regulations and orders, and to
conduct such investigations and hearings, either public or private, as
it may deem appropriate."
(b) TECHNICAL AMENDMENT: SeCtiOn 361 (b) (3) (A) is hereby
amended by inserting after "the total assets of the taxpayer and" the
following: " , except and to the extent provided in subsection (c),".
(c) EFFECTIVE DATE.-The amendments made by this section shall
be applicable only with respect to taxable years beginning after
December 31, 1950.
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SEC. 338. EXCHANGES AND DISTRIBUTIONS IN OBEDIENCE TO ORDERS
OF SECURITIES AND EXCHANGE COMMISSION.
(a) DEFINITION of SYSTEM GROUP-Section 373 (d) (1) (relating
to the definition of the term "system group") is hereby amended to
read as follows :
"(1) At least 90 per centum of each class of the stock (other
than (A) stock which isxieferred as to both dividends and assets,
and (B) stock which is limited and preferred as to dividends but
is not preferred as to assets but only if the total valve of
suc h stock is less than 1 per centum of the aggregate value of all
classes of stock which are not preferred as to both dividends and
assets) of each of the corporations (except the common parent
corporation) is owned directly by one or more of the other corpo-
rations; and".
(b) EFFECTIVE DATE-The amendment made by subsection (a)
shall be applicable with respect to taxable years affected by an exchange
or distribution made after December 31, 1947.
SEC. 339. TAXATION OF BUSINESS INCOME OF STATE COLLEGES AND
UNIVERSITIES.
(a) AMENDMENT OF SECTION 421 (b).-Section 421 (b) (1) (organi-
zations subject to tax under Supplement U) is hereby amended to
read as follows:
C0(1) ORGANIZATIONS TAXABLE AS CORPORATIONS-
"(A) Organizations Exempt. Under Section 101 (1), (6),
(7) and (14).-The taxes imposed by subsection (a) (1)
shall apply in the case of any organization (other than a
church, a convention or association of churches, or a trust
described in paragraph (2)) which is exempt, except as pro-
vided in this supplement, from taxation under this chapter
by reason of paragraph (1), (6), or (7) of section 101. Such
taxes shall also apply in the case of a corporation described
in section 101 (14) if the income is payable to an organiza-
tion which itself is subject to the tax imposed by subsection
(a) or to. a church or to it convention or association of
churches.
"(B). State Colleges and Universities.-The taxes imposed
by subsection (a) (1) shall apply in the case of any college
or university which is an agency or instrumentality of any
government or any political subdivision thereof, or which is
owned or operated by a government or any political subdi-
vision thereof or by any agency or instrumentality of any
one or more governments or political subdivisions. Such
taxes shall also apply in the case of any corporation wholly
owned by one or more such colleges or universities."
(b) UNRELATED TRADE oR BuslNEss.-Section 422 (b) (definition of
unrelated trade or business) is hereby amended as follows
(1) By inserting after "under section 101" the following: "(or,
in the case of an organization described in section 421'(b) (1) (B),
to the exercise or performance of any purpose or function
described in section 101 (6) ) ".
(2) By inserting in paragraph (2) thereof after "section 101
(6)" the following: "or in the case of a college or university
described in section 421 (b) (1) (B)"
(c) EFFECTIVE DATE.-The amendments made by this section shall
be applicable only with respect to taxable years beginning after
December 31,1951.
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Pub. Law 183 -60-
SEC. 340. FAMILY PARTNERSHIPS.
(a) DEFINITION OF PARTNER.-Section 3797 (a) (2) is hereby
amended by adding at the end thereof the following: "A person shall
be recognized as it partner for income tax purposes if he owns a capital
interest in a partnership in which capital is a material income-produc-
ing factor, whether or not such interest was derived by purchase or
gift from any other person."
(b) ALLOCATION OF PARTNERSHIP INCOME.-Supplement F of
chapter 1 is hereby amended by adding at the end thereof the following
new section :
"SEC. 191. FAMILY PARTNERSHIPS.
"In the case of any partnership interest created by gift, the dis-
tributive share of the donee under the partnership agreement shall
be includible in his gross income, except to the extent that such share
is determined without allowance of reasonable compensation for
services rendered to the partnership by the donor, and except to the
extent that the portion of such share- attributable to donated capital
is proportionately greater than the share of the donor attributable to
the donor's capital. The distributive share of it partner in the earn-
ings of the partnership shall not be diminished because of absence
due to military service. For the purpose of this section, an interest
purchased by one member of a family from another shall be con-
sidered to be created by gift from the seller, and the fair market value
of the purchased interest shall be considered to be donated capital.
The family of any individual shall include only his spouse, ancestors,
and lineal descendants, and any trust for the primary benefit of such
persons."
(c) EFFECTIVE DATE.-The, amendments made by this section shall be
applicable with respect to taxable years beginning after December 31,
1950. The determination as to whether a person shall be recognized as
a partner for income tax purposes for any taxable year beginning
before January 1, 1951, shall be made as if this section had not been
enacted and without inferences drawn from the fact that this section
is not expressly made applicable with respect to taxable years begin-
ning before January 1, 1951. In applying this subsection where the
taxable year of any family partner is different from the taxable year
of the partnership-
(1) if a taxable year of the partnership beginning in 1950 ends
within or with, as to all of the family partners, taxable years which
begin in 1951, then the amendments made by this section shall be
applicable with respect to all distributive shares of income derived
by the family partners from such taxable year of'the partnership
beginning in 1950, and
(2) if a taxable year of the partnership ending in 1951 ends
within or with it taxable year of any family partner which began
in 1950, then the amendments made by this section shall not be
applicable with respect to any of the distributive shares of income
derived-by the family partners from such taxable year of the
partnership.
SEC. 341. WAR LOSSES.
(a) TAX UPON WAR Loss REOovERY.-Section 127 (c) (relating to
recoveries included in gross income) is hereby amended to read as
follows :
"(c) RLcovEnirs.-
"(1) GENERAL BULL-Upon the recovery in the taxable year
of any money or property in respect of property considered under
subsection (a) as destroyed or seized in any prior taxable year,
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the amount of such recovery shall be included in gross income to
the extent provided in paragraph (2), unless the provisions of
paragraph (3) are applicable to the taxable year pursuant to an
election made by the taxpayer under the provisions of paragraph
(5)?
"(2) INCLUSION IN GROSS INCOME.-
"(A) Amount of Recovery.-The amount of the recovery
of any money or property in respect of property considered
under .subsection (a) as destroyed or seized in any prior
taxable year shall be an amount equal to the aggregate of
such money and the fair market value of such property,
determined as of the date of the recovery.
"(B) Amount of Gain Includible.-To the extent that the
amount of the recovery plus the aggregate of the amounts of
previous such recoveries do not exceed that part of the aggre-
gate of the allowable deductions in prior taxable years on
account of the destruction or seizure of property described
in subsection (a) which did not result in a reduction of any
tax of the taxpayer under this chapter or chapter 2, such
amount shall not be includible in gross-income and, shall not
be deemed gain upon the involuntary conversion of property
as a result of its destruction or seizure. To the extent that
such amount plus the aggregate of the amounts of previous
such recoveries exceed that part of the aggregate of such
deductions, which did not result in a reduction of any tax
of the taxpayer under this chapter or chapter 2 and do not
exceed that part of the aggregate of such deductions which
did result in a reduction of any tax of the taxpayer under
this chapter or chapter 2, such amount shall be included in
gross income but shall not be deemed a gain upon the invol-
untary conversion of property as a result of its destruction or
seizure. To the extent that such amount plus the aggregate
of the amounts of previous such recoveries exceed the aggre-
gate of the allowable deductions in prior taxable years on
account of the destruction or seizure of property described
in subsection (a), such amount shall be considered a gain
upon the involuntary conversion of property as a result of
its destruction or seizure and shall be recognized or not
recognized as provided in section 112 (f). If for any previous
taxable year the taxpayer chooses under subsection (b) to
treat any obligations and liabilities as discharged or satisfied
out of the property or interest described in subsection (a),
and if such obligations and liabilities were not so discharged
or satisfied; the amount of such obligations and liabilities
treated as discharged or satisfied tinder subsection (b) shall
be considered for the pur ores of this section as a deduction
by reason of this section which did not result in a reduction of
any tax of the taxpayer under this chapter 'or chapter 2.
For the purposes of this paragraph an allowable deduction
for any taxable year on account of the destruction or seizure
of property described in subsection (a) shall, to the extent
not allowed in computing the tax of the taxpayer for such
taxable year, be considered an allowable deduction which did
not result in a reduction of any tax for the taxpayer under
this chapter or chapter 2.
"(3) TAX ADJUSTMENT MEASURED BY PRIOR BENEFITS.-If the
provisions of this paragraph are applicable to the taxable year
pursuant to an election made by the taxpayer under the provisions
of paragraph (5)-
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Pub. Law 183 -62-
44 (A) Amount of Recovery.-The amount of the recovery
in the taxable year of any money or property in respect of
property considered under subsection (a) as destroyed or
seized in any prior taxable year shall be an amount equal to
the aggregate of such money and the fair market value of
such property, determined as of the date of the recovery. For
the purpose of this paragraph, in the case of the recovery of
the same property or interest considered under subsection (a)
as destroyed or seized, the fair market value of such property
or interest shall, at the option of the taxpayer, be considered
an amount equal to the adjusted basis (for determining loss)
of such property or interest in the hands of the taxpayer on
the date such property or interest was considered under sub-
section (a) as destroyed or seized. The amount of the recovery
determined under this subparagraph shall be reduced for
the purposes of subparagraphs (B) and (C) by the amount
of the obligations or liabilities with respect to the property
considered under subsection (a) as destroyed or seized in
respect of which the recovery was received, if the taxpayer
for any previous taxable year chose under subsection (b) (2)
to treat such obligations or liabilities as discharged or satis-
fied out of such property, and such obligations or liabilities
were not so discharged or satisfied prior to the date of the
recovery.
"(B) Adjustment for Prior Tax Benefits-That part of
the amount of the recovery, in respect of any property con-
sidered under subsection (a) as destroyed or seized, which is
not in excess of the allowable deductions in prior taxable years
on account of such destruction or seizure of the property (the
amount of such allowable deductions being first reduced by
the aggregate amount of any prior recoveries in respect of the
same property) shall be excluded from gross income for the
taxable year of the recovery for the purpose of computing
the tax under this chapter and chapter 2; but there shall be
added to, and assessed and collected as a part of, the tax under
this chapter for the taxable year of the recovery the total
increase in the tax under this chapter and chapter 2 for all
taxable years which would result by decreasing, in an amount
equal to such part of the recovery so excluded, such deduc-
tions allowable in the prior taxable years with respect to the
destruction or seizure of the property. Such increase in the
tax for each such year so resulting shall be computed in
accordance with regulations prescribed by the Secretary.
Such regulations shall give effect to previous recoveries of
any kind (including recoveries described in section 22 (b)
(2)) with respect to any prior year and shall provide for
t e case where there as no tax for the prior year, but shall
otherwise treat the tax previously determined for any year
in accordance with the principles set forth in section 3801 (d).
All credits allowable against the tax for any year and all
carry-overs and carry-backs affected by so decreasing the
allowable deductions shall be taker, into account in computing
the increase in the tax, except that the computation of the
excess profits credit under chapter 2 E for any, taxable year
shall not be affected.
"(C) Gain Upon Recovery -The amount of any recovery
or part thereof, in respect of property considered under sub-
section (a) as destroyed or seized, which is not excluded from
gross income tinder the provisions of subparagraph (B) shall
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be considered for the taxable year of the recovery as gain on
the involuntary conversion of property as a result of its
destruction or seizure and shall be recognized or not recog-
nized as provided in section 112 (f).
"(D) Recoveries Treated as Gross Income for Certain
Purposes.-For the purposes of sections 51, 52, and 3801 (b)
the recovery in the taxable year of any money or property in
respect of property considered under subsection (a) as
.destroyed or seized in any prior taxable year shall be deemed
to be an item includible in gross income for the taxable year
in which the recovery is made.
"(4) RESTORATION OF VALUE OF INVESTMENTS REFERABLE TO
DESTROYED OR SEIZED PROPERTY.-For the purpose of this subsection
the restoration in whole or in part of the value of any interest
described in subsection (a) (3) by reason of any recovery of money
or property in respect of property to which such interest related
and which was considered under subsection (a) (1) or (2) as
destroyed or seized shall be deemed a recovery of property in
respect of property considered under subsection (a) as destroyed
or seized. In applying paragraph (3) of this subsection such
restoration shall be treated as the recovery of the same interest
considered under subsection (a) as destroyed or seized.
"(5) ELECTION BY TAXPAYER FOR APPLICATION OF PARAGRAPH
(3).-If the taxpayer elects to have the provisions of paragraph
(3) applicable to any taxable year in which he recovered any
money or property in respect of property considered under sub-
section (a) as destroyed or seized, the provisions of paragraph (3)
shall be applicable to all taxable years of the taxpayer beginning
after December 31, 1941, and such election, once made, shall be
irrevocable. The election shall be made in such manner and at
such time as the Secretary may by regulations prescribe, except
that no election under this paragraph may be made after December
31, 1952, unless the taxpayer recovers money or property (in
respect of property considered under subsection (a) as destroyed
or seized) during a taxable year ending after the 'date of the
enactment of the Revenue Act of 1951. If pursuant to such
election the provisions of paragraph (3) are applicable to any
taxable year-
"(A) the period of limitations provided in sections 275 and
276 on the making of assessments and the beginning of
distraint or a proceeding in court for collection shall not, with
respect to-
"(i) the amount to be added to the tax for such taxable
year under the provisions of paragraph (3), and
"(ii) any deficiency for such- taxable year or for any
other taxable year, to the extent attributable to the basis
of the recovered property being determined under the
provisions of subsection (d) (2),
expire prior to the expiration of two years following the date
of the making of such election, and such amount and such
deficiency may be assessed at any time prior to the expiration
of such period notwithstanding any law or rule of law which
would otherwise prevent such assessment and collection, and
"(B) in case refund or credit of any overpayment resulting
from the application of the provisions of.paragraph (3) to
such taxable year is prevented on the date of the making of
such election, or within one year from such date, by the
operation of any law or rule of law (other than section 3761,
relating to compromises), refund or credit of such overpay-
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ment may, nevertheless, be made or allowed if claim therefor
is filed within one year from such date.
In the case of any taxable year ending before the date of the mak-
ing by the taxpayer of an election under this paragraph, no
interest shall be paid on any overpayment resulting from the
application of the provisions of paragraph (3) to such taxable
year, and no interest shall be assessed or collected with respect
to any amount or any deficiency specified in clause (A), for any
period prior to the expiration of six months following the date
of the making of such election by the taxpayer."
(b) BASIS OF RECOVERED PROPERTY.-Section 127 (d) (relating to
basis of recovered property) is hereby amended to read as follows:
"(d) BASIS OF RECOVERED PROPERTY-
"(1) IN GENERAL.-The unadjusted basis of property recovered
in respect of property considered as destroyed or seized under
subsection (a) shall be determined under this subsection. Such
basis shall be an amount equal to the fair market value of such
property, determined as of the date of the recovery, reduced by
an amount equal to the excess of the aggregate of such fair mar-
ket value and the amounts of previous recoveries of money or
property in respect of property considered under subsection (a)
as destroyed or seized over the aggregate of the allowable deduc-
tions in prior taxable years on account of the destruction or
seizure of property described in subsection (a), and increased by
that portion of the amount of the recovery which under subsec-
tion (c) is treated as a recognized gain from the involuntary
conversion of property. Upon application of the taxpayer, the
aggregate of the bases (determined under the preceding sentence)
o any properties recovered in respect of properties considered
under subsection (a) as destroyed or seized may be allocated
among the properties so recovered in such manner as the Secre-
tary may determine under regulations prescribed by him, and
the amounts so allocated to any such property so recovered shall
be the unadjusted basis of such property in lieu of the unadjusted
basis of such property determined under the preceding sentence.
"(2) PROPERTY RECOVERED IN TAXABLE YEAR TO WHICH SUBSEC-
TION (e) (3) IS APPLIOABLE.-I11 the case of a taxpayer who has
made an election under the provisions of subsection (c) (5), the
basis of property recovered shall be an amount equal to the value
at which such property is included in the amount of the recovery
under subsection (c) (3) (A) (determined without regard to the
last sentence thereof), reduced by such part of the gain under
subsection (c) (3) (C). which is not recognized as provided in
section 112 (f)."
(C) CREDIT FOR FOREIGN TAXEs.-Section 131 (a) (relating to
allowance of credit for taxes of foreign countries and possessions of
the United States ) is hereby amended by inserting after "section 102"
the following : "and except the additional tax imposed for the taxable
year under the provisions of section 127 (c) (3)".
(d) EFFECTIVE DATES.--The amendments made by this section
shall be applicable to taxable years beginning after December 31, 1941.
SEC. 342. DEDUCTION OF EXPENDITURES FOR MINE EXPLORATION.
(a) DEDUCTION OF MINE EXPLORATION EXPENDITURES.-Section 23
(relating to deductions from gross income) is hereby amended by
adding at the end thereof the following new subsection :
o(ff) DEDUCTION OF EXPLORATION EXPENDITURES.-
"(1) IN GENERAL.-III the case of expenditures paid or incurred
during the taxable year for the purpose of ascertaining the exist-
ence, ocation, extent, or quality of any deposit of ore or other
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