to the second calendar year and at the rates for such year, which the portion of such period falling within the second calendar year is of the entire period.

(b) If a fiscal year of a partnership begins in one calendar year and ends in another calendar year, and the law applicable to the second calendar year is different from the law applicable to the first calendar year, then (1) the rates for the calendar year during which such fiscal year begins shall apply to an amount of each partner's share of such partnership net income (determined under the law applicable to such calendar year) equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year, and (2) the rates for the calendar year during which such fiscal year ends shall apply to an amount of each partner's share of such partnership net income (determined under the law applicable to such calendar year) equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year. In such cases the part of such income subject to the rates in effect for the most recent calendar year shall be added to the other income of the taxpayer subject to such rates and the resulting amount shall be placed in the lower brackets of the rate schedule applicable to such year, and the part of such income subject to the rates in effect for the next preceding calendar year shall be placed in the next higher brackets of the rate schedule applicable to such year.

(c) Any amount paid before or after the enactment of this Act on account of the tax imposed for a fiscal year beginning in 1923 and ending in 1924 by Title II of the Revenue Act of 1921 shall be credited toward the payment of the tax imposed for such fiscal year by this Act, and if the amount so paid exceeds the amount of such tax imposed by this Act, the excess shall be credited or refunded in accordance with the provisions of section 281.

CAPITAL GAINS AND LOSSES

SEC. 208. (a) For the purposes of this title

(1) The term "capital gain" means taxable gain from the sale or exchange of capital assets consummated after December 31, 1921;

(2) The term "capital loss” means deductible loss resulting from the sale or exchange of capital assets;

(3) The term "capital deductions" means such deductions as are allowed by section 214 for the purpose of computing net income, and are properly allocable to or chargeable against capital assets sold or exchanged during the taxable year; (4) The term "ordinary deductions" means the deductions allowed by section 214 other than capital losses and capital deductions;

(5) The term "capital net gain" means the excess of the total amount of capital gain over the sum of (A) the capital deductions and capital losses, plus (B) the amount, if any, by which the ordinary deductions exceed the gross income computed without including capital gain;

(6) The term "capital net loss" means the excess of the sum of the capital losses plus the capital deductions over the total amount of capital gain;

(7) The term "ordinary net income" means the net income, computed in accordance with the provisions of this title, after excluding all items of capital gain, capital loss, and capital deductions; and

(8) The term "capital assets means property held by the taxpayer for more than two years (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale in the course of his trade or business.

(b) In the case of any taxpayer (other than a corporation) who for any taxable year derives a capital net gain, there shall (at the election of the taxpayer) be levied, collected and paid, in lieu of the taxes imposed by sections 210 and 211 of this title, a tax determined as follows:

A partial tax shall first be computed upon the basis of the ordinary net income at the rates and in the manner provided in sections 210 and 211, and the total tax shall be this amount plus 122 per centum of the capital net gain.

(c) In the case of any taxpayer (other than a corporation) who for any taxable year sustains a capital net loss, there shall be levied, collected, and paid, in lieu of the taxes imposed by sections 210 and 211 of this title, a tax determined as follows: A partial tax shall first be computed upon the basis of the ordinary net income at the rates and in the manner provided in sections 210 and 211, and the total tax shall be this amount minus 122 per centum of the capital net loss; but in no case shall the tax under this subdivision be less than the taxes imposed by sections 210 and 211 computed without regard to the provisions of this section.

(d) The total tax determined under subdivisions (b) or (c) shall be collected and paid in the same manner, at the same time, and subject to the same provisions of law, including penalties, as other taxes under this title.

(e) In the case of the members of a partnership, of an estate or trust, or of the beneficiary of an estate or trust, the proper part of each share of the net income which consists, respectively, of ordinary net income, capital net gain, or capital net loss, shall be determined under rules and regulations to be prescribed by the Commissioner with the approval of the Secretary, and shall be separately shown in the return of the partnership or estate or trust, and shall be taxed to the member or beneficiary or to the estate or trust as provided in sections 218 and 219, but at the rates and in the manner provided in subdivision (b) or (c) of this section.

EARNED INCOME

SEC. 209. (a) For the purposes of this section

(1) The term "earned income" means wages, salaries, professional fees, and other amounts received as compensation for personal services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. In the case of a taxpayer engaged in a trade or business in which both personal services and capital are material income producing factors, a reasonable allowance as compensation for the personal services actually rendered by the taxpayer, not in excess of 20 per centum of his share of the net profits of such trade or business, shall be considered as earned income.

(2) The term "earned income deductions" means such deductions as are allowed by section 214 for the purpose of computing net income, and are properly allocable to or chargeable against earned income.

(3) The term "earned net income" means the excess of the amount of the earned income over the sum of the earned income deductions. If the taxpayer's net income is not more than $5,000, his entire net income shall be considered to be earned net income, and if his net income is more than $5,000, his earned net income shall not be considered to be less than $5,000. In no case shall the earned net income be considered to be more than $10,000.

(b) In the case of an individual the tax shall, in addition to the credits provided in section 222, be credited with 25 per centum of the amount of tax which would be payable if his earned net income constituted his entire net income; but in no case shall the credit allowed under this subdivision exceed 25 per centum of his tax under section 210.

(c) In the case of the members of a partnership the proper part of each share of the net income which consists of earned income shall be determined under rules and regulations to be prescribed by the Commissioner with the approval of the Secretary and shall be separately shown in the return of the partnership and shall be taxed to the member as provided in section 218.

PART II.-INDIVIDUALS

NORMAL TAX

SEC. 210. (a) In lieu of the tax imposed by section 210 of the Revenue Act of 1921, there shall be levied, collected, and paid for each taxable year upon the net income of every individual (except as provided in subdivision (b) of this section) a normal tax of 6 per centum of the amount of the net income in excess of the credits provided in section 216, except that in the case of a citizen or resident of the United States the rate upon the first $4,000 of such excess amount shall be 2 per centum, and upon the next $4,000 of such excess amount shall be 4 per centum;

(b) In lieu of the tax imposed by subdivision (a), there shall be levied, collected, and paid for each taxable year upon the net income of every nonresident alien individual, a resident of a contiguous country, a normal tax equal to the sum of the following:

(1) 2 per centum of the amount by which the part of the net income attributable to wages, salaries, professional fees, or other amounts received as compensation for personal services actually performed in the United States, exceeds the credits provided in subdivisions (d) and (e) of section 216; but the amount taxable at such 2 per centum rate shall not exceed $4,000;

(2) 4 per centum of the amount by which such part of the net income exceeds the sum of (A) the credits provided in subdivisions (d) and (e) of section 216, plus (B) $4,000; but the amount taxable at such 4 per centum rate shall not exceed $4,000; and

(3) 6 per centum of the amount of the net income in excess of the sum of (A) the amount taxed under paragraphs (1) and (2), plus (B) the credits provided in section 216.

SURTAX

SEC. 211. (a) In lieu of the tax imposed by section 211 of the Revenue Act of 1921, but in addition to the normal tax imposed by section 210 of this Act, there shall be levied, collected, and paid for each taxable year upon the net income of every individual a surtax as follows:

Upon a net income of $10,000 there shall be no surtax; upon net incomes in excess of $10,000 and not in excess of $14,000, 1 per centum of such excess.

$40 upon net incomes of $14,000; and upon net incomes in excess of $14,000 and not in excess of $16,000, 2 per centum in addition of such excess.

$80 upon net incomes of $16,000; and upon net incomes in excess of $16,000 and not in excess of $18,000, 3 per centum in addition of such excess.

$140 upon net incomes of $18,000; and upon net incomes in excess of $18,000 and not in excess of $20,000, 4 per centum in addition of such excess.

$220 upon net incomes of $20,000; and upon net incomes in excess of $20,000 and not in excess of $22,000, 5 per centum in addition of such excess.

$320 upon net incomes of $22,000; and upon net incomes in excess of $22,000 and not in excess of $24,000, 6 per centum in addition of such excess.

$440 upon net incomes of $24,000; and upon net incomes in excess of $24,000 and not in excess of $26,000, 7 per centum in addition of such excess.

$580 upon net incomes of $26,000; and upon net incomes in excess of $26,000 and not in excess of $28,000, 8 per centum in addition of such excess.

$740 upon net incomes of $28,000; and upon net incomes in excess of $28,000 and not in excess of $30,000, 9 per centum in addition of such excess.

$920 upon net incomes of $30,000; and upon net incomes in excess of $30,000 and not in excess of $34,000, 10 per centum in addition of such excess.

$1,320 upon net incomes of $34,000; and upon net incomes in excess of $34,000 and not in excess of $36,000, 11 per centum in addition of such excess.

$1,540 upon net incomes of $36,000; and upon net incomes in excess of $36,000 and not in excess of $38,000, 12 per centum in addition of such excess.

$1,780 upon net incomes of $38,000; and upon net incomes in excess of $38,000 and not in excess of $40,000, 13 per centum in addition of such excess. $2,300 upon net incomes of $42,000; and upon net incomes in excess of $42,000 and not in excess of $44,000, 14 per centum in addition of such excess.

$2,580 upon net incomes of $44,000; and upon net incomes in excess of $44,000 and not in excess of $46,000, 15 per centum in addition of such excess. $2,880 upon net incomes of $46,000; and upon net incomes in excess of $46,000 and not in excess of $48,000, 16 per centum in addition of such excess. $3,200 upon net incomes of $48,000; and upon net incomes in excess of $48,000 and not in excess of $50,000, 17 per centum in addition of such excess. $3,540 upon net incomes of $50,000; and upon net incomes in excess of $50,000 and not in excess of $52,000, 18 per centum in addition of such excess.

$3,900 upon net incomes of $52,000; and upon net incomes in excess of $52,000 and not in excess of $56,000, 19 per centum in addition of such excess. $4,660 upon net incomes of $56,000; and upon net incomes in excess of $56,000 and not in excess of $58,000, 20 per centum in addition of such excess. $5,060 upon net incomes of $58,000; and upon net incomes in excess of $58,000 and not in excess of $62,000, 21 per centum in addition of such excess. $5,900 upon net incomes of $62,000; and upon net incomes in excess of $62,000 and not in excess of $64,000, 22 per centum in addition of such excess. $6,340 upon net incomes of $64,000; and upon net incomes in excess of $64,000 and not in excess of $66,000, 23 per centum in addition of such excess.

$6,800 upon net incomes of $66,000; and upon net incomes in excess of $66,000 and not in excess of $68,000, 24 per centum in addition of such excess. $7,280 upon net incomes of $68,000; and upon net incomes in excess of $68,000 and not in excess of $70,000, 25 per centum in addition of such excess.

$7,780 upon net incomes of $70,000; and upon net incomes in excess of $70,000 and not in excess of $74,000, 26 per centum in addition of such excess. $8,820 upon net incomes of $74,000; and upon net incomes in excess of $74,000 and not in excess of $76,000, 27 per centum in addition of such excess.

$9,360 upon net incomes of $76,000; and upon net incomes in excess of $76,000 and not in excess of $80,000, 28 per centum in addition of such excess. $10,480 upon net incomes of $80,000; and upon net incomes in excess of $80,000 and not in excess of $82,000, 29 per centum in addition of such excess. $11,060 upon net incomes of $82,000; and upon net incomes in excess of $82,000 and not in excess of $84,000, 30 per centum in addition of such excess.

$11,660 upon net incomes of $84,000; and upon net incomes in excess of $84,000 and not in excess of $88,000, 31 per centum in addition of such excess.

$12,900 upon net incomes of $88,000; and upon net incomes in excess of $88,000 and not in excess of $90,000, 32 per centum in addition of such excess.

$13,540 upon net incomes of $90,000; and upon net incomes in excess of $90,000 and not in excess of $92,000, 33 per centum in addition of such excess.

$14,200 upon net incomes of $92,000; and upon net incomes in excess of $92,000 and not in excess of $94,000, 34 per centum in addition of such excess.

$14,880 upon net incomes of $94,000; and upon net incomes in excess of $94,000 and not in excess of $96,000, 35 per centum in addition of such excess.

$15,580 upon net incomes of $96,000; and upon net incomes in excess of $96,000 and not in excess of $100,000, 36 per centum in addition of such excess. $17,020 upon net incomes of $100,000; and upon net incomes in excess of $100,000 and not in excess of $200,000, 37 per centum in addition of such excess.

$54,020 upon net incomes of $200,000; and upon net incomes in excess of $200,000 and not in excess of $300,000, 38 per centum in addition of such excess.

$92,020 upon net incomes of $300,000; and upon net incomes in excess of $300,000 and not in excess of $500,000, 39 per centum in addition of such excess.

$170,020 upon net incomes of $500,000; and upon net incomes in excess of $500,000, in addition 40 per centum of such excess.

(b) In the case of a bona fide sale of mines, oil or gas wells, or any interest therein, where the principal value of the property has been demonstrated by prospecting or exploration and discovery work done by the taxpayer, the portion of the tax imposed by this section attributable to such sale shall not exceed 16 per centum of the selling price of such property or interest.

NET INCOME OF INDIVIDUALS DEFINED

SEC. 212. (a) In the case of an individual the term "net income" means the gross income as defined in section 213, less the deductions allowed by sections 214 and 206.

(b) The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income. If the taxpayer's annual accounting period is other than a fiscal year as defined in section 200 or if the taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.

(c) If a taxpayer changes his accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to another, the net income shall, with the approval of the Commissioner, be computed on the basis of such new accounting period, subject to the provisions of section 226.

GROSS INCOME DEFINED

SEC. 213. For the purposes of this title, except as otherwise provided in section 233

(a) The term "gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal service (including in the case of the President of the United States, the judges of the Supreme and inferior courts of the United States, and all other officers and employees, whether elected or appointed, of the United States, Alaska, Hawaii, or any political subdivision thereof, or the District of Columbia, the compensation received as such), of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. The amount of all such items shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under subdivision (b) of section 212, any such amounts are to be properly accounted for as of a different period.

(b) The term "gross income" does not include the following items, which shall be exempt from taxation under this title:

(1) The proceeds of life insurance policies paid upon the death of the insured; (2) The amount received by the insured as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract;

(3) The value of property acquired by gift, bequest, devise, or descent (but the income from such property shall be included in gross income);

(4) Interest upon (A) the obligations of a State, Territory, or any political subdivision thereof, or the District of Columbia; or (B) securities issued under