Taxable Years Sec. 115. (1) (1) for the purpose of the computation of earnings and profits of the corporation, shall be determined, except as provided in paragraph (2), by using as the adjusted basis the adjusted basis (under the law applicable to the year in which the sale or other disposition was made) for determining gain, except that no regard shall be had to the value of the property as of March 1, 1913; but Sec. 115. (1) (1) for the purpose Sec. 115. (1) (1) for the purpose of the computation of earnings and of the computation of earnings and profits of the corporation, shall be profits of the corporation, shall be determined, except as provided in determined, except as provided in paragraph (2), by using as the ad- paragraph (2), by using as the adjusted basis the adjusted basis justed basis the adjusted basis (under the law applicable to the (under the law applicable to the year in which the sale or other dis- year in which the sale or other disposition was made) for determin- position was made) for determining gain, except that no regard ing gain, except that no regard shall be had to the value of the shall be had to the value of the property as of March 1, 1913; but property as of March 1, 1913; but Sec. 115. (1) (2) for the purpose Sec. 115. (1) (2) for the purpose Sec. 115. (1) (2) for the purpose of the computation of earnings and of the computation of earnings and of the computation of earnings and profits of the corporation for any profits of the corporation for any profits of the corporation for any period beginning after February period beginning after February period beginning after February 28, 1913, shall be determined by us- 28, 1913, shall be determined by us- 28, 1913, shall be determined by using as the adjusted basis the ad- ing as the adjusted basis the ad- ing as the adjusted basis the adjusted basis (under the law appli- justed basis (under the law appli-justed basis (under the law applicable to the year in which the sale cable to the year in which the sale cable to the year in which the sale or other disposition was made) for or other disposition was made) for or other disposition was made) for determining gain. determining gain. determining gain. Gain or loss so realized shall in- Gain or loss so realized shall in- Gain or loss so realized shall increase or decrease the earnings crease decrease the earnings crease or or decrease the earnings and profits to, but not beyond, the and profits to, but not beyond, the and profits to, but not beyond, the extent to which such a realized gain extent to which such a realized gain extent to which such a realized gain or loss was recognized in comput- or loss was recognized in computing or loss was recognized in computing ing net income under the law appli- net income under the law appli- net income under the law applicable to the year in which such sale cable to the year in which such sale cable to the year in which such sale or disposition was made. Where in or disposition was made. Where in or disposition was made. Where in determining the adjusted basis used determining the adjusted basis used determining the adjusted basis used in computing such realized gain or in computing such realized gain or in computing such realized gain or loss the adjustment to the basis dif- loss the adjustment to the basis dif- loss the adjustment to the basis differs from the adjustment proper fers from the adjustment proper fers from the adjustment proper for the purpose of determining for the purpose of determining for the purpose of determining earnings or profits, then the latter earnings or profits, then the latter earnings or profits, then the latter adjustment shall be used in deter- adjustment shall be used in deter- adjustment shall be used in determining the increase or decrease mining the increase or decrease mining the increase or decrease above provided. For the purposes above provided. For the purposes above provided. For the purposes of this subsection, a loss with re- of this subsection, a loss with re- of this subsection, a loss with respect to which a deduction is disal-spect to which a deduction is disal-spect to which a deduction is disallowed under section 118, or a cor- lowed under section 118, or a cor-lowed under section 118, or a corresponding provision of a prior responding provision of a prior responding provision of a prior income tax law, shall not be deemed income tax law, shall not be deemed income tax law, shall not be deemed to be recognized. Where a corpo- to be recognized. Where a corpo- to be recognized. Where a corporation receives (after February 28, ration receives (after February 28, ration receives (after February 28, 1913) a distribution from a second 1913) a distribution from a second 1913) a distribution from a second corporation which (under the law corporation which (under the law corporation which (under the law applicable to the year in which the applicable to the year in which the applicable to the year in which the distribution was made) was not a distribution was made) was not a distribution was made) was not a taxable dividend to the share-taxable dividend to the share-taxable dividend to the shareholders of the second corporation, holders of the second corporation, holders of the second corporation, the amount of such distribution the amount of such distribution the amount of such distribution shall not increase the earnings and shall not increase the earnings and shall not increase the earnings and profits of the first corporation in profits of the first corporation in profits of the first corporation in the following cases: the following cases: the following cases: (1) No such increase shall be made in respect of the part of such (1) No such increase shall be made in respect of the part of such (1) No such increase shall be made in respect of the part of such distribution which (under such distribution which (under such distribution which (under such law) is directly applied in reduc- law) is directly applied in reduction of the basis of the stock in re- tion of the basis of the stock in respect of which the distribution was spect of which the distribution was made. made. law) is directly applied in reduction of the basis of the stock in respect of which the distribution was made. Sec. 115. (1) (1) for the purpose of the computation of earnings and profits of the corporation, shall be determined, except as provided in paragraph (2), by using as the adjusted basis the adjusted basis (under the law applicable to the year in which the sale or other dis Sec. 115. (1) (1) for the purpose of the computation of earnings and profits of the corporation, shall be determined, except as provided in paragraph (2), by using as the adjusted basis the adjusted basis (under the law applicable to the year in which the sale or other disposition was made) for determin-position was made) for determining ing gain, except that no regard shall be had to the value of the property as of March 1, 1913; but gain, except that no regard shall be Sec. 115. (1) (2) for the purpose Gain or loss so realized shall in- Gain or loss so realized shall in- Where a corporation receives (after February 28, 1913) of the second corporation, the Taxable Years Beginning before 1939 Taxable Years (2) No such increase shall be made if (under such law) the distribution causes the basis of the stock in respect of which the distribution was made to be allocated between such stock and the property received. Sec. 115 (1), I. R. C., supra, amended by Sec. 501 (a), Second R. A. of 1940 and by Sec. 146 (a), R. A. of 1942. Sec. 501 (b), Second R. A. of 1940, and Sec. 146 (b), R. A. of 1942, make amendments applicable to taxable years beginning after Dec. 31, 1938. For Sec. 115 (1), I. R. C., before amendment, see 1942 column. Sec. 115. (m) Earnings and profits-Increase in value accrued before March 1, 1913. (2) No such increase shall be (2) No such increase shall be made if (under such law) the dis- made if (under such law) the distribution causes the basis of the tribution causes the basis of the stock in respect of which the dis- stock in respect of which the dis tribution was made to be allocated tribution was made to be allocated between such stock and the prop- between such stock and the property received. erty received. Sec. 115, I. R. C., supra, amended by Sec. 501 (a), Second R. A. of 1940, by adding Sec. 115 (1) above with exception of sentence in italics, which was added by Sec. 146 (a), R. A. of 1942. Sec. 501 (b), Second R. A. of 1940, and Sec. 146 (b), R. A. of 1942, make amendments applicable to taxable years beginning after Dec. 31, 1938. Sec. 115. (m) Earnings and profits-Increase in value accrued before March 1, 1913. Sec. 115, I. R. C., supra, amended by Sec. 501 (a), Second R. A. of 1940, by adding Sec. 115 (1) above with exception of sentence in italics, which was added by Sec. 146 (a), R. A. of 1942. Sec. 501 (b), Second R. A. of 1940, and Sec. 146 (b), R. A. of 1942, make amendments applicable to taxable years beginning after Dec. 31, 1938. Sec. 115. (m) Earnings and profits-Increase in value accrued before March 1, 1913.— Sec. 115. (m) (1) If any in- Sec. 115. (m) (1) If any increase Sec. 115. (m) (1) If any increase crease or decrease in the earnings or decrease in the earnings or prof- or decrease in the earnings or profor profits for any period beginning its for any period beginning after its for any period beginning after after February 28, 1913, with re- February 28, 1913, with respect to February 28, 1913, with respect to spect to any matter would be dif- any matter would be different had any matter would be different had ferent had the adjusted basis of the adjusted basis of the property the adjusted basis of the property the property involved been deter- involved been determined without involved been determined without mined without regard to its March regard to its March 1, 1913, value, regard to its March 1, 1913, value, 1, 1913, value, then, except as pro- then, except as provided in para- then, except as provided in paravided in paragraph (2), an increase graph (2), an increase (properly graph (2), an increase (properly (properly reflecting such differ- reflecting such difference) shall be reflecting such difference) shall be ence) shall be made in that part made in that part of the earnings made in that part of the earnings of the earnings and profits consist- and profits consisting of increase in and profits consisting of increase in ing of increase in value of property value of property accrued before value of property accrued before accrued before March 1, 1913. March 1, 1913. March 1, 1913. Sec. 115. (m) (2) If the applica- Sec. 115. (m) (2) If the applica- Sec. 115. (m) (2) If the application of subsection (1) to a sale or tion of subsection (1) to a sale or tion of subsection (1) to a sale or other disposition after February other disposition after February other disposition after February 28, 1913, results in a loss which is 28, 1913, results in a loss which is 28, 1913, results in a loss which is to be applied in decrease of earn- to be applied in decrease of earn- to be applied in decrease of earnings and profits for any period be- ings and profits for any period be- ings and profits for any period beginning after February 28, 1913 ginning after February 28, 1913, ginning after February 28, 1913, then, notwithstanding subsection then, notwithstanding subsection then, notwithstanding subsection (1) and in lieu of the rule provided (1) and in lieu of the rule provided (1) and in lieu of the rule provided in paragraph (1) of this subsec-in paragraph (1) of this subsection, in paragraph (1) of this subsection, tion, the amount of such loss so to the amount of such loss so to be ap- the amount of such loss so to be apbe applied shall be reduced by the plied shall be reduced by the plied shall be reduced by the amount, if any, by which the ad- amount, if any, by which the ad- amount, if any, by which the adjusted basis of the property used in justed basis of the property used injusted basis of the property used in determining the loss, exceeds the determining the loss, exceeds the determining the loss, exceeds the adjusted basis computed without adjusted basis computed without adjusted basis computed without regard to the value of the property regard to the value of the property regard to the value of the property on March 1, 1913, and if such on March 1, 1913, and if such on March 1, 1913, and if such amount so applied in reduction of amount so applied in reduction of amount so applied in reduction of the decrease exceeds such loss, the the decrease exceeds such loss, the the decrease exceeds such loss, the excess over such loss shall increase excess over such loss shall increase excess over such loss shall increase that part of the earnings and prof- that part of the earnings and prof- that part of the earnings and profits consisting of increase in value its consisting of increase in value its consisting of increase in value of property accrued before March of property accrued before March of property accrued before March 1, 1913. 1, 1913. Sec. 115, I. R. C., supra, amended by Sec. 501 (a), Sec 1, 1913. 1 287 Taxable Years INCREASE IN VALUE BEFORE MARCH 1, 1913 Taxable Years (2) No such increase shall be (2) No such increase shall be made if (under such law) the dis- made if (under such law) the distribution causes the basis of the tribution causes the basis of the stock in respect of which the dis- stock in respect of which the distribution, was made to be allocated tribution was made to be allocated between such stock and the prop-between such stock und the property received. erty received. Sec. 115, I. R. C., supra, amended by Sec. 501 (a), Second R. A. of 1940, by adding Sec. 115 (1) above, with exception of sentence in underlined italics, which was added by Sec. 146 (a), R. A. of 1942. Sec. 501 (b), Second R. A. of 1940, and Sec. 146 (b), R. A. of 1942, make amendments applicable to taxable years beginning after Dec. 31, 1938. Sec. 115. (m) Earnings and profits-Increase in value accrued before March 1, 1913. Sec. 115, I. R. C., supra. amended by Sec. 501 (a), Second R. A. of 1940, by adding Sec. 115 (1) above, with exception of sentence in underHined italics which was added by Sec. 146 (a), R. A. of 1942. Sec. 501 (b), Second R. A. of 1940, and Sec. 146 (b), R. A. of 1942, make amendments applicable to taxable years beginning after Dec. 31, 1938. Sec. 115. (m) (1) If any increase Sec. 115. (m) (1) If any increase or decrease in the earnings or prof- or decrease in the earnings or profits for any period beginning after its for any period beginning after February 28, 1913, with respect to February 28, 1913, with respect to any matter would be different had any matter would be different had the adjusted basis of the property the adjusted basis of the property involved been determined without involved been determined without reregard to its March 1, 1913, value, gard to its March 1, 1913, value, then, except as provided in para- then, except as provided in paragraph (2), an increase (properly graph (2), an increase (properly reflecting such difference) shall be reflecting such difference) shall be made in that part of the earnings made in that part of the earnings and profits consisting of increase in and profits consisting of increase in value of property accrued before value of property accrued before March 1, 1913. March 1, 1913. Sec. 115. (m) (2) If the applica- Sec. 115. (m) (2) If the application of subsection (1) to a sale or tion of subsection (1) to a sole other disposition after February or other disposition after Feb28, 1913, results in a loss which is ruary 28, 1913, results in a loss to be applied in decrease of earn- which is to be applied in decrease of ings and profits for any period be-earnings and profits for any period ginning after February 28, 1913, beginning after February 28, 1913, then, notwithstanding subsection then, notwithstanding subsection (1) and in lieu of the rule provided (1) and in lieu of the rule provided in paragraph (1) of this subsection, in paragraph (1) of this subsection, the amount of such loss so to be ap- the amount of such loss so to be applied shall be reduced by the plied shall be reduced by the amount, if any, by which the ad- amount, if any, by which the adjusted basis of the property used injusted basis of the property used in determining the loss, exceeds the determining the loss, exceeds the adjusted basis computed without adjusted basis computed without reregard to the value of the property gard to the value of the property on March 1, 1913, and if such on March 1, 1913, and if such amount so applied in reduction of amount so applied in reduction of the decrease exceeds such loss, the the decrease exceeds such loss, the excess over such loss shall increase excess over such loss shall increase that part of the earnings and prof- that part of the earnings and profits consisting of increase in value its consisting of increase in value of property accrued before March of property accrued before March 1, 1913. 1, 1913. Taxable Years Beginning before 1939 Sec. 115 (m). Retroactivity For retroactive effect of Sec. 115 (m), added to I. R. C. (1939 column) by Sec. 501 (a), Second R. A. of 1940, see fn. 18, p. 283. ond R. A. of 1940 by adding Sec. 116. Exclusions from gross In addition to the items specified Taxable Years ond R. A. of 1940 by adding subsection (m), supra. Sec. 501 (b) of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1938. Sec. 116. Exclusions from gross income. In addition to the items specified In addition to the items specified in section 22 (b), the following in section 22 (b), the following in section 22 (b), the following items shall not be included in gross items shall not be included in gross items shall not be included in gross income and shall be exempt from income and shall be exempt from income and shall be exempt from taxation under this chapter: taxation under this chapter: taxation under this chapter: Sec. 116. (a) Earned income Sec. from sources without United from States. 116. (a) Earned income Sec. 116. (a) Earned income sources without United from sources without United States. In the case of an individ- States.-In the case of an individual citizen of the United States, a ual citizen of the United States, a Sec. 116. (a) (1) Foreign resi- bona fide nonresident of the United bona fide nonresident of the United dent for entire taxable year.-In States for more than six months States for more than six months the case of an individual citizen of during the taxable year, amounts during the taxable year, amounts the United States, who establishes received from sources without the received from sources without the to the satisfaction of the Commis- United States (except amounts United States (except amounts sioner that he is a bona fide resi- paid by the United States or any paid by the United States or any dent of a foreign country or agency thereof) if such amounts agency thereof) if such amounts countries during the entire taxable would constitute earned income as would constitute earned income as year, amounts received from defined in section 25 (a) if received defined in section 25 (a) if received sources without the United States from sources within the United from sources within the United (except amounts paid by the States; but such individual shall States; but such individual shall United States or any agency not be allowed as a deduction from not be allowed as a deduction from thereof) if such amounts would his gross income any deductions his gross income any deductions constitute earned income as defined properly allocable to or chargeable properly allocable to or chargeable in section 25 (a) if received from against amounts excluded from against amounts excluded from sources within the United States; gross income under this subsection. gross income under this subsection. but such individuals 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 subsection. Sec. 116. (a) (2) Taxable year Sec. 116. (a) (2) Taxable year of change of residence to United of change of residence to United States. In the case of an indi- States. In the case of an individual citizen of the United States, vidual citizen of the United States, who has been a bona fide resident who has been a bona fide resident of a foreign country or countries of a foreign country or countries for a period of at least two years for a period of at least two years before the date on which he before the date on which he changes changes his residence from such his residence from such country to country to the United States, the United States, amounts received amounts received from sources from sources without the United without the United States (except States (except amounts paid by the amounts paid by the United States United States or any agency or any agency thereof), which are thereof), which are attributable to attributable to that part of such that part of such period of foreign period of foreign residence before residence before such date, if such such date, if such amounts would amounts would constitute earned constitute earned income as defined income as defined in section 25 (a) in section 25 (a) if received from if received from sources within the sources within the United States; United States; but such individual but such individual shall not be shall not be allowed as a deduction allowed as a deduction from his from his gross income any deducgross income any deductions prop- tions properly allocable to erly allocable to or chargeable chargeable against amounts ex or |