Taxable Years For the purposes of this section, the net income shall be computed without regard to 47 (c). Sec. 393, I. R. C., supra, amended by Sec. 135 (b) (3), R. A. of 1942, by adding last sentence. Sec. 101 of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1941. See note following Sec. 396, I. R. C., infra. Sec. 394. Corporation income taxed to shareholders. Sec. 394. (a) General rule.-The undistributed Supplement S net income of a personal service corporation shall be included in the gross income of the shareholders in the manner and to the extent set forth in this Supplement. Taxable Years For the purposes of this section, the net income shall be computed without regard to 47 (c). Sec. 393, I. R. C., supra, See note following Sec. 396, Sec. 394. Corporation income taxed to shareholders. Sec. 394. (a) General rule.—The undistributed Supplement S net income of a personal service corporation shall be included in the gross income of the shareholders in the manner and to the extent set forth in this Supplement. Taxable Years Sec. 394. Corporation income taxed to shareholders. Sec. 394. (a) General rule.-The undistributed Supplement S net income of a personal service corporation shall be included in the gross income of the shareholders in the manner and to the extent set forth in this Supplement. Sec. 394. (b) Amount included holder who, on the last day of the taxable year of the corporation, was a shareholder in such corporation shall include in his gross income, as a dividend, for the taxable year in which or with which the taxable year of the corporation ends, the amount he would have received as a dividend if on such last day there had been distributed by the corporation, and received by the shareholders, an amount equal to the undistributed Supplement S net income of the corporation for its taxable year. Sec. 394. (b) Amount included Sec. 394. (b) Amount included in gross income.-Each share-in gross income. Each share-in gross income. Each shareholder who, on the last day of the taxable year of the corporation, was a shareholder in such corporation shall include in his gross income, as a dividend, for the taxable year in which or with which the taxable year of the corporation ends, the amount he would have received as a dividend if on such last day there had been distributed by the corporation, and received by the shareholders, an amount equal to the undistributed Supplement S net income of the corporation for its taxable year. holder who, on the last day of the Sec. 394. (c) Credit for obliga- Sec. 394. (c) Credit for obliga- Sec. 394. (c) Credit for obligations of the United States and tions of the United States and tions of the United States and its instrumentalities. Each such its instrumentalities.—Each such its instrumentalities. Each such shareholder shall be allowed a credit shareholder shall be allowed a credit shareholder shall be allowed a credit against net income, for the pur- against net income, for the pur- against net income, for the purposes of the tax imposed by sec- poses of the tax imposed by sec- poses of the tax imposed by seetion 11, 13, 14, 201, 204, 207, or tion 11, 13, 14, 201, 204, 207, or tion 11, 13, 14, 201, 204, 207, or 362, of his proportionate share of 362, of his proportionate share of 362, of his proportionate share of the interest specified in section the interest specified in section the interest specified in section 25 (a) (1) or (2) which is included 25 (a) (1) or (2) which is included 25 (a) (1) or (2) which is included in the gross income of the corpora- in the gross income of the corpora- in the gross income of the corporation. For any taxable year of the tion. For any taxable year of the tion. corporation beginning after De- corporation beginning after December 31, 1941, each such share- cember 31, 1941, each such shareholder's proportionate share of such holder's proportionate share of such interest received by the corporation interest received by the corporation shall be his proportionate share of shall be his proportionate share of such interest (determined without such interest (determined without regard to this sentence) reduced by so much of the deduction under section 23 (v) as is attributable to such share. Sec. 394 (c), I. R. C., supra, amended by Sec. 126 (h), R. A. of 1942, to read as above. regard to this sentence) reduced by Sec. 394 (c), I. R. C., supra, Taxable Years Beginning in 1940 Taxable Years Beginning in 1939 Taxable Years Beginning before 1939 Sec. 394. Corporation income taxed to shareholders. Sec. 394. (a) General rule.—The undistributed Supplement S net income of a personal service corporation shall be included in the gross income of the shareholders in the manner and to the extent set forth in this Supplement. Sec. 394. (b) Amount included in gross income. Each shareholder who, on the last day of the taxable year of the corporation, was a shareholder in such corporation shall include in his gross income, as a dividend, for the taxable year in which or with which the taxable year of the corporation ends, the amount he would have received as a dividend if on such last day there had been distributed by the corporation, and received by the shareholders, an amount equal to the undistributed Supplement S net income of the corporation for its taxable year. Sec. 394. (c) Credit for obligations of the United States and its instrumentalities. - Each such shareholder shall be allowed a credit against net income, for the purposes of the tax imposed by section 11, 13, 14, 201, 204, 207, or 362, of his proportionate share of the interest specified in section 25 (a) (1) or (2) which is included in the gross income of the corporation. Taxable Years Sec. 101 of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1941. For Sec. 394 (c), I. R. C., before amendment, see 1942 column. Taxable Years guage in italics. Sec. 101 of Taxable Years Sec. 394. (d) Effect on capital Sec. 394. (d) Effect on capital Sec. 394. (d) Effect on capital account of personal service corpo- account of personal service corpo- account of personal service corporation. An amount equal to the ration.-An amount equal to the ration.-An amount equal to the undistributed Supplement S net undistributed Supplement S net undistributed Supplement S net income of the personal service cor- income of the personal service cor-income of the personal service corporation for its taxable year shall poration for its taxable year shall poration for its taxable year shall be considered as paid in as of the be considered as paid in as of the be considered as paid in as of the close of such taxable year as paid- close of such taxable year as paid- close of such taxable year as paidin surplus or as a contribution to in surplus or as a contribution to in surplus or as a contribution to capital, and the accumulated earn- capital, and the accumulated earn- capital, and the accumulated earnings and profits as of the close of ings and profits as of the close of ings and profits as of the close of such taxable year shall be corre- such taxable year shall be corres- such taxable year shall be corresspondingly reduced, if such amount pondingly reduced, if such amount pondingly reduced, if such amount or any portion thereof is required or any portion thereof is required or any portion thereof is required to be included as a dividend in the to be included as a dividend in the to be included as a dividend in the gross income of the shareholders. gross income of the shareholders. gross income of the shareholders. Sec. 394. (e) Basis of stock in Sec. 394. (e) Basis of stock in Sec. 394. (e) Basis of stock in hands of shareholders.-The hands of shareholders.-The hands of shareholders.-The amount required to be included in amount required to be included in amount required to be included in the gross income of the shareholder the gross income of the shareholder the gross income of the shareholder under subsection (b) shall, for the under subsection (b) shall, for the under subsection (b) shall, for the purpose of adjusting the basis of purpose of adjusting the basis of purpose of adjusting the basis of his stock with respect to which the his stock with respect to which the his stock with respect to which the distribution would have been made distribution would have been made distribution would have been made (if it had been made), be treated (if it had been made), be treated (if it had been made), be treated as having been reinvested by the as having been reinvested by the as having been reinvested by the shareholder as a contribution to the shareholder as a contribution to the shareholder as a contribution to the capital of the corporation; but capital of the corporation; but capital of the corporation; but only to the extent to which such only to the extent to which such only to the extent to which such amount is included in his gross in- amount is included in his gross in- amount is included in his gross income in his return, increased or come in his return, increased or come in his return, increased or decreased by any adjustment of decreased by any adjustment of decreased by any adjustment of such amount in the last determina- such amount in the last determina- such amount in the last determination of the shareholder's tax lia- tion of the shareholder's tax liability, made before the expiration bility, made before the expiration of seven years after the date pre- of seven years after the date prescribed by law for filing the return. scribed by law for filing the return. tion of the shareholder's tax liability, made before the expiration of seven years after the date prescribed by law for filing the return. Sec. 394. (f) Period of limita- Sec. 394. (f) Period of limita- Sec. 394. (f) Period of limitation on assessment and collection. tion on assessment and collection. tion on assessment and collection. -For period of limitation on as--For period of limitation on as--For period of limitation on assessment and collection .without sessment and collection without sessment and collection without assessment, in the case of failure assessment, in the case of failure assessment, in the case of failure to include in gross income the to include in gross income the to include in gross income the amount properly includible therein amount properly includible therein amount properly includible therein under subsection (b), see section under subsection (b), see section under subsection (b), see section 275 (d). 275 (d). See note following Sec. 396, I. R. C., infra. Sec. 395. Nonresident alien individuals and foreign corporations. In the case of a shareholder taxable under section 211 (a) or 231 (a), his distributive share of the undistributed Supplement S net income of the corporation required to be included in the gross income 275 (d). See note following Sec. 396, Sec. 395. Nonresident alien individuals and foreign corporations. In the case of a shareholder taxable under section 211 (a) or 231 (a), his distributive share of the undistributed Supplement S net income of the corporation required to be included in the gross income See note following sec. 396, I. R. C., infra. Sec. 395. Nonresident alien individuals and foreign corporations. In the case of a shareholder taxable under section 211 (a) or 231 (a), his distributive share of the undistributed Supplement S net income of the corporation required to be included in the gross income Taxable Years Beginning in 1940 Taxable Years Beginning in 1939 Taxable Years Beginning before 1939 1 Sec. 394. (d) Effect on capital account of personal service corporation. An amount equal to the undistributed Supplement S net income of the personal service corporation for its taxable year shall be considered as paid in as of the close of such taxable year as paidin surplus or as a contribution to capital, and the accumulated earnings and profits as of the close of such taxable year shall be correspondingly reduced, if such amount or any portion thereof is required to be included as a dividend in the gross income of the shareholders. Sec. 394. (e) Basis of stock in hands of shareholders. — The amount required to be included in the gross income of the shareholder under subsection (b) shall, for the purpose of adjusting the basis of his stock with respect to which the distribution would have been made (if it had been made), be treated as having been reinvested by the shareholder as a contribution to the capital of the corporation; only to the extent to which such amount is included in his gross income in his return, increased or decreased by any adjustment of such amount in the last determination of the shareholder's tax liability, made before the expiration of seven years after the date prescribed by law for filing the return. but Sec. 394. (f) Period of limitation on assessment and collection. -For period of limitation on assessment and collection without assessment, in the case of failure to include in gross income the amount properly includible therein under subsection (b), see section 275 (d). See note following Sec. 396, I. R. C., post. Sec. 395. Nonresident alien individuals and foreign corporations. In the case of a shareholder taxable under section 211 (a) or 231 (a), his distributive share of the undistributed Supplement S net income of the corporation required to be included in the gross income Taxable Years shall be considered as a dividend received by him from sources within the United States. See note following Sec. 396, I. R. C., infra. Sec. 396. Shareholder's tax paid by corporation. If a personal service corporation If a personal service corporation If a personal service corporation is exempt for any taxable year is exempt for any taxable year is exempt for any taxable year under section 725 from excess under section 725 from excess under section 725 from excess profits tax, it shall, at the time of profits tax, it shall, at the time of profits tax, it shall, at the time of filing its return, pay to the collector filing its return, pay to the collector filing its return, pay to the collector an amount equal to the amount an amount equal to the amount an amount equal to the amount that would be required by section that would be required by section that would be required by section 143 (b) or section 144 to be de- 143 (b) or section 144 to be de- 143 (b) or section 144 to be deducted and withheld by the corpo- ducted and withheld by the corpo- ducted and withheld by the corporation if any amount required by ration if any amount required by ration if any amount required by this Supplement to be included in this Supplement to be included in this Supplement to be included in the gross income of the shareholder the gross income of the shareholder the gross income of the shareholder had been, on the last day of the had been, on the last day of the had been, on the last day of the taxable year of the corporation, taxable year of the corporation, taxable year of the corporation, paid to the shareholder in cash as paid to the shareholder in cash as paid to the shareholder in cash as à dividend. Such amount shall be a dividend. Such amount shall be a dividend. Such amount shall be collected and paid in the same collected and paid in the same collected and paid in the same manner as the amount of tax due in manner as the amount of tax due in manner as the amount of tax due in excess of that shown by the tax- excess of that shown by the tax-excess of that shown by the taxpayer upon a return in the case of payer upon a return in the case of payer upon a return in the case of a mathematical error appearing on a mathematical error appearing on a mathematical error appearing on the face of the return. the face of the return. the face of the return. Sec. 400. Imposition of tax. In lieu of the tax imposed under sections 11 and 12, an individual may elect, for each taxable year, Sec. 400. Imposition of tax. Sec. 400. Imposition of tax. In lieu of the tax imposed under In lieu of the tax imposed under sections 11 and 12, an individual sections 11 and 12, an individual who makes his return on the cash who makes his return on the cash basis may elect, for each taxable basis may elect, for each taxable to pay the tax shown in the fol year, to pay the tax shown in the year, to pay the tax shown in the lowing table if his gross income for following table if his gross income following table if his gross income such taxable year is $3,000 or less for such taxable year is $3,000 or for such taxable year is $3,000 or and consists wholly of one or more less and consists wholly of one or less and consists wholly of one or of the following: Salary, wages, more of the following: Salary, more of the following: Salary, compensation for personal services, wages, compensation for personal wages, compensation for personal dividends, interest, rent, annuities, services, dividends, interest, or an- services, dividends, interest, rent, or royalties: nuities: or annuities or royalties: |