Taxable Years Beginning in 1940 Sec. 719. (b) Borrowed invested capital.-The borrowed invested capital for any day of any taxable year shall be determined as of the beginning of such day and shall be an amount equal to 50 per centum of the borrowed capital for such day. Sec. 719, I. R. C., supra, added to I. R. C. by Sec. 201, Excess Profits Tax Act of 1940. Sec. 710 (a), I. R. C., makes amendment applicable to taxable years beginning after Dec. 31, 1939. Sec. 720. Admissible and inadmissible assets. Sec. 720. (a) Definitions.-For the purposes of this subchapter— Sec. 720. (a) (1) The term “inadmissible assets" means (A) Stock in corporations except stock in a foreign personal-holding company, and except stock which is not a capital asset; and (B) Except as provided in subsection (d), obligations described in section 22 (b) (4) any part of the interest from which is excludible from gross income or allowable as a credit against net income. Sec. 720. (a) (2) The term "admissible assets" means all assets other than inadmissible assets. Sec. 720. (b) Ratio of inadmissibles to total assets.-The amount by which the average invested capital for any taxable year shall be reduced as provided in section 715 shall be an amount which is the same percentage of such average invested capital as the percentage which the total of the inadmissible assets is of the total of admissible and inadmissible assets. For such purposes, the amount attributable to each asset held at any time during such taxable year shall be determined by ascertaining the adjusted basis thereof (or, in the case of money, the amount thereof) for each day of such taxable year so held and adding such daily amounts. The determination of such daily amounts shall be made under regulations prescribed by the Commissioner with the approval of the Secretary. The adjusted basis shall be the adjusted basis for determining loss upon sale or change as determined under section 113. ex an Taxable Years SO Sec. 720. (c) Computation if Sec. 720. (c) Computation if Sec. 720. (c) Computation if gain from the sale or exchange of gain from the sale or exchange short-term capital gain.-If dura capital asset held for not more of a capital asset held for not more ing the taxable year there has been than 6 months.-If during the tax- than 6 months short-term capital a short-term capital gain with reable year there has been a gain spect to an inadmissible asset, then gain.-If during the taxable year so much of the amount attributable from the sale or exchange of a there has been a gain from the sale to such inadmissible asset under capital asset held for not more than 6 months with respect to or exchange of a capital asset held subsection (b) as bears the same for not more than 6 months short ratio thereto as such gain bears to then inadmissible asset, much of the amount attributable to term capital gain with respect to an the sum of such gain plus the divisuch inadmissible asset under sub- inadmissible asset, then so much of dends and interest on such asset section (b) as bears the same ratio the amount attributable to such in- for such year, shall, for the purpose thereto as such gain bears to the admissible asset under subsection of determining the ratio of inadsum of such gain plus the dividends (b) as bears the same ratio thereto missible assets to the total of adand interest on such asset for such as such gain bears to the sum of missible and inadmissible assets, be year, shall, for the purpose of deter-such gain plus the dividends and added to the total of admissible asinterest on such asset for such year, sets and subtracted from the total mining the ratio of inadmissible assets to the total of admissible and shall, for the purpose of determin- of inadmissible assets. inadmissible assets, be added to the ing the ratio of inadmissible assets total of admissible assets and sub- to the total of admissible and inadtracted from the total of inadmismissible assets, be added to the total of admissible assets and subtracted sible assets. from the total of inadmissible assets. Sec. 720. (d) Treatment of gov- Sec. 720. (d) Treatment of gov- Sec. 720. (d) Treatment of gov ernment obligations as admissible ernment obligations as admissible ernment obligations as admissible assets. If the excess profits credit assets. If the excess profits credit assets. If the excess profits credit for any taxable year is computed for any taxable year is computed for any taxable year is computed under section 714, the taxpayer under section 714, the taxpayer under section 714, the taxpayer may in its return for such year elect may in its return for such year elect may in its return for such year elect to increase its normal-tax net in- to increase its normal-tax net in- to increase its normal-tax net income for such taxable year by an come for such taxable year by an come for such taxable year by an amount equal to the amount of the amount equal to the amount of the amount equal to the amount of the interest on, reduced by the amount interest on, reduced by the amount interest on all obligations held durof the amortizable bond premium of the amortizable bond premium ing the taxable year which are deunder section 125 attributable to, under section 125 attributable to, scribed in section 22 (b) (4) any all obligations held during the tax- all obligations held during the tax- part of the interest from which is able year which are described in able year which are described in excludible from gross income or alsection 22 (b) (4) any part of the section 22 (b) (4) any part of the lowable as a credit against net ininterest from which is excludible interest from which is excludible come. In such case, for the purfrom gross income or allowable as from gross income or allowable as poses of this section, the term a credit against net income. In a credit against net income. In "admissible assets" includes such such case, for the purposes of this such case, for the purposes of this obligations, and the term "inadmissection, the term "admissible as- section, the term "admissible as- sible assets" does not include such sets" includes such obligations, and sets" includes such obligations, and obligations. the term "inadmissible assets" does the term "inadmissible assets" does not include such obligations. not include such obligations. Sec. 720, I. R. C., supra, added to I. R. C. by Sec. 201, Excess Profits Tax Act of 1940, and amended by Sec. 12 (a), Excess Profits Tax Amendments of 1941, to read as shown in 1941 column. Sec. 207 (c) and (d), I. R. C., supra, amended by Secs., 207 (h) and 220, R. A. of 1942, to read as above. For Sec. 720 (c) and (d), I. R. C., before amendment, and taxable years in respect of which amendments applicable, see 1942 column. Sec. 720, I. R. C., supra, Sec. 720 (c), I. R. C., supra, Sec. 720 (d), I. R. C., supra, Sec. 720, I. R. C., supra, except language shown in italics, added to I. R. C. by Sec. 201, Excess Profits Tax Act of 1940. Sec. 710 (a), I. R. C., makes amendment applicable to taxable years beginning after Dec. 31, 1939. Sec. 720 (a) (1) (A), I. R. C., supra, amended by Sec. 12 (a), Excess Profits Tax Amendments of 1941, by adding language shown in italics. Sec. 17 of said Act makes amendment effective as of Oct. 8, 1940, date of enactment of Excess Profits Tax Act of 1940. Taxable Years Beginning in 1940 Sec. 720. (c) Computation if short-term capital gain.—If during the taxable year there has been a short-term capital gain with respect to an inadmissible asset, then so much of the amount attributable to such inadmissible asset under subsection (b) as bears the same ratio thereto as such gain bears to the sum of such gain plus the dividends and interest on such asset for such year, shall, for the purpose of determining the ratio of inadmissible assets to the total of admissible and inadmissible assets, be added to the total of admissible assets and subtracted from the total of inadmissible assets. Sec. 720. (d) Treatment of government obligations as admissible assets. If the excess profits credit for any taxable year is computed under section 714, the taxpayer may in its return for such year elect to increase its normal-tax net income for such taxable year by an amount equal to the amount of the interest on all obligations held during the taxable year which are described in section 22 (b) (4) any part of the interest from which is excludible from gross income or allowable as a credit against net income. In such case, for the purposes of this section, the term "admissible assets" includes such obligations, and the term "inadmissible assets" does not include such obligations. Sec. 720, I. R. C., supra, except language shown in underlined italics, added to I. R. C. by Sec. 201, Excess Profits Tax Act of 1940. Sec. 710 (a), I. R. C., makes amendment applicable to taxable years beginning after Dec. 31, 1939. Sec. 720 (a) (1) (A), I. R. C., supra, amended by Sec. 12 (a), Excess Profits Tax Amendments of 1941, by adding language shown in underlined italics. Sec. 17 of said Act makes amendment effective as of Oct. 8, 1940, date of enactment of Excess Profits Tax Act of 1940. Taxable Years Beginning in 1943 Sec. 721. Abnormalities in income in taxable period.26 Sec. 721. (a) Definitions.-For the purposes of this section Sec. 721. (a) (1) Abnormal income.-The term "abnormal income" means income of any class includible in the gross income of the taxpayer for any taxable year under this subchapter if it is abnormal for the taxpayer to derive income of such class, or, if the taxpayer normally derives income of such class but the amount of such income of such class includible in the gross income of the taxable year is in excess of 125 per centum of the average amount of the gross income of the same class for the four previous taxable years, or, if the taxpayer was not in existence for four previous taxable years, the taxable years during which the taxpayer was in existence. Taxable Years Beginning in 1942 Sec. 721. Abnormalities in income in taxable period.26 Sec. 721. (a) Definitions.-For the purposes of this section Sec. 721. (a) (1) Abnormal income.-The term "abnormal income" means income of any class includible in the gross income of the taxpayer for any taxable year under this subchapter if it is abnormal for the taxpayer to derive income of such class, or, if the taxpayer normally derives income of such class but the amount of such income of such class includible in the gross income of the taxable year is in excess of 125 per centum of the average amount of the gross income of the same class for the four previous taxable years, or, if the taxpayer was not in existence for four previous taxable years, the taxable years during which the taxpayer was in existence. Taxable Years Beginning in 1941 Sec. 721. Abnormalities in income in taxable period.26 Séc. 721. (a) Definitions.—For the purposes of this section Sec. 721. (a) (1) Abnormal income.-The term "abnormal income" means income of any class includible in the gross income of the taxpayer for any taxable year under this subchapter if it is abnormal for the taxpayer to derive income of such class, or, if the taxpayer normally derives income of such class but the amount of such income of such class includible in the gross income of the taxable year is in excess of 125 per centum of the average amount of the gross income of the same class for the four previous taxable years, or, if the taxpayer was not in existence for four previous taxable years, the taxable years during which the tazpayer was in existence. Separate Sec. 721. (a) (2) Separate Sec. 721. (a) (2) Separate Sec. 721. (a) (2) classes of income.-Each of the classes of income.-Each of the classes of income.-Each of the following subparagraphs shall be following subparagraphs shall be following subparagraphs shall be held to describe a separate class of held to describe a separate class of held to describe a separate class of income: income: income: (A) Income arising out of a claim, award, judgment, or decree, or interest on any of the foregoing; or (B) See note following Sec. 721 (f), I. R. C., infra. (C) Income resulting from exploration, discovery, prospecting, research, or development of tangible property, patents, formulae, or processes, or any combination of the foregoing, extending over a period of more than 12 months; or (D) Income includible in gross income for the taxable year rather (A) Income arising out of a claim, award, judgment, or decree, or interest on any of the foregoing; or (A) Income arising out of a claim, award, judgment, or decree, or interest on any of the foregoing; or (B) Income constituting an (B) Income constituting an amount payable under a contract amount payable under a contract the performance of which required the performance of which required more than 12 months; or more than 12 months; or See note following Sec. 721 (f), I. R. C., infra. (C) Income resulting from exploration, discovery, prospecting, research, or development of tangible property, patents, formulae, or processes, or any combination of the foregoing, extending over a period of more than 12 months; or (D) Income includible in gross income for the taxable year rather 26 Sec. 721, I. R. C., as originally enacted by Sec. 201, Excess Profits Tax Act of 1940, before being amended by Sec. 5, Excess Profits Tax Amendments of 1941, reads as follows: Sec. 721. Abnormalities in income in taxable period. If there is includible in the gross income of the taxpayer for any taxable year an item of income of any one or more of the following classes: (a) Arising out of a claim, award, judgment, or decree, or interest on any of the foregoing; or (b) Constituting an amount payable under a contract the performance of which required more than 12 months; or (C) Income resulting from ezploration, discovery, prospecting. research, or development of tangible property, patents, formulae, or processes, or any combination of the foregoing, extending over a period of more than 12 months; or (D) Income includible in gross income for the taxable year rather (c) Resulting from exploration, discovery, prospecting, research, or development of tangible property, patents, formulae, or processes, or any combination of the foregoing, extending over a period of more than 12 months; or (d) Includible in gross income for the taxable year rather than for a different taxable year by reason of a change in the taxpayer's accounting period or method of accounting; or (e) In the case of a lessor of real property, amounts included in gross income for the taxable year by reason of the termination of the lease; or (f) Dividends on stock of foreign corporations, except foreign personal holding companies; Taxable Years Beginning in 1940 Sec. 721. Abnormalities in income in taxable period.26 Sec. 721. (a) Definitions.-For the purposes of this section— come Sec. 721. (a) (1) Abnormal income.-The term "abnormal inmeans income of any class includible in the gross income of the taxpayer for any taxable year under this subchapter if it is abnormal for the taxpayer to derive income of such class, or, if the taxpayer normally derives income of such class but the amount of such income of such class includible in the gross income of the taxable year is in excess of 125 per centum of the average amount of the gross income of the same class for the four previous taxable years, or, if the taxpayer was not in existence for four previous taxable years, the taxable years during which the taxpayer was in existence. Sec. 721. (a) (2) Separate classes of income.-Each of the following subparagraphs shall be held to describe a separate class of income: (A) Income arising out of a claim, award, judgment, or decree, or interest on any of the foregoing; or (B). Income constituting an amount payable under a contract the performance of which required more than 12 months; or (C) Income resulting from exploration, discovery, prospecting, research, or development of tangible property, patents, formulae, or processes, or any combination of the foregoing, extending over a period of more than 12 months; or (D) Income includible in gross income for the taxable year rather and, in the light of the taxpayer's business, it is abnormal for the taxpayer to derive income of such class, or, if the taxpayer normally derives income of such class, the item includible in the gross income of the taxable year is grossly disproportionate to the gross income of the same class in the four previous taxable years, then: (1) the amount of such item attributable to any previous taxable year or years shall be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary; (2) the amount of such item attributable to any future taxable year or years shall be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary and shall, for the purposes of this subchapter, be included in the gross income for the future year or years to which attributable; and (3) the tax under this subchapter for the taxable year (in which the whole of such item would, without regard to this section, be includible) shall not exceed the sum of: (A) The tax under this subchapter for such taxable year computed without the inclusion in gross income of the portion of such item which is attributable to any other taxable year, and (B) The aggregate of the increase in the tax under this subchapter which would have resulted for each previous taxable year to which any portion of such item is attributable, computed as if an amount equal to such portion had been included in gross income for such previous taxable year. |