Taxable Years
Beginning in 1943

(A) in the case of any such corporation to which paragraph (2) is not applicable, the daily invested capital of such corporation for the first day of its first taxable year under this subchapter beginning in 1940 over

(B) an amount equal to the same percentage of such daily invested capital as would be applicable under section 720 in reduction of the average invested capital of such corporation for the last taxable year beginning in 1939 if such section had been applicable to such year (computed as if the admissible and inadmissible assets of any other such corporation with respect to which it became, in such taxable year, an acquiring corporation, had been held by it).

Taxable Years
Beginning in 1942

(A) in the case of any such corporation to which paragraph (2) is not applicable, the daily invested capital of such corporation for the first day of its first taxable year under this subchapter beginning in 1940 over

(B) an amount equal to the same percentage of such daily invested capital as would be applicable under section 720 in reduction of the average invested capital of such corporation for the last taxable year beginning in 1939 if such section had been applicable to such year (computed as if the admissible and inadmissible assets of any other such corporation with respect to which it became, in such taxable year, an acquiring corporation, had been held by it).

Sec. 742. (e) (2) In case the Sec. 742. (e) (2) In case the transaction by which a corporation transaction by which a corporation became a component corporation of became a component corporation of its acquiring corporation occurred its acquiring corporation occurred in the last taxable year of such com- in the last taxable year of such component corporation beginning in ponent corporation beginning in 1939 but on a day in a taxable year 1939 but on a day in a taxable year of such acquiring corporation be- of such acquiring corporation beginning in 1940, the excess profits ginning in 1940, the excess profits net income of such component cor- net income of such component corporation for each base period year poration for each base period year described in paragraph (1) shall be described in paragraph (1) shall be an amount equal to 8 per centum an amount equal to 8 per centum of the excess ofof the excess of

(A) the daily invested capital of such component corporation for such day, over

(A) the daily invested capital of such component corporation for such day, over

(B) an amount equal to the same (B) an amount equal to the same percentage of such daily invested percentage of such daily invested capital as would be applicable under capital as would be applicable under section 720 in reduction of the section 720 in reduction of the average invested capital of such average invested capital of such comcomponent corporation for the ponent corporation for the twelvetwelve-month period ending with month period ending with the prethe preceding day if such twelvemonth period constituted a taxable year and such section had been applicable to such taxable year.

ceding day if such twelve-month
period constituted a taxable year
and such section had been appli-
cable to such taxable year.

Taxable Years
Beginning in 1941

Sec. 742. (e) (3) In case any Sec. 742. (e) (3) In case any Sec. 742. (e) (1) There shall be corporation described in paragraph corporation described in paragraph excluded, in the various computa(1) owned stock in any other such (1) owned stock in any other such tions, any dividends paid by the corporation on the first day of such corporation on the first day of such taxpayer or any of its qualified owning corporation's first taxable owning corporation's first taxable component corporations during any year under this subchapter begin-year under this subchapter begin- of the taxable years of the payor ning in 1940, the amounts computed ning in 1940, the amounts computed which are included in the computaunder subparagraphs (A) and (B) under subparagraphs (A) and (B) tion of the taxpayer's average base of paragraphs (1) and (2) with of paragraphs (1) and (2) with period net income. If the payor respect to such corporations shall respect to such corporations shall corporation is a corporation debe adjusted, under regulations pre- be adjusted, under regulations pre- scribed in subsection (f) (1) or (2) scribed by the Commissioner with scribed by the Commissioner with of this section, the dividends to be the approval of the Secretary, to the approval of the Secretary, to excluded under this paragraph such extent as may be necessary to such extent as may be necessary to shall be only such as are paid after

Taxable Years
Beginning in 1943

prevent the excess profits net income of such corporations for the base period years described in paragraph (1) from reflecting money or property having been paid in by either of such corporations to the other for stock or as paid-in surplus or as a contribution to capital, or from reflecting stock of either having been paid in for stock of the other or as paid-in surplus or as a contribution to capital. For the purposes of this paragraph, stock in either such corporation which has in the hands of the other corporation a basis determined with reference to the basis of stock previously acquired by the issuance of such other corporation's own stock shall be deemed to have been paid in for the stock of such other corporation.

prevent the excess profits net income such payor corporation first became
of such corporations for the base an acquiring corporation; and
period years described in paragraph
(1) from reflecting money or prop-
erty having been paid in by either
of such corporations to the other
for stock or as paid-in surplus or as
a contribution to capital, or from
reflecting stock of either having
been paid in for stock of the other
or as paid-in surplus or as a contri-
bution to capital. For the purposes
of this paragraph, stock in either
such corporation which has in the
hands of the other corporation a
basis determined with reference to
the basis of stock previously ac-
quired by the issuance of such other
corporation's own stock shall be
deemed to have been paid in for
the stock of such other corporation.

Sec. 742. (e) (4) In determining Sec. 742. (e) (4) In determining Sec. 742. (e) (2) In determining whether, for any taxable year, the whether, for any taxable year, the whether, for any taxable year, the deductions plus the credit for divi- deductions plus the credit for divi- deductions plus the credit for dividends received and the credit pro- dends received and the credit pro- dends received exceeded the gross vided in section 26 (a) (relating to vided in section 26 (a) (relating to income, and in determining the interest on certain obligations of interest on certain obligations of amount of such excess, the adjustthe United States and its instru- the United States and its instruments provided in section 711 (b) mentalities) exceeded the gross in- mentalities) exceeded the gross in- (1) shall be made. come, and in determining the come, and in determining the amount of such excess, the adjust-amount of such excess, the adjustments provided in section 711 (b) ments provided in section 711 (b) (1) shall be made. (1) shall be made.

Sec. 742. (f) (1) If, after December 31, 1935

Sec. 742. (f) (1) If, after December 31, 1935

Sec. 742. (f) (1) In the case of a taxpayer which is an acquiring corporation and which was not actually in existence on the date of the beginning of its base period, there shall be excluded from the various computations under subsec(B) a corporation (hereinafter (B) a corporation (hereinafter tion (a) (1) of this section the porcalled "first corporation") acquired called "first corporation") acquired tion of its excess profits net income, stock in another corporation (here- stock in another corporation (here- or of the excess over gross income inafter called "second corpora- inafter called "second corpora- therein referred to, which is attribtion"), and thereafter the first and tion"), and thereafter the first and utable to any period before it first second corporations became com- second corporations became com- became an acquiring corporation. ponent corporations of the tax-ponent corporations of the taxpayer, payer,

(A) the taxpayer acquired stock (A) the taxpayer acquired stock in another corporation, and there- in another corporation, and thereafter such other corporation became after such other corporation became a component corporation of the tax-a component corporation of the taxpayer, or payer, or

Sec. 742. (f) (2) In the case of a component corporation which bethen to the extent that the consid- then to the extent that the consid-came a qualified component corpoeration for such acquisition was not eration for such acquisition was not ration only by reason of section the issuance of the taxpayer's or the issuance of the taxpayer's or 740 (f), there shall be excluded first corporation's, as the case may first corporation's, as the case may from the various computations unbe, own stock, the Supplement Abe, own stock, the Supplement A der subsection (a) (2) of this average base period net income of average base period net income of section the portion of its excess the taxpayer shall be reduced, and the taxpayer shall be reduced, and profits net income, or of the excess the transferred capital addition and the transferred capital addition and over gross income therein referred reduction adjusted, in respect of the reduction adjusted, in respect of the to, which is attributable to any peincome and capital addition and income and capital addition and riod before it first became an acreduction of the corporation whose reduction of the corporation whose quiring corporation. stock was so acquired and in respect stock was so acquired and in respect of the income and capital addition of the income and capital addition and reduction of any other corpora- and reduction of any other corpora-qualified component corporation

Sec. 742. (f) (3) In the case of a