f the basic surtax credit provided in section 27. Added Oct. 8, 1940, 11 p. m., E. S. T., ch. 757, title V, 502, 54 Stat. 1005.)

393. Supplement S net income.

For the purposes of this chapter "Supplement S et income” means the net income, except that there hall be allowed as additional deductions

(a) The Federal income tax payable under this hapter for the taxable year; and

(b) In lieu of the deduction allowed by section 3 (q), contributions or gifts, payment of which is nade within the taxable year, to or for the use of onees described in section 23 (q) for the purposes herein specified, to an amount which does not exeed 15 per centum of the corporation's net income, omputed without the benefit of this subsection and ection 23 (q).

For the purposes of this section, the net income hall be computed without regard to section 47 (c). Added Oct. 8, 1940, 11 p. m., E. S. T., ch. 757, title V, 502, 54 Stat. 1005, amended Oct. 21, 1942, 4:30 p. m., C. W. T., ch. 619, title I, § 135 (b) (3), 56 Stat. 835.) AMENDMENTS

1942-Act Oct. 21, 1942, amended section by adding last paragraph.

EFFECTIVE DATE OF 1942 AMENDMENT Section 101 of act Oct. 21, 1942, made amendment of ection applicable to taxable years beginning after Dec. #1, 1941.

TREATY OBLIGATIONS

Section 109 of act Oct. 21, 1942, provided as follows: No amendment made by this title shall apply in any case where its application would be contrary to any treaty obligation of the United States."

394. Corporation income taxed to shareholders— (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. b) Amount included in gross income.

Each shareholder who, on the last day of the taxble year of the corporation, was a shareholder in Euch 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 mount he would have received as a dividend if on uch last day there had been distributed by the Corporation, and received by the shareholders, an mount equal to the undistributed Supplement S net ncome of the corporation for its taxable year.

(c) Credit for obligations of the United States and its instrumentalities.

Each such shareholder shall be allowed a credit gainst net income, for the purposes of the tax imDosed by sections 11, 13, 14, 201, 204, 207, or 362, of is proportionate share of the interest specified in section 25 (a) (1) or (2) which is included in the gross income of the corporation. For any taxable year of the corporation beginning after December 31, 1941, each such shareholder's proportionate share of such interest received by the corporation shall be his proportionate share of 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.

(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 paid-in 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.

(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; but 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.

(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). (Added Oct. 8, 1940, 11 p. m., E. S. T., ch. 757, title V, § 502, 54 Stat. 1005, amended Oct. 21, 1942, 4:30 p. m., E. W. T., ch. 619, title I, § 126 (h), 56 Stat. 825.)

AMENDMENTS 1942-Subsec. (c) amended by act Oct. 21, 1942, which inserted new sentence at end thereof.

EFFECTIVE DATE OF 1942 AMENDMENT Section 101 of act Oct. 21, 1942, made amendment of section applicable to taxable years beginning after Dec. 31, 1941.

TREATY OBLIGATIONS

Section 109 of act Oct. 21, 1942, provided as follows: "No amendment made by this title shall apply in any case where its application would be contrary to any treaty obligation of the United States."

§ 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 shall be considered as a dividend received by him from sources within the United States. (Added Oct. 8, 1940, 11 p. m., E. S. T., ch. 757, title V, § 502, 54 Stat. 1005.)

§ 396. Shareholder's tax paid by corporation.

If a personal service corporation is exempt for any taxable year under section 449 from excess profits

tax, it shall, at the time of filing its return, pay to the collector an amount equal to the amount that would be required by section 143 (b) or section 144 to be deducted and withheld by the corporation if any amount required by this Supplement to be included in the gross income of the shareholder had been, on the last day of the taxable year of the corporation, paid to the shareholder in cash as a dividend. Such amount shall be collected and paid in the same manner as the amount of tax due in excess of that shown by the taxpayer upon a return in the case of a mathematical error appearing on the face of the return. (Added Oct. 8, 1940, 11 p. m., E. S. T., ch. 757, title V, § 502, 54 Stat. 1005, amended Jan. 3, 1951, 10:13 a. m., ch. 1199, title III, § 304 (f), 64 Stat. 1220.)

AMENDMENTS 1951-Act Jan. 3, 1951, amended section by substituting "449" for "725".

EFFECTIVE DATE OF 1951 AMENDMENT Amendment of section by act Jan. 3, 1951, as applicable with respect to taxable years ending after June 30, 1950, see note set out under section 114 of this title.

ABOLITION OF EXISTING OFFICES AND CREATION OF NEW OFFICES

The office of Collector, provided for in section 3941 of this title, was abolished, effective at such time as the Secretary of the Treasury shall specify but in no event later than Dec. 1, 1952, and the winding up of the affairs of said officer was made subject to such provisions as said Secretary deems necessary, by 1952 Reorg. Plan No. 1, § 1, eff. Mar. 14, 1952, 17 F. R. 2243, 66 Stat. 823, set out as a note under section 3905 of this title; and the offices of "district commissioner of internal revenue", not exceeding twenty-five, and so many other offices, with titles

to be determined by the Secretary of Treausry, not e ceeding seventy, were established by section 2 (a) of se Plan.

TRANSFER OF FUNCTIONS

All functions of all officers of the Department of t Treasury, and all functions of all agencies and employ of such Department, were transferred, with certain ceptions, to the Secretary of the Treasury, with po vested in him to authorize their performance or the p formance of any of his functions, by any of such offic agencies, and employees, by 1950 Reorg. Plan No. 26, § 2, eff. July 31, 1950, 15 F. R. 4935, 64 Stat. 1280, set out note under section 241 of Title 5, Executive Departme and Government Officers and Employees. The collec referred to in the text, is an officer of the Treasury partment.

SUPPLEMENT T.-INDIVIDUALS WITH ADJUSTED GE INCOME OF LESS THAN $5,000

Act May 29, 1944, 7 p. m., E. W. T., ch. 210, par § 5 (a), 58 Stat. 232, amended "Supplement T" by st ing "-Individuals With Gross Income From Cer Sources Of $3000 Or Less" and inserting in lieu the "Individuals With Adjusted Gross Income of Less $5000".

Supplement T added to Internal Revenue Code by Sept. 20, 1941, 12:15 p. m., E. S. T., ch. 412, title I, § 102 55 Stat. 689.

§ 400. Imposition of tax.

In lieu of the taxes imposed by sections 11 an there shall be levied, collected, and paid for taxable year upon the net income of each indivi whose adjusted gross income for such year is than $5,000, and who has elected to pay the tax posed by this supplement for such year, a ta follows:

Table II

If adjusted gross income is

0

D

0

975

1,000

64

2,650 2,675

399

399

266

266

266

132

132 132

0

1,000

1,025

69

2,675

2,700

2,700 2,725

(Added Sept. 20, 1941, 12:15 p. m., E. S. T., ch. 412, title I, § 102 (a), 55 Stat. 689, amended Oct. 21, 1942, 4:30 p. m., E. W. T., ch. 619, title I, § 104 (a), 56 Stat. 803; Feb. 25, 1944, 12:49 p. m., E. W. T., ch. 63, title I, § 102 (a), 58 Stat. 26; May 29, 1944, 7 p. m., E. W. T., ch. 210, part I, § 5 (a), 58 Stat. 232; June 30, 1944, ch. 332, § 2 (a), 58 Stat. 647; Nov. 8, 1945, 5:17 p. m., E. S. T., ch. 453, title I, § 103 (a), 59 Stat. 560; Apr. 2, 1948, 3:18 p. m., E. S. T., ch. 168, title 24626-53-vol. 316

IV, § 401 (a), 62 Stat. 128; Sept. 23, 1950, 3:15 p. m., E. D. T., ch. 994, title I, pt. I, § 102, 64 Stat. 911; Oct. 20, 1951, 2:07 p. m., E. S. T., ch. 521, title I, § 102, 65 Stat. 461.)

AMENDMENTS

1951-Act Oct. 20, 1951, amended section to provide new tables reflecting the tax increase.

1950-Act Sept. 23, 1950, amended section to provide new tables to reflect the increased tax rates.