(g) GROSS INCOME FROM SOURCES WITHIN AND WITHOUT UNITED STATES. For computation of gross income from sources within and without the United States, see section 119. (h) FOREIGN PERSONAL HOLDING COMPANIES. For provisions relating to gross income of foreign personal holding companies and of their shareholders, see section 334. (i) CONSENT DIVIDENDS. For inclusion in gross income of amounts specified in shareholders' consents, see section 28. (j) INCOME FROM MORTGAGES MADE OR OBLIGATIONS ISSUED BY JOINT STOCK LAND BANKS. For taxable status of income derived from mortgages made or obligations issued by joint stock land banks, see section 3799. (k) ALIMONY, ETC., INCOME.-In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, periodic payments (whether or not made at regular intervals) received subsequent to such decree in discharge of, or attributable to property transferred (in trust or otherwise) in discharge of, a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce or separation shall be includible in the gross income of such wife, and such amounts received as are attributable to property so transferred shall not be includible in the gross income of such husband. This subsection shall not apply to that part of any such periodic payment which the terms of the decree or written instrument fix, in terms of an amount of money or a portion of the payment, as a sum which is payable for the support of minor children of such husband. In case any such periodic payment is less than the amount specified in the decree or written instrument, for the purpose of applying the preceding sentence, such payment, to the extent of such sum payable for such support, shall be considered a payment for such support. Installment payments discharging a part of an obligation the principal sum of which is, in terms of money or property, specified in the decree or instrument shall not be considered periodic payments for the purposes of this subsection; except that an installment payment shall be considered a periodic payment for the purposes of this subsection if such principal sum, by the terms of the decree or instrument, may be or is to be paid within a period ending more than 10 years from the date of such decree or instrument, but only to the extent that such installment payment for the taxable year of the wife (or if more than one such installment payment for such taxable year is received during such taxable year, the aggregate of such installment payments) does not exceed 10 per centum of such principal sum. For the purposes of the preceding sentence, the portion of a payment of the principal sum which is allocable to a period after the taxable year of the wife in which it is received shall be considered an installment payment for the taxable year in which it is received. (In cases where such periodic payments are attributable to property of an estate or property held in trust, see sections 171 (b).) [For definitions of "wife" and "husband," as used in subsection (k), see section 3797 (a) (17).] S (1) INCOME OF DECEDENTS. For inclusion in gross income of certain amounts which constituted gross income in respect of a decedent, see section 126. (m) SERVICES OF CHILD. (1) Amounts received in respect of the services of a child shall be included in his gross income and not in the gross income of the parent, even though such amounts are not received by the child. (2) All expenditures by the parent or the child attributable to amounts which are includible in the gross income of the child and not of the parent solely by reason of paragraph (1) shall be deemed to have been paid or incurred by the child. (3) For the purposes of this subsection, the term "parent" includes an individual who is entitled to the services of a child by reason of having parental rights and duties in respect of the child. (4) Any tax assessed against the child, to the extent attributable to amounts includible in the gross income of the child and not of the parent solely by reason of paragraph (1), shall, if not paid by the child, for all purposes be considered as having also been properly assessed against the parent. (n) DEFINITION OF "ADJUSTED GROSS INCOME".-As used in this chapter the term "adjusted gross income" means the gross income minus (1) TRADE AND BUSINESS DEDUCTIONS.-The deductions allowed by section 23 which are attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee; (2) EXPENSES OF TRAVEL AND LODGING IN CONNECTION WITH EMPLOYMENT.-The deductions allowed by section 23 which consist of expenses of travel, meals, and lodging while away from home, paid or incurred by the taxpayer in connection with the performance by him of services as an employee; (3) REIMBURSED EXPENSES IN CONNECTION WITH EMPLOYMENT. The deductions allowed by section 23 (other than expenses of travel, meals, and lodging while away from home) which consist of expenses paid or incurred by the taxpayer, in connection with the performance by him of services as an employee, under a reimbursement or other expense allowance arrangement with his employer; (4) DEDUCTIONS ATTRIBUTABLE TO RENTS AND ROYALTIES.The deductions (other than those provided in paragraph (1), (5), or (6)) allowed by section 23 which are attributable to property held for the production of rents or royalties; (5) CERTAIN DEDUCTIONS OF LIFE TENANTS AND INCOME BENEFICIARIES OF PROPERTY.-The deductions (other than those provided in paragraph (1)) for depreciation and depletion, allowed by section 23 (1) and (m) to a life tenant of property or to an income beneficiary of property held in trust; and (6) LOSSES FROM SALES OR EXCHANGE OF PROPERTY.-The deductions (other than those provided in paragraph (1)) allowed by section 23 as losses from the sale or exchange of property. SEC. 23. DEDUCTIONS FROM GROSS INCOME. In computing net income there shall be allowed as deductions: (a) EXPENSES. (1) TRADE OR BUSINESS EXPENSES. (A) In General.-All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. (2) NON-TRADE OR NON-BUSINESS EXPENSES.-In the case of an individual, all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income. [For nondeductibility of amounts allocable to wholly tax-exempt interest, see section 24 (a) (5). For nondeductibility of expenses in certain cases, see section 24 (c). For limit on expense deductions in respect of foreign personal holding companies, see section 336 (b) (2).] (b) INTEREST.-All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from the taxes imposed by this chapter. [For nondeductibility of interest in certain cases, see section 24 (c). (c) TAXES GENERALLY. (1) ALLOWANCE IN GENERAL.-Taxes paid or accrued within the taxable year, except (A) Federal income taxes; (B) war-profits and excess-profits taxes imposed by Title II of the Revenue Act of 1917 * * * or by any such provisions as amended or supplemented; (C) income, war-profits, and excess-profits taxes imposed by the authority of any foreign country or possession of the United States, if the taxpayer chooses to take to any extent the benefits of section 131; (D) estate, inheritance, legacy, succession, and gift taxes; (E) taxes assessed against local bencfits of a kind tending to increase the value of the property assessed; but this paragraph shall not exclude the allowance as a deduction of so much of such taxes as is properly allocable to maintenance or interest charges; and (F) Federal import duties, and Federal excise and stamp taxes (not described in subparagraph (A), (B), (D), or (E)), but this subsection shall not prevent such duties and taxes from being deducted under subsection (a). (3) RETAIL SALES TAX.-In the case of a tax imposed by any State, Territory, District, or possession of the United States, or any political subdivision thereof, upon persons engaged in selling tangible personal property at retail, which is measured by the gross sales price or the gross receipts from the sale or which is a stated sum per unit of such property sold, or upon persons engaged in furnishing services at retail, which is measured by the gross receipts for furnishing such services, if the amount of such tax is separately stated, then to the extent that the amount so stated is paid by the purchaser (otherwise than in connection with the purchaser's trade or business) to such person such amount shall be allowed as a deduction in computing the net income of such purchaser as if such amount constituted a tax imposed upon and paid by such purchaser. [For deductions in respect of a decedent, see section 126 (b).] (d) TAXES Of ShareholdER PAID BY CORPORATION.-The deduction for taxes allowed by subsection (c) shall be allowed to a corporation in the case of taxes imposed upon a shareholder of the corporation upon his interest as shareholder which are paid by the corporation without reimbursement from the shareholder, but in such cases no deduction shall be allowed the shareholder for the amount of such taxes. [For nondeductibility of taxes in respect of foreign personal holding companies, see section 336 (b) (1).] (e) LOSSES BY INDIVIDUALS.-In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise (1) if incurred in trade or business; or (2) if incurred in any transaction entered into for profit, though not connected with the trade or business; or [For nondeductibility of losses from wash sales, see section 118 (a). For deductibility of losses of nonresident aliens, see section 213 (b) (1).] (3) of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft. No loss shall be allowed as a deduction under this graph if at the time of the filing of the return such loss has been claimed as a deduction for estate tax purposes in the estate tax return. para [For deductibility of losses of nonresident aliens, see section 213 (b) (2).] (g) CAPITAL LOSSES. (1) LIMITATION.-Losses from sales or exchanges of capital assets shall be allowed only to the extent provided in section 117. (2) SECURITIES BECOMING WORTHLESS.-If any securities (as defined in paragraph (3) of this subsection) become worthless during the taxable year and are capital assets, the loss resulting therefrom shall, for the purposes of this chapter, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. [For interests in or with respect to destroyed or seized property, see section 127 (a) (3).] (3) DEFINITION OF SECURITIES.-As used in paragraph (2) of " this subsection the term "securities" means (A) shares of stock in a corporation, and (B) rights to subscribe for or to receive such shares, (h) WAGERING LOSSES.-Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. (i) BASIS FOR DETERMINING Loss.-The basis for determining the amount of deduction for losses sustained, to be allowed under subsection (e) *, and for bad debts, to be allowed under subsection (k), shall be the adjusted basis provided in section 113 (b) for determining the loss from the sale or other disposition of property. (j) Loss ON WASH SALES OF STOCK OR SECURITIES.— * * For disallowance of loss deduction in the case of sales of stock or securities where within thirty days before or after the date of the sale the taxpayer has acquired substantially identical property, see section 118. (k) BAD DEBTS.— * * (1) GENERAL RULE.-Debts which become worthless within the taxable year; or (in the discretion of the Commissioner) a reasonable addition to a reserve for bad debts; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction. This paragraph shall not apply with respect to a debt evidenced by a security as defined in paragraph (3) of this subsection. This paragraph shall not apply with respect to a nonbusiness debt, as defined in paragraph (4) of this subsection. (2) SECURITIES BECOMING WORTHLESS.-If any securities (as defined in paragraph (3) of this subsection) become worthless within the taxable year and are capital assets, the loss resulting therefrom shall, * * for the purposes of this chapter, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. * * * * [For interests in or with respect to destroyed or seized property, seesection 127 (a) (3).] (3) DEFINITION OF SECURITIES.-As used in paragraphs (1), (2), and (4) of this subsection the term "securities" means bonds, debentures, notes, or certificates, or other evidences of indebtedness, issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form. (4) NON-BUSINESS DEBTS. * if a non-business debt. becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 6 months. The term "non-business debt" means a debt other than a debt evidenced by a security as defined in paragraph (3) and other than a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business. The Revenue Act of 1942 (56 Stat. 820, § 123 (a) (2)) inserts "paragraph (2) of" before "subsection". |