to them by section 2 of the Public Utility Holding Company Act of 1935, 49 Stat. 804 (U. S. C., Title 15, § 79b (a)'). (c) The term "majority-owned subsidiary company" of a registered holding company means a corporation, stock of which, representing in the aggregate more than 50 per centum of the total combined voting power of all classes of stock of such corporation entitled to vote (not including stock which is entitled to vote only upon default or nonpayment of dividends or other special circumstances, is owned wholly by such registered holding company, or partly by such registered holding company and partly by one or more majorityowned subsidiary companies thereof, or by one or more majorityowned subsidiary companies of such registered holding company. (e) The term "nonexempt property" means (1) Any consideration in the form of evidences of indebtedness owed by the transferor or a cancellation or assumption of debts or other liabilities of the transferor (including a continuance of encumbrances subject to which the property was transferred); (2) Short-term obligations (including notes, drafts, bills of exchange, and bankers' acceptances) having a maturity at the time of issuance of not exceeding twenty-four months, exclusive of days of grace; (3) Securities issued or guaranteed as to principal or interest by a government or subdivision thereof (including those issued by a corporation which is an instrumentality of a government or subdivision thereof); (4) Stock or securities which were acquired from a registered holding company or an associate company of a registered holding company which acquired such stock or securities after February 28, 1938, unless such stock or securities (other than obligations described as nonexempt property in paragraph (1), (2), or (3)) were acquired in obedience to an order of the Securities and Exchange Commission or were acquired with the authorization or approval of the Securities and Exchange Commission under any section of the Public Utility Holding Company Act of 1935, 49 Stat. 820 (U. S. C., Title 15, sec. 79k (b)); (5) Money, and the right to receive money not evidenced by a security other than an obligation described as nonexempt property in paragraph (2) or (3). (f) The term “stock or securities" means shares of stock in any corporation, certificates of stock or interest in any corporation, notes, bonds, debentures, and evidences of indebtedness (including any evidence of an interest in or right to subscribe to or purchase any of the foregoing). Supplement S-Tax of Shareholders of Personal Service Corporations SEC. 391. APPLICABILITY OF SUPPLEMENT. If a personal service corporation (as defined in section 725) is exempt under such section for any taxable year from the excess profits 1 The statute reads "Supp. III, Title 15, § 79 (b), (c)." tax imposed by such subchapter, the provisions of this Supplement shall be applicable with respect to each shareholder of such corporation who was a shareholder in such corporation on the last day of such taxable year of the corporation. SEC. 392. UNDISTRIBUTED SUPPLEMENT S NET INCOME. For the purposes of this chapter, the term "undistributed Supplement S net income" means the Supplement S net income (as defined in section 393) minus the amount of the dividends paid during the taxable year. For the purposes of this section the amount of dividends paid shall be computed in the same manner as provided in subsections (d), (e), (f), (g), (h), and (i) of section 27 for the purpose of the basic surtax credit provided in section 27. SEC. 393. SUPPLEMENT S NET INCOME. For the purposes of this chapter "Supplement S net income" means the net income, except that there shall be allowed as additional deductions (a) The Federal income tax payable under this chapter for the taxable year; and (b) In lieu of the deduction allowed by section 23 (q), contributions or gifts, payment of which is made within the taxable year, to or for the use of donees described in section 23 (q) for the purposes therein specified, to an amount which does not exceed 15 per centum of the corporation's net income, computed without the benefit of this subsection and section 23 (q). For the purposes of this section, the net income shall be computed without regard to section 47 (c). SEC. 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 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. (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, * * * 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. * * * 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). SEC. 395. NONRESIDENT ALIEN INDIVIDUALS * * In the case of a shareholder taxable under section 211 (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. SEC. 396. SHAREHOLDER'S TAX PAID BY CORPORATION. * * If a personal service corporation is exempt for any taxable year under section 725 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) * 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. Supplement T-Individuals with Adjusted Gross Income of Less than $5,000 SEC. 400. IMPOSITION OF TAX. In lieu of the taxes imposed by sections 11 and 12, there shall be levied, collected, and paid for each taxable year upon the net income of each individual whose adjusted gross income for such year is less than $5,000, and who has elected to pay the tax imposed by this supplement for such year, the tax shown in the following table: 1,225 1,250 141 20 41 46 119 $0 0 9 10 10 11 11 $0 $2.300 $2. 325 2,325 2, 350 $364 $264 $164 269 169 374 271 174 310 210 315 38 38 4,450 39 39 4,500 39 39 4,550 107 40 40 4,600 2,050 2,075 312 212 112 41 41 4. 650 2,075 2, 100 317 217 117 41 41 4,700 4, 750 2,100 2. 125 322 222 122 42 42 4,750 4. 800 2,125 2, 150 327 227 127 43 43 4,800 4,850 2,150 2, 175 333 233 133 43 43 4.850 4,900 932 822 712 602 494 394 2,175 2. 200 338 238 138 44 44 4,900 4,950 943 833 723 613 504 404 304 204 118 2,200 2,225 343 243 143 45 45 4,950 5,000 954 844 734 624 515 2,225 2.250 348 248 148 48 45 2,250 2.275 353 253 153 53 46 2,275 2,300 359 259 159 59 47 3,300 572 463 363 263 163 73 75 84 94 104 115 80 80 125 135 83 146 156 166 177 187 90 90 197 208 108 218 118 94 229 239 249 260 $47 48 49 49 49 50 51 51 52 53 54 54 55 56 56 57 58 58 59 60 60 Normal tax exemption in case of husband and wife: If the return includes gross income of both husband and wife, the tax shall be that determined under the table, reduced by 3 per centum of the smaller adjusted gross income, but not by more than $15.00. [For doubling of tax on citizens of certain countries, see section 103.] SEC. 401. DEFINITION OF "SURTAX EXEMPTION”. As used in the table in section 400, the term "number of surtax exemptions" means the number of the exemptions allowed under section 25 (b) as credits against net income for the purpose of the surtax imposed by section 12. SEC. 402. MANNER AND EFFECT OF ELECTION. The election referred to in section 400 shall be exercised in the manner provided in regulations prescribed by the Commissioner with the approval of the Secretary. For cases in which election to take the standard deduction also constitutes an election to pay the tax imposed by this supplement, see section 23 (aa) (3) (D). For cases in which election to file a return without showing tax thereon constitutes an election to pay the tax imposed by this supplement, see section 51 (f). SEC. 403. CREDITS NOT ALLOWED. For credits against tax and against net income not allowed, in the case of a taxpayer who elects to pay the tax imposed by this supplement, because of the fact that such election constitutes an election to take the standard deduction, see section 23 (aa). SEC. 404. CERTAIN TAXPAYERS INELIGIBLE. This supplement shall not apply to a nonresident alien individual, to a citizen of the United States entitled to the benefits of section 251, to an estate or trust, or to an individual making a return for a period of less than twelve months on account of a change in the accounting period. For provisions making both husband and wife ineligible to elect to pay the tax imposed by this supplement if either does not elect to take the standard deduction, see section 23 (aa) (4). Supplement U-Abatement of Tax for Members of Armed Forces Upon Death SEC. 421. ABATEMENT OF TAX FOR MEMBERS OF ARMED FORCES UPON DEATH. * * * * * * In the case of any individual who dies while in active service as a member of the military or naval forces of the United States or of any of the other United Nations prior to the termination of the present war as proclaimed by the President, the tax imposed by this chapter shall not apply with respect to the taxable year in which falls the date of his death, and the tax under this chapter * * * for preceding taxable years which is unpaid at the date of his death (including interest, additions to the tax, and additional amounts) shall not be assessed, and if assessed the assessment shall be abated, and if collected shall be credited or refunded as an overpayment. [For other provisions of special application to members of the armed forces, see section 22 (b) (13); also section 3804 and the note thereto.] [Subchapter D of Chapter 2 (sections 700-706) provides for a tax on unjust enrichment, which relates primarily to the processing taxes under the Agricultural Adjustment Act, held unconstitutional in 1936. These provisions have been omitted from this document on account of the small number of cases, affecting individual taxpayers, likely to arise thereunder during taxable years beginning in 1944 or later. See also section 128.] |