estate or trust but not allowed under the laws of such State, Territory, District of Columbia, possession of the United States, or foreign country for the purpose of computing the income to which such holder is entitled. (e) TAX WITHHELD ON TAX-FREE COVENAnt Bonds.— For nondeductibility of tax withheld on tax-free covenant bonds, see section 143 (a) (3). SEC. 25. CREDITS OF INDIVIDUAL AGAINST NET INCOME. (a) CREDITS FOR NORMAL TAX ONLY.-There shall be allowed for. the purpose of the normal tax, but not for the surtax, the following credits against the net income: (1) INTEREST ON UNITED STATES OBLIGATIONS.-The amount received as interest upon obligations of the United States, if such interest is included in gross income under section 22, and if, under the Act authorizing the issue of such obligations, as amended and supplemented, such interest is exempt from normal tax. (2) INTEREST ON OBLIGATIONS OF INSTRUMENTALITIES OF THE UNITED STATES.-The amount received as interest on obligations of a corporation organized under Act of Congress, if (A) such corporation is an instrumentality of the United States; and (B) such interest is included in gross income under section 22; and (C) under the Act authorizing the issue thereof, as amended and supplemented, such interest is exempt from normal tax. (For reduction of credit under paragraph (1) or (2) on account of amortizable bond premium, see section 125.) (3) NORMAL TAX EXEMPTION.-A normal tax exemption of $500. In the case of a joint return by husband and wife under section 51, the normal tax exemption shall be $1,000, except that if the adjusted gross income of one spouse is less than $500, the normal tax exemption shall be $500 plus the adjusted gross income of such spouse. [For normal tax exemptions of estates and trusts, see section 163 (a) (1). For credits of partners, see section 184.] (b) CREDITS FOR SURTAX ONLY. (1) CREDITS.-There shall be allowed for the purpose of the surtax, but not for the normal tax, the following credits against net income: (A) A surtax exemption of $500 for the taxpayer; [For surtax exemptions of estates and trusts, see section 163 (a) (1).] (B) A surtax exemption of $500 for the spouse of the taxpayer if (i) a joint return is made by the taxpayer and his spouse under section 51, in which case the surtax exemption of the spouses under subparagraph (A) and this subparagraph shall be only $1,000 in the aggregate, or (ii) a separate return is made by the taxpayer, and spouse has no gross income for the calendar year in his which the taxable year of the taxpayer begins and is not the dependent of another taxpayer; [For surtax exemptions of nonresident aliens, see section 214. For disallowance of surtax exemptions to citizens deriving income mainly from sources within possessions of the United States, see section 251 (f).] (C) A surtax exemption of $500 for each dependent whose gross income for the calendar year in which the taxable year of the taxpayer begins is less than $500, except that if such dependent is married the exemption in respect of such dependent shall not be allowed if such dependent has made a joint return with the other spouse under section 51 for a taxable year beginning in such calendar year. [For surtax exemptions of nonresident aliens, see section 214. For disallowance of surtax exemptions to citizens deriving income mainly from sources within possessions of the United States, see section 251 (f).] (2) DETERMINATION OF STATUS.-The determination of whether an individual is married shall be made as of the last day of the taxable year, unless his spouse dies during the taxable year, in which case such determination shall be made as of the date of his spouse's death. (3) DEFINITION of dependent.-As used in this chapter the term "dependent" means any of the following persons over half of whose support, for the calendar year in which the taxable year of the taxpayer begins, was received from the taxpayer: (A) a son or daughter of the taxpayer, or a descendant of either, (B) a stepson or stepdaughter of the taxpayer, (C) a brother, sister, stepbrother, or stepsister of the taxpayer, (D) the father or mother of the taxpayer, or an ancestor of either, (E) a stepfather or stepmother of the taxpayer, (F) a son or daughter of a brother or sister of the taxpayer, (G) a brother or sister of the father or mother of the taxpayer, (H) a son-in-law, daughter-in-law, father-in-law, motherin-law, brother-in-law, or sister-in-law of the taxpayer. As used in this paragraph, the terms "brother" and "sister" include a brother or sister by the half-blood. For the purposes of determining whether any of the foregoing relationships exist, a legally adopted child of a person shall be considered a child of such person by blood. The term "dependent" does not include any individual who is a citizen or subject of a foreign country unless such individual is a resident of the United States or of a country. contiguous to the United States. A payment to a wife which is includible under section 22 (k) or section 171 in the gross income of such wife shall not be considered a payment by her husband for the support of any dependent. [For definitions of "wife" and "husband," as used in paragraph (b) (3), see section 3797 (a) (17).] SEC. 28. CONSENT DIVIDENDS CREDIT. (a) DEFINITIONS.-As used in this section (1) CONSENT STOCK.-The term "consent stock" means the class or classes of stock entitled, after the payment of preferred dividends (as defined in paragraph (2)), to a share in the distribution (other than in complete or partial liquidation) within the taxable year of all the remaining earnings or profits, which share constitutes the same proportion of such distribution regardless of the amount of such distribution. (2) PREFERRED DIVIDENDS. The term "preferred dividends" means a distribution (other than in complete or partial liquidation), limited in amount, which must be made on any class of stock before a further distribution (other than in complete or partial liquidation) of earnings or profits may be made within the taxable year. (3) CONSENT DIVIDENDS DAY.-The term "consent dividends day" means the last day of the taxable year of the corporation, unless during the last month of such year there have occurred one or more days on which was payable a partial distribution (as defined in paragraph (5)), in which case it means the last of such days. (4) CONSENT DISTRIBUTION.-The term "consent distribution" means the distribution which would have been made if on the consent dividends day (as defined in paragraph (3)) there had actually been distributed in cash and received by each shareholder making a consent filed by the corporation under subsection (d), the specific amount stated in such consent. (5) PARTIAL DISTRIBUTION.-The term "partial distribution" means such part of an actual distribution, payable during the last month of the taxable year of the corporation, as constitutes a distribution on the whole or any part of the consent stock (as defined in paragraph (1)), which part of the distribution, if considered by itself and not in connection with a consent distribution (as defined in paragraph (4)), would be a preferential distribution, as defined in paragraph (6). (6) PREFERENTIAL DISTRIBUTION.-The term "preferential distribution” means a distribution which is not pro rata, or which is with preference to any share of stock as compared with other shares of the same class, or to any class of consent stock as compared with any other class of consent stock. (d) SHAREHOLDERS' CONSENTS.-The corporation shall not be entitled to a consent dividends credit with respect to any taxable year (1) Unless it files (in accordance with regulations prescribed by the Commissioner with the approval of the Secretary) with its return for such year, or within one year after the date of enactment of the Revenue Act of 1942, in the case of a corporation which is a personal holding company for the taxable year with respect to which it claims the benefits of this section, signed consents made under oath by persons who were shareholders, on the last day of the taxable year, of the corporation, of any class of consent stock; and [The Revenue Act of 1942 was enacted October 21, 1942.] (2) Unless in each such consent the shareholder agrees that he will include as a taxable dividend, in his return for the taxable year in which or with which the taxable year of the corporation ends, a specific amount; and (3) Unless the consents filed are made by such of the shareholders and the amount specified in each consent is such that the consent distribution would not have been a preferential distribution and (A) If there was no partial distribution during the last month of the taxable year of the corporation, or (B) If there was such a partial distribution, then when considered in connection with such partial distribution; (4) Unless in each consent made by a shareholder who is taxable with respect to a dividend only if received from sources within the United States, such shareholder agrees that the specific amount stated in the consent shall be considered as a dividend received by him from sources within the United States; and (5) Unless each consent filed is accompanied by cash, or such other medium of payment as the Commissioner may by regulations authorize, in an amount equal to the amount that would be required by section 143 (b) or 144 to be deducted and withheld by the corporation if the amount specified in the consent had been, on the last day of the taxable year of the corporation, paid to the shareholder in cash as a dividend. The amount accompanying the consent shall be credited against the tax imposed by section 211 (a) * * * upon the shareholder. (e) CONSENT DISTRIBUTION AS PART OF ENTIRE DISTRIBUTION.— If during the last month of the taxable year with respect to which shareholders' consents are filed by the corporation under subsection (d) there is made a partial distribution, then, for the purposes of this chapter, such partial distribution and the consent distribution shall be considered as having been made in connection with each other and each shall be considered together with the other as one entire distribution. (f) TAXABILITY OF AMOUNTS SPECIFIED IN CONSENTS.-The total amount specified in a consent filed under subsection (d) shall be included as a taxable dividend in the gross income of the shareholder making such consent, and, if the shareholder is taxable with respect to a dividend only if received from sources within the United States, shall be included in the computation of his tax as a dividend received from sources within the United States; regardless of― (1) Whether he actually so includes it in his return; and (2) Whether the distribution by the corporation of an amount equal to the total sum included in all the consents filed, had actual distribution been made, would have been in whole or in part a taxable dividend; and (3) Whether the corporation is entitled to any consent dividends credit by reason of the filing of such consents, or to a credit less than the total sum included in all the consents filed. (h) BASIS OF STOCK IN HANDS OF SHAREHOLDERS.-The amount specified in a consent made under subsection (d) shall, for the purpose of adjusting the basis of the consent stock with respect to which the consent was given, be treated as having been reinvested by the shareholder as a contribution to the capital of the corporation; but only in an amount which bears the same ratio to the consent dividends credit of the corporation as the amount of such shareholders' consent stock bears to the total amount of consent stock with respect to which consents are made. (i) AMOUNTS NOT INCLUDED IN SHAREHOLDER'S RETURN.-The failure of a shareholder of consent stock to include in his gross income for the proper taxable year the amount specified in the consent made by him and filed by the corporation shall have the same effect, with respect to the deficiency resulting therefrom, as is provided in section 272 (f) with respect to a deficiency resulting from a mathematical error appearing on the face of the return. Part III-Credits Against Tax SEC. 31. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF UNITED STATES. The amount of income, war-profits, and excess-profits taxes imposed by foreign countries or possessions of the United States shall be allowed as a credit against the tax, to the extent provided in section 131. [For credit in respect of a decedent, see section 126 (b).] SEC. 32. TAXES WITHHELD AT SOURCE. The amount of tax withheld at the source under section 143 shall be allowed as a credit against the tax. * * * [For disregard of this credit in determining credit for foreign, etc., taxes, see section 131 (i). For disregard of this credit in determining deficiencies, see section 271 (b) (1).] SEC. 33. CREDIT FOR OVERPAYMENTS. For credit against the tax of overpayments of taxes imposed by this chapter for other taxable years, see section 322. SEC. 35. CREDIT FOR TAX WITHHELD ON WAGES. The amount deducted and withheld as tax under Subchapter D of Chapter 9 during any calendar year upon the wages of any individual shall be allowed as a credit to the recipient of the income against the tax imposed by this chapter for the taxable year beginning in such calendar year. If more than one taxable year begins in any such calendar year such amount shall be allowed as a credit against the tax for the last taxable year so beginning. [For disregard of this credit in determining credit for foreign, etc., taxes, see section 131 (i). For disregard of this credit in determining deficiencies, see section 271 (b) (1).] |