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(ii) the equity capital of the corporation (determined on the date of the adoption of the plan), does not exceed $1,000,000. For purposes of subparagraph (B), the equity capital of a corporation is ihe sum of its money and other property in an amount equal to the adjusted basis of such property for determining gain), less the amount of its indebtedness (other than indebtedness to shareholders). (d) SPECIAL RULES.(1) LIMITATIONS ON AMOUNT OF ORDINARY LOSS.

(A) CONTRIBUTIONS OF PROPERTY HAVING BASIS IN EXCESS OF VALUE.-If

(i) section 1244 stock was issued in exchange for property,

(ii) the basis of such stock in the hands of the taxpayer is determined by reference to the basis in his hands of such property, and

(iii) the adjusted basis (for determining loss) of such property immediately before the exchange exceeded its fair

market value at such time, then in computing the amount of the loss on such stock for purposes of this section the basis of such stock shall be reduced by an amount equal to the excess described in clause (iii).

(B) INCREASES IN BASIS.-In computing the amount of the loss on stock for purposes of this section, any increase in the basis of such stock (through contributions to the capital of the corporation, or otherwise) shall be treated as allocable to stock which is not section 1244 stock.

(2) RECAPITALIZATIONS, CHANGES IN NAME, ETC.–To the extent provided in regulations prescribed by the Secretary or his delegate, common stock in a corporation, the basis of which in the hands of a taxpayer) is determined in whole or in part by reference to the basis in his hands of stock in such corporation which meets the requirements of subsection (c) (1) (other than subparagraph (E) thereof), or which is received in a reorganization described in section 368 (a) (1) (F) in exchange for stock which meets such requirements, shall be treated as meeting such requirements. For purposes of paragraphs (1) (E) and (2) (A) of subsection (c), a successor corporation in a reorganization described in section 368 (a) (1) (F) shall be treated as the same corporation as its predecessor.

(3) RELATIONSHIP TO NET OPERATING LOSS DEDUCTION.-For purposes of section 172 (relating to the net operating loss deduction), any amount of loss treated by reason of this section as a loss from the sale or exchange of an asset which is not a capital asset shall be treated as attributable to a trade or business of the taxpayer.

(4) INDIVIDUAL DEFINED.--For purposes of this section, the term “individual” does not include a trust or estate.

(e) REGULATIONS.— The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section.

Subchapter Q-Readjustment of Tax Between Years and

Special Limitations

Part 1. Income attributable to several taxable years.
Part II. Mitigation of effect of limitations and other provisions.
Part III. Involuntary liquidation and replacement of LIFO inven-

tories.
Part IV. War loss recoveries.
Part V. Claim of right.
Part VI. Other limitations.

PART INCOME ATTRIBUTABLE TO SEVERAL TAXABLE

YEARS

Sec. 1301. Compensation from an employment.
Sec. 1302. Income from an invention or artistic work.
Sec. 1303. Income from back pay.
Sec. 1304. Compensatory damages for patent infringement.
Sec. 1305. Breach of contract damages.
Sec. 1306. Damages for injuries under the antitrust laws.

Sec. 1307. Rules applicable to this part.
SEC. 1301. COMPENSATION FROM AN EMPLOYMENT.
(a) LIMITATION ON Tax.-If an individual or partnership-

(1) engages in an employment as defined in subsection (b); and

(2) the employment covers a period of 36 months or more (from the beginning to the completion of such employment); and

(3) the gross compensation from the employment received or accrued in the taxable year of the individual or partnership is not less than 80 percent of the total compensation from such employ

ment, then the tax attributable to any part of the compensation which is included in the gross income of any individual shall not be greater than the aggregate of the taxes attributable to such part had it been included in the gross income of such individual ratably over that part of the period which precedes the date of such receipt or accrual.

(b) DEFINITION OF AN EMPLOYMENT.-For purposes of this section, the term “an employment” means an arrangement or series of arrangements for the performance of personal services by an individual or partnership to effect a particular result, regardless of the number of sources from which compensation therefor is obtained.

(c) RULE WITH RESPECT TO PARTNERS.-An individual who is a member of a partnership receiving or accruing compensation from an employment of the type described in subsection (a) shall be entitled to the benefits of that subsection only if the individual has been a member of the partnership continuously for a period of 36 months or the period of the employment immediately preceding the receipt or accrual. In such a case the tax attributable to the part of the compensation which is includible in the gross income of the individual shall not be greater than the aggregate of the taxes which would have been attributable to that part had it been included in the gross income of the individual ratably over the period in which it was earned or the period during which the individual continuously was a member of the partnership, whichever period is the shorter. For purposes of this subsection, a member of a partnership shall be deemed to have been a member of the partnership for any period, ending immediately prior to becoming such a member, in which he was an employee of such partnership, if during the taxable year he received or accrued compensation attributable to employment by the partnership during such period. SEC. 1302. INCOME FROM AN INVENTION OR ARTISTIC WORK. (a) LIMITATION ON Tax.-If

(1) an individual includes in gross income amounts in respect of a particular invention or artistic work created by the individual; and

(2) the work on the invention or tbe artistic work covered a period of 24 months or more (from the beginning to the completion thereof): and

(3) the amounts in respect of the invention or the artistic work includible in gross income for the taxable year are not less than 80 percent of the gross income in respect of such invention or artistic work in the taxable year plus the gross income therefrom in previous taxable years and the 12 months immediately succeeding the

close of the taxable year, then the tax attributable to the part of such gross income of the taxable year which is not taxable as a gain from the sale or exchange of a capital asset held for more than 6 months shall not be greater than the aggregate of the taxes attributable to such part had it been received ratably over, in the case of an invention, that part of the period preceding the close of the taxable year or 60 months, whichever is shorter, or, in the case of an artistic work, that part of the period preceding the close of the taxable year but not more than 36 months. (b) DEFINITIONS.--For purposes of this section

(1) INVENTION.–The term "invention" means a patent covering an invention of the individual.

(2) ARTISTIC WORK.—The term "artistic work” means a literary, musical, or artistic composition or a copyright covering a literary,

musical, or artistic composition. SEC. 1303. INCOME FROM BACK PAY.

(a) LIMITATION ON Tax.---If the amount of the back pay received or accrued by an individual during the taxable year exceeds 15 percent of the gross income of the individual for such year, the part of the tax attributable to the inclusion of such back pay in gross income for the taxable year shall not be greater than the aggregate of the increases in the taxes which would have resulted from the inclusion of the respective portions of such back pay in gross income for the taxable years to which such portions are respectively attributable, as determined under regulations prescribed by the Secretary or his delegate.

(b) DEFINITION OF Back PAY. - For purposes of this section, the term "back pay” means amounts includible in gross income under this subtitle which are one of the following

(1) Remuneration, including wages, salaries, retirement pay, and other similar compensation, which is received or accrued during the taxable year by an employee for services performed before the taxable year for his employer and which would have been paid before the taxable year except for the intervention of one of the following events:

(A) bankruptcy or receivership of the employer;

(B) dispute as to the liability of the employer to pay such remuneration, which is determined after the commencement of court proceedings;

(C) if the employer is the United States, a State, a Territory, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any of the foregoing, lack of funds appropriated to pay such remuneration; or

(D) any other event determined to be similar in nature under regulations prescribed by the Secretary or his delegate.

(2) Wages or salaries which are received or accrued during the taxable year by an employee for services performed before the taxable year for his employer and which constitute retroactive wage or salary increases ordered, recommended, or approved by any Federal or State agency, and made retroactive to any period before the taxable year.

(3) Payments which are received or accrued during the taxable year as the result of an alleged violation by an employer of any State or Federal law relating to labor standards or practices, and which are determined under regulations prescribed by the Secretary or his

delegate to be attributable to a prior taxable year. SEC. 1304. COMPENSATORY DAMAGES FOR PATENT INFRINGEMENT:

If an amount representing compensatory damages is received or accrued by a taxpayer during a taxable year as the result of an award in a civil action for infringement of a patent issued by the United States, then the tax attributable to the inclusion of such amount in gross income for the taxable year shall not be greater than the aggregate of the increases in taxes which would have resulted if such amount had been included in gross income in equal installments for each month during which such infringement occurred. SEC. 1305. BREACH OF CONTRACT DAMAGES.

(a) GENERAL RULE.-If an amount representing damages is received or accrued by a taxpayer during a taxable year as a result of an award in a civil action for breach of contract or breach of a fiduciary duty or relationship, then the tax attributable to the inclusion in gross income for the taxable year of that part of such amount which would have been received or accrued by the taxpayer in a prior taxable year or years but for the breach of contract, or breach of a fiduciary duty or relationship, shall not be greater than the aggregate of the increases in taxes which would have resulted had such part been included in gross income for such prior taxable year or years.

(b) CREDITS AND DEDUCTIONS ALLOWED IN COMPUTATION OF Tax.-The taxpayer in computing said tax shall be entitled to deduct all credits and deductions for depletion, depreciation, and other items to which he would have been entitled, had such income been received or accrued by the taxpayer in the year during which he would have received or accrued it, except for such breach of contract or for such breach of a fiduciary duty or relationship. The credits, deductions, or other items referred to in the prior sentence, attributable to property, shall be allowed only with respect to that part of the award which represents the taxpayer's share of income from the actual operation of such property.

(c) LIMITATION.-Subsection (a) shall not apply unless the amount representing damages is $3,000 or more. SEC. 1306. DAMAGES FOR INJURIES UNDER THE ANTITRUST LAWS.

If an amount representing damages is received or accrued during a taxable year as a result of an award in, or settlement of a civil action brought under section 4 of the Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes”, approved October 15, 1914 (commonly known as the Clayton Act), for injuries sustained by the taxpayer in his busiNess or property by reason of anything forbidden in the antitrust laws, then the tax attributable to the inclusion of such amount in gross income for the taxable year shall not be greater than the aggregate of the increases in taxes which would have resulted if such amount had been included in gross income in equal installments for each month during the period in which such injuries were sustained by the taxpayer. SEC. 1307. RULES APPLICABLE TO THIS PART.

(a) FRACTIONAL PARTS OF A Month.- For purposes of this part, a fractional part of a month shall be disregarded unless it amounts to more than half a month, in which case it should be considered as a month.

(b) Tax on SELF-EMPLOYMENT INCOME.—This part shall be applied without regard to, and shall not affect, the tax imposed by chapter 2 relating to self-employment income.

(c) COMPUTATION_OF Tax ATTRIBUTABLE TO INCOME ALLOCATED TO PRIOR PERIOD.-For the purpose of computing the tax attributable to the amount of an item of gross income allocable under this part to a particular taxable year, such amount shall be considered income only of the person who would be required to include the item of gross income in a separate return filed for the taxable year in which such item was received or accrued.

(d) EFFECTIVE DATE OF CERTAIN SUBSECTIONS.-Subsection (c) of section 1301 and subsection (c) of this section shall apply only to amounts received or accrued after March 1, 1954. Notwithstanding any other provision of this title, section 107 of the Internal Revenue Code of 1939 shall apply to amounts received or accrued as a partner on or before March 1, 1954, under this section and to the computation of tax on amounts received or accrued on or before March 1, 1954. PART II—MITIGATION OF EFFECT OF LIMITATIONS AND

OTHER PROVISIONS

Sec. 1311. Correction of error.
Sec. 1312. Circumstances of adjustment.
Sec. 1313. Definitions.
Sec. 1314. Amount and method of adjustment.
Sec. 1315. Effective date.

SEC. 1311. CORRECTION OF ERROR.

(a) GENERAL RULE.-If a determination (as defined in section 1313) is described in one or more of the paragraphs of section 1312 and, on the date of the determination, correction of the effect of the

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