(c) Bills and accounts receivable.

(d) Notes and other evidences of indebtedness. (e) Leaseholds.

But when a corporation pays for intangible property by the issuance of its own stock or bonds, this will not be regarded as being a payment bona fide made in cash or tangible property within the meaning of Sec. 207.

Art. 48. Invested capital of foreign corporations or partnerships or non-resident alien individuals.—When used with reference to a foreign corporation or partnership or a non-resident alien individual, the term "invested capital" means that proportion of the entire invested capital as defined and limited by these regulations which the net income from sources within the United States is of the entire net income.

Art. 49. Reorganization on or after January 2, 1913. -A trade or business carried on by a corporation, partnership, or individual, which has been formally organized or reorganized on or after January 2, 1913, but which is substantially a continuation of a trade or business carried on prior to that date, shall, for the purposes of the excess profits tax, be deemed to have been in existence prior to that date and the invested capital of its predecessor prior to that date shall be deemed to have been its invested capital. This article relates to the prewar period and does not apply to the invested capital for the taxable year.28

Art. 50. Reorganization after March 3, 1917.-In case of the reorganization, consolidation, or change of ownership of a trade or business after March 3, 1917, if an interest or control in such trade or business of 50 per cent or more remains in control of the same persons, cor

28 See Art. 22.

porations, associations, partnerships, or any of them, then in ascertaining the invested capital of the trade or business no asset transferred or received from the prior trade or business shall be allowed a greater value than would have been allowed under these regulations in computing the invested capital of such prior trade or business if such asset had not been so transferred or received, unless such asset was paid for specifically as such, in cash or tangible property, and then not to exceed the actual cash or actual cash value of the tangible property paid therefor at the time of such payment.

Art. 51. Invested capital for prewar period.—The invested capital for the prewar period shall, in general, be determined in the same manner as for the taxable year, except that the valuation as of January 1, 1914, shall not apply to tangible property paid in for stock or shares.29 Art. 52. Scope of Sec. 210.-Sec. 210 provides for exceptional cases in which the invested capital can not be satisfactorily determined. In such cases the taxpayer may submit to the Commissioner of Internal Revenue evidence in support of a claim for assessment under the provisions of Sec. 210.30 Such exceptional cases may consist, among others, of the following:

(1) Where, through defective accounting or the lack of adequate data, it is impossible accurately to compute invested capital.

(2) Where upon application by a foreign taxpayer the Secretary of the Treasury finds that the expense of securing the data necessary for the computation of the invested capital would be unreasonable in view of the amount of tax involved, or that it is impracticable to

29 See Art. 55.

30 See Arts. 18 and 24.

determine either the "entire invested capital" or the "entire net income."

(3) Long-established business concerns which by reason of ultra-conservative accounting or the form and manner of their organization would, through the operation of Sec. 207, be placed at a serious disadvantage in competing with representative concerns in a like or similar trade or business.

(4) Where the invested capital is seriously disproportionate to the taxable income. Such cases may arise through:

(a) The realization in one year of the earnings of capital unproductively invested through a period of years or of the fruits of activities antedating the taxable year; or,

(b) Inability, to recognize or properly allow for amortization, obsolescence, or exceptional depreciation due to the present war, or to the necessity in connection with the present war of providing plant which will not be wanted for the purposes of the trade or business after the termination of the war.

INVESTED CAPITAL CORPORATIONS AND PARTNERSHIPS

Art 53. Rule for computing invested capital.-In computing invested capital, every corporation or partnership paying taxes at the graduated rates prescribed in Sec. 201,31 shall add together its paid-in capital and its paid-in or earned surplus and undivided profits (under whatever name the same may be called) as shown by its books at the beginning of the taxable year. The total thus obtained shall be adjusted for any asset or item which it covers that is not carried on the books at the

31 See Art. 16.

valuation prescribed by law or by these regulations. When necessary, adjustment (addition or subtraction) shall be made in respect of the following:

ADJUSTMENTS

1. Stock or shares issued in the purchase of intangible property prior to March 3, 1917, which cannot be included in an amount exceeding (a) 20 per cent of the par value of the total stock or shares outstanding on that date, (b) the actual value of such intangible property at the date acquired, or (c) the par value of the stock or shares issued in payment therefor, whichever is the lowest.32

2. Stock or shares issued for a mixed aggregate of tangible property, patents and copyrights, and good will or other intangible property.33

3. Stock or shares issued for patents and copyrights, valued at (a) their actual cash value at the time of payment, or (b) the par value of the stock or shares issued therefor, whichever is lower.34

4. Stock or shares issued for tangible property prior to January 1, 1914, valued at (a) the actual cash value of such property on January 1, 1914, or (b) the par value of the stock, whichever is lower.35

5. Stock originally issued for property and subsequently returned to the corporation as a gift, etc.36

6. Add any proportion of its permanent indebtedness which may be included under Art. 44.

7. Add value of tangible property paid in for stock or

32 See Arts. 57 and 58.

33 See Art. 59.

34 See Art. 56.

35 See Art. 55.

36 See Art. 54.

shares in excess of the par value of such shares, when authorized by Art. 63.

8. Add amounts expended in the past for (a) the acquisition of tangible property or (b) specifically for good will and other similar intangible property, when authorized by Art. 64.

9. For the valuation of assets acquired in reorganizations, etc., (a) effected after March 3, 1917, see Art. 50; (b) as to the prewar period, see Articles 49 and 51.

10. Deduct amounts representing appreciation excluded by Art. 42.

11. Make any additional deductions required by reason of insufficient allowances in the accounts of the taxpayer for depletion, depreciation, and obsolescence.37

Whenever any corrections are made in respect of the capital stock and surplus, corresponding corrections must be made in the respective asset items in the balance sheet of the taxpayer.

After making any adjustments required under Paragraphs 1 to 11 above, the adjusted total of the capital and surplus account will represent the invested capital at the beginning of the taxable year, except that in any case where the admissible assets (and these include all assets when valued in accordance with these regulations, except stocks, bonds-other than obligations of the United States the income of which is not subject to excessprofit tax) are less than the amount of such adjusted total, then the invested capital must be further reduced to an amount equal to the sum of the admissible assets. Tax-free securities and stock in foreign corporations may be included as admissible assets to the extent authorized in Articles 45 and 46.

37 See Art. 42.