ART. 655. Illustration of computation of net loss.-The method of computation of net losses as outlined in articles 651-653 may be illustrated as follows: A, an individual, conducting a trade or a business, finds the following facts relating to 1932: (a) His deductions as computed under Title I amount to $100,000. (b) Included in the deductions is an item of $10,000 for loss by fire of property occupied by him as a residence and not used in connection with his trade or business. (c) Other deductions otherwise allowed under Title I on account of transactions entered into for profit outside of his trade or business amount to $3,000. (d) His taxable gains from transactions entered into for profit and not connected with his trade or business are $5,000. (e) Donations to the Red Cross amounting to $1,000 are included among the deductions. (f) Depletion is claimed in the amount of $2,000, of which $500 is based upon the value of the mineral in the mine as of March 1, 1913, and $1,500 is attributable to increase in valuation on account of discovery subsequent to February 28, 1913. (g) His entire gross income as computed under Title I is $50,000. (h) Interest received from municipal bonds exempted from taxation by section 22 (b) (4) amounted to $10,000. (i) Interest was paid upon money borrowed to carry municipal bonds in the amount of $8,000, which amount is not deductible under section 23 (b): Excess of deductions not sustained in trade or business 8,000 Donations (e)--- 1,000 Depletion on basis of value after discovery (f) --- $2,000 500 Portion of depletion representing the excess of Total exclusion from deductions___ 1,500 10, 500 Less: Interest paid on money borrowed to carry municipal bonds (i). 8,000 2,000 52, 000 37,500 Statutory net loss__. If A has ordinary net income in 1933 of $25,000 and a capital net gain of $100,000, the amount by which his net loss sustained in 1932 exceeds the amount of his ordinary net income in 1933 is deductible from capital net gain for the latter year. A may, at his option, pay a tax of 121⁄2 per cent upon the remainder of his capital net gain ($87,500) in accordance with the provisions of section 101 (a) and article 501 in lieu of all other taxes imposed by Title I. SEC. 118. LOSS FROM WASH SALES OF STOCK OR SECURI- (a) In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction for the loss shall be allowed under section 23 (e) (2); nor shall such deduction be allowed under section 23 (f) unless the claim is made by a corporation, a dealer in stocks or securities, and with respect to a transaction made in the ordinary course of its business. (b) If the amount of stock or securities acquired (or covered by the contract or option to acquire) is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary. (c) If the amount of stock or securities acquired (or covered by the contract or option to acquire) is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the nondeductibility of the loss shall be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary. ART. 661. Losses from wash sales of stock or securities.-(a) A taxpayer can not deduct any loss claimed to have been sustained from the sale or other disposition of stock or securities, if, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date (referred to in this article as the 61-day period), he has acquired (by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities. However, this prohibition does not apply (1) in the case of a taxpayer, not a corporation, if the sale or other disposition of stock or securities is made in connection with the taxpayer's trade or business, or (2) in the case of a corporation, a dealer in stock or securities, if the sale or other disposition of stock or securities is made in the ordinary course of its business as such dealer. See article 58 as to stock or securities sold from lots purchased at different dates or at different prices where the identity of the lots can not be determined; article 501 as to the treatment, for the purpose of capital net gain, of stock or securities acquired in connection with wash sales; and article 602 for the basis for determining gain or loss from the subsequent sale or other disposition of such stock or securities. (b) Where more than one loss is claimed to have been sustained within the taxable year from the sale or other disposition of stock or securities, the provisions of this article shall be applied to the losses in the order in which the stock or securities the disposition of which resulted in the respective losses were disposed of (beginning with the earliest disposition). If the order of disposition of stock or securities disposed of at a loss on the same day can not be determined, the stock or securities will be considered to have been disposed of in the order in which they were originally acquired (beginning with the earliest acquisition). (c) Where the amount of stock or securities acquired within the 61-day period is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be those with which the stock or securities acquired are matched in accordance with the following rule: The stock or securities acquired will be matched in accordance with the order of their acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or otherwise disposed of. (d) Where the amount of stock or securities acquired within the 61-day period is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which resulted in the nondeductibility of the loss shall be those with which the stock or securities disposed of are matched in accordance with the following rule: The stock or securities sold or otherwise disposed of will be matched with an equal number of the shares of stock or securities acquired in accordance with the order of acquisition (beginning with the earliest acquisition) of the stock or securities acquired. (e) The acquisition of any share of stock or any security which results in the nondeductibility of a loss under the provisions of this article shall be disregarded in determining the deductibility of any other loss. (f) The word "acquired" as used in this article means acquired by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law, and comprehends cases where the taxpayer has entered into a contract or option within the 61-day period to acquire by purchase or by such an exchange. Example (1): A on December 1, 1931, purchased 100 shares of common stock in the M Company for $10,000 and on December 15, 1931, purchased 100 additional shares for $9,000. On January 2, 1932, he sold the 100 shares purchased on December 1, 1931, for $9,000. Because of the provisions of section 118 no loss from the sale is allowable as a deduction. Example (2): A on September 21, 1931, purchased 100 shares of the common stock of the M Company for $5,000. On December 21, 1931, he purchased 50 shares of substantially identical stock for $2,750, and on December 26, 1931, he purchased 25 additional shares of such stock for $1,125. On January 2, 1932, he sold for $4,000 the 100 shares purchased on September 21, 1931. There is an indicated loss of $1,000 on the sale of the 100 shares. Since within the 61-day period A purchased 75 shares of substantially identical stock, the loss on the sale of 75 of the shares ($3,750-$3,000, or $750) is not allowable as a deduction because of the provisions of section 118. The loss on the sale of the remaining 25 shares ($1,250-$1,000, or $250) is deductible subject to the limitations provided in section 23 (r). (See article 272.) The basis of the 50 shares purchased December 21, 1931, the acquisition of which resulted in the nondeductibility of the loss ($500) sustained on 50 of the 100 shares sold on January 2, 1932, is $2,500 (the cost of 50 of the shares sold on January 2, 1932), plus $750 (the difference between the purchase price of the 50 shares acquired on December 21, 1931 ($2,750) and the selling price of 50 of the shares sold on January 2, 1932 ($2,000)), or $3,250. Similarly the basis of the 25 shares purchased on December 26, 1931, the acquisition of which resulted in the non deductibility of the loss ($250) sustained on 25 of the shares sold on January 2, 1932, is $1,250 plus $125, or $1,375. (See article 602.) Example (3): A on September 15, 1930, purchased 100 shares of the stock of the M Company for $5,000. He sold these shares on February 1, 1932, for $4,000. On each of the four days from February 15, 1932, to February 18, 1932, he purchased 50 shares of substantially identical stock for $2,000. There is an indicated loss of $1,000 from the sale of the 100 shares on February 1, 1932, but, since within the 61-day period A purchased not less than 100 shares of substantially identical stock, the loss is not deductible. The particular shares of stock the purchase of which resulted in the nondeductibility of the loss are the first 100 shares purchased within such period, that is, the 50 shares purchased on February 15, 1932, and the 50 shares purchased on February 16, 1932. In determining the period for which the 50 shares purchased on February 15, 1932, and the 50 shares purchased on February 16, 1932, were held, there is to be included the period for which the 100 shares purchased on September 15, 1930, and sold on February 1, 1932, were held. SEC. 119. INCOME FROM SOURCES WITHIN UNITED STATES. (a) Gross income from sources in United States. The following items of gross income shall be treated as income from sources within the United States: (1) INTEREST.-Interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, not including— (A) interest on deposits with persons carrying on the banking business paid to persons not engaged in business within the United States and not having an office or place of business therein, or (B) interest received from a resident alien individual, a resident foreign corporation, or a domestic corporation, when it is shown to the satisfaction of the Commissioner that less than 20 per centum of the gross income of such resident payor or domestic corporation has been derived from sources within the United States, as determined under the provisions of this section, for the three-year period ending with the close of the taxable year of such payor preceding the payment of such interest, or for such part of such period as may be applicable, or (C) income derived by a foreign central bank of issue from bankers' acceptances; (2) DIVIDENDS.-The amount received as dividends (A) from a domestic corporation other than a corporation entitled to the benefits of section 251, and other than a corporation less than 20 per centum of whose gross income is shown to the satisfaction of the Commissioner to have been derived from sources within the United States, as determined under the provisions of this section, for the three-year period ending with the close of the taxable year of such corporation preceding the |