subchapter the determination of any question is necessary solely by reason of section 711 (b) (1) (H), (I), (J), or (K), section 721, or section 722, the determination of such question shall not be reviewed or redetermined by any court or agency except the Board.

Sec. 732. (d) Review by special division of Board.

The determinations and redeterminations by any division of the Board involving any question arising under section 721 (a) (2) (C) or section 722 with respect to any taxable year shall be reviewed by a special division of the Board which shall be constituted by the Chairman and consist of not less than three members of the Board. The decisions of such special division shall not be reviewable by the Board, and shall be deemed decisions of the Board.

Sec. 732 (d), I. R. C., supra, amended by Pub. Law 105, 79th Cong., 1st Sess. (H. J. R. 184), approved June 30, 1945, by adding language in italics.

Section 732, supra, originated 1941 as Sec. 732,
I. R. C.

For any amendments prior to 1944, see-
Ninth Edition, p. 868.

Sec. 733. Capitalization of advertising, etc., expenditures.

Sec. 733. (a) Election to charge to capital account. For the purpose of computing the excess profits credit, a taxpayer may elect, within six months after the date prescribed by law for filing its return for its first taxable year under this subchapter, to charge to capital account so much of the deductions for taxable years in its applicable base period on account of expenditures for advertising or the promotion of good will, as, under rules and regulations prescribed by the Commissioner with the approval of the Secretary, may be regarded as capital investments. Such election must be the same for all such taxable years, and must be for the total amount of such expenditures which may be so regarded as capital investments. In computing the excess profits credit, no amount on account of such expenditures shall be charged to capital account:

Sec. 733. (a) (1) For taxable years in the base period unless the election authorized in subsection (a) is exercised, or

Sec. 733. (a) (2) For any taxable year prior to the beginning of the base period.

Sec. 733. (b) Effect of election.-If the taxpayer exercises the election authorized under subsection (a)

Sec. 733. (b) (1) The net income for each taxable year in the base period shall be considered to be the net income computed with such deductions disallowed, and such deductions shall not be considered as having diminished earnings and profits. This paragraph shall be retroactively applied as if it were a part of the law applicable to each taxable year in the base period; and

Sec. 733. (b) (2) The treatment of such expenditures as deductions for a taxable year in the base period shall, for the purposes of section 734 (b) (2), be considered treatment which was not correct under the law applicable to such year.

Section 733, supra, originated 1941 as Sec. 733,
I. R. C.

For any amendments prior to 1944, see-
Ninth Edition, p. 870.

Sec. 734. Adjustment in case of position inconsistent with prior income tax liability.

Sec. 734. (a) Definitions.-For the purposes of this section

Sec. 734. (a) (1) Taxpayer.-The term "taxpayer" means any person subject to a tax under the applicable Revenue Act.

Sec. 734. (a) (2) Income tax.-The term "income tax" means an income tax imposed by Chapter 1 or Chapter 2A of this title; Title I and Title IA of the Revenue Acts of 1938, 1936, and 1934; Title I of the Revenue Acts of 1932 and 1928; Title II of the Revenue Acts of 1926 and 1924; Title II of the Revenue Acts of 1921 and 1918; Title I of the Revenue Act of 1917; Title I of the Revenue Act of 1916; or section II of the Act of October 3, 1913; a war profits or excess profits tax imposed by Title III of the Revenue Acts of 1921 and 1918; or Title II of the Revenue Act of 1917; or an income, war profits, or excess profits tax imposed by any of the foregoing provisions, as amended or supplemented.

Sec. 734. (a) (3) Prior taxable year.-A taxable year beginning after December 31, 1939, shall not be considered a prior taxable year.

Sec. 734. (a) (4) The term "predecessor of the taxpayer" means—

(A) A person which is a component corporation of the taxpayer within the meaning of section 740; and

(B) A person which on April 1, 1941, or at any time thereafter, controlled the taxpayer. The term "controlled" as herein used shall have the same meaning as "control" under section 112 (h), and

(C) Any person in an unbroken series ending with the taxpayer if subparagraph (A) or (B) would apply to the relationship between the parties. Sec. 734. (b) Circumstances of adjustment.Sec. 734. (b) (1) If—

(A) in determining at any time the tax of a taxpayer under this subchapter an item affecting the determination of the excess profits credit is treated in a manner inconsistent with the treatment accorded such item in the determination of the income-tax liability of such taxpayer or a predecessor for a prior taxable year or years, and

(B) the treatment of such item in the prior taxable year or years consistently with the determination under this subchapter would effect an increase

or decrease in the amount of the income taxes previously determined for such taxable year or years, and

(C) on the date of such determination of the tax under this subchapter correction of the effect of the inconsistent treatment in any one or more of the prior taxable years is prevented (except for the provisions of section 3801) by the operation of any law or rule of law (other than section 3761, relating to compromises),

then the correction shall be made by an adjustment under this section. If in a subsequent determination of the tax under this subchapter for such taxable year such inconsistent treatment is not adopted, then the correction shall not be made in connection with such subsequent determination.

Sec. 734. (b) (2) Such adjustment shall be made only if there is adopted in the determination a position maintained by the Commissioner (in case the net effect of the adjustment would be a decrease in the income taxes previously determined for such year or years) or by the taxpayer with respect to whom the determination is made (in case the net effect of the adjustment would be an increase in the income taxes previously determined for such year or years) which position is inconsistent with the treatment accorded such item in the prior taxable year or years which was not correct under the law applicable to such year.

Sec. 734. (b) (3) Burden of proof.-In any proceeding before the Board or any court the burden of proof in establishing that an inconsistent position has been taken (A) shall be upon the Commissioner, in case the net effect of the adjustment would be an increase in the income taxes previously determined for the prior taxable year or years, or (B) shall be upon the taxpayer, in case the net effect of the adjustment would be a decrease in the income taxes previously determined for the prior taxable year or years.

Sec. 734. (c) Method and effect of adjustment.

Sec. 734. (c) (1) The adjustment authorized by subsection (b), in the amount ascertained as provided in subsection (d), if a net increase shall be added to, and if a net decrease shall be subtracted from, the tax otherwise computed under this subchapter for the taxable year with respect to which such inconsistent position is adopted.

Sec. 734. (c) (2) If more than one adjustment under this section is made because more than one inconsistent position is adopted with respect to one taxable year under this subchapter, the separate adjustments, each an amount ascertained as provided in subsection (d), shall be aggregated, and the aggregate net increase or decrease shall be added to or subtracted from the tax otherwise computed under this subchapter for the taxable year with respect to which such inconsistent positions are adopted.

Sec. 734. (c) (3) If all the adjustments under this section, made on account of the adoption of an inconsistent position or positions with respect to one taxable year under this subchapter, result in an aggregate net increase, the tax imposed by this subchapter shall in no case be less than the amount of such aggregate net increase.

Sec. 734. (c) (4) If all the adjustments under this section, made on account of the adoption of an inconsistent position or positions with respect to a taxable year under this subchapter (hereinafter in this paragraph called the current taxable year), result in an aggregate net decrease, and the amount of such decrease exceeds the tax imposed by this subchapter (without regard to the provisions of this section) for the current taxable year, such excess shall be subtracted from the tax imposed by this subchapter for each succeeding taxable year, but the amount of the excess to be so subtracted shall be reduced by the reduction in tax for intervening taxable years which has resulted from the subtraction of such excess from the tax imposed for each such year.

Sec. 734. (d) Ascertainment of amount of adjustment.-In computing the amount of an adjustment under this section there shall first be ascertained the amount of the income taxes previously determined for each of the prior taxable years for which correction is prevented. The amount of each such tax previously determined for each such taxable year shall be (1) the tax shown by the taxpayer or by the predecessor, upon the return for such prior taxable year, increased by the amounts previously assessed (or collected without assessment) as deficiencies, and decreased by the amounts previously abated, credited, refunded, or otherwise repaid in respect of such tax; or (2) if no amount was shown as the tax by such taxpayer or such predecessor upon the return, or if no return was made by such taxpayer or such predecessor, then the amounts previously assessed (or collected without assessment) as deficiencies, but such amounts previously assessed, or collected without assessment, shall be decreased by the amounts previously abated, credited, refunded, or otherwise repaid in respect of such tax. There shall then be ascertained the increase or decrease in each such tax previously determined for each such year which results solely from the treatment of the item consistently with the treatment accorded such item in the determination of the tax liability under this subchapter. To the increase or decrease so ascertained for each such tax for each such year there shall be added interest thereon computed as if the increase or decrease constituted a deficiency or an overpayment, as the case may be, for such prior taxable year. Such interest shall be computed to the fifteenth day of the third month following the close of the excess profits tax taxable year with respect to which the determination is made. There shall be ascertained the difference between the aggregate of such increases, plus the interest attributable to each, and the aggregate of such decreases, plus the interest

attributable to each, and the net increase or decrease so ascertained shall be the amount of the adjustment under this section with respect to the inconsistent treatment of such item.

Sec. 734. (e) Interest in case of net increase or decrease.

Sec. 734. (e) (1) If an adjustment under this section results in a net decrease, or more than one adjustment results in an aggregate net decrease, the portion of such net decrease or aggregate net decrease, as the case may be, subtracted from the tax which represents interest shall be included in gross income of the taxable year in which falls the date prescribed for the payment of the tax under this subchapter.

Sec. 734. (e) (2) If an adjustment under this section results in a net increase, or more than one adjustment results in an aggregate net increase, the portion of such net increase or aggregate net increase, as the case may be, which represents interest shall be allowed as a deduction in computing net income for the taxable year in which falls the date prescribed for the payment of the tax under this subchapter.

Section 734, supra, originated 1941 as Sec. 734,
I. R. C.

For any amendments prior to 1944, see-
Ninth Edition, p. 872.

Sec. 735. Nontaxable income from certain mining and timber operations, and from natural gas properties.

Sec. 735. (a) Definitions.-For the purposes of this section, section 711 (a) (1) (I), and section 711 (a) (2) (K)—

Sec. 735. (a) (1) Producer; lessor; natural gas company.-The term "producer" means a corporation which extracts minerals from a mineral property, or which cuts logs from a timber block, in which an economic interest is owned by such corporation. The term "lessor" means a corporation which owns an economic interest in a mineral property or a timber block, and is paid in accordance with the number of mineral units or timber units recovered therefrom by the person to which such property or block is leased. The term "natural gas company" means a corporation engaged in the withdrawal, or transportation by pipe line, of natural

Beer 735, (a) (3) Timber unit. The term "timber unit" means a unit of timber recovered from the operation of a timber bleek

Sec. 735. (a) (3) ←4 Excess output.-The term "excess output" means the excess of the mineral units, natural gas units, or the timber units for the taxable year over the normal output.

Sec. 735. (a) (4) (5) Normal output.-The term "normal output" means the average annual mineral units, or the average annual timber units, as the case may be, recovered in the taxable years beginning after December 31, 1935, and not beginning after December 31, 1939 (hereinafter called "base period"), of the person owning the mineral property or the timber block (whether or not the taxpayer). The term "normal output," in the case of a natural gas company, means the average annual natural gas units sold in the taxable years beginning after December 31, 1935, and not beginning after December 31, 1939 (hereinafter called "base period,") of the person owning the natural gas property (whether or not the taxpayer). The average annual mineral units, natural gas units, or timber units shall be computed by dividing the aggregate of such mineral units, natural gas units, or timber units for the base period by the number of months for which the mineral property, natural gas property, or the timber block was in operation during the base period and by multiplying the amount so ascertained by twelve. In any case in which the taxpayer establishes, under regulations prescribed by the Commissioner with the approval of the Secretary, that the operation of any mineral property, natural gas property, or any timber block is normally prevented for a specified period each year by physical events outside the control of the taxpayer, the number of months during which such mineral property, natural gas property, or timber block is regularly in operation during a taxable year shall be used in computing the average annual mineral units, natural gas units, or timber units, instead of twelve. Any mineral property, natural gas property, or any timber block, which was in operation for less than six months during the base period, ' shall, for the purposes of this section, be deemed not to have been in operation during the base period.

Sec. 735. (a) (5) Natural gas property.-The term "natural gas property" means the property of a natural gas company used for the withdrawal, storage, and transportation by pipe line, of natural gas excluding any part of such property which is an emergency facility under section 124.

The caption of Sec. 735, I. R. C., supra, amended by Sec. 208 (a), R. A. of 1943, by adding language in underlined bold faced type. Sec. 735 (a) (1), (2), (3), (4) and (5), I. R. C. supra, respectively, amended by Sec. 208 (b) (1), R. A. of 1943, by adding language in underlined bold faced type and in italics and by omitting language in stricken through type.

Retroactivity

Sec. 208 (f) of said Act provides that said amendments with respect to lessors of mineral properties

which were in operation during the base period and with respect to lessors of timber blocks, as defined without regard to said amendments, which were in operation during the base period and with respect to natural gas companies shall be applicable with respect to taxable years beginning after Dec. 31, 1941. With these exceptions, the presumption is that the amendments are applicable to taxable years beginning after Dec. 31, 1943.

Sec. 735. (a) (6) Mineral property.-The term "mineral property" means a mineral deposit, the development and plant necessary for the extraction of the deposit, and so much of the surface of the land as is necessary for purposes of such extraction.

Sec. 735. (a) (7) Minerals.-The term "minerals" means ores of the metals, coal, and such nonmetallic substances as abrasives, asbestos, asphaltum, barytes, borax, building stone, cement rock, clay, crushed stone, feldspar, fluorspar, fuller's earth, graphite, gravel, gypsum, limestone, magnesite, marl, mica, mineral pigments, peat, potash, precious stones, refractories, rock phosphate, salt, sand, silica, slate, soapstone, soda, sulphur, and talc.

Sec. 735. (a) (8) Timber block.-The term "timber block" means an operation unit existing as of December 31, 1941, which includes all the taxpayer's timber which would logically go to a single given point of manufacture, but shall not include any operation unit acquired after December 21, 1941.

Sec. 735 (a) (8), I. R. C., supra, amended by Sec. 208 (b) (2), R. A. of 1943, by omitting language in stricken through type.

Retroactivity

Sec. 208 (f) of said Act provides that said amendment with respect to lessors of mineral properties which were in operation during the base period and with respect to lessors of timber blocks, as defined without regard to said amendment, which were in operation during the base period and with respect to natural gas companies shall be applicable with respect to taxable years beginning after Dec. 31, 1941. With these exceptions, the presumption is that the amendment is applicable to taxable years beginning after Dec. 31, 1943.

Sec. 735. (a) (9) Normal unit profit.-The term "normal unit profit" means the average profit for the base period per mineral unit for such period, determined by dividing the net income with respect to minerals recovered from the mineral property (computed with the allowance for depletion computed in accordance with the basis for depletion applicable to the current taxable year) during the base period by the number of mineral units recovered from the mineral property during the base period.

Sec. 735. (a) (10) Estimated recoverable units. - The term "estimated recoverable units" means the estimated number of units of metal, coal, or nonmetallic substances in the estimated recoverable minerals from the mineral property at the end of the taxable year plus the excess output for such year. All estimates shall be subject to the approval of the Commissioner, the determinations of whom,

for the purposes of this section, shall be final and conclusive.

Sec. 735. (a) (11) Exempt excess output.—The term "exempt excess output" for any taxable year means a number of units equal to the following percentages of the excess output for such year:

100 per centum if the excess output exceeds 50 per centum of the estimated recoverable units;

95 per centum if the excess output exceeds 333 but not 50 per centum of the estimated recoverable units;

90 per centum if the excess output exceeds 25 but not 33% per centum of the estimated recoverable units;

85 per centum if the excess output exceeds 20 but not 25 per centum of the estimated recoverable units;

80 per centum if the excess output exceeds 16 2/3 but not 20 per centum of the estimated recoverable units;

60 per centum if the excess output exceeds 14 2/7 but not 16 2/3 per centum of the estimated recoverable units;

40 per centum if the excess output exceeds 121⁄2 but not 14 2/7 per centum of the estimated recoverable units;

30 per centum if the excess output exceeds 10 but not 122 per centum of the estimated recoverable units;

20 per centum if the excess output exceeds 5 but not 10 per centum of the estimated recoverable units.

Sec. 735. (a) (12) Unit net income.-The term "unit net income" means the amount ascertained by dividing the net income (computed with the allowance for depletion) from the coal or iron ore or the timber recovered from the coal mining property, iron mining property or timber block, as the case may be, during the taxable year by the number of units of coal or iron ore, or timber, recovered from such property in such year. In respect of a natural gas property, the term "unit net income" means the amount ascertained by dividing the net income, computed in accordance with regulations prescribed by the Commissioner with the approval of the Secretary, from such property during the taxable year by the number of natural gas units sold in such year.

Sec. 735 (a) (12), I. R. C., supra, amended by Sec. 208 (b) (3), R. A. of 1943, by adding language in italics.

Retroactivity

Sec. 208 (f) of said Act provides that said amendment with respect to lessors of mineral properties which were in operation during the base period and with respect to lessors of timber blacks, as defined without regard to said amendment, which were in operation during the base period and with respect to natural gas companies shall be applicable with respect to taxable years beginning after Dec. 31, 1941. With these exceptions, the presumption is that the amendment is applicable to taxable years beginning after Dec. 31, 1943.

Sec. 735. (b) Nontaxable income from exempt excess output.

Sec. 735. (b) (1) General rule.-For any taxable year for which the excess output of mineral property which was in operation during the base period exceeds 5 per centum of the estimated recoverable units from such property, the nontaxable income from exempt excess output for such year shall be an amount equal to the exempt excess output for such year multiplied by the normal unit profit, but such amount shall not exceed the net income (computed with the allowance for depletion) attributable to the excess output for such year.

Sec. 735. (b) (2) Coal and iron mines.-For any taxable year, the nontaxable income from exempt excess output of a coal mining or iron mining property which was in operation during the base period shall be an amount equal to the excess output of such property for such year multiplied by one-half of the unit net income from such property for such year, or an amount determined under paragraph (1), whichever the taxpayer elects in accordance with regulations prescribed by the Commissioner with the approval of the Secretary.

Sec. 735. (b) (3) Timber properties.-For any taxable year, the nontaxable income from exempt excess output of a timber block which was in operation during the base period shall be an amount equal to the excess output of such property for such year multiplied by one-half of the unit net income from such property for such year.

Sec. 735. (b) (4) Coal and iron mines and timber properties not in operation during base period.-For any taxable year, the nontaxable income from exempt excess output of a coal mining or iron mining property or a timber block, which was not in operation during the base period, shall be an amount equal to 1/6 of the net income for such taxable year (computed with the allowance for depletion) from the coal mining or iron mining property or from the timber block, as the case may be. Sec. 735. (b) (5) Natural gas companies.—In the case of a natural gas company any of the natural gas property of which was in operation during the base period, the nontaxable income from exempt excess output for any taxable year shall be an amount equal to the excess output for such year multiplied by one-half of the unit net income for such year.

Sec. 735 (b) (4) and (5) added to I. R. C. by
Sec. 208 (c), R. A. of 1943.

Retroactivity

Sec. 208 (f) of said Act provides that said amendment with respect to lessors of mineral properties which were in operation during the base period and with respect to lessors of timber blocks as defined without regard to said amendment, which were in operation during the base period and with respect to natural gas companies shall be applicable with respect to taxable years beginning after Dec. 31, 1941. With these exceptions, the presumption is that the amendment is applicable to taxable years beginning after Dec. 31, 1943.

Sec. 735. (c) Nontaxable bonus income.-The term "nontaxable bonus income" means the amount of the income derived from bonus payments made by any agency of the United States Government on account of the production in excess of a specified quota of a mineral product or of timber the exhaustion of which gives rise to an allowance for depletion under section 23 (m), but such amount shall not exceed the net income (computed with the allowance for depletion) attributable to the output in excess of such quota.

Sec. 735. (d) Rule in case income from excess output includes bonus payment.-In any case in which the income attributable to the excess output includes bonus payments (as provided in subsection (c)), the taxpayer may elect, under regulations prescribed by the Commissioner with the approval of the Secretary, to receive either the benefits of subsection (b) or subsection (c) with respect to such income as is attributable to excess output above the specified quota.

Section 735, supra, originated 1942 as Sec. 735,
I. R. C.

For any amendments prior to 1944, see-
Ninth Edition, p. 882.

Sec. 736. Relief for installment basis taxpayers and taxpayers with income from long-term contracts.

Sec. 736. (a) Election to accrue income.-In the case of any taxpayer computing income from installment sales under the method provided by section 44 (a), if such taxpayer establishes, in accordance with regulations prescribed by the Commissioner with the approval of the Secretary that the average volume of credit extended to purchasers on the installment plan in the four taxable years preceding the first taxable year beginning after December 31, 1941, was more than 125 per centum of the volume of such credit extended to such purchasers in the taxable year, or the average outstanding installment accounts receivable at the end of each of the four taxable years preceding the first taxable year beginning after December 31, 1941, was more than 125 per centum of the amount of such accounts receivable at the end of the taxable year, or if the taxpayer was not in existence for four previous taxable years, the taxable years during which the taxpayer was in existence, in either case including only such years for which the income was computed under the method provided in section 44 (a), it may elect, in its return for the taxable year, for the purposes of the tax imposed by this subchapter, to compute, in accordance with regulations prescribed by the Commissioner with the approval of the Secretary, its income from installment sales on the basis of the taxable period for which such income is accrued, in lieu of the basis provided by section 44 (a). Except as hereinafter provided, such election shall be irrevocable when once made and shall apply also to all subsequent taxable years, and the income from installment sales for each taxable year before the first year with respect to which the election is