"(2) After the completion or acquisition of any emergency facility with respect to which a certificate under paragraph (1) has been made, any expenditure (attributable to such facility and to the period after such completion or acquisition) which does not represent construction, reconstruction, erection, installation, or acquisition included in such certificate, but with respect to which a separate certificate is made under paragraph (1), shall not be applied in adjustment of the basis of such facility but a separate basis shall be computed therefor pursuant to paragraph (1) as if it were a new and separate emergency facility. "(f) DEPRECIATION DEDUCTION.-If the adjusted basis of the emergency facility (computed without regard to this section) is in excess of the adjusted basis computed under subsection (e), the deduction provided by section 23 (1) shall, despite the provisions of subsection (a) of this section, be allowed with respect to such emergency facility as if its adjusted basis for the purpose of such deduction were an amount equal to the amount of such excess. "(g) PAYMENT BY UNITED STATES OF UNAMORTIZED COST OF FACILITY. If an amount is properly includible in the gross income of the taxpayer on account of a payment with respect to an emergency facility and such payment is certified as provided in paragraph (1), then, at the election of the taxpayer in its return for the taxable year in which such amount is so includible "(1) The amortization deduction for the month in which such amount is so includible shall (in lieu of the amount of the deduction for such month computed under subsection (a)) be equal to the amount so includible but not in excess of the adjusted basis of the emergency facility as of the end of such month (computed without regard to any amortization deduction for such month). Payments referred to in this paragraph shall be payments the amounts of which are certified, under such regulations as the President may prescribe, by the certifying authority designated by the President as compensation to the taxpayer for the unamortized cost of the emergency facility made because "(A) a contract with the United States involving the use of the facility has been terminated by its terms or by cancellation, or "(B) the taxpayer had reasonable ground (either from provisions of a contract with the United States involving the use of the facility, or from written or oral representations made under authority of the United States) for anticipating future contracts involving the use of the facility, which future contracts have not been made. "(2) In case the taxpayer is not entitled to any amortization deduction with respect to the emergency facility, the deduction allowable under section 23 (1) on account of the month in which such amount is so includible shall be increased by such amount, but such deduction on account of such month shall not be in excess of the adjusted basis of the emergency facility as of the end of such month (computed without regard to any amount allowable, on account of such month, under section 23 (1) or this paragraph). TAX LAWS 1950 POCKET SUPPLEMENT 39 "(h) LIFE TENANT AND REMAINDERMAN.-In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowable to the life tenant. "(i) CROSS REFERENCE. For special rule with respect to gain derived from the sale or exchange of property the adjusted basis of which is determined with regard to this section, see section 117 (g) (3)." Sec. 217(a), RA of 1950, amended Sec. 125(b)(1), IRC, by adding at the end thereof the following: "In no case shall the amount of bond premium on a convertible bond include any amount attributable to the conversion features of the bond." Sec. 217(b), RA of 1950, makes amendment applicable to taxable years beginning after June 15, 1950, and also applicable, in the case of taxable years beginning on or before such date, to bonds acquired after such date. Sec. 203(b)(2), RA of 1950, amended Sec. 125, IRC, by adding the following new subsection: "(e) DEALERS IN TAX-EXEMPT SECURITIES.-For special rules applicable, in the case of dealers in securities, with respect to premium attributable to certain wholly tax-exempt securities, see section 22 (0)." Sec. 203 (c), RA of 1950, makes amendment applicable to taxable years ending after June 30, 1950, but in the case of a taxable year beginning before and ending after such date, the amendment applies only with respect to obligations acquired after such date. Sec. 218(a), RA of 1950, amended Supplement B of Chapter 1, IRC, by adding at the end thereof the following: "SEC. 130A. EMPLOYEE STOCK OPTIONS. "(a) TREATMENT OF RESTRICTED STOCK OPTIONS.-If a share of stock is transferred to an individual pursuant to his exercise after 1949 of a restricted stock option, and no disposition of such share is made by him within two years from the date of the granting of the option nor within six months after the transfer of such share to him "(1) no income shall result at the time of the transfer of such share to the individual upon his exercise of the option with respect to such share; "(2) no deduction under section 23 (a) shall be allowable at any time to the employer corporation of such individual or its parent or subsidiary corporation with respect to the share so transferred; and "(3) no amount other than the option price shall be considered as received by either of such corporations for the share so transferred. This subsection and subsection (b) shall not apply unless (A) the individual, at the time he exercises the restricted stock option, is an employee of the corporation granting such option or of a parent or subsidiary corporation of such corporation, or (B) the option is exercised by him within three months after the date he ceases to be an employee of any of such corporations. "(b) SPECIAL RULE WHERE OPTION PRICE IS BETWEEN 85 PERCENT AND 95 PERCENT OF VALUE OF STOCK.-If no disposition of a share of stock acquired by an individual upon his exercise after 1949 of a restricted stock option is made by him within two years from the date of the granting of the option nor within six months after the transfer of such share to him, but, at the time the restricted stock option was granted, the option price was less than 95 per centum of the fair market value at such time of such share, then, in the event of any disposition of such share by him, or in the event of his death (whenever occurring) while owning such share, there shall be included as compensation (and not as gain upon the sale or exchange of a capital asset) in his gross income, for the taxable year in which falls the date of such disposition or for the taxable year closing with his death, whichever is applicable, an amount equal to the amount (if any) by which the option price is exceeded by the lesser of "(1) the fair market value of the share at the time of such disposition or death, or "(2) the fair market value of the share at the time the option was granted. In the case of the disposition of such share by the individual, the basis of the share in his hands at the time of such disposition shall be increased by an amount equal to the amount so includible in his gross income. TAX LAWS 1950 POCKET SUPPLEMENT 41 pplement B of -If a share of o ng of the option the transfer of s be allowable at vidual or its pare are so transferred shall be considere unless (A) the ind Cock option, is a or of a parent c the option is exer he ceases to be WEEN 85 PERCENT e after 1949 of 1 time the option ividual, the bas position shall be lible in his gros "(c) ACQUISITION OF NEW STOCK.-If stock transferred to an individual upon his exercise of the option is exchanged by him for stock or securities in an exchange within the provisions of section 112 (b) (2) or (3), or if new stock, as described in section 113 (a) (19), is acquired upon a distribution with respect to such stock, the stock or securities acquired in such exchange and such new stock shall be considered as having been transferred to him upon his exercise of such option. A similar rule shall be applied in the case of a series of such exchanges or acquisitions. "(d) DEFINITIONS.-As used in this section "(1) RESTRICTED STOCK OPTION.-The term 'restricted stock option' means an option granted after February 26, 1945, to an individual, for any reason connected with his employment by a corporation, if granted by the employer corporation or its parent or subsidiary corporation, to purchase stock of any of such corporations, but only if "(A) At the time such option is granted the option price is at least 85 per centum of the fair market value at such time of the stock subject to the option; and "(B) Such option by its terms is not transferable by such individual otherwise than by will or the laws of descent and distribution, and is exercisable, during his lifetime, only by him; and "(C) Such individual, at the time the option is granted, does not own stock possessing more than 10 per centum of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation. For the purposes of this subparagraph "(i) such individual shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and "(ii) stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. "(2) PARENT CORPORATION.-The term 'parent corporation' means any corporation (other than the employer corporation) in an unbroken chain of corporations ending with the employer corporation if, at the time of granting of the option, each of the corporations other than the employer corporation owns stock possessing more than 50 per centum of the total combined voting power of all classes of stock in one of the other corporations in such chain. "(3) SUBSIDIARY CORPORATION.-The term 'subsidiary corporation' means any corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing more than 50 per centum of the total combined voting power of all classes of stock in one of the other corporations in such chain. "(4) DISPOSITION.-The term 'disposition' includes a sale, exchange, gift, or any transfer of legal title, but does not include (A) a transfer from a decedent to his estate or a transfer by bequest or inheritance; "(B) an exchange which is within the provisions of section 112 (b) (2) or (3); or "(C) a mere pledge or hypothecation. "(e) MODIFICATION, EXTENSION, OR RENEWAL OF OPTION.-For the purposes of subsection (d), if the terms of any option to purchase stock are modified, extended, or renewed, the following rules shall be applied with respect to transfers of stock made upon an exercise of the option after the making of such modification, extension, or renewal: "(1) Such modification, extension, or renewal shall be considered as the granting of a new option; "(2) The fair market value of such stock at the time of the granting of such option shall be considered as (A) the fair market value of such stock on the date of the original granting of the option, (B) the fair market value of such stock on the date of the making of such modification, extension, or renewal, or (C) the fair market value of such stock at the time of the making of any intervening modification, extension, or renewal, whichever is the highest." Sec. 208(d) (3), Social Security Act Amendments of 1950, amended Sec. 131, IRC, by inserting immediately after the words "except the tax imposed under section 102" the following: "and except the tax imposed under subchapter E". SECTION 131(a)- AMENDED. Sec. 302(a), Excess Profits Tax Act of 1950, amended Sec. 131(a), IRC, by inserting after "subchapter E" the following: "and except, with respect to the tax imposed under subchapter D, only to the extent provided in subsection (j)". Sec. 221(h), RA of 1950, amended Sec. 131(a)(2), (3), IRC, to read as follows: |