For the purposes of clause (1) the term 'wages' includes such remuneration paid to an employee for services included under an agreement entered into pursuant to the provisions of section 218 of the Social Security Act (relating to coverage of State employees) as would be wages under section 1426 (a) if such services constituted. employment under section 1426 (b). In the case of any taxable year beginning prior to the effective date specified in section 3810, an individual who is a citizen of Puerto Rico (but not otherwise a citizen of the United States) and who is not a resident of the United States or of the Virgin Islands during such taxable year shall be considered, for the purposes of this subchapter, as a nonresident alien individual. An individual who is not a citizen of the United States but who is a resident of the Virgin Islands or (after the effective date specified in section 3810) a resident of Puerto Rico shall not, for the purposes of this subchapter, be considered to be a nonresident alien individual.

"(c) TRADE OR BUSINESS.-The term 'trade or business', when used with reference to self-employment income or net earnings from selfemployment, shall have the same meaning as when used in section 23, except that such term shall not include

"(1) The performance of the functions of a public office;

"(2) The performance of service by an individual as an employee (other than service described in section 1426 (b) (16) (B) performed by an individual who has attained the age of eighteen); "(3) The performance of service by an individual as an employee or employee representative as defined in section 1582; "(4) The performance of service by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order; or

"(5) The performance of service by an individual in the exercise of his profession as a physician, lawyer, dentist, osteopath, veterinarian, chiropractor, naturopath, optometrist, Christian Science practitioner, architect, certified public accountant, accountant registered or licensed as an accountant under State or municipal law, full-time practicing public accountant, funeral director, or professional engineer; or the perfórmance of' such service by a partnership.

"(d) EMPLOYEE AND WAGES.-The term 'employee' and the term 'wages' shall have the same meaning as when used in subchapter A. of chapter 9.

"SEC. 482. MISCELLANEOUS PROVISIONS.

"(a) RETURNS.-Every individual (other than a nonresident alien individual) having net earnings from self-employment of $400 or more for the taxable year shall make a return containing such information for the purpose of carrying out the provisions of this subchapter as the Commissioner, with the approval of the Secretary, may by regulations prescribe. Such return shall be considered a return

required under section 51 (a). In the case of a husband and wife filing a joint return under section 51 (b), the tax imposed by this subchapter shall not be computed on the aggregate income but shall be the sum of the taxes computed under this subchapter on the separate self-employment income of each spouse.

"(b) TITLE OF SUBCHAPTER.-This subchapter may be cited as the 'Self-Employment Contributions Act'.

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"(c) EFFECTIVE DATE IN CASE OF PUERTO RICO.-For effective date in case of Puerto Rico, see section 3810.

"(d) COLLECTION OF TAXES IN VIRGIN ISLANDS AND PUERTO RICO.— For provisions relating to collection of taxes in Virgin Islands and Puerto Rico, see section 3811."

SECTION 481(a) (7) - AMENDED.

Sec. 221(j) (1), RA of 1950, amended Sec. 481 (a) (7), IRC, to read as follows:

"(7) (A) In the case of any taxable year beginning before the effective date specified in section 3810, the term 'possession of the United States' when used in section 251 with respect to citizens of the United States shall include Puerto Rico;

"(B) In the case of any taxable year beginning on or after the effective-date specified in section 3810, a resident of Puerto Rico shall compute his net earnings from self-employment in the same manner as a citizen of the United States but without regard to the provisions of section 116 (1)."

"(6) (A) A licensed personal finance company under State supervision, 80 per centum or more of the gross income of which is lawful interest received from loans made to individuals in accordance with the provisions of applicable State law if at least 60 per centum of such gross income is lawful interest (i) received from individuals each of whose indebtedness to such company did not at any time during the taxable year exceed in principal amount the limit prescribed for small loans by such law (or, if there is no such limit, $500), and (ii) not payable in advance or compounded and computed only on unpaid balances, and if the loans to a person, who is a shareholder in such company during the taxable year by or for whom 10 per centum or more in value of its outstanding stock is owned directly or indirectly (including in the case of an individual, stock owned by the members of his family as defined in section 503 (a) (2)), outstanding at any time during such year do not exceed $5,000 in principal amount; and

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(B) A lending company, not otherwise excepted by section 501 (b), authorized to engage in the small loan business under one or more State statutes providing for the direct regulation of such business, 80 per centum or more of the gross income of which is lawful interest, discount or other authorized charges (i) received from loans maturing in not more than thirty-six months made to individuals in accordance with the provisions of applicable State law, and (ii) which do not, in the case of any individual loan, exceed in the aggregate an amount equal to simple interest at the rate of 3 per centum per month not payable in advance and computed only on unpaid balances, if at least 60 per centum of the gross income is lawful interest, discount or other authorized charges received from individuals each of whose indebtedness to such company did not at any time during the taxable year exceed in principal amount the limit prescribed for small loans by such law (or, if there is no such limit, $500), and if the deductions allowed to such company under section 23 (a) (relating to expenses), other than for compensation for personal services rendered by shareholders (including members of the shareholder's family as described in section 503 (a) (2)) constitute 15 per centum or more of its gross income, and the loans to a person, who is a shareholder in such company during the taxable year by

or for whom 10 per centum or more in value of its outstanding stock is owned directly or indirectly (including in the case of an individual, stock owned by the members of his family as defined in section 503 (a) (2)), outstanding at any time during such year do not exceed $5,000 in principal amount.'

SECTION 501(b) (8) - NEW.

Sec. 2, Pub. Law 680, 81st Cong., 2d Sess., approved August 9, 1950, added the following paragraph (8) to Sec. 501 (b), IRC:

"(8) A finance company, actively and regularly engaged in the business of purchasing or discounting accounts or notes receivable or installment obligations, or making loans secured by any of the foregoing or by tangible personal property, at least 80 per centum of the gross income of which is derived from such business in accordance with the provisions of applicable State law or does not constitute personal holding company income as defined in section 502, if 60 per centum of the gross income is derived from one or more of the following classes of transactions:

"(A) Purchasing or discounting accounts or notes receivable, or installment obligations evidenced or secured by contracts of conditional sale, chattel mortgages, or chattel lease agreements, arising out of the sale of goods or services in the course of the transferor's trade or business;

"(B) Making loans, maturing in not more than thirty-six months, to, and for the business purposes of, persons engaged in trade or business, secured by

"(i) accounts or notes receivable, or installment obligations, described in subparagraph (a) above;

"(ii) warehouse receipts, bills of lading, trust receipts, chattel mortgages, bailments, or factor's liens, covering or evidencing the borrower's inventories;

"(iii) a chattel mortgage on property used in the borrower's trade or business;

except loans to any single borrower which for more than ninety days in the taxable year of the company exceed 15 per centum of the average funds employed by the company during such taxable year;

"(C) Making loans, in accordance with the provisions of applicable State law, secured by chattel mortgages on tangible personal property, the original amount of each of which is not less than the limit referred to in, or prescribed by, subsection (b) (6) (A) (i), and the aggregate principal amount of which owing by any one borrower to the company at any time during the taxable year of the company does not exceed $5,000; and

"(D) If 30 per centum or more of the gross income of the company is derived from one or more of the classes of transactions described in subparagraphs (A), (B) and (C) of this paragraph, purchasing, discounting, or lending upon the security of, installment obligations of individuals where the transferor or borrower

78 FEDERAL INCOME, ESTATE AND GIFT TAX LAWS

acquired such obligations either in transactions of the classes. described in subparagraphs (A) and (C) of this paragraph or as a result of loans made by such transferor or borrower in accordance with the provisions of clauses (i) and (ii) of paragraph 6 (A) or of clauses (i) and (ii) of paragraph 6 (B) of this subsection, if the funds so supplied at all times bear an agreed ratio to the unpaid balance of the assigned installment obligations, and documents evidencing such obligations are held by the

company;

provided that the deductions allowable under subsection 23 (a) (relating to expenses), other than compensation for personal services rendered by shareholders (including members of the shareholder's family as described in section 503 (a) (2)), constitute 15 per centum or more of the gross income, and that loans to a person who is a shareholder in such company during such taxable year by or for whom 10 per centum or more in value of its outstanding stock is owned directly or indirectly (including in the case of an individual, stock owned by members of his family as defined in section 503 (a) (2)) outstanding at any time during such year do not exceed $5,000 in principal amount.

SECTION 502(f) - AMENDED.

Sec. 223, RA of 1950, provides that:

SEC. 223. PERSONAL HOLDING COMPANY INCOME.

Section 502 (f) of the Internal Revenue Code (relating to use of corporation property by a shareholder) shall not apply with respect to rents received during taxable years ending after December 31, 1945, and before January 1, 1950, if such rents were received for the use by the lessee, in the operation of a bona fide commercial, industrial, or mining enterprise, of property of the taxpayer.

Sec. 332(d), RA of 1950, amended Sec. 505 (a)(2), IRC, by adding at the end thereof the following:

"For disallowance of certain charitable, etc., deductions otherwise allowable under this paragraph, see sections 3813 and 162(g)(2)."