"SEC. 3813. REQUIREMENTS FOR EXEMPTION OF CERTAIN ORGANIZATIONS UNDER SECTION 101 (6) AND FOR DEDUCTIBILITY OF CONTRIBUTIONS MADE TO SUCH ORGANIZATIONS.

"(a) ORGANIZATIONS TO WHICH SECTION APPLIES.-This section shall apply to any organization described in section 101 (6) except1) a religious organization (other than a trust);

"(2) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on;

"(3) an organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 101 (6)) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public;

"(4) an organization which is operated, supervised, controlled, or principally supported by a religious organization (other than a trust) which is itself not subject to the provisions of this section; and

"(5) an organization the principal purposes or functions of which are the providing of medical or hospital care or medical education or medical research.

"(b) PROHIBITED TRANSACTIONS.-For the purposes of this section, the term 'prohibited transaction' means any transaction in which an organization subject to the provisions of this section

"(1) lends any part of its income or corpus, without the receipt. of adequate security and a reasonable rate of interest, to; "(2) pays any compensation, in excess of a reasonable allowance for salaries or other compensation for personal services actually rendered, to;

"(3) makes any part of its services available on a preferential basis to;

"(4) makes any substantial purchase of securities or any other property, for more than adequate consideration in money or money's worth, from;

"(5) sells any substantial part of its securities or other property, for less than an adequate consideration in money or money's worth, to; or

"(6) engages in any other transaction which results in a substantial diversion of its income or corpus to;

the creator of such organization (if a trust); a person who has made a substantial contribution to such organization; a member of the family (as defined in section 24 (b) (2) (D)) of an individual who is the creator of such trust or who has made a substantial contribution to such organization: or a corporation controlled by such creator or person through the ownership, directly or indirectly, of 50 per centum or more of the total combined voting power of all classes of stock entitled to vote or 50 per centum or more of the total value of shares of all classes of stock of the corporation.

"(c) DENIAL OF EXEMPTION TO ORGANIZATIONS ENGAGED IN PROHIBITED TRANSACTIONS.—

"(1) GENERAL RULE.-No organization subject to the provisions of this section which has engaged in a prohibited transaction after July 1, 1950, shall be exempt from taxation under section 101 (6). "(2) TAXABLE YEARS AFFECTED.-An organization shall be denied exemption from taxation under section 101 (6) by reason of paragraph (1) only for taxable years subsequent to the taxable year during which it is notified by the Secretary that it has engaged in a prohibited transaction, unless such organization entered into such prohibited transaction with the purpose of diverting corpus or income of the organization from its exempt purposes, and such transaction involved a substantial part of the corpus or income of such organization.

"(d) FUTURE STATUS OF ORGANIZATION DENIED EXEMPTION.-Any organization denied exemption under section 101 (6) by reason of the provisions of subsection (c), with respect to any taxable year following the taxable year in which notice of denial of exemption was received, may, under regulations prescribed by the Secretary, file claim for exemption, and if the Secretary, pursuant to such regulations, is satisfied that such organization will not knowingly again engage in a prohibited transaction, such organization shall be exempt with respect to taxable years subsequent to the year in which such claim is filed.

"(e) DISALLOWANCE OF CERTAIN CHARITABLE, ETC., DEDUCTIONS.No gift or bequest for religious, charitable, scientific, literary, or educational purposes (including the encouragement of art and the prevention of cruelty to children or animals), otherwise allowable as a deduction under section 23 (o) (2), 23 (q) (2), 162 (a), 505 (a) (2), 812 (d), 861 (a) (3), 1004 (a) (2) (B), or 1004 (b) (2) or (3), shall be allowed as a deduction if made to an organization which, in the taxable year of the organization in which the gift or bequest is made, is not exempt under section 101 (6) by reason of the provisions of this section. With respect to any taxable year of the organization for which the organization is not exempt pursuant to the provisions of subsection (c) by reason of having engaged in a prohibited transaction with the purpose of diverting the corpus or income of such organization from its exempt purposes and such transaction involved a substantial part of such corpus or income, and which taxable year is the same, or prior to the, taxable year of the organization in which. such transaction occurred, such deduction shall be disallowed the donor only if such donor or (if such donor is an individual) any member of his family (as defined in section 24 (b) (2) (D)) was a party to such prohibited transaction.

"(f) DEFINITION.-For the purposes of this section, the term 'gift or bequest' means any gift, contribution, bequest, devise, legacy, or transfer.

"SEC. 3814. DENIAL OF EXEMPTION UNDER SECTION 101 (6) IN THE CASE OF CERTAIN ORGANIZATIONS ACCUMULATING INCOME.

"In the case of any organization described in section 101 (6) to which section 3813 is applicable, if the amounts accumulated out of income during the taxable year or any prior taxable year and not actually paid out by the end of the taxable year

(1) are unreasonable in amount or duration in order to carry out the charitable, educational, or other purpose or function constituting the basis for such organization's exemption under section 101 (6) ; or

(2) are used to a substantial degree for purposes or functions other than those constituting the basis for such organization's exemption under section 101 (6); or

(3) are invested in such a manner as to jeopardize the carrying out of the charitable, educational, or other purpose or function constituting the basis for such organization's exemption under section 101 (6)

exemption under section 101 (6) shall be denied for the taxable year."

Sec. 333, RA of 1950, makes amendment inserting Sec. 3813 (c) and (d) and Sec. 3814, IRC, applicable to taxable years beginning after Dec. 31, 1950 and amendment inserting Sec. 3813(e), IRC, applicable to gifts or bequests (as defined in Sec. 3813, IRC) made on or after Jan. 1, 1951.

(6) IN TER IMULATING

and Det

[PUBLIC LAW 909-81ST CONGRESS]
[CHAPTER 1199-2D SESSION]

[H. R. 9827]

AN ACT

To provide revenue by imposing a corporate excess profits tax, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Excess Profits Tax Act of 1950".

TITLE I-EXCESS PROFITS TAX

SEC. 101. IMPOSITION OF EXCESS PROFITS TAX.

Effective with respect to taxable years ending after June 30, 1950, chapter 1 of the Internal Revenue Code is hereby amended by adding after section 424 the following new subchapter:

"SUBCHAPTER D-EXCESS PROFITS TAX

"Part I-Rate and Computation of Tax

"SEC. 430. IMPOSITION OF TAX.

"(a) GENERAL RULE. In addition to other taxes imposed by this chapter, there shall be levied, collected, and paid for each taxable year ending after June 30, 1950, and beginning before July 1, 1953, upon the adjusted excess profits net income, as defined in section 431, of every corporation (except a corporation exempt under section 454) an excess profits tax equal to whichever of the following amounts is the lesser:

"(1) 30 per centum of the adjusted excess profits net income, or "(2) an amount equal to the excess of 62 per centum of the excess profits net income for the taxable year over the tax which would be imposed for the taxable year under sections 13, 14, and 15, supplement G, and supplement Q, whichever are applicable to the taxpayer, computed (subject to section 108 and section 141, if applicable) as if the amount of the normal-tax net income and the amount of the corporation surtax net income (or the amount subject to the rate of tax in such supplement) were equal to the amount of the excess profits net income for such year.

"(b) TAXABLE YEARS BEGINNING BEFORE JULY 1, 1950, AND ENDING AFTER JUNE 30, 1950.-In the case of a taxable year beginning before July 1, 1950, and ending after June 30, 1950, the tax imposed by subsection (a) shall be an amount equal to that portion of a tentative tax, determined under subsection (a), which the number of days in such taxable year after June 30, 1950, bears to the total number of days in such taxable year.

"(c) TAXABLE YEARS BEGINNING BEFORE JULY 1, 1953, AND ENDING AFTER JUNE 30, 1953.-In the case of a taxable year beginning

before July 1, 1953, and ending after June 30, 1953, the tax imposed by subsection (a) shall be an, amount equal to that portion of a tentative tax, determined under subsection (a), which the number of days in such taxable year before July 1, 1953, bears to the total number of days in such taxable year.

"(d) MUTUAL INSURANCE COMPANIES.-In the case of a mutual insurance company other than life or marine, if the gross amount received from interest, dividends, rents, and premiums (including deposits and assessments) is over $75,000 but less than $125,000, the tax imposed under this section shall be an amount which bears the same proportion to the amount ascertained under this section, computed without reference to this subsection, as the excess over $75,000 of such gross amount received bears to $50,000.

"(e) CROSS REFERENCES. For special rules for computation of the tax imposed by subsection (a) in the case of—

"(1) short taxable years, see section 433 (a) (2);

"(2) corporations engaged in mining of strategic materials, see section 450 (a);

"(3) abnormalities in income in taxable period, see section 456; "(4) corporations completing contracts under Merchant Marine Act, see section 457.

"SEC. 431. DEFINITION OF ADJUSTED EXCESS PROFITS NET INCOME. "The term 'adjusted excess profits net income' in the case of any taxable year means the excess profits net income (as defined in section 433 (a)) minus the sum of:

"(1) EXCESS PROFITS CREDIT.-The amount of the excess profits credit allowed under section 434; and

"(2) UNUSED EXCESS PROFITS CREDITS.-The amount of the unused excess profits credit adjustment for the taxable year computed in accordance with section 432.

If such sum is less than $25,000, it shall be increased to $25,000.

"SEC. 432. UNUSED EXCESS PROFITS CREDIT ADJUSTMENT.

"(a) COMPUTATION OF UNUSED EXCESS PROFITS CREDIT ADJUSTMENT. The unused excess profits credit adjustment for any taxable year shall be the aggregate of the unused excess profits credit carryovers and unused excess profits credit carry-back to such taxable year. "(b) DEFINITION OF UNUSED EXCESS PROFITS CREDIT.-The term 'unused excess profits credit' means the excess, if any, of the excess profits credit for any taxable year ending after June 30, 1950, and beginning before July 1, 1953, over the excess profits net income for such taxable year, computed on the basis of the excess profits credit applicable to such taxable year, and computed without the allowance of any deduction under section 23 (s) (relating to net operating losses). The unused excess profits credit for a taxable year of less than 12 months shall be an amount which is such part of the unused excess profits credit determined under the preceding sentence as the number of days in the taxable year is of the number of days in the 12 months ending with the close of the taxable year. The unused excess profits credit for a taxable year beginning before July 1, 1950, and ending after June 30, 1950, shall be an amount which is such part of the unused excess profits credit determined under the preceding provisions of this subsection as the number of days in such taxable year after