assets, (iii) the term 'liabilities' as used in such section, shall be considered as referring to United States liabilities, and (iv) the daily borrowed capital shall be determined under section 439 (b) by reference only to United States liabilities. In the application of section 440, the terms 'admissible assets' and 'inadmissible assets' shall include only United States assets. "(B) Exception.-If the Secretary determines that the United States assets of the taxpayer cannot satisfactorily be segregated from its other assets or that the United States liabilities of the taxpayer cannot satisfactorily be segregated from its other liabilities, the invested capital of the taxpayer shall be an amount (in lieu of the amount ascertained under subparagraph (A)) which is the same percentage of the sum of the equity capital of the taxpayer, determined under section 437 (c) as of the end of the last day of the taxable year without the application of this subparagraph, and 75 per centum of the daily borrowed capital determined under section 439 (b) for the day following such last day without the application of this subparagraph, which the net income for the taxable year from sources within the United States is of the total net income of the taxpayer for such year. "(2) DEFINITIONS.-As used in this subsection "(A) the term 'United States assets' means assets held by the taxpayer (in good faith for the purposes of the business) in the United States, determined in accordance with rules and regulations prescribed by the Secretary. "(B) the term 'United States liabilities' means the liabilities of the taxpayer which are directly related to its United States assets, determined in accordance with rules and regulations prescribed by the Secretary. "SEC. 437. INVESTED CAPITAL CREDIT. "(a) DEFINITION.-The invested capital credit for any taxable year shall be the amount shown in the following table: "If the invested capital for such year (as defined in subsection (b) (1)) is: Not over $5,000,000. Over $5,000,000 but not over $10,000,000. Over $10,000,000_ "(b) INVESTED CAPITAL.— The credit shall be: 12% of the invested capital. $600,000, plus 10% of the excess over $5,000,000. $1,100,000, plus 8% of the excess over $10,000,000. "(1) ELECTION OF TAXPAYER.-The invested capital for any taxable year shall be the adjusted invested capital determined under paragraph (2), except that if the taxpayer elects in its return for such taxable year to compute its invested capital under the provisions of section 458, the invested capital for such year shall be the historical invested capital determined under section 458. For the invested capital of certain insurance companies, see paragraph (3). "(2) ADJUSTED INVESTED CAPITAL. The adjusted invested capital for any taxable year (hereinafter in this paragraph referred to as 'the taxable year') shall be the sum of— "(A) the equity capital (as defined in subsection (c)) as of the beginning of the taxable year; "(B) the capital addition for the taxable year computed under subsection (d); "(C) 75 per centum of the average borrowed capital for the taxable year computed under section 439 (a); and "(D) the recent loss adjustment computed under subsection (f), minus the capital reduction for the taxable year computed under subsection (e). If the amount of the adjusted invested capital so computed is over $5,000,000, such amount shall be reduced by the net new capital addition computed under section 438 (b). "(3) MUTUAL INSURANCE COMPANY (OTHER THAN LIFE OR MARINE). The invested capital of a mutual insurance company (other than life or marine) shall be the mean of its surplus, plus 1 50 per centum of the mean of all reserves required by law, both surplus and reserves being determined at the beginning and end of the taxable year, and it may include as equity capital its organization expenses. The surplus shall include all of the assets of the company other than the reserves required by law. "(c) DEFINITION OF EQUITY CAPITAL.-The equity capital of the taxpayer as of any time shall be the total of its assets held at such time in good faith for the purposes of the business, reduced by the total of its liabilities at such time. For such purposes, the amount attributable to each asset shall be determined by ascertaining the adjusted basis thereof (or, in the case of money, the amount thereof) and the adjusted! basis shall be the adjusted basis for determining gain upon sale or exchange. In the case of an insurance company (other than mutual and other than life or marine), 50 per centum of its reserves required by law (other than reserves used in computing borrowed capital under section 439 (b) (2)) shall be considered as equity capital and, it may include as equity capital its organization expenses. In the case of a bank (as defined in section 104) its reserves for bad debts shall not be treated as liabilities. In the case of assets subject to a mortgage or other lien, the amount of the indebtedness secured by such mortgage or lien shall be considered as a liability of the taxpayer whether or not the taxpayer assumed or agreed to pay such indebtedness. "(d) CAPITAL ADDITION FOR THE TAXABLE YEAR.-The capital addition for the taxable year shall be the aggregate of the daily capital addition for each day of the taxable year, divided by the number of days in such year. The daily capital addition for each day of the taxable year shall be the aggregate of the amount of money and property paid in after the beginning of such taxable year and prior to such day for stock, or as paid-in surplus, or as a contribution to capital. (e) CAPITAL REDUCTION FOR THE TAXABLE YEAR.-The capital reduction for the taxable year shall be the aggregate of the daily capital reduction for each day of the taxable year, divided by the number of days in such year. The daily capital reduction for each day | of the taxable year shall be the amount of the distributions previously made during the taxable year which are not out of the earnings and profits of such taxable year. 25 1 subsection le year compa rowed cap 89 (a): 3: ted under s ir compared. THAN LITE @L g the adjuste g gain upon siz the taxpayer we or each day of the istributions previs ut of the earnings "(f) RECENT LOSS ADJUSTMENT. [PUB. LAW 909.] "(1) DETERMINATION.-The recent loss adjustment for any taxable year shall be the excess of the aggregate of the net operating loss for each taxable year in the recent loss period over the aggregate of the net income for each taxable year in such period. For purposes of this subsection, the term 'recent loss period' means whichever of the following periods results in a higher recent loss adjustment "(A) the base period, or "(B) the period beginning January 1, 1940, and ending December 31, 1949. "(2) DEFINITIONS.-For purposes of this subsection "(A) Net Operating Loss.-The net operating loss for any taxable year means the net operating loss as defined in section 122 (a), determined under the law applicable to such taxable year. "(B) Net Income.-The net income for any taxable year means the net income computed with the exceptions, additions, and limitations provided in section 122 (d) (other than paragraph (6) of section 122 (d)), under the law applicable to such taxable year. "(3) Special Rules. "(A) Only Part Of Taxable Year Included In Recent Loss Period. For purposes of this subsection, the net operating loss or net income for a taxable year only part of which is within the recent loss period shall be such part of the net operating loss or net income for such taxable year, computed without regard to this subparagraph, as the number of months in such taxable year falling within the recent loss period is of the total number of months in such taxable year. For purposes of this subsection, a fractional part of a month shall be disregarded unless it amounts to more than half a month in which case it shall be considered as a month. "(B) Recent Losses of Component Corporations.-The recent loss adjustment shall be separately computed for each corporation which is a component corporation of the taxpayer within the meaning of part II of this subchapter, and the amount so computed shall be added to the recent loss adjustment of the taxpayer. For purposes of such computation, the recent loss period of the component corporation shall not include any period after the date of the transaction in which such corporation became a component corporation of the taxpayer. The recent loss adjustment of the component corporation, for the purpose of computing the adjusted equity capital of any corporation (including the component corporation) other than the taxpayer for a taxable year ending after such date shall be reduced by the amount with respect to such component corporation which, under this subsection, is added to the recent loss adjustment of the taxpayer. "SEC. 438. NEW CAPITAL CREDIT CHANGES. "(a) NEW CAPITAL CREDIT.-The new capital credit for any taxable year shall be 12 per centum of the amount of the net new capital addition for the taxable year, except that the credit provided by this subsection shall not be allowed "(1) if the invested capital for the taxable year (computed without reduction by the amount of the net new capital addition) is $5,000,000 or less; "(2) if the invested capital for the taxable year is the historical invested capital determined under section 458; "(3) if the taxpayer is a mutual insurance company (other than life or marine). "(b) NET NEW CAPITAL ADDITION.-The net new capital addition for the taxable year shall be the excess, divided by the number of days in the taxable year, of the aggregate of the daily new capital addition (determined under subsection (c)) for each day of the taxable year over the aggregate of the daily new capital reduction (determined under subsection (d)) for each day of the taxable year. If there is an increase in inadmissible assets for the taxable year, determined under section 435 (g) (5), the net new capital addition shall be the excess of the amount determined under the preceding sentence over "(1) unless paragraph (2) is applicable, the amount of such increase in inadmissible assets; "(2) if the amount of such increase in inadmissible assets is in excess of the net new capital addition determined without regard to this sentence and without regard to subsection (c) (3) and subsection (d) (3), the amount of such increase in inadmissible assets minus 25 per centum of such excess. "(c) DAILY NEW CAPITAL ADDITION.-The daily new capital addition for any day of the taxable year shall, for the purposes of this section, be the sum of the following: "(1) The aggregate of the amounts of money and property (other than excluded equity capital as defined in subsection (e)) paid in for stock, or as paid-in surplus, or as a contribution to capital, after the beginning of such taxable year and prior to such day. "(2) The amount, if any, by which the equity capital at the beginning of the taxable year minus the amount of excluded equity capital (as defined in subsection (e)) paid in before the beginning of the taxable year and after the beginning of the taxpayer's first taxable year under this subchapter exceeds the equity capital at the beginning of such first taxable year. "(3) 75 per centum of the amount, if any, by which the increase in the daily borrowed capital for such day exceeds the increase in the excluded borrowed capital for such day. For the purposes of this paragraph the term 'increase in the daily borrowed capital' for such day means the amount by which the daily borrowed capital for such day (as defined in section 439 (b)) exceeds the daily borrowed capital for the first day of the taxpayers' first taxable year under this subchapter, and the term 'increase in the excluded borrowed capital' for such day means the amount by which the excluded borrowed capital for such day (as defined in subsection (f)) exceeds the excluded borrowed capital for the first day of the taxpayers' first taxable year under this subchapter. "(d) DAILY NEW CAPITAL REDUCTION.-The daily new capital reduction for any day of the taxable year shall be the sum of the following: eds the incres For the purpos orrowed car daily borre bi) exceeds th taxpayers s increase in t the amour lay (as defe capital for t his subcate T new car tuen of t "(1) Distributions to shareholders previously made during such taxable year which are not out of the earnings and profits of such taxable year; and "(2) The amount, if any, by which the equity capital at the beginning of the taxpayer's first taxable year under this subchapter plus the total amount of excluded equity capital paid in after the beginning of such first taxable year and before the beginning of the taxable year exceeds the amount of the equity capital at the beginning of the taxable year; and "(3) 75 per centum of the amount, if any, by which the daily borrowed capital (as defined in section 439 (b)) for the first day of the taxpayer's first taxable year under this subchapter exceeds the daily borrowed capital for such day. "(e) DEFINITION OF EXCLUDED CAPITAL.-The term 'excluded equity capital' means the amount of money or property paid in for stock, or as paid-in surplus, or as a contribution to capital, to the taxpayer "(1) by a corporation in an exchange to which section 112 (b) (3), (4), (5), or (10), or so much of section 112 (c), (d), or (e) as refers to section 112 (b) (3), (4), (5), or (10), is applicable (or would be applicable except for section 371 (g)), or would have been applicable if the term 'control' had been defined in section 112 (h) to mean the ownership of stock possessing more than 50 per centum of the total combined voting power of all classes of stock entitled to vote or more than 50 per centum of. the total value of shares of all classes of stock. "(2) by a transferor corporation if immediately after such transaction the transferor and the taxpayer are members of the same controlled group. As used in this paragraph, a controlled group means one or more chains of corporations connected through stock ownership with a common parent corporation if (A) more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or more than 50 per centum of the total value of shares of all classes of stock, of each of the corporations (except the common parent corporation) is owned directly by one or more of the other corporations, and (B) the common parent corporation owns directly more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or more than 50 per centum of the total value of shares of all classes of stock, of at least one of the other corporations. OF EXCLUDED BORROWED CAPITAL.-The term "(f) DEFINITION 'excluded borrowed capital' for any day of any taxable year means so much of the daily borrowed capital for such day as consists of outstanding indebtedness to a member of a controlled group, as defined in subsection (e) (2), which includes the taxpayer. "SEC. 439. BORROWED CAPITAL. "(a) AVERAGE BORROWED CAPITAL.-For the purposes of this subchapter, the average borrowed capital for any taxable year shall be the aggregate of the daily borrowed capital for each day of such taxable year, divided by the number of days in such taxable year. "(b) DAILY BORROWED CAPITAL.-For the purposes of this subchapter, the daily borrowed capital for any day of any taxable year shall be determined as of the beginning of such day and shall be the sum of the following: |