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June 30, 1950, is of the total number of days in such taxable year. The unused excess profits credit for a taxable year beginning before July 1, 1953, and ending after June 30, 1953, 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 before July 1, 1953, is of the total number of days in such taxable year. There shall be no unused excess profits credit for any taxable year for which the taxpayer is exempt from taxation under this subchapter.

"(c) AMOUNT OF CARRY-BACK AND CARRY-OVER.—

"(1) UNUSED EXCESS PROFITS CREDIT CARRY-BACK.—If for any taxable year beginning after July 1, 1950, the taxpayer has an unused excess profits credit, such unused excess profits credit shall be an unused excess profits credit carry-back for the preceding taxable year.

-If for any tax"(2) UNUSED EXCESS PROFITS CREDIT CARRY-OVER.able year ending after June 30, 1950, the taxpayer has an unused excess profits credit, such unused excess profits credit shall be an unused excess profits credit carry-over for each of the five succeeding taxable years, except that the carry-over in the case of each such succeeding taxable year (other than the first succeeding taxable year) shall be the excess, if any, of the amount of such unused excess profits credit over the sum of the adjusted excess profits net income for each of the intervening taxable years computed

"(A) by determining the unused excess profits credit adjustment for each intervening taxable year without regard to such unused excess profits credit or to any unused excess profits credit for any succeeding year, and

"(B) without regard to the last sentence of section 431. For the purpose of the preceding sentence the unused excess profits credit for any taxable year beginning after July 1, 1950, shall first be reduced by the amount, if any, of the adjusted excess profits net income for the preceding taxable year computed

"(C) by determining the unused excess profits credit adjustment for such preceding taxable year without regard to such unused excess profits credit, and

"(D) without regard to the last sentence of section 431. If such preceding taxable year began prior to July 1, 1950, the reduction referred to in the preceding sentence shall be an amount which is such part of the reduction determined under the preceding sentence, or such part of the unused excess profits carryback for such preceding taxable year, whichever is the lesser, as the number of days in such taxable year after June 30, 1950, is of the total number of days in such preceding taxable year. "(d) No CARRY-BACK TO TAXABLE YEARS ENDING PRIOR TO JULY 1, 1950.-As used in this section the term 'preceding taxable year' does not include any taxable year ending prior to July 1, 1950.

"(e) UNUSED EXCESS PROFITS CREDIT OF YEAR OF LIQUIDATION.-For any taxable year during which the taxpayer (1) completes the distribution of substantially all of its assets in liquidation, or (2) completes the conversion of substantially all of its assets into assets not held in good faith for the purposes of the business, then the unused excess

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profits credit for such year shall be an amount which is such part of the unused excess profits credit determined under the preceding provisions of this section as the number of days in the taxable year prior to the date of the completion (described in (1) or (2), whichever is earlier) is of the total number of days in the taxable year, and no part of the unused excess profits credit for such year shall be an unused excess profits credit carry-over for any succeeding taxable year.

"SEC. 433. EXCESS PROFITS NET INCOME.

"(a) TAXABLE YEARS ENDING AFTER JUNE 30, 1950.-The excess profits net income for any taxable year ending after June 30, 1950, shall be the normal-tax net income, as defined in section 13 (a) (2), for such year increased or decreased by the following adjustments: "(1) ADJUSTMENTS.

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"(A) Dividends Received.-The credit for dividends received shall apply, without limitation (except the limitation relating to dividends in kind), to all dividends on stock of all corporations, except that no credit for dividends received shall be allowed with respect to dividends (actual or constructive) on stock of foreign personal holding companies or dividends on stock which is not a capital asset;

"(B) Disallowance of Certain Credits.-In computing such normal-tax net income the credits provided in section 26 (h) and (i) shall not be allowed;

"(C) Gains And Losses From Sales Or Exchanges Of Capital Assets.-There shall be excluded gains and losses from sales or exchanges of capital assets;

"(D) Income From Retirement or Discharge of Bonds, and So Forth.-There shall be excluded, in the case of any taxpayer, income derived from the retirement or discharge by the taxpayer of any bond, debenture, note, or certificate or other evidence of indebtednes, if the obligation of the taxpayer has been outstanding for more than 6 months, including, in case the issuance was at a premium, the amount includible in income for such year solely because of such retirement or discharge;

"(E) Refunds and Interest on Agricultural Adjustment Act Taxes.-There shall be excluded income attributable to refund of tax paid under the Agricultural Adjustment Act of 1933, as amended, and interest upon any such refund;

"(F) Deductions on Account of Retirement or Discharge of Bonds, and So Forth.-If during the taxable year the taxpayer retires or discharges any bond, debenture, note, or certificate or other evidence of indebtedness, if the obligation of the taxpayer has been outstanding for more than 6 months, the following deductions for such taxable year shall not be allowed:

"(i) The deduction allowable under section 23 (a) for expenses paid or incurred in connection with such retirement or discharge;

"(ii) The deduction for losses allowable by reason of such retirement or discharge; and

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"(iii) In case the issuance was at a discount, the amount deductible for such year solely because of such retirement or discharge;

"(G) Recoveries of Bad Debts.-There shall be excluded income attributable to the recovery of a bad debt if the deduction of such debt was allowable from gross income for any taxable year beginning before January 1, 1940, or beginning after December 31, 1945, and ending before July 1, 1950, or if such debt was properly charged to a reserve for bad debts during any such taxable year;

"(H) Life Insurance Companies.-In the case of a life insurance company, there shall be deducted from the normal tax net income the excess of (1) the product of (i) the figure determined and proclaimed under section 202 (b) and (ii) the excess profits net income computed without regard to this subparagraph, over (2) the adjustment for certain reserves provided in section 202 (c). If the excess profits credit for the taxable year is computed under section 436, there shall be deducted from the normal tax net income only 50 per centum of the amount determined under the preceding

sentence;

"(I) Nontaxable Income of Certain Industries With Depletable Resources.-In the case of a producer of minerals, or a producer of logs or lumber from a timber block, or a lessor of mineral property, or a timber block, as defined in section 453, there shall be excluded nontaxable income from exempt excess output of mines and timber blocks provided in section 453; in the case of a natural gas company, as defined in section 453, there shall be excluded nontaxable income from exempt excess output provided in section 453; and in the case of a producer of minerals, or a producer of logs or lumber from a timber block, there shall be excluded nontaxable bonus income provided in section 453. In respect of nontaxable bonus income provided in section 453 (c), a corporation described in section 453 (c) (2) shall be deemed a producer of minerals for the purposes of this subparagraph; "(J) Net Operating Loss Deduction Adjustment.-The net operating loss deduction shall be adjusted as follows:

"(i) In computing the net operating loss for any taxable year under section 122 (a), and the net income for any taxable year under section 122 (b), the deduction for interest shall be reduced by the amount of any reduction under subparagraph (N) or (O), whichever is applicable upon the basis of the excess profits credit for such taxable year; and

"(ii) In lieu of the reduction provided in section 122 (c), such reduction shall be in the amount by which the excess profits net income computed with the exceptions and limitations specified in section 122 (d) (1), (2), (3), and (4), and computed without regard to subparagraph (C), without regard to any credit for dividends. received, and without regard to any credit for interest

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received provided in section 26 (a) exceeds the excess
profits net income (computed without the net operating
loss deduction); and

"(iii) If the excess profits credit for the first taxable
year under this subchapter is computed under section
435 or is computed under section 436 (a) by use of
the historical invested capital determined under section
458, the taxpayer may elect in its return for such taxable
year to compute its net operating loss deduction for the
purposes of this subsection for all taxable years by
treating an amount equal to the base period loss adjust-
ment (as defined in clause (iv)) as a net operating loss
carry-over from the last taxable year ending before
July 1, 1950, but for such purposes the net income com-
puted under section 122 (b) for any taxable year ending
before July 1, 1950, shall be determined without regard
to such carry-over;

"(iv) For the purposes of clause (iii), the base period loss adjustment shall be the amount of the recent loss adjustment determined under section 437 (f), using the base period as the recent loss period, and computed by limiting the amount of the net operating loss for any taxable year beginning before January 1, 1948, to an amount equal to the net operating loss carry-over from such taxable year to the taxable year immediately succeeding such taxable year; and

"(v) If the taxpayer makes the election provided in clause (iii) of this subparagraph, the net operating loss deduction for the purposes of this subsection for each taxable year ending after June 30, 1950 (whether or not the credit for such taxable year is computed under section 435) shall be computed without regard to the net operating loss for any taxable year ending before July 1, 1950, and the net operating loss carry-over specified in clause (iii) of this subparagraph shall not be allowed as a net operating loss carry-over to any taxable year for which the excess profits eredit is not computed under section 435 and is not computed under section 436 (a) by use of the historical invested capital determined under section 458;

"(K) Taxes Paid by Lessee.-If under a lease for a term of more than 20 years entered into prior to December 1, 1950, the lessee is obligated to pay any portion of the tax imposed by this chapter upon the lessor with respect to the rentals derived by such lessor from such lessee, or is obligated to reimburse the lessor for any portion of the tax imposed by this chapter upon the lessor with respect to the rentals derived by such lessor from such lessee, such payment or reimbursement of the tax imposed by this chapter shall be excluded by the lessor and a deduction there for shall not be allowed to the lessee. For the purposes of this subparagraph an agreement for lease of railroad properties entered into prior to December 1, 1950, shall be considered to be a lease including such

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term as the total number of years such agreement may, unless sooner terminated, be renewed or continued under the terms of the agreement, and any such renewal or continuance under such agreement shall be considered part of the lease entered into prior to December 1, 1950;

"(L) Bad Debts in Case of Banks.-In the case of a bank (as defined in section 104) using the reserve method of accounting for bad debts, there shall be allowed, in lieu of the amount allowable under the reserve method for bad debts, a deduction for debts which became worthless within the taxable year, in whole or in part, within the meaning of section 23 (k);

"(M) Blocked Foreign Income.-There shall be excluded income derived from sources within any foreign country to the extent that such income would, but for monetary, exchange, or other restrictions imposed by such foreign country, have been includible in the gross income of the taxpayer for any taxable year which preceded its first taxable year under this subchapter. In determining the taxable year for which income derived from foreign sources would have been includible (but for such restrictions) in cases where specific identification can not be made, such determinations shall be made in accordance with regulations prescribed by the Secretary. Where income derived from sources within any foreign country is includible (without regard to this sentence) in a taxable year succeeding the first taxable year under this subchapter, and but for monetary, exchange, or other restrictions imposed by such foreign country would have been includible in the gross income of the taxpayer for its first taxable year under this subchapter, such income, in case such first taxable year began before July 1, 1950, shall be considered (in the application of this subparagraph) as having been includible in gross income of a taxable year which preceded such first taxable year in an amount equal to that portion of such income as the number of days prior to July 1, 1950, in such first taxable year bears to the total number of days in such first taxable year. Deductions properly chargeable and allocable to income excluded under this subparagraph shall not be allowed;

"(N) Interest-Credit Based Upon Invested Capital.—If the excess profits credit for the taxable year is computed under section 436 the deduction for interest shall be reduced by an amount equal to 75 per centum of so much of such interest as represents interest on the indebtedness included in the daily amounts of borrowed capital (determined under section 439 (b)).

"(O) Interest-Credit Based Upon Income.-If the excess profits credit for the taxable year is computed under section 435, the deduction for interest shall be reduced by an amount which bears the same ratio to the interest on the indebtedness included in the daily amounts of borrowed capital (determined under section 439 (b)) as the excess of the amount determined under section 435 (g) (3) (C) over the aggregate,

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