"(1) The amount of the outstanding indebtedness (not including interest) of the taxpayer, incurred in good faith for the purposes of the business, which is evidenced by a bond, note, bill of exchange, debenture, certificate of indebtedness, mortgage, deed of trust, bank loan agreement, or conditional sales contract. In the case of property of the taxpayer subject to a mortgage or other lien, the amount of indebtedness secured by such mortgage or lien shall be considered as an indebtedness of the taxpayer whether or not the taxpayer assumed or agreed to pay such indebtedness, plus "(2) In the case of an insurance company, an amount equal to 66% per centum of the mean of the amount of the pro rata unearned premiums determined at the beginning and end of the taxable year, plus, "(3) In the case of a life insurance company, an amount equal to 663 per centum of the mean of the amount of the adjusted reserves, and an amount equal to 66% per centum of the mean of the amount of the reserves on insurance or annuity contracts (or contracts arising out of insurance or annuity contracts) which do not involve, at the time with reference to which the computation was made, life, health, or accident contingencies, determined at the beginning and end of the taxable year: plus "(4) In the case of a face-amount certificate company as defined in section 4 (1) of the Investment Company Act of 1940 (15 U. S. C., Sec. 80a-4), an amount equal to 66% per centum of the mean of the amount of reserves on its outstanding investment certificates, determined at the beginning and end of the taxable year. "SEC. 440. ADMISSIBLE AND INADMISSIBLE ASSETS. "(a) DEFINITIONS.-For the purposes of this subchapter"(1) The term 'inadmissible assets' means "(A) Stock in corporations, except stock in a foreign personal holding company, and except stock which is not a capital asset: and "(B) Obligations described in section 22 (b) (4) any part of the interest from which is excludible from gross income or allowable as a credit against net income. "(2) The term 'admissible assets' means all assets other than inadmissible assets. "(b) RATIO OF INADMISSIBLES TO TOTAL ASSETS.-In the case of any amount which is required to be reduced by reference to this subsection, the reduction shall be the same percentage of such amount as the percentage which the total of the inadmissible assets is of the total of admissible and inadmissible assets. For such purposes, the amount attributable to each asset held at any time during such taxable year shall be determined by ascertaining the adjusted basis thereof (or, in the case of money, the amount thereof) for each day of such taxable year so held and adding such daily amounts. The determination of such daily amounts shall be made as of the beginning of each day under regulations prescribed by the Secretary. The adjusted basis shall be the adjusted basis for determining gain upon sale or exchange as determined under section 113. 29 "SEC. 441. RULES FOR DETERMINING CREDIT. [PUB. LAW 909.] "For the purposes of this section, section 435, section 437, section 438, and section 440 "(a) EQUITY CAPITAL.-The term 'equity capital' means the equity capital as defined in section 437 (c). "(b) PROPERTY PAID-IN.-For the purpose of determining the amount of property paid in for stock, or as paid-in surplus, or as a contribution to capital, such property shall be included in an amount equal to its basis (unadjusted) for determining gain upon sale or exchange. If the unadjusted basis of the property is a substituted basis. such basis shall be adjusted, with respect to the period before the property was paid in, by an amount equal to the adjustments proper under section 113 (b) (2). "(c) MONEY AND PROPERTY PAID-IN.-For the purpose of determining the amount of money and property paid in for stock, or as paid-in surplus, or as a contribution to capital, there shall be included only money and property paid in good faith for the purposes of the taxpayer's business. (d) DISTRIBUTIONS TO SHAREHOLDERS.-A distribution by a corporation of its stock or rights to acquire its stock shall not be regarded as money or property paid in for stock, or as paid-in surplus, or as a contribution to capital, and such a distribution shall not be considered as a distribution by a corporation to its shareholders. "(e) DISTRIBUTIONS IN FIRST 60 DAYS OF TAXABLE YEAR. So much of the distributions (taken in the order of time) to shareholders made during the first 60 days of any taxable year as does not exceed the accumulated earnings and profits as of the beginning thereof (computed without regard to this paragraph) shall be considered to have been made on the last day of the preceding taxable year. This paragraph shall not apply with respect to distributions made during the first 60 days of the taxpayer's first taxable year under this subchapter. "(f) COMPUTATION OF EARNINGS AND PROFITS OF TAXABLE Year.— In determining whether a distribution is out of the earnings and profits of any taxable year, such earnings and profits shall be computed as of the close of such taxable year without diminution by reason of any distribution made during such taxable year or by reason of the tax under this chapter for such year and the determination shall be made without regard to the amount of earnings and profits at the time the distribution was made. "(g) EXCHANGES.-For the purpose of determining the amount of property paid in for stock, or as paid-in surplus, or as a contribution to capital "(1) If the basis (unadjusted) of the property for determining gain upon a sale or exchange is determined by reference to the basis of the property in the hands of the transferor, proper adjustment shall be made for the amount of any liability of the transferor assumed upon the exchange and of any liability subject to which such property was so received, for the amount of any other liability of the taxpayer constituting consideration for the property so received, and for the aggregate of the amount of money and the fair market value of other property (other than such stock and other than such liabilities) transferred to the transferor. "(2) If an indebtedness of the taxpayer is canceled or released income of which was reduced (or the deficit in excess profits net income of which was increased) by reason of an abnormality determined to exist under subsection (a), the average base period net income determined under this section shall be computed as follows: "(1) By determining the amount of the taxpayer's total assets for the last day of each of its taxable years ending after the first day of its base period and prior to the first day of its first taxable year under this subchapter. "(2) By computing the average of the amounts ascertained under paragraph (1). "(3) By multiplying the amount ascertained under paragraph (2) by the base period rate of return, proclaimed by the Secretary under section 447, for the taxpayer's industry classification. "(4) By determining the aggregate amount of interest paid or incurred by the taxpayer for all taxable years ending after the first day of its base period and prior to the first day of its first taxable year under this subchapter, dividing such aggregate by the total number of months in such years, and multiplying the quotient by 12. "(5) By subtracting the amount ascertained under paragraph (4) from the amount ascertained under paragraph (3). This subsection shall have no application with respect to any taxpayer unless the amount of the taxpayer's average base period net income determined under this subsection exceeds 110 per centum of the taxpayer's average base period net income computed under section 435 (d). "(e) SUBSTITUTE EXCESS PROFITS NET INCOME. "(1) COMPUTATION.-For the purposes of subsection (c) (2), the substitute excess profits net income for any month shall be computed as follows: "(A) By multiplying the amount of the taxpayer's total assets for the last day of the taxable year in which such month falls or for the last day of its taxable year immediately preceding its first taxable year under this subchapter, whichever day is earlier, by the rate of return provided under paragraph (2). "(B) By reducing the amount ascertained under subparagraph (A) by the total interest paid or incurred by the taxpayer for the 12 months beginning with the first day of the taxable year within which such month falls. "(C) By dividing by 12 the amount ascertained under subparagraph (B). "(2) BASE PERIOD YEARLY RATE OF RETURN.-The rate of return to be used under paragraph (1) (A) shall be the base period yearly rate of return, proclaimed by the Secretary under section 447 for the taxpayer's industry classification, for the following year "(A) in the case of a taxable year of the taxpayer beginning in 1945 and ending in 1946-for the year 1946; "(B) in the case of a taxable year of the taxpayer beginning in 1949 and ending in 1950-for the year 1949; and "(C) in the case of any other taxable year of the taxpayer-for the year in which falls the greater number of days in such taxable year. "(f) TOTAL ASSETS.-For the purposes of this section, the taxpayer's total assets for any day shall be determined as of the end of such day and shall be an amount equal to the sum of the cash and the property (other than cash. inadmissible assets, and loans to members of a controlled group as defined in section 435 (f) (4)) held by the taxpayer in good faith for the purposes of the business. Such property shall be included in an amount equal to its adjusted basis for determining gain upon sale or exchange, determined under the rules provided in section 441. "(g) TAXPAYER'S INDUSTRY CLASSIFICATION.-The taxpayer's industry classification shall be determined, for the purposes of subsection (d), by reference to the last taxable year within or beginning within its base period, and, for the purposes of subsection (e), by reference to the taxable year within which falls the last month for which a substitute excess profits net income is determined; and, in either case, shall be the industry classification under section 447 to which is attributable the largest amount of the taxpayer's gross receipts for such taxable year. "(h) RULES FOR APPLICATION OF SECTION.-The benefits of this section shall not be allowed unless the taxpayer makes application therefor in accordance with section 447 (e). "(i) CROSS REFERENCES. "(1) For definition of gross receipts, see section 435 (e) (5). "(2) For computation of capital additions in the base period, see section 435 (f) (3). "(3) For computation of excess profits credit based on income in the case of certain reorganizations, see Part II of this subchapter. "SEC. 443. AVERAGE BASE PERIOD NET INCOME-CHANGE IN PRODUCTS OR SERVICES. "(a) IN GENERAL.-If a taxpayer which commenced business on or before the first day of its base period establishes with respect to any taxable year that— "(1) During so much of its three immediately preceding taxable years as falls within the 36-month period ending on the last day of its base period, there was a substantial change in the products or services furnished by the taxpayer, "(2) More than 40 per centum of its gross income or 33 per centum of its net income for such taxable year is attributable to one or more of the new products or services, and "(3) Its average monthly excess profits net income (determined under subsection (e)) for such taxable year exceeds 125 per centum of its average monthly excess profits net income (determined under subsection (e)) for the taxable years ending within its base period and prior to the taxable year in which the first change to which gross income is attributed for the purpose of this subsection occurred, then, in computing its excess profits credit for taxable years under this subchapter which end on or after the last day of the earliest taxable year with respect to which the requirements of paragraphs (1), (2), and (3) are satisfied, its average base period net income determined under this section shall be the amount computed under subsection (b). "(b) AVERAGE BASE PERIOD NET INCOME.-The average base period net income determined under this section shall be computed as follows: "(1) By multiplying the amount of the taxpayer's total assets for (A) the last day of its taxable year immediately preceding its first taxable year under this subchapter, or (B) the last day of the taxable year in which the taxpayer first meets the requirements of subsection (a), whichever day is later, by the base period rate of return, proclaimed by the Secretary under section 447, for the taxpayer's industry classification. "(2) By subtracting from the amount ascertained under paragraph (1) the total interest paid or incurred by the taxpayer for the 12 months ending with whichever day is used under such paragraph. "(c) TAXPAYER'S INDUSTRY CLASSIFICATION. For the purposes of this section, the taxpayer's industry classification shall be the industry classification under section 447 to which is attributable the largest amount of the taxpayer's gross receipts for the taxable year which includes whichever day is used under subsection (b). "(d) CAPITAL ADDITION OR REDUCTION.-If the average base period net income of the taxpayer is determined under this section "(1) the excess profits credit for the taxable year in which the taxpayer first meets the requirements of subsection (a) shall not include any net capital addition or reduction determined under section 435 (g), and "(2) in determining the net capital addition or reduction under section 435 (g) for any subsequent taxable year, the expression 'the first day of the taxpayer's first taxable year under this subchapter' shall be read as the first day of the taxpayer's first taxable year under this subchapter or the day following the close of the taxable year in which the taxpayer first met the requirements of section 443 (a), whichever day is later'. "(e) AVERAGE MONTHLY EXCESS PROFITS NET INCOME.-For the purposes of subsection (a) (3)— "(1) The excess profits net income for any year shall be com puted by making the adjustments provided in section 433 (b) as though such section were applicable to all taxable years. "(2) The average monthly excess profits net income for any period of two or more taxable years shall be determined (A) by computing the aggregate of the excess profits net income for all taxable years within such period, (B) by subtracting from such aggregate the aggregate amount of the deficits in excess profits net income for all taxable years within such period, and (C) by dividing the amount ascertained under (B) by the total number of months in such taxable years. "(3) The average monthly excess profits net income determined for any period shall in no case be less than zero. "(f) RULES FOR APPLICATION OF SECTION.-The benefits of this section shall not be allowed unless the taxpayer makes application therefor in accordance with section 447 (e). "(g) CROSS REFERENCES. "(1) For definition of gross receipts, see section 435 (e) (5). "(3) For computation of excess profits credit based on income in the case of certain reorganizations, see Part II of this subchapter. |