"(A) the aggregate of the adjusted basis of each share of stock with respect to which such property was received; such adjusted basis of each share to be determined immediately prior to the receipt of any property in such liquidation with respect to such share, and

"(B) the aggregate of the liabilities of the transferor assumed by the transferee in connection with the receipt of such property, of the liabilities (not assumed by the transferee) to which such property so received was subject, and of any other consideration (other than the stock with respect to which such property was received) given by the transferee for such property so received

exceeds the aggregate of the amount of the money so received and of the adjusted basis, at the time of receipt, of all property (other than money) so received.

"(3) RULES FOR APPLICATION OF PARAGRAPHS (1) AND (2).—In determining the plus adjustment or minus adjustment with respect to any share, the computation shall be made in the same manner as is prescribed in paragraphs (1) and (2) of this subsection, except that there shall be brought into account only that part of each item which is determined to be attributable to such share.

"(c) RULES FOR THE APPLICATION OF THIS SECTION.

"(1) STOCK HAVING COST BASIS.-The property received by a transferee in an intercorporate liquidation attributable to a share of stock having in the hands of the transferee a basis determined to be a cost basis, shall be considered to have, for the purposes of subsection (b), an adjusted basis at the time so received determined as follows:

"(A) The aggregate of the property (other than money) held by the transferor at the time of the acquisition by the transferee of control of the transferor (or, if such share was acquired after the acquisition of such control, at the time of the acquisition of such share, or, if such control was not acquired, at the time immediately prior to the receipt of any property in the intercorporate liquidation in respect of such share) shall be deemed to have an aggregate basis equal to the amount obtained by (i) multiplying the amount of the adjusted basis at such time of such share in the hands of the transferee by the aggregate number of share units in the transferor at such time (the interest represented by such share being taken as the share unit), and (ii) adjusting for the amount of money on hand and the liabilities of the transferor at such time.

"(B) The basis which property of the transferor is deemed to have under subparagraph (A) at the time therein specified shall be used in determining the basis of property subsequently acquired by the transferor the basis of which is determined with reference to the basis of property specified in subparagraph (A).

"(C) The basis which property of the transferor is deemed to have under subparagraphs (A) and (B) at the time therein

specified shall be used in determining all subsequent adjust-
ments to the basis of such property.

"(D) The property so received by the transferee shall
be deemed to have, at the time of its receipt, the same basis
it is deemed to have under the foregoing provisions of this
paragraph in the hands of the transferor, or in the case of
property not specified in subparagraph (A) or (B), the
same basis it would have had in the hands of the transferor.
"(E) Only such part of the aggregate property received by
the transferee in the intercorporate liquidation as is attrib-
utable to such share shall be considered as having the adjusted
basis which property is deemed to have under subparagraphs
(A), (B), (C), and (D) of this paragraph.

"(2) BASIS OF STOCK NOT A COST BASIS.-The property received by a transferee in an intercorporate liquidation attributable to a share of stock having in the hands of the transferee a basis determined to be a basis other than a cost basis shall, for the purposes of subsection (b), be considered to have, at the time of its receipt, the basis it would have had had the first sentence of section 113 (a) (15) been applicable.

"(3) DEFINITION OF CONTROL.-As used in this subsection, the term 'control' means the ownership of stock possessing at least 80 per centum of the total combined voting power of all classes of stock entitled to vote and the ownership of at least 80 per centum of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends), but only if in both cases such ownership continues until the completion of the intercorporate liquidation.

"(d) ADJUSTMENT OF EQUITY INVESTED CAPITAL.-If property is received by the transferee in an intercorporate liquidation, in computing the equity invested capital of the transferee for any day following the completion of such intercorporate liquidation

"(1) with respect to any share of stock in the transferor having in the hands of the transferee, immediately prior to the receipt of any property in such intercorporate liquidation, a basis determined to be a cost basis, the earnings and profits or deficit in earnings and profits of the transferee shall be computed as if on the day following the completion of such intercorporate liquidation the transferee had realized a recognized gain equal to the amount of the plus adjustment in respect of such share, or had sustained a recognized loss equal to the amount of the minus adjustment in respect of such share;

"(2) with respect to any share of stock in the transferor having in the hands of the transferee, immediately prior to the receipt of any property in such intercorporate liquidation, a basis determined to be a basis other than a cost basis, there shall be treated as an amount includible in the sum specified in section 458 (d) the amount of the plus adjustment with respect to such share, or as an amount includible in the sum specified in section 458 (e) the amount of the minus adjustment with respect to such share. "(e) INVESTED CAPITAL BASIS.

"The adjusted basis which property received by the transferee in an intercorporate liquidation is considered to have under the provi

1

sions of subsection (c) at the time of its receipt shall be thereafter treated as the adjusted basis, in lieu of the adjusted basis otherwise prescribed, in computing any amount, determined by reference to the basis of such property in the hands of the transferee, entering into the computation of the invested capital of the transferee, or of any other corporation the computation of the invested capital of which is determined by reference to the basis of such property in the hands of the transferee.

"(f) STATUTORY MERGERS AND CONSOLIDATIONS.-If a corporation owns stock in another corporation and such corporations are merged or consolidated in a statutory merger or consolidation, then for the purposes of this section and section 458 such stock shall be considered to have been acquired (in such statutory merger or consolidation) by the corporation resulting from the statutory merger or consolidation, and the properties of such other corporation attributable to such stock to have been received by such resulting corporation as a transferee from such other corporation as a transferor in an intercorporate liquidation.

"(g) DETERMINATIONS.—

"(1) REGULATIONS.-Any determination which is required to be made under this section (including determinations in applying this section in cases where there is a series of transferees of the property and cases where the stock of the transferor is acquired by the transferee from another corporation, and the determinations of the basis and adjusted basis which property or items thereof have or are considered to have) shall be made in accordance with regulations which shall be prescribed by the Secretary. If the transferor or the transferee is a foreign corporation, the provisions of this section shall apply to such extent and under such conditions and limitations as may be provided in such regulations.

"(2) APPLICATION TO LIQUIDATION EXTENDING OVER LONG PERIOD.-The Secretary is authorized to prescribe rules similar to those provided in this section with respect to the days within the period beginning with the date on which the first property is received in the intercorporate liquidation and ending with the day of its completion; and the extent to which, and the conditions and limitations under which, such rules are to be applicable."

TITLE II-INCREASE IN CORPORATION SURTAX
SEC. 201. SURTAX ON CORPORATIONS.

(a) RATE OF TAX.-Section 15 (b) (1) of the Internal Revenue Code (relating to rate of surtax in the case of taxable years beginning after June 30, 1950) is hereby amended by striking out "20 per centum" and inserting in lieu thereof "22 per centum".

(b) MUTUAL INSURANCE COMPANIES OTHER THAN LIFE OR MARINE.— Section 207 (a) (3) (A) (ii) of such code (relating to surtax on interinsurers or reciprocal underwriters) is hereby amended by striking out "30 per centum" and inserting in lieu thereof "33 per centum".

(c) REGULATED INVESTMENT COMPANIES.-Section 362 (b) (4) of such code (relating to surtax on regulated investment companies) is hereby amended by striking out "20 per centum" and inserting in lieu thereof "22 per centum".

(d) BUSINESS INCOME OF CERTAIN TAX-EXEMPT ORGANIZATIONS.— Section 421 (a) (1) of such code (relating to surtax of certain section 101 organizations upon unrelated business net income) is hereby amended by striking out "20 per centum” and inserting in lieu thereof "22 per centum".

(e) EFFECTIVE DATE.-The amendments made by this section shall be applicable with respect to taxable years beginning on or after July 1, 1950.

SEC. 202. CREDITS OF CORPORATIONS.

(a) CREDIT FOR DIVIDENDS PAID ON CERTAIN PREFERRED STOCK.— Section 26 (h) (1) (B) of the Internal Revenue Code (relating to credit for dividends paid on certain preferred stock) is hereby amended by striking out "31 per centum" and inserting in lieu thereof "30 per centum".

(b) WESTERN HEMISPHERE TRADE CORPORATIONS.-Section 26 (i) (1) of such code (relating to credit of western hemisphere trade corporations) is hereby amended by striking cut "31 per centum" and inserting in lieu thereof "30 per centum".

(c) EFFECTIVE DATE.-The amendments made by this section shall be applicable with respect to taxable years beginning on or after July 1, 1950.

SEC. 203. FISCAL YEAR TAXPAYERS.

Section 108 (f) (2) of the Internal Revenue Code (relating to computation of tax of a fiscal year beginning before July 1, 1950, and ending after June 30, 1950) is hereby amended by adding at the end thereof the following new sentence: "For the purposes of this paragraph, the provisions of sections 15 (b) (1), 26 (h) (1), and 26 (i) (1) shall be applied without regard to the amendments made to such provisions by Title II of the Excess Profits Tax Act of 1950."

TITLE III-MISCELLANEOUS AMENDMENTS AND

PROVISIONS

SEC. 301. CONSOLIDATED RETURNS.

Effective with respect to taxable years ending after June 30, 1950, section 141 of the Internal Revenue Code (relating to consolidated returns) is hereby amended to read as follows:

"SEC. 141. CONSOLIDATED RETURNS.

"(a) PRIVILEGE TO FILE CONSOLIDATED RETURNS.-An affiliated group of corporations shall, subject to the provisions of this section, have the privilege of making a consolidated return for the taxable year in lieu of separate returns. The making of a consolidated return shall be upon the condition that all corporations which at any time during the taxable year have been members of the affiliated group consent to all the consolidated return regulations prescribed under subsection (b) prior to the last day prescribed by law for the filing of such return. The making of a consolidated return shall be considered as such consent. In the case of a corporation which is a member of the affiliated group for a fractional part of the year, the consolidated return shall include the income of such corporation for such part of the year as it is a member of the affiliated group.

"(b) REGULATIONS.-The Secretary shall prescribe such regulations as he may deem necessary in order that the tax liability of any affiliated group of corporations making a consolidated return and of each corporation in the group, both during and after the period of affiliation, may be returned, determined, computed, assessed, collected, and adjusted, in such manner as clearly to reflect the income- and excessprofits-tax liability and the various factors necessary for the determination of such liability, and in order to prevent avoidance of such tax liability.

"(c) COMPUTATION AND PAYMENT OF TAX.-In any case in which a consolidated return is made or is required to be made, the tax shall be determined, computed, assessed, collected, and adjusted in accordance with the regulations under subsection (b) prescribed prior to the last day prescribed by law for the filing of such return; except that the tax imposed under section 15 or section 204 shall be increased by 2 per centum of the consolidated corporation surtax net income of the affiliated group of includible corporations. If the affiliated group includes one or more Western Hemisphere trade corporations (as defined in section 109), the increase of 2 per centum provided in the preceding sentence shall be applied only on the amount by which the consolidated corporation surtax net income of the affiliated group exceeds the portion (if any) of the consolidated corporation surtax net income attributable to the Western Hemisphere trade corporations included in such group. For the purposes of the tax imposed by section 430, the sum of the excess profits credit and the unused excess profits credit adjustment of the affiliated group shall not be increased under the last sentence of section 431 to an amount in excess of $25,000 for the entire group.

"(d) DEFINITION OF 'AFFILIATED GROUP'.-As used in this section, an 'affiliated group' means one or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation if

"(1) Stock possessing at least 95 per centum of the voting power of all classes of stock and at least 95 per centum of each class of the nonvoting stock of each of the includible corporations (except the common parent corporation) is owned directly by one or more of the other includible corporations; and

"(2) The common parent corporation owns directly stock possessing at least 95 per centum of the voting power of all classes of stock and at least 95 per centum of each class of the nonvoting stock of at least one of the other includible corporations. As used in this subsection, the term 'stock' does not include nonvoting stock which is limited and preferred as to dividends.

"(e) DEFINITION OF 'INCLUDIBLE CORPORATION'.-As used in this section, the term 'includible corporation' means any corporation except"(1) Corporations exempt from taxation under section 101. "(2) Insurance companies subject to taxation under section 201 or 207.

(3) Foreign corporations.

"(4) Corporations entitled to the benefits of section 251, by reason of receiving a large percentage of their income from sources within possessions of the United States.

"(5) Corporations organized under the China Trade Act, 1922.