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SEVENTIETH CONGRESS . SESS . I. CFI. 852 . 1928 . the net income of the taxpayer (computed without allowance for depletion) from the property, except that in no case shall the depletion allowance be less than it would be if computed without reference to this paragraph . SEC . 115 . DISTRIBUTIONS BY CORPORATIONS . (a) Definition of dividend .-The term "dividend" when used in this title (except in section 203 (a) (4) and section 208(c) (1), relating to insurance companies) means any distribution made by a corporation to its shareholders, whether in money or in other property, out of its earnings or profits accumulated after February 28, 1913 . (b) Source of distributions .-For the purposes of this Act every distribution is made out of earnings or profits to the extent thereof , and from t he mos t rece ntly a ccumula ted ea rnings or pr ofits . Any earnings or profits accumulated, or increase in value of prop- erty accrued, before March 1, 1913, may be distributed exempt from tax, after the earnings and profits accumulated after February 28, 1913, have been distributed, but any such tax-free distribution shall be applied against and reduce the basis of the stock provided in section 113 . (c) Distributions in liquidation .-Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquida- tion of a corporation shall be treated as in part or full payment in Determination
of gain or lo ss to dis - exchange for the stock . The gain or loss to the distributes resulting tributes .
from such exchange shall be determined under section 111, but shall Pa rti al liquidation
b
9 distribution . be recognized only to the extent provided in section 112 . In the c ase o f amo unts dist ribut ed in par tial liqui dati on (o ther than a distribution within the provisions of section 112(h) of stock or securities in connection with a reorganization) the part of such distribution which is properly chargeable to capital account shall not be considered a distribution of earnings or profits within the meaning of subsection (b) of this section for the purpose of deter- mining the taxability of subsequent distributions by the corporation . (d) Other distributions from capital .-If any distribution (not in partial or complete liquidation) made by a corporation to its share holder s is n ot out of in crease in val ue of proper ty acc rued before March 1, 1913, and is not out of earnings or profits, then the amount of such distribution shall be applied against and reduce the basis of the stock provided in section 113, and if in excess of such basis, such excess shall be taxable in the same manner as a gain from the sale or exchange of property . The provisions of this sub- section shall also apply to distributions from depletion reserves based on the discovery value of mines . (e) Distributions by personal service corporations .-Any distribu- tion made by a corporation, which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 or the Revenue Act of 1921, out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Revenue Act of 1918 or section 218 of the Revenue Act of 1921, shall be exempt from tax to the distributees . (f) Stock dividends .-A stock dividend shall not be subject to tax. (g) Redemption of stock . If a corporation cancels or redeems its stock (whether or not such stock was issued as a stock dividend) at such time and in such manner as to make the distribution and cancellation or redemption in whole or in part essentially equiva- lent to the distribution of a taxable dividend, the amount so dis- tributed in redemption or cancellation of the stock, to the extent INC OME TAX Distributions by cor- porations. From earnings, etc ., after February 28, 1913, d eemed div iden ds . To in surance rese rve excepted. Sourc es . Accumulations, etc., before March 1, 1913, tax tree. Condition . Distribution in liqui- dat ion a pa yment for st ock . Distributions not from increase of value before March 1, 1913, nor out of earnings or prof its . Depletion reserves of mines . Exemption of di s- tributees of previously taxable earnings of per- sonal service corpora- tions . Vol. 42, p . 245, Vol . 44, p. 32. Stock dividends not taxable. Redemption of stock . Proceeds of, treated as taxable dividends .
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