PUBLIC LAWS--C 289-MAY 28 , 1938 Bad debts. General rule. Exception. Post, p. 48. Securities becoming worthless. Post, p. 484. "Securities" de- fined. Depreciation, etc., of business property. Life tenancy. Property held in trust. Mines, oil and gas wells, timber etc. Allowance for deple- tion, etc. Revision of esti- mates allowed. Lesses. Life estates. Property held In trust. Pod,p. 495. Basis for deprecia- tion and depletion. Pot. p . 494. (k) BAD DEBTS. - (1) GENERA RULE.- Debts ascertained to be worthless and charged off within the taxable year (or, in the discretion of the Commissioner, a reasonable addition to a reserve for bad debts); and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt, in an amount not m excess of the part charged off within the taxable year, as a deduction. This paragraph shall not apply in the case of a taxpayer, other than a bank, as defined in section 104, with respect to a debt evi- denced by a security as defined in paragraph (3) of this sub- section. (2) SECURITEs BECOMING WORTHLESS.- If any securities (as defined in paragraph (3) of this subsection) are ascertained to be worthless and charged off within the taxable year and are capital assets, the loss resulting therefrom shall, in the case of a taxpayer other than a bank, as defined in section 104, for the purposes of this title, be considered as a loss from the sale or exchange, on the last day of such taxable year of capital assets. (3) DEFINITION OF SECURTIES.- As used in this subsection the term "securities" means bonds, debentures, notes, or certificates, or other evidences of indebtedness, issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form. (1) DEPRECIATION. -A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. In the case of property held by one person for life with remainder to another person, the deduc- tion shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. (m) DEPLETION. -In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar condi- tions in each case; such reasonable allowance in all cases to be made under rules and regulations to be prescribed by the Commissioner, with the approval of the Secretary. In any case in which it is ascer- tained as a result of operations or of development work that the recoverable units are greater or less than the prior estimate thereof, then such prior estimate (but not the basis for depletion) shall be revised and the allowance under this subsection for subsequent taxable years shall be based upon such revised estimate. In the case of leases the deductions shall be equitably apportioned between the lessor and lessee. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust the allowable deduction shall be apportioned between the income bene- ficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provi- sions, on the basis of the trust income allocable to each. (For per- centage depletion allowable under this subsection, see section 114 (b), (3) and (4).) (n) BASIS FOR DEPRECIATION AND DEPLErION. -The basis upon which depletion, exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be as provided in section 114. 462 [52 STAT.
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