the time of the payment, or the fair market value of the property at the time of the payment, whichever is the lower. (e) DIVIDENDS IN OBLIGATIONS OF THE CORPORATION.- If a divi- dend is paid in obligations of the corporation, the amount with respect thereto which shall be used in computing the basic surtax credit shall be the face value of the obligations, or their fair market value at the time of the payment, whichever is the lower. If the fair market value of any such dividend paid in any taxable year of the corporation beginning after December 31, 1935, is lower than the face value, then when the obligation is redeemed by the corporation the excess of the amount for which redeemed over the fair market value at the time of the dividend payment (to the extent not allow- able as a deduction in computing net income for any taxable year) shall be treated as a dividend paid in the taxable year in which the redemption occurs. (f) TAXABLE STOCK DIVIDENDs. -In case of a stock dividend or stock right which is a taxable dividend in the hands of shareholders under section 115 (f), the amount with respect thereto which shall be used in computing the basic surtax credit shall be the fair market value of the stock or the stock right at the time of the payment. (g) DISTRIBUTIONS IN LIQUIDATION.- In the case of amounts dis- tributed in liquidation the part of such distribution which is prop- erly chargeable to the earnings or profits accumulated after February 28, 1913, shall, for the purposes of computing the basic surtax credit under this section, be treated as a taxable dividend paid. (h) PREFERENTL DIVIDENDs.- The amount of any distribution (although each portion thereof is received by a shareholder as a tax- able dividend), not made in connection with a consent distribution (as defined in section 28 (a) (4)), shall not be considered as divi- dends paid for the purpose of computing the basic surtax credit, unless such distribution is pro rata, with no preference to any share of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that the former is entitled (without reference to waivers of their rights by shareholders) to such preference. For a distribution made in connection with a consent distribution, see section 28. (i) NONTAXABLE DISTRIBUTIONS.-If any part of a distribution (including stock dividends and stock rights) is not a taxable divi- dend in the hands of such of the shareholders as are subject to tax- ation under this chapter for the period in which the distribution is made, such part shall not be included in computing the basic surtax credit. SEC. 28. CONSENT DIVIDENDS CREDIT. (a) DEFINITIONs. -As used in this section- (1) CONSENT STOCK.- The term "consent stock" means the class or classes of stock entitled, after the payment of preferred divi- dends (as defined in paragraph (2)), to a share in the distribution (other than in complete or partial liquidation) within the taxable year of all the remaining earnings or profits, which share consti- tutes the same proportion of such distribution regardless of the amount of such distribution. (2) PREFEED DIVIDENDS.-T he term "preferred dividends" means a distribution (other than in complete or partial liquida- tion), limited in amount, which must be made on any class of stock before a further distribution (other than in complete or partial liquidation) of earnings or profits may be made within the taxable year. (3) CONSENT DIVIDENDS DAY. - The term "consent dividends day" means the last day of the taxable year of the corporation, unless during the last month of such year there have occurred one or more INCOME TAX 21
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