Page:United States Statutes at Large Volume 54 Part 1.djvu/1018

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PUBLIC LAWS-CH. 757-OCT. 8 , 1940 Rules for applica- tion of subsections (a) and (b). Distributions to shareholders. Distributions in first 60 days of taxable year. Computation of earnings, etc. Ante, pp. 982 983. Stock in case of merger or consolida- tion. Computation of property. Pod, p. 995. Equity invested capital. Pon, p. 986. Borrowed capital. Outstandingindebt- edness. PFo, p . 995. Contracts with for- eign governments. Ante. p.974;po p. mal "(c) RULEs FOR APPLICATION OF SUBSECTIONS (A) AND (B).- For the purposes of subsections (a) and (b)- "(1) DISTRIBUTIONS TO snAREHoLDERs. --The term 'distribution' means a distribution by a corporation to its shareholders, and the term 'distribution in stock' means a distribution by a cor- poration in its stock or rights to acquire its stock. To the extent that a distribution in stock is not considered a distribu- tion of earnings and profits it shall not be considered a distribu- tion. A distribution in stock shall not be regarded as money or property paid in for stock, or as paid-in surplus, or as a contribution to capital. "(2) DISTRIBUTIONS IN FIRST SIXTY DAYS OF TAXABLE YEAR.- In the application of such subsections to any taxable year beginning after December 31, 1940, so much of the distributions (taken in the order of time) made during the first sixty days thereof 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. (3) COMPUTATION OF EARNINGS AND PROFITS OF TAXABLE YEAR. - For the purposes of subsections (a) (3) (B) and (b) (2) 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 subchapter 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. "(4) STOCK IN CASE OF MERGER OR CONSOLIDATION.-If a corpo- ration owns stock in another corporation, and- "(A) such corporations are merged or consolidated in a statutory merger or consolidation, or "(B) such corporations are parties to a transaction which results in the elimination of such stock in a manner similar to that resulting from a statutory merger or consolidation, then such stock shall not be considered as property paid in for stock of, or as paid-in surplus of, or as a contribution to capital of, the corporation resulting from the transaction referred to in subparagraph (A) or (B). "(d) For special rules affecting computation of property paid in for stock in connection with certain exchanges and liquidations, see section 751 (a). "(e) For determination of equity invested capital in special cases, see section 723. "SEC. 719. BORROWED INVESTED CAPITAL. "(a) BomRowED CArrTAL. - The borrowed capital for any day of any taxable year shall be determined as of the beginning of such day and shall be the sum of the following: "(1) The amount of the outstanding indebtedness (not includ- ing interest, and not including indebtedness described in section 751 (b) relating to certain exchanges) of the taxpayer which is evidenced by a bond, note, bill of exchange, debenture, certificate of indebtedness, mortgage, or deed of trust, plus, "(2) In the case of a taxpayer having a contract (made before the expiration of 30 days after the date of the enactment of the Second Revenue Act of 1940) with a foreign government to [54 STAT. 984