Page:United States Statutes at Large Volume 54 Part 1.djvu/1019

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54 STAT.] 76TH CONG. , 3D SESS.-CH. 757-OCT. 8 , 1940 furnish articles, materials, or supplies to such foreign govern- ment, if such contract provides for advance payment and for repayment by the vendor of any part of such advance payment upon cancellation of the contract by such foreign government, the amount which would be required to be so repaid if can- cellation occurred at the beginning of such day, but no amount shall be considered as borrowed capital under this paragraph which has been includible in gross income. "(b) BORROWED INVESTED CAPITAL. -The borrowed invested capital for any day of any taxable year shall be determined as of the begin- ning of such day and shall be an amount equal to 50 per centum of the borrowed capital for such day. "SEC. 720. ADMISSIBLE AND INADMISSIBLE ASSETS. "(a) DEFINITIONS. -For the purposes of this subchapter- "(1) The term 'inadmissible assets' means- "(A) Stock in corporations except stock in a foreign personal-holding company; and "(B) Except as provided in subsection (d), obligations described in section 22 (b) (4) any part of the interest from which is excludible from gross income or allowable as a credit against net income. "(2) The term 'admissible assets' means all assets other than inadmissible assets. "(b) RATIO OF INADMISSIBLES TO TOTAL ASSETS. -The amount by which the average invested capital for any taxable year shall be reduced as provided in section 715 shall be an amount which is the same percentage of such average invested capital as the percentage which the total of the inadmissible assets is of the total of admissible and inadmissible assets. For such purposes, the amount attributable to each asset held at any time during such taxable year shall be deter- mined by ascertaining the adjusted basis thereof (or, in the case of money, the amount thereof) for each day of such taxable year so held and adding such daily amounts. The determination of such daily amounts shall be made under regulations prescribed by the Commis- sioner with the approval of the Secretary. The adjusted basis shall be the adjusted basis for determining loss upon sale or exchange as determined under section 113. "(c) COMPUTATION IF SHORT-TERM CAPITAL GAIN.-If during the taxable year there has been a short-term capital gain with respect to an inadmissible asset, then so much of the amount attributable to such inadmissible asset under subsection (b) as bears the same ratio thereto as such gain bears to the sum of such gain plus the dividends and interest on such asset for such year, shall, for the purpose of deter- mining the ratio of inadmissible assets to the total of admissible and inadmissible assets, be added to the total of admissible assets and subtracted from the total of inadmissible assets. "(d) TREATMENT OF GOVERNMENT OBLIGATIONS AS ADMSSIBLE ASSETS.- If the excess profits credit for any taxable year is computed under section 714, the taxpayer may in its return for such year elect to increase its normal-tax net income for such taxable year by an amount equal to the amount of the interest on all obligations held during the taxable year which are described in section 22 (b) (4) any part of the interest from which is excludible from gross income or allowable as a credit against net income. In such case, for the pur- poses of this section, the term 'admissible assets' includes such obli- gations, and the term 'inadmissible assets' does not include such obligations. Borrowed invested capital. Definitions. "Inadmissible as- sets." Infra. 53 Stat. 10. 26 U. S. C., Spp. , 22 (b) (4). "Admissible assets." Ratio of inadmis- sibles to total assets. Ante, p. 92 . 53 Stat. 40 . 26 U. S. C., Supp. V, 11l3. Computation if short-term capital galn. Government obliga- tions as admissible assets. Ante, p. 981. 53 Stat. 10. 26 U.S . C., Supp. V, 22 (b) (4).