PUBLIC LAWS-CH. 757-OCT. 8 , 1940 Affiliated corpora- tions. "Stock" construed. principal contractor and the subcontractor between which such sub- contract is entered into are not affiliated within the meaning of sub- section (b) of this section at the time such subcontract is entered into or at any time thereafter up to and including the date of its comple- tion; and any agreement, pursuant to which the subcontractor is required to pay to the United States Maritime Commission profit in excess of 10 per centum of the contract price of any such subcontract or pursuant to which such an agreement is required to be obtained from such subcontractor relative to such subcontract, shall be without effect. This subsection shall apply only if both the principal contractor and the subcontractor are corporations. (b) For the purposes of this section, two or more corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the stock of the other or others, or (2) if at least 95 per centum of the stock of two or more corporations is owned by the same interests. As used in this subsection, the term "stock" does not include nonvoting stock which is limited and preferred as to dividends. TITLE V-AMENDMENTS TO INTERNAL REVENUE CODE SEC. 501. EARNINGS AND PROFITS OF CORPORATIONS. (a) UNDrE INTERNAL REVENUE CoDE.- Section 115 of the Internal Revenue Code is amended by inserting at the end thereof the following new subsections: "(1) EFFECT ON EARNINGS AND PROFITS OF GAIN O Loss AND OF RECEIPr OF TAX-FREE DISTRIBrUIONs.-T he gain or loss realized from the sale or other disposition (after February 28, 1913) of property by a corporation- " (1) for the purpose of the computation of earnings and profits of the corporation, shall be determined, except as provided in paragraph (2), by using as the adjusted basis the adjusted basis (under the law applicable to the year in which the sale or other disposition was made) for determining gain, except that no regard shall be had to the value of the property as of March 1, 1913; but "(2) for the purpose of the computation of earnings and profits of the corporation for any period beginning after February 28, 1913, shall be determined by using as the adjusted basis the adjusted basis (under the law applicable to the year in which the sale or other disposition was made) for determining gain. Gain or loss so realized shall increase or decrease the earnings and profits to, but not beyond, the extent to which such a realized gain or loss was recognized in computing net income under the law applicable to the year in which such sale or disposition was made. Where in determining the adjusted basis used in computing such realized gain or loss the adjustment to the basis differs from the adjustment proper for the purpose of determining earnings or profits, then the latter adjustment shall be used in determining the increase or decrease above provided. Where a corporation receives (after February 28, 1913) a distribution from a second corporation which (under the law applicable to the year in which the distribution was made) was not a taxable dividend to the shareholders of the second corporation, the amount of such distribution shall not increase the earnings and profits of the first corporation in the following cases: "(1) No such increase shall be made in respect of the part of such distribution which (under such law) is directly applied in reduction of the basis of the stock in respect of which the distribution was made. Internal Revenue Code, amendments. 53 Stat. 48. 26 U. S. C., Supp. V,S 15(k). Effect of gain or loss and of receipt of tax- free distributions. 1004 [54 STAT.
�
