54 STAT.] 76TH CONG., 3D SESS.-CH. 757-OCT. 8 , 1940 "(2) No such increase shall be made if (under such law) the distribution causes the basis of the stock in respect of which the distribution was made to be allocated between such stock and the property received. "(m) EARNINGS AND PROFITS-INCREASE IN VALUE AaCRUED BEFORE MARCH 1, 1913.- "(1) If any increase or decrease in the earnings or profits for any period beginning after February 28, 1913, with respect to any matter would be different had the adjusted basis of the property involved been determined without regard to its March 1, 1913, value, then, except as provided in paragraph (2), an increase (properly reflecting such difference) shall be made in that part of the earnings and profits consisting of increase in value of property accrued before March 1, 1913. "(2) If the application of subsection (1) to a sale or other disposition after February 28, 1913, results in a loss which is to be applied in decrease of earnings and profits for any period beginning after February 28 1913, then, notwithstanding subsec- tion (1) and in lieu of the rule provided in paragraph (1) of this subsection, the amount of such loss so to be applied shall be reduced by the amount, if any, by which the adjusted basis of the property used in determining the loss, exceeds the adjusted basis computed without regard to the value of the property on March 1, 1913, and if such amount so applied in reduction of the decrease exceeds such loss, the excess over such loss shall increase that part of the earnings and profits consisting of increase in value of property accrued before March 1, 1913. (b) EFFECTIVE DATE OF AMENDMENT.- The amendment made by subsection (a) shall be applicable to taxable years beginning after December 31, 1938. (c) UNDER PRIOR ACTs. - For the purposes of the Revenue Act of 1938 or any prior Revenue Act the amendments made to the Internal Revenue Code by subsection (a) of this section shall be effective as if they were a part of each such Revenue Act on the date of its enactment. Nothing in this subsection shall affect the tax liability of any taxpayer for any year which, on September 20, 1940, was pending before, or was theretofore determined by, the Board of Tax Appeals, or any court of the United States. SEC. 502. TAX OF SHAREHOLDERS'OF PERSONAL SERVICE CORPO- RATIONS. The Internal Revenue Code is amended by inserting after section 373 the following new Supplement: "Supplement S-Tax of Shareholders of Personal Service Corporations "SEC. 391. APPLICABILITY OF SUPPLEMENT. "If a personal service corporation (as defined in section 725) is exempt under such section for any taxable year from the excess profits tax imposed by such subchapter, the provisions of this Supplement shall be applicable with respect to each shareholder of such corpora- tion who was a shareholder in such corporation on the last day of such taxable year of the corporation. "SEC. 392. UNDISTRIBUTED SUPPLEMENT S NET INCOME. "For the purposes of this chapter, the term 'undistributed Supple- ment S net income' means the Supplement S net income (as defined in section 393) minus the amount of the dividends paid during the 1005 Increase nl value accrued before March 1, 1913. Effective date of amendment. Under prior Acts. 52 Stat. 447. Ante, p. 1004 . 53 Stat. 102. 26 U. 8. C., Supp. V, I 373. Applicability of Supplement. Ante, p. 987 . " Undistributed Supplement 8 net in- come." Post, p. 1006.