Page:United States Statutes at Large Volume 54 Part 1.djvu/1040

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PUBLIC LAWS-CH. 757-OCT. 8, 1940 taxable year. For the purposes of this section the amount of dividends S3 Stat. Supp. paid shall be computed in the same manner as provided in subsections VI27(d)-(i).' (d), (e), (f), (g), (h), and (i) of section 27 for the purpose of the basic surtax credit provided in section 27. "SEC. 393. SUPPLEMENT S NET INCOME. "Supplement s net "For the purposes of this chapter 'Supplement S net income' means caption defined; e- the net income, except that there shall be allowed as additional deductions- "(a) The Federal income tax payable under this chapter for the taxable year; and 53 Stat. 15. "(b) In lieu of the deduction allowed by section 23 (q), contribu- v, 2 23()., u p p tions or gifts, payment of which is made within the taxable year, to or for the use of donees described in section 23 (q) for the purposes therein specified, to an amount which does not exceed 15 per centum of the corporation's net income, computed without the benefit of this subsection and section 23 (q). "SEC. 394. CORPORATION INCOME TAXED TO SHAREHOLDERS. eneral rule. "(a) GENERAL RuLE. -The undistributed Supplement S net income of a personal service corporation shall be included in the gross income of the shareholders in the manner and to the extent set forth in this Supplement. grsinome.ld (b) AMoUNT INCLU INCLuDED iN GROSS INCOME.- Each shareholder who, on the last day of the taxable year of the corporation, was a share- holder in such corporation shall include in his gross income, as a dividend, for the taxable year in which or with which the taxable year of the corporation ends, the amount he would have received as a dividend if on such last day there had been distributed by the corpo- ration, and received by the shareholders, an amount equal to the undis- tributed Supplement S net income of the corporation for its taxable year. tiotns of ob. g., "(c) CREDIT FOR OBLIGATIONS OF THE UNITED STATES AND ITS INSTRU- s3 Stat. 5, 7 , 8, 71, MENTALrTIE.- Each such shareholder shall be allowed a credit against 26 . . C ., Supp. net income, for the purposes of the tax imposed by section 11, 13, 14, v, or'33 .1 4 20, , 201, 204, 207, or 362, of his proportionate share of the interest specified 23 Sa. Su17 pp in section 25 (a) (1) or (2) which is included in the gross income V, i 25 (a) (1)or (2). of the corporation. Effect on capital ac- "(d) EFFECT ON CAPITAL ACCOUNT OF PERSONAL SERVICE CORPORA- count of personal serv- ice corporation. TION. -An amount equal to the undistributed Supplement S net income of the personal service corporation for its taxable year shall be considered as paid in as of the close of such taxable year as paid-in surplus or as a contribution to capital, and the accumulated earnings and profits as of the close of such taxable year shall be correspond- ingly reduced, if such amount or any portion thereof is required to be otok included as a dividend in the gross income of the shareholders. handsofshareholders. "(e) BASIS OF S IN HA OF INH OF SHAREHOLDERS.-The amount required to be included in the gross income of the shareholder under subsection (b) shall, for the purpose of adjusting the basis of his stock with respect to which the distribution would have been made (if it had been made), be treated as having been reinvested by the shareholder as a contribution to the capital of the corporation; but only to the extent to which such amount is included in his gross income in his return, increased or decreased by any adjustment of such amount in the last determination of the shareholder's tax liability, made before the expiration of seven years after the date prescribed by law for filing the return. oas iant ".(f} PzRiOD OF LIMITATION ON ASSESssMNT AND COLLECTION.- For ,lection.a perso of limitation on assessment and collection without assessment, 1006 [54 STAT.