55 STAT.] 77TH CONG. , 1ST SESS.-CH. 10-MAR. 7 , 1941 "(d) COMPUTATION OF TAX FOR FUTURE TAXABLE YEAR. -The amount of the net abnormal income attributable to any future taxable year shall, for the purposes of this subchapter, be included in the gross income for such taxable year. The tax under this subchapter for such future taxable year shall not exceed the sum of- "(1) the tax under this subchapter for such future taxable year computed without the inclusion in excess profits net income of the portion of such net abnormal income which is attributable to such year, and "(2) the decrease in-the tax under this subchapter for the previous taxable year in which the whole of such abnormal income would without regard to this section be includible, which resulted by reason of the exclusion of the whole or a part of the abnormal income from the gross income for such previous taxable year; but the amount of such decrease shall be dimin- ished by the aggregate of the increases in the tax under this sub- chapter which have resulted for the taxable years intervening between such previous taxable year and such future taxable year because of the inclusion in the gross income of the portions of such net abnormal income attributable to such intervening years." SEC. 6. ABNORMAL BASE PERIOD EARNINGS. Section 722 of the Internal Revenue Code is amended to read as follows: "SEC. 722. ADJUSTMENT OF ABNORMAL BASE PERIOD NET INCOME. "(a) GENERAL RULE.-In the case of a taxpayer whose first tax- able year under this subchapter begins in 1940, if the taxpayer establishes- "(1) that the character of the business engaged in by the tax- payer as of January 1, 1940, is different from the character of the business engaged in during one or more of the taxable years in its base period (as defined in section 713 (b) (1)); or "(2) that in one or more of the taxable years in such base period normal production, output, or operation was interrupted or diminished because of the occurrence of events abnormal in the case of such taxpayer; and "(3) the amount that would have been its average base period net income- "(A) if the character of the business as of January 1, 1940, had been the same during each of the taxable years of such base period; and "(B) if none of the abnormal events referred to in para- graph (2) had occurred; and "(C) if in each of such taxable years none of the items of gross income had been abnormally large, and none of the items of deductions had been abnormally small; and "(4) that the amount established under paragraph (3) is greater than the average base period net income computed under section 713 (d) or section 742, as the case may be, then the amount established under paragraph (3) shall be considered as the average base period net income of the taxpayer for the pur- poses of this subchapter. "(b) RULES FOR APPLICATION OF SrUBsECION (a).-For the purposes of subsection (a)- "(1) High prices of materials, labor, capital, or any other agent of production, low selling price of the product of the tax- payer, or low physical volume of sales owing to low demand for such product or for the output of the taxpayer, shall not be considered as abnormal. 54 Stat. 986. 26 U. ... §722. Ante, p. 19. Ante, p. 19; post, p. 30. 54 Stat. 992. 26U.S.O. 742. 23
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