PUBLIC LAWS-CH. 412 -SEPT. 20, 1941 53 Stat. 170 . 26U. S. C. 1202(b) (1) (iii). 54 Stat. 982, 983. 26 U. S. C. §718(a). 53 Stat. 37-39. 26U.S.C. 112. 53 Stat. 101. 26U.S. C. 371(g). 53 Stat. 40. 26U.S. C. 112(h). Controlled groups. Limitation on stock distribution. 54 Stat. 985. 26 U.S. C .§ 720 (b). (2) Section 1202 (b) (1) (iii) is amended to read as follows: "(iii) the excess of the deductions allowable for income tax purposes (not including the deduction for the tax imposed by Subchapter E of Chapter 2) over its gross income." SEC. 203. NEW CAPITAL. Section 718 (a) of the Internal Revenue Code is amended by strik- ing out "and" at the end of paragraph (4); by striking out the period at the end of paragraph (5) and inserting in lieu thereof a semicolon and the word "and", and by inserting at the end thereof the following: "(6) NEW CAPITAL.-An amount equal to 25 per centum of the new capital for such day. The term 'new capital' for any day means so much of the amounts of money or property includible for such day under paragraphs (1) and (2) as was previously paid in during a taxable year beginning after December 31, 1940, and so much of the distributions in stock includible for such day under paragraph (3) as was previously made during a taxable year beginning after December 31, 1940, subject to the following limitations: "(A) There shall not be included money or property paid in by a corporation in an exchange to which section 112 (b) (3), (4), or (5), or so much of section 112 (c), (d), or (e) as refers to section 112 (b) (3), (4), or (5) is applicable (or would be applicable except for section 371 (g)), or would have been applicable if the term 'control' had been defined in section 112 (h) to mean the ownership of stock possessing more than 50 per centum of the total combined voting power of all classes of stock entitled to vote or more than 50 per centum of the total value of shares of all classes of stock. "(B) There shall not be included money or property paid in to the taxpayer by a transferor corporation if immediately after such transaction the transferor and the taxpayer are members of the same controlled group. As used in this sub- paragraph and subparagraph (C), a controlled group means one or more chains of corporations connected through stock ownership with a common parent corporation if (i) more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or more than 50 per centum of the total value of shares of all classes of stock, of each of the corporations (except the common parent corporation) is owned directly by one or more of the other corporations, and (ii) the common parent corporation owns directly more than 50 per centum of the total combined voting power of all classes of stock entitled to vote, or more than 50 per centum of the total value of shares of all classes of stock, of at least one of the other corporations. "(C) There shall not be included a distribution in stock described in paragraph (3) made to another corporation, if immediately after the distribution the taxpayer and the distributee are members of the same controlled group. "(D) Increase in Inadmissible Assets. - The new capital for any day of the taxable year, computed without the appli- cation of subparagraph (E), shall be reduced by the excess, if any, of the amount computed under section 720 (b) with respect to inadmissible assets held on such day, over the amount computed under section 720 (b) with respect to inadmissible assets held on the first day of the taxpayer's first 702 [55 STAT.
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