56 STAT.] 77TH CONG. , 2D SESS.-CH. 619-OCT. 21 , 1942 income in lieu of the average base period net income otherwise deter- mined under this subchapter. In determining such constructive aver- age base period net income, no regard shall be had to events or condi- tions affecting the taxpayer, the industry of which it is a member, or taxpayers generally occurring or existing after December 31, 1939, except that, in the cases described in the last sentence of section 722 (b) (4) and in section 722 (c), regard shall be had to the change in the character of the business under section 722 (b) (4) or the nature of the taxpayer and the character of its business under section 722 (c) to the extent necessary to establish the normal earnings to be used as the constructive average base period net income. "(b) TAXPAYERS USING AVERAGE EARNINGS METHOD. -The tax com- puted under this subchapter (without the benefit of this section) shall be considered to be excessive and discriminatory in the case of a tax- payer entitled to use the excess profits credit based on income pursuant to section 713, if its average base period net income is an inadequate standard of normal earnings because- "(1) in one or more taxable years in the base period normal production, output, or operation was interrupted or diminished because of the occurrence, either immediately prior to, or during the base period, of events unusual and peculiar in the experience of such taxpayer, "(2) the business of the taxpayer was depressed in the base period because of temporary economic circumstances unusual in the case of such taxpayer or because of the fact that an industry of which such taxpayer was a member was depressed by reason of temporary economic events unusual in the case of such industry, "(3) the business of the taxpayer was depressed in the base period by reason of conditions generally prevailing in an industry of which the taxpayer was a member, subjecting such taxpayer to "(A) a profits cycle differing materially in length and amplitude from the general business cycle, or "(B) sporadic and intermittent periods of high produc- tion and profits, and such periods are inadequately repre- sented in the base period, "(4) the taxpayer, either during or immediately prior to the base period, commenced business or changed the character of the business and the average base period net income does not reflect the normal operation for the entire base period of the business. If the business of the taxpayer did not reach by the end of the base period, the earning level which it would have reached if the taxpayer had commenced business or made the change in the character of the business two years before it did so, it shall be deemed to have commenced the business or made the change at such earlier time. For the purposes of this subparagraph, the term 'change in the character of the business' includes a change in the operation or management of the business, a difference in the products or services furnished, a difference in the capacity for production or operation, a difference in the ratio of nonbor- rowed capital to total capital, and the acquisition before January 1, 1940, of all or part of the assets of a competitor, with the result that the competition of such competitor was eliminated or dimin- ished. Any change in the capacity for production or operation of the business consummated during any taxable year ending after December 31, 1939, as a result of a course of action to which the taxpayer was committed prior to January 1, 1940, or any acquisition before May 31, 1941, from a competitor engaged 915 Infra. Post, p. 916. 54 Stat. 980. 26U.s. . § 713; Supp. I, § 713. Ante, pp . 909, 910; post, p. 931. Unusual and pecu- liar events affecting operation; Temporary eco- nomic circumstances of unusual character. Prevailing condi- tions in an industry. Change in character of business.
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