77TH CONG., 2D SESS.-CH. 619--OCT. 21, 1942 account shall be taken of the capital addition or capital reduction of such component corporation either immediately before such transaction or for any prior period, or of the capital addition or capital reduction either immediately before such transaction or for any prior period of its component corporations in any trans- action before such transaction. "(2) In case such transaction occurred in a taxable year of such component corporation beginning after December 31, 1941, for the purpose of computing the excess profits credit of such com- ponent corporation for such taxable year, the amount of its aver- age base period net income or Supplement A average base period net income, as the case may be, shall be limited to an amount which bears the same ratio to such average base period net income or Supplement A average base period net income, as the case may be (computed without regard to this paragraph but with the application of paragraph (1) in case of a prior transaction described in subsection (a) with respect to such component cor- poration or a component corporation thereof), as the number of days in such taxable year before the day after such transaction bears to the total number of days in such taxable year. For the purposes of section 742, in the case of a corporation which is a component corporation in a transaction described in subsection (a), in computing for any taxable year the Supplement A average base period net income of the acquiring corporation in such transaction or of a corporation of which such acquiring corporation becomes a com- ponent corporation, no account shall be taken of the excess profits net income of such component corporation for any period beginning with the day after such transaction. (d) In the case of a taxpayer which is an acquiring corporation the base period shall be the four calendar years 1936 to 1939, both inclusive, except that, if the taxpayer became an acquiring corporation prior to September 1, 1940, the base period shall be the same as that applicable to its first taxable year ending in 1941. "(e) BASE PERIOD YEARS.- In the case of a taxpayer which is an acquiring corporation its base period years shall be the four successive twelve-month periods beginning on the same date as the beginning of its base period. "(f) EXISTENCE OF ACQUIRING CORPORATION. -For the purposes of section 712 (a), if any component corporation of the taxpayer was in existence before January 1, 1940, tile taxpayer shall be considered to have been in existence before such date. "(g) COMPONENT CORPORATIONS OF COMPONENT CORPORATIONS. -If a corporation is a component corporation of an acquiring corpora- tion, under subsection (b) or under this subsection, it shall (except for the purposes of section 742 (d) (1) and (2) and section 743 (a) (1), (2), and (3)) also be a component corporation of the cor- poration of which such acquiring corporation is a component cor- poration. "(h) SOLE PROPRIETORSHIP.- For the purposes of sections 740 (a) (1) (D), 740 (b) (5), and 742 (g), a business owned by a sole proprietorship shall be considered a partnership." (b) REPEAL OF SECTION 741 (a). -Section 741 (a) is repealed. (c) AMENDMENTS TO SECTION 742.-Section 742 is amended to read as follows: "SEC. 742. SUPPLEMENT A AVERAGE BASE PERIOD NET INCOME. "In the case of a taxpayer which is an acquiring corporation, its average base period net income (for the purpose of the credit com- 56 STAT.] 925 Infra Infra. 54 Stat. 979. 26 U.. S. C., Supp. 1,
- 712 (a).
Pos, pp. 927,930. Ante, p. 924. Post, p. 929. 55 Stat. 30. 26 U.S. C ., Supp. I, § 741 (a). 54 Stat. 992. 26U. .C. 742; Supp. I, 1742.
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