"(A) such a plan shall not become subject to the requirements of section 165 (a) (3), (4), (5), and (6) until the beginning of the first taxable year beginning after December 31, 1942,

"(B) such a plan shall be considered as satisfying the requirements of section 165 (a) (3), (4), (5), and (6) for the period beginning with the beginning of the first taxable year following December 31, 1942, and ending June 30, 1945, if the provisions thereof satisfy such requirements by June 30, 1945, and if by that time all provisions of such plan which are necessary to satisfy such requirements are in effect and have been made effective for all purposes with respect to the portion of such period after December 31, 1943."

"(C) if the contribution of an employer to such a plan in the employer's taxable year beginning in 1942 exceeds the maximum amount deductible for such year under section 23 (p) (1), as amended by this section, the amount deductible in such year shall be not less than the sum of— "(1) the amount paid in such taxable year prior to September 1, 1942, and deductible under section 23 (a) or 23 (p) prior to amendment by this section, and

"(11) with respect to the amount paid in such taxable year on or after September 1, 1942, that proportion of the amount deductible for the taxable year under section 23 (p) (1), as amended by this section, which the number of months after August 31, 1942, in the taxable year bears to twelve.

"(2) A stock bonus, pension, profit-sharing, or annuity plan

"(A) put into effect after September 1, 1942, and prior to January 1, 1945, shall be considered as satisfying the requirements of section 165 (a) (3), (4), (5), and (6) for the period beginning with the date on which it was put into effect and ending with June 30, 1945, if all provisions of the plan which are necessary to satisfy such requirements are in effect by the end of such period and have been made effective for all purposes with respect to the portion of such period after December 31, 1943;

"(B) put into effect after December 31, 1944, shall be considered as satisfying the requirements of section 165 (a) (3), (4), (5), and (6) for the period beginning with the date on which it was put into effect and ending with the 15th day of the third month following the close of the taxable year of the employer in which the plan was put in effect, if all provisions of the plan which are necessary to satisfy such requirements are in effect by the end of such period and have been made effective for all purposes with respect to the whole of such period."

Amendment of subsec. (b) (3) by act Oct. 21, 1942, § 111 (a), was made effective by section 111 (e) thereof as follows: "(e) The amendments made by this section (to sections 22 (b) (3), 162 (b-d), and 164) shall be applicable only with respect to taxable years beginning after December 31, 1941; except that in the case of income paid, credited or to be distributed or amounts paid, credited or to be distributed by an estate or trust the amendments made by this section shall be applicable only with respect to such income and such amounts paid, credited or to be distributed on or after the beginning of the first taxable year of the estate or trust, as the case may be, beginning after December 31, 1941."

Amendment of subsec. (b) (4) by act Oct. 21, 1942, § 112 (a), inserting words "to the extent they represent deposits made before March 1, 1941" was made effective as of March 1, 1941, by section 112 (c) thereof.

Amendment of subsec. (b) by act Oct. 21, 1942, § 114 (b), adding par. (10), was made applicable to taxable years beginning after Dec. 31, 1939, by section 114 (c) thereof.

Amendment of subsec. (b) by act Oct. 21, 1942, § 116 (a), adding par. (12), was made applicable to taxable years beginning after Dec. 31, 1938, by section 116 (b) thereof.

Amendments of subsec. (d), pars. (2) (B) and (5) (B) by act Oct 21, 1942, § 118 (a, b), were made applicable to taxable years beginning after Dec. 31, 1938, by section 118 (c) thereof.

Amendment adding subsec. (1) by act Oct. 21, 1942, § 134 (c), was made applicable to taxable years ending after Dec. 31, 1942, by section 134 (f) thereof.

TRANSFER OF FUNCTIONS

All functions of all officers of the Department of the Treasury, and all functions of all agencies and employees of such Department, were transferred, with certain exceptions, to the Secretary of the Treasury, with power vested in him to authorize their performance or the performance of any of his functions, by any of such officers, agencies, and employees, by 1950 Reorg. Plan No. 26, §§ 1, 2, eff. July 31, 1950, 15 F. R. 4935, 64 Stat. 1280, set out in note under section 241 of Title 5, Executive Departments and Government Officers and Employees. The Commissioner of Internal Revenue, referred to in this section, is an officer of the Treasury Department.

SIMILAR PROVISIONS

1937-Aug. 26, 1937, ch. 815, title 2, § 207(b), 50 Stat. 826. 1936-June 22, 1936, ch. 690, § 22, 49 Stat. 1657. 1934-May 10, 1934, ch. 277, § 22, 48 Stat. 686. 1932-June 6, 1932, ch. 209, § 22, 47 Stat. 178. 1928-May 29, 1928, ch. 852, § 22, 45 Stat. 797. 1926-Feb. 26, 1926, ch. 27, §§ 205, 213, 233, 44 Stat. 16, 23, 41.

1925-Feb. 2, 1925, ch. 345, § 12, 43 Stat. 997. 1924 June 2, 1924, ch. 234, §§ 205, 213, 233, 43 Stat. 260, 267, 283.

1922 Sept. 19, 1922, ch. 346, § 26, 42 Stat. 856. 1921-Nov. 23. 1921, ch. 136, §§ 203, 213, 233, 42 Stat. 231, 237, 254.

1919-Feb. 24, 1919, ch. 18, §§ 203, 213, 233, 40 Stat. 1060, 1065, 1077.

1917-Oct. 3, 1917, ch. 63, §§ 1200, 1211, 40 Stat. 329, 336. 1916 Sept. 8. 1916, ch. 463, §§ 2(a), 4, 11(b), 30, 39 Stat. 757, 758, 767.

1913-Oct. 3, 1913, ch. 16, § II, B, G, 38 Stat. 167, 172.

CREDITS OR REFUNDS FOR 1941 AND 1942

Act Nov. 8, 1945, § 141 (c), provided: "If at any time prior to January 1, 1947, the allowance of a credit or refund of an overpayment of the tax for any taxable year begining after December 31, 1940, and before January 1, 1943, is otherwise prevented by the operation of any law or rule of law (other than section 3761, relating to compromises), a credit or refund of the overpayment of such tax to the extent that the overpayment is attributable to the enactment of this section may, nevertheless, be allowed or made if a claim therefor is filed before January 1, 1947."

RECOVERY UNDER PRIOR REVENUE ACTS

Section 116 (c) of act Oct. 21, 1942, provided as follows: "(c) For the purposes of the Revenue Act of 1938 or any prior revenue Act, the amendments made to the Internal Revenue Code by subsection (a) of this section (adding subpar. (12) to subsec. (b)) shall be effective as if they were a part of each such revenue Act on the date of its enactment."

PUBLIC SALARY TAX ACT

The Public Salary Tax Act, Apr. 12, 1939, ch. 59 title II, §§ 201-211, 53 Stat. 575-577, as amended June 25, 1940, 11:45 a. m., E. S. T., ch. 419, title IV, § 401, 54 Stat. 527, in addition to amendments of paragraph (a) of this section, contained provisions of a temporary nature as follows:

"SEC. 201. Any amount of income tax (including interest, additions to tax, and additional amounts) for any taxable year beginning prior to January 1, 1938, to the extent attributable to compensation for personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing

"(a) shall not be assessed, and no proceeding in court for the collection thereof shall be begun or prosecuted (unless pursuant to an assessment made prior to January 1, 1939);

"(b) if assessed after December 31, 1938, the assessment shall be abated, and any amount collected in pursuance of such assessment shall be credited or refunded in the same manner as in the case of an income tax erroneously collected; and

"SEC. 211. If either title of this act, or the application thereof to any person or circumstances, is held invalid, the other title of the act shall not be affected thereby."

TREATY OBLIGATIONS

Section 615 of act Oct. 20, 1951, provided that: "No amendment made by this Act [act Oct. 20, 1951] shall apply in any case where its application would be contrary to any treaty obligation of the United States."

Similar provisions were contained in the following acts:

1950-Sept. 23, 1950, 3:15 p. m., E. D. T., ch. 994, Title II, § 214, 64 Stat. 937.

1944-Feb. 25, 1944, 12:49 p. m., E. W. T., ch. 63, title I, § 136, 58 Stat. 53.

1942-Oct. 21, 1942, 4:30 p. m., E. W. T., ch. 619, title I, § 109, 56 Stat. 808.

CROSS REFERENCES

United States obligations and evidences of ownership issued after March 27, 1942, as subject to Federal taxation, see section 742a of Title 31, Money and Finance.

Ex. ORD. NO. 10195. DESIGNATION OF KOREA AND WATERS ADJACENT THERETO AS A COMBAT ZONE

Ex. Ord. No. 10195, Dec. 21, 1950, 15 F. R. 9177, provided: Pursuant to the authority vested in me by section 22 (b) (13) of the Internal Revenue Code, as amended by section 202 (a) of the Revenue Act of 1950, approved September 23, 1950 (Public Law 814, 81st Congress) [subsection (b) (13) of this section] there is hereby designated, for the purposes of paragraph (13) of section 22 (b) of the Internal Revenue Code [subsection (b) (13) of this section] as an area in which armed forces of the United States have engaged in combat:

Korea, including the waters adjacent thereto within the following-described limits: From a point at Lat. 39°30′ N, Long. 122°45' E southward to Lat. 33° N, Long. 122°45′ E; thence eastward to Lat. 33° N, Long. 127°55′ E; thence northeastward to Lat. 37°05′ N, Long. 133° E; thence northward to Lat. 40°40′ N, Long. 133° E; thence northwestward to a point on the east coast of Korea at the Juncture of Korea with the U. S. S. R.

The date of the commencing of combatant activities in such area is hereby designated as June 27, 1950.

§ 23. Deductions from gross income.

In computing net income there shall be allowed as deductions:

(a) Expenses.

(1) Trade or business expenses.

(A) In general.

All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. In the case of any sports program conducted for the benefit of the American National Red Cross, expenses described in section 22 (b) (16) (B) shall be allowable under this subparagraph only to the extent that such expenses exceed the amount excluded from gross income by section 22 (b) (16). (B) Corporate charitable contributions.

No deduction shall be allowable under subparagraph (A) to a corporation for any contribution or 24626-53-vol. 3-4

gift which would be allowable as a deduction under subsection (q) were it not for the 5 per centum limitation therein contained and for the requirement therein that payment must be made within the taxable year.

(C) Expenditures for advertising and good will. If a corporation has, for the purpose of computing its excess profits tax credit under Chapter 2E, or subchapter D of this Chapter, claimed the benefits of the election provided in section 733 or section 451, as the case may be, no deduction shall be allowable under subparagraph (A) to such corporation for expenditures for advertising or the promotion of good will which, under the rules and regulations prescribed under section 733 or section 451, as the case may be, may be regarded as capital investments.

(2) Non-trade or non-business expenses.

In the case of an individual, all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income. (b) Interest.

All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from the taxes imposed by this chapter. (c) Taxes generally.

(1) Allowance in general.

Taxes paid or accrued within the taxable year, except

(A) Federal income taxes;

(B) war-profits and excess-profits taxes imposed by Title II of the Revenue Act of 1917, Title III of the Revenue Act of 1918, Title III of the Revenue Act of 1921, section 216 of the National Industrial Recovery Act, section 702 of the Revenue Act of 1934, or Subchapter E of Chapter 2, or by any such provisions as amended or supplemented;

(C) income, war-profits, and excess-profits taxes imposed by the authority of any foreign country or possession of the United States, if the taxpayer chooses to take to any extent the benefits of section 131;

(D) estate, inheritance, legacy, succession, and gift taxes;

(E) taxes assessed against local benefits of a kind tending to increase the value of the property assessed; but this paragraph shall not exclude the allowance as a deduction of so much of such taxes as is properly allocable to maintenance or interest charges; and

(F) Federal import duties, and Federal excise and stamp taxes (not described in subparagraph (A), (B), (D), or (E)), but this subsection shall not prevent such duties and taxes from being deducted under subsection (a).

(2) Repealed. Oct. 21, 1942, 4:30 p. m., E. W. T., ch. 619, title I, § 105 (c) (2), 56 Stat. 806.

(3) Gasoline and retail sales taxes.

In the case of a tax imposed by any State, Territory, District, or possession of the United States, or any political subdivision thereof, upon persons engaged in selling tangible personal property at retail, or upon persons selling gasoline or other motor vehicle fuels either at wholesale or retail, which is measured by the gross sales price or the gross receipts from the sale or which is a stated sum per unit of such property sold, or upon persons engaged in furnishing services at retail, which is measured by the gross receipts for furnishing such services, if the amount of such tax is separately stated, then to the extent that the amount so stated is paid by the consumer (otherwise than in connection with the consumer's trade or business) to his vendor such amount shall be allowed as a deduction in computing the net income of such consumer as if such amount constituted a tax imposed upon and paid by such con

sumer.

(d) Taxes of shareholder paid by corporation.

The deduction for taxes allowed by subsection (c) shall be allowed to a corporation in the case of taxes imposed upon a shareholder of the corporation upon his interest as shareholder which are paid by the corporation without reimbursement from the shareholder, but in such cases no deduction shall be allowed the shareholder for the amount of such taxes. (e) Losses by individuals.

In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise

(1) if incurred in trade or business; or

(2) if incurred in any transaction entered into for profit, though not connected with the trade or business; or

(3) of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft. No loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been claimed as a deduction for estate tax purposes in the estate tax return.

(f) Losses by corporations.

In the case of a corporation, losses sustained during the taxable year and not compensated for by insurance or otherwise.

(3) Definition of securities.

As used in paragraph (2)1 of subsection the term "securities" means (A) shares of stock in a corporation, and (B) rights to subscribe for or to receive such shares.

(4) Stock in affiliated corporation.

For the purposes of paragraph (2) stock in a corporation affiliated with the taxpayer shall not be deemed a capital asset. For the purposes of this paragraph a corporation shall be deemed to be affiliated with the taxpayer only if:

(A) at least 95 per centum of each class of its stock is owned directly by the taxpayer; and

(B) more than 90 per centum of the aggregate of its gross incomes for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from sales or exchanges of stocks and securities; and

(C) the taxpayer is a domestic corporation. (h) Wagering losses.

Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.

(i) Basis for determining loss.

The basis for determining the amount of deduction for losses sustained, to be allowed under subsection (e) or (f), and for bad debts, to be allowed under subsection (k), shall be the adjusted basis provided in section 113 (b) for determining the loss from the sale or other disposition of property.

(j) Loss on wash sales of stock or securities.

For disallowance of loss deduction in the case of sales of stock or securities where within thirty days before or after the date of the sale the taxpayer has acquired substantially identical property, see section 118. (k) Bad debts.

(1) General rule.

Debts which become worthless within the taxable year; or (in the discretion of the Commissioner) a reasonable addition to a reserve for bad debts; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction. This paragraph shall not apply in the case of a taxpayer, other than a bank, as defined in section 104, with respect to a debt evidenced by a security as defined in paragraph (3) of this subsection. This paragraph shall not apply in the case of a taxpayer, other than a corporation, with respect to a non-business debt, as defined in paragraph (4) of this subsection. In the case of a mutual savings bank not having capital stock represented by shares, a domestic building and loan association, and a cooperative bank without capital stock organized and operated for mutual purposes and without profit, the reasonable addition to 1 So in original.

a reserve for bad debts shall be determined with due regard to the amount of the taxpayer's surplus or bad debt reserves existing at the close of December 31, 1951. In the case of a taxpayer described in the preceding sentence, the reasonable addition to a reserve for bad debts for any taxable year shall in no case be less than the amount determined by the taxpayer as the reasonable addition for such year; except that the amount determined by the taxpayer under this sentence shall not be greater than the lesser of (A) the amount of its net income for the taxable year, computed without regard to this subsection, or (B) the amount by which 12 per centum of the total deposits or withdrawable accounts of its depositors at the close of such year exceeds the sum of its surplus, undivided profits, and reserves at the beginning of the taxable year.

(2) Securities becoming worthless.

If any securities (as defined in paragraph (3) of this subsection) become worthless within the taxable year and are capital assets, the loss resulting therefrom shall, in the case of a taxpayer other than a bank, as defined in section 104, for the purposes of this chapter, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets.

(3) Definition of securities.

As used in paragraphs (1), (2), and (4) of this subsection the term "securities" means bonds, debentures, notes, or certificates, or other evidences of indebtedness, issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form.

(4) Non-business debts.

In the case of a taxpayer, other than a corporation, if a non-business debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 6 months. The term "non-business debt" means a debt other than a debt evidenced by a security as defined in paragraph (3) and other than a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business. (5) Securities of affiliated corporations.

Bonds, debentures, notes or certificates, or other evidences of indebtedness issued with interest coupons or in registered form by any corporation affiliated with the taxpayer shall not be deemed capital assets for the purposes of paragraph (2) and paragraph (1) shall apply with respect to such debt except that no such deduction shall be allowed under such paragraph with respect to any such debt which is recoverable only in part. For the purposes of this paragraph a corporation shall be deemed to be affiliated with the taxpayer only if:

(A) at least 95 per centum of each class of its stock is owned directly by the taxpayer; and

(B) more than 90 per centum of the aggregate of its gross incomes for all taxable years has been from sources other than royalties, rents (except rents de

rived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from sales or exchanges of stocks and securities; and

(C) the taxpayer is a domestic corporation. (6) Exception.

This subsection shall not apply in the case of a taxpayer, other than a bank, as defined in section 104, with respect to debts owed by (A) any political party, (B) any national, state, or local committee of any political party, or (C) any committee, association, or organization which accepts contributions or makes expenditures for the purpose of influencing or attempting to influence the election of Presidential or Vice Presidential electors or of any individual whose name is presented for election to any Federal, State, or local elective public office, whether or not such individual is elected. For the purpose of this paragraph, the terms "contributions” and “expenditure" shall have the meanings prescribed for such terms in section 591 of Title 18 of the United States Code.

(D) Depreciation.

A reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) —

(1) of property used in the trade or business, or (2) of property held for the production of income. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each.

(m) Depletion.

In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case; such reasonable allowance in all cases to be made under rules and regulations to be prescribed by the Commissioner, with the approval of the Secretary. In any case in which it is ascertained as a result of operations or of development work that the recoverable units are greater or less than the prior estimate thereof, then such prior estimate (but not the basis for depletion) shall be revised and the allowance under this subsection for subsequent taxable years shall be based upon such revised estimate. In the case of leases the deductions shall be equitably apportioned between the lessor and lessee. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life