definiens: and mean the taxable income or loss, as the case may be, for a period ( or from a transaction ) as determined in accordance with Section 703(a ) of the IRC ( for this purpose, all items of income, gain, loss or deduction required to be separately stated pursuant to IRC Section 703(a)(1 ) shall be included in taxable income or loss ) computed with the following adjustments : ( i ) To the extent required by ( and in the manner described in ) Treasury Regulation 1.704 - 1(b)(2 ), items of gain, loss and deduction shall be computed based upon the book values of the Company 's assets rather than upon such assets ' adjusted bases for federal income tax purposes ( if different ) ; ( ii ) Any tax - exempt income received by the Company shall be included as an item of gross income ; ( iii ) The amount of any adjustments to the adjusted bases ( or book values if clause ( i ) above applies ) of any assets of the Company pursuant to IRC Section 743 shall not be taken into account ; and ( iv ) Any expenditure of the Company described or treated as being described in IRC Section 705(a)(2)(B ) shall be treated as a deductible expense