An Act to amend the Internal Revenue Code of 1954 to provide a credit for investment in certain depreciable property, to eliminate certain defects and inequities, and for other purposes
PL 87-834 (H.R.10650), enacted 10/16/1962

1962. 
960 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
Public Law 87-834 
October 16, 1962 
A N A C T 
[H. Rf 10650] 
To amend the Internal Revenue Code of 1954 to provide a credit for investment 
in certain depreciable property, to eliminate certain defects and inequities, and 
for other purposes. 
Be it enacted hy the Senate and House of Be2>resentatives of the 
Revenue Act o
f United Stotes of America in Congress assemhled^ 
SECTION 1. SHORT TITLE, ETC. 
(a) SHORT TITLE.—This Act may be cited as the "Eevenue Act of 
1962". 
(b) TABLE OF CONTENTS.— 
gec.l. Short title, etc. 
(a) Short title. 
(b) Table of contents. 
(c) Amendment of 1954 code. 
Sec. 2. Credit for investment in certain depreciable property. 
(a) Allowance of credit. 
(b) Rules for computing credit. 
(c) Deduction for unused credit. 
(d) Certain corporate acquisitions. 
(e) Statutes of limitations and interest relating to in-
vestment credit carrybacks. 
(f) Technical amendment. 
(g) Clerical amendments, 
(h) Effective date. 
Sec. 3. Appearances,, etc., with respect to legislation. 
(a) In general. 
(b) Effective date. 
Sec. 4. Disallowance of certain entertainment, etc., expenses. 
(a) Denial of deduction. 
(b) Traveling expenses. 
(c) Effective date. 
Sec. 5. Amount of distribution vehere certain foreign corporations 
distribute property in kind. 
(a) Amount distributed. 
(b) Basis. 
(c) Dividends received from certain foreign corpora-
tions. 
(d) Effective date. 
Sec. 6. Mutual savings banks, etc. 
(a) Reserves for losses on loans. 
(b) Foreclosurie on property securing loans. 
(c) Definition of domestic building and loan associa-
tion. 
(d) Clerical amendments. 
(e) Repeal of exemption from certain excise taxes. 
(f) Deduction for dividends or interest paid on deposits. 
(g) Effective dates. 
Sec. 7. Distributions by foreign trusts. 
(a) Definitions. 
(b) Accumulation distributions of foreign trusts. 
(c) Allocation of accumulation distributions to.preced-
* 
ing years. 
(d) Amounts treated as received in prior years. 
(e) Special rules for foreign trusts. 
(f) Information returns with respect to foreign trusts. 
(g) Failure to file information returns, 
(h) United States person defined. 
(i) Technical amendments, 
(j) Effective date. 
Sec. 8. Mutual insurance companies (other than life, marine, and 
certain fire or fiood insurance companies), etc. 
(a) Imposition of tax. 
(b) Taxable investment income. 
(c) Statutory underwriting income or loss. 
(d) Exemption from tax. 
(e) Mutual fire insurance companies operating on basis 
of premium deposits. 
(f) Election of certain mutual companies to be taxed 
on total income. 
(g) Technical amendments, etc. 
(h) Effective date. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
961 
(b) 
TABLE OF CONI-ENTS.—Continued 
Sec. 9. Domestic corporations receiving dividends from foreign 
corporations. 
(a) Foreign taxes deemed paid by domestic corpora-
tions. 
(b) Inclusion in gross income of amount equal to taxes 
deemed paid. 
(c) Determination of source of dividends received from 
certain foreign corporations. 
(d) Technical amendments. 
(e) Effective date. 
Sec. 10. Separate limitation on foreign tax credit with respect to 
certain interest income. 
(a) Limitation on foreign tax credit. 
(b) EflCective date. 
Sec. 11. Earned income from sources without the United States. 
(a) Limitation on amount and type of income excluded. 
(b) Computation of employees' contributions. 
(c) Effective dates. 
Sec. 12. Controlled foreign corporations. 
(a) In general. 
(b) Technical and clerical amendments. 
(c) Effective date. 
Sec. 13. Gain from dispositions of certain depreciable property. 
(a) In general. 
(b) Change in method of depreciation. 
(c) Salvage value of personal property. 
(d) Special rule for charitable contributions of section 
1245 property. 
(e) Computation of taxable income for purposes of 
limitation on percentage depletion deduction. 
(f) Technical amendments. 
(g) Effective dates. 
Sec. 14. Foreign investment companies. 
(a) Treatment of sale of stock of foreign investment 
companies. 
(b) Conforming amendments. 
(c) Effective date. 
Sec. 15. Gain from certain sales or exchanges of stock in certain 
foreign corporations. 
(a) Treatment of gain from the redemption, cancella-
tion, or sale of stock in certain foreign corpora-
tions. 
(b) Clerical amendment. 
(c) Effective date. 
* ^
^ 
Sec. 16. Sales and exchanges of patents, etc., to certain foreign 
corporations. 
(a) Treatment of gain as ordinary income. 
(b) Clerical amendment. 
(c) Effective date. 
Sec. 17. Tax treatment of cooperatives and patrons. 
(a) In general. 
(b) Technical amendments. 
(c) Effective dates. 
Sec. 18. Inclusion of foreign real property in gross estate. 
(a) Amendments to include foreign real property. 
(b) Effective date. 
Sec. 19. Reporting of interest, dividend, and patronage dividend pay-
ments of $10 or more during a year. 
(a) Returns regarding payment of dividends. 
(b) Returns regarding payment of patronage dividends. 
(c) Returns regarding payment of interest. 
(d) Penalties for failure to file information returns. 
(e) Penalties for failure to furnish statements to per-
sons with respect to whom returns are filed. 
(f) Technical amendments. 
(g) Clerical amendments, 
(h) Effective dates. 
78135 0-63—64 
962 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
(b) TAKLE OF CoNTENais.—Continued 
Sec. 20. Information with respect to certain foreign entities. 
(a) Information to be furnished by individuals, domes-
tic corporations, etc., with respect to certain 
foreign corporations. 
(b) Information as to organization or reorganization of 
foreign corporations and as to acquisitions of 
their stock. 
(c) Civil penalty for failure to file return. 
(d) Technical amendments. 
(e) Effective date. 
:" 
Sec. 21. Expenditures by farmers for clearing land. 
(a) Allowance of deduction. 
(b) Conforming amendment. 
(c) Clerical amendment. 
.
^
f 
(d) Effective date. 
Sec. 22. Charitable contributions made from income attributable to 
several taxable years. 
(a) Treatment for purposes of part I of subchapter Q. 
(b) Effective date. 
Sec. 23. Effective date of section 1371(c) of the Internal Revenue 
Code of 1954. 
(a) In general. 
(b) Election and consent by corporations; consents by 
shareholders. 
(c) Tolling of statutes of limitations. 
Sec. 24. Certain losses sustained in converting from street railway 
to bus operations. 
(a) In general. 
(b) Unused conversion loss defined. 
(c) Treatment of unused conversion loss. 
(d) Regulations. 
Sec. 25. Pension plan of Local Union Numbered 435, International 
Hod Carriers' Building and Common Laborers' Union of 
America. 
Sec. 26. Continuation of a partnership year for surviving partner in 
a two-man partnership where one dies. 
(a) Close of taxable year of two-man partnership when 
one partner dies. 
(b) Effective date, etc. 
Sec. 27. Exclusion from gross income of certain awards made pur-
suant to evacuation claims of Japanese-American persons. 
(a) In general. 
(b) Effective date, etc. 
Sec. 28. Deduction for depreciation by tenant-stockholder of coopera-
tive housing corporation. 
(a) Allowance of deduction. 
(b) Clerical amendment. 
(c) Effective date. 
Sec. 29. Deduction for income tax purposes of contributions to cer-
tain organizations for judicial reform. 
Sec. 30. Effective date of amendment to section 1374(b). 
Sec. 31. Treaties. 
(c) AMENDMENT OF 1954 CODE.—^Except as otherwise expressly pro-
vided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other provi-
26 use 1 et seq. sion of the Internal Revenue Code of 1954. 
SEC. 2. CREDIT FOR INVESTMENT IN CERTAIN DEPRECIABLE PROP-
ERTY. 
^a) AiiLOWANCE OF CRBDIT.—^Part I V of subchapter A of chapter 
26 use 31-38. 
1 (relating to credits against tax) is amended by redesignating sec-
tion 38 as section 39 and by inserting after section 37 the following 
new section: 
Post. pp. 967, 
«SEC. 38. INVESTMENT IN CERTAIN DEPRECIABLE PROPERTY. 
^
®
*
* 
"(a) GENERAL RULE.—There shall be allowed, as a credit against the 
Post, p. 963. 
tax imposed by this chapter, the amount determined under subpart B 
of this part. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
963 
"(b) REGULATIONS.—^The Secretary or his delegate shall prescribe 
such regulations as may be necessary to carry out the purposes of this 
section and subpart B." 
(b) RULES FOR COMPUTING CREDIT.—Part I V of subchapter A of 
chapter 1 is amended by adding at the end thereof the following new 
26 use 31-38. 
subpart: 
"Subpart B—Rules for Computing Credit for Investment in 
Certain Depreciable Property 
"Sec. 46. Amount of credit. 
"Sec. 47. Certain dispositions, etc., of section 38 property. 
"Sec. 48. Definitions; special rules. 
"SEC. 46. AMOUNT OF CREDIT. 
" ( a ) 
DETERMINATION OF A M O U N T . — 
"(1) GENERAL RULE.—The amount of the credit allowed by 
section 38 for the taxable year shall be equal to 7 percent of the 
Ante. p. 962. 
qualified investment (as defined in subsection (c)). 
"(2) LIMITATION BASED ON AMOUNT OP TAX.—Notwithstanding 
paragraph (1), the credit allowed by section 38 for the taxable 
year shall not exceed— 
"(A) so much of the liability for tax for the taxable year 
as does not exceed $25,000, plus 
"(B) 25 percent of so much of the liability for tax for the 
taxable year as exceeds $25,000. 
"(3) LIABILITY FOR TAX.—For purposes of paragraph (2), the 
liability for tax for the taxable year shall be the tax imposed by 
this chapter for such year, reduced by the sum of the credits allow-
able under— 
"(A) section 33 (relating to foreign tax credit), 
26 use 33. 
"(B) section 34 (relating to dividends received by indi-
viduals) , 
" (C) section 35 (relating to partially tax-exempt interest), 
and 
"(D) section 37 (relating to retirement income). 
For purposes of this paragraph, any tax imposed for the taxable 
year by section 531 (relating to accumulated earnings tax) or by 
section 541 (relating to personal holding company tax) shall not 
be considered tax imposed by this chapter for such year. 
"(4) MARRIED INDIVIDUALS.—In the case of a husband or wife 
who fiiles a separate return, the amount specified under subpara-
graphs (A) and (B) of paragraph (2) shall be $12,500 in lieu of 
$25,000. This paragraph shall not apply if the spouse of the 
taxpayer has no qualified investment for, and no unused credit 
carryback or carryover to, the taxable year of such spouse which 
ends within or with the taxpayer's taxable year. 
"(5) AFFILIATED GROUPS.—In the case of an affiliated group, 
the $25,000 amount specified under subparagraphs (A) and (B) 
of paragraph (2) shall be reduced for each member of the group 
by apportioning $25,000 among the members of such group in 
such manner as the Secretary or his delegate shall by regulations 
prescribe. For purposes of the preceding sentence, the term 
^affiliated group' has the meaning assigned to such term by section 
1504(a), except that all corporations shall be treated as includible 
corporations (without any exclusion under section 1504(b)). 
"(b) CARRYBACK AND CARRYOVER OF UNUSED CREDITS.— 
" (1) ALLOWANCE OF CREDIT.—If the amount of the credit deter-
mined under subsection (a) (1) for any taxable year exceeds the 
limitation provided by subsection (a) (2) for such taxable year 
964 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
(hereinafter in this subsection referred to as 'unused credit year"), 
such excess shall be— 
"(A) an investment credit carryback to each of the 3 tax-
able years preceding the unused credit year, and 
"(B) an investment credit carryover to each of the 5 tax-
able years following the unused credit year, 
and shall be added to the amount allowable as a credit by section 
Ante, p. 962. 
38 for such years, except that such excess may be a carryback 
only to a taxable year ending after December 31,1961. The entire 
amount of the unused credit for an unused credit year shall be 
carried to the earliest of the 8 taxable years to which (by reason 
of subparagraphs (A) and (B)) such credit may be carried, and 
then to each of the other 7 taxable years to the extent that, because 
of the limitation contained in paragraph (2), such unused credit 
may not be added for a prior taxable year to which such unused 
credit may be carried. 
'•(2) LIMITATION.—The amount of the unused credit which 
may be added under paragraph (1) for an;^ preceding or 
succeeding taxable year shall not exceed the amount by which 
the limitation provided by subsection (a) (2) for such taxable 
year exceeds the sum of— 
"(A) the credit allowable under subsection (a)(1) for 
such taxable year, and 
"(B) the amounts which, by reason of this subsection, are 
added to the amount allowable for such taxable year and 
attributable to taxable years preceding the unused credit 
year. 
" (3) EFFECT OF NET OPERATING LOSS CARRYBACK.—To the extent 
that the excess described in paragraph (1) arises by reason of a 
net operating loss carryback, subparagraph (A) of paragraph (1) 
shall not apply. 
" ( 4 ) 
TAXABLE YEAR BEGINNING BEFORE JANUARY i, i9«2.—For 
purposes of determining the amount of an investment credit carry-
back that may be added under paragraph (1) for a taxable year 
beginning before January 1, 1962, and ending after December 31, 
1961, the amount of the limitation provided by subsection (a) (2) 
is the amount which bears the same ratio to such limitation as the 
number of days in such year after December 31,1961, bears to the 
total number of days in such year. 
"(c) QUALIFIED INVESTMENT.— 
"(1) I N GENERAL.—For purposes of this subpart, the term 
'qualified investment' means, w4th respect to any taxable year, 
the aggregate of— 
"(A) the applicable percentage of the basis of each new 
Post, p. 968. 
section 38 property (as defined in section 48(b)) placed in 
service by the taxpayer during such taxable year, plus 
"(B) the applicable percentage of the cost of each used 
Post, p. 968. 
section 38 property (as defined in section 48(c) (1)) placed in 
service by the taxpayer during such taxable year. 
"(2) APPLICABLE PERCENTAGE.—For purposes of paragraph 
(1), the applicable percentage for any property shall be deter-
mined under the followinsr table: 
"If the useful life is— 
4 years or more but less than 6 years. 
6 years or more but less than 8 years. 
8 years or more 
The applicable 
pernentage is— 
33 
J< 
em 
100 
"(iii 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
965 
For purposes of this paragraph, the useful life of any property 
shall be determined as of the time such property is placed in 
service by the taxpayer. 
"(3) 
PUBLIC UTILITY PROPERTY.— 
"(A) In the case of section 38 property which is public 
Ante, p.962. 
utility property, the amount of the qualified investment shall 
be 3/7 of the amount determined under paragraph (1). 
"(B) For purposes of subparagraph (A), the term 'public 
utility property' means property used predominantly m the 
trade or business of the furnishing or sale of— 
"(i) electrical energy, water, or sewage disposal 
services, 
i) gas through a local distribution system, 
[iii) telephone service, or 
"(iv) telegraph service by means of domestic tele-
graph operations (as defined in section 222(a)(5) of 
the Communications Act of 1934, as amended; 47 U.S.C, 
sec. 222(a) (5)), 
57 stat. 5. 
if the rates for such furnishing or sale, as the case may be, 
have been established or approved by a State or political sub-
division thereof, by an agency or instrumentality of the 
United States, or by a public service or public utility com-
mission or other similar body of any State or political sub-
division thereof. 
" (4) CERTAIN REPLACEMENT PROPERTY.—For purposes of para-
graph (1), if section 38 property is placed in service by the 
taxpayer to replace property which was— 
"(A) destroyed or damaged by fire, storm, shipwreck, or 
other casualty, or 
"(B) stolen, 
the basis of such section 38 property (in the case of new section 
38 property), or the cost of such section 38 property (in the case 
of used section 38 property), which (but for this paragraph) 
would be taken into account under paragraph (1) shall be 
reduced by an amount equal to the amount received by the 
taxpayer as compensation, by insurance or otherwise, for the 
property so destroyed, damaged, or stolen, or to the adjusted basis 
of such property, whichever is the lesser. No reduction in basis 
or cost shall be made under the preceding sentence in any case 
in which the reduction in qualified investment attributable to the 
substitution required by section 47(a)(1) with respect to the Post, p. 966. 
property so destroyed, damaged, or stolen (determined without 
regard to section 47 (a) (4)) is greater than the reduction described 
in the preceding sentence. 
"(d) 
LIMITATIONS W I T H RESPECT TO CERTAIN PERSONS.— 
"(1) I N GENERAL.—In the case of— 
"TA) an organization to which section 593 applies. 
Post, p. 977. 
"(B) a regulated investment company or a real estate 
investment trust subject to taxation under subchapter M 
(sec. 851 and following), and 
"(C) a cooperative organization described in section 
1381(a), 
tlie qualified investment and the $25,000 amount specified under 
subparagraphs (A) and (B) of subsection (a) (2) shall equal 
such person's ratable share of such items. 
"(2) RATABLE SHARE.—For purposes of paragraph (1), the 
ratable share of any person for any taxable year of tlie items 
described therein shall oe— 
"(A) in the case of an organization referred to in para-
graph (1) (A), 50 percent thereof, 
966 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(B) in the case of a regulated investment company or a 
real estate investment trust, the ratio (i) the numerator of 
which is its taxable income and (ii) the denominator of 
which is its taxable income computed without regard to ihe 
deduction for dividends paid provided by section 852(b) (2) 
26 use 852,857. 
(D) or 857(b) (2) (C),asthe case may be, and 
"(C) in the case of a cooperative organization, the ratio 
(i) the numerator of which is its taxable income and (ii) the 
denominator of which is its taxable income increased by 
Post. p. 1046. 
amounts to which section 1382(b) or (c) applies and similar 
amounts the tax treatment of which is determined without 
Post, p. 1045. 
regard to subchapter T (sec. 1381 and following). 
For purposes of subparagraph (B) of the preceding sentence, the 
term 'taxable income' means in the case of a regulated investment 
company its investment company taxable income (within the 
meaning of section 852(b) (2)), and in the case of a real estate 
investment trust its real estate investment trust taxable income 
(within the meaning of section 857(b)(2)). 
Ante, p. 962. 
"SEC. 47. CERTAIN DISPOSITIONS, ETC, OF SECTION 38 PROPERTY. 
"(a) GENERAL RULE.—Under regulations prescribed by the Secre-
tary or his delegate— 
"(1) EARLY DISPOSITION, ETC.—If during anv taxable year any 
property is disposed of, or otherwise ceases to oe section 38 prop-
erty with respect to the taxpayer, before the close of the useful 
life which was taken into account in computing the credit under 
section 38, then the tax under this chapter for such taxable year 
shall be increased by an amount equal to the aggregate decrease 
in the credits allowed under section 38 for all prior taxable years 
which would have resulted solely from substituting, in determin-
ing qualified investment, for such useful life the period beginning 
with the time such property was placed in service by the taxpayer 
and ending with the time such property ceased to be section 38 
property. 
"(2) PROPERTY BECOMES PUBLIC UTILITY PROPERTY.—If during 
any taxable year any property taken into account in determining 
qualified investment becomes public utility property (within the 
Ante, p. 965. 
meaning of section 46(c) (3) (B)), then the tax under this chapter 
for such taxable year shall be increased by an amount equal to the 
aggregate decrease in the credits allowed under section 38 for all 
prior taxable years which would have resulted solely from treating 
the property, for purposes of determining qualified investment, 
as public utility property (after giving due regard to the period 
before such change in use). If the application of this paragraph 
to any property is followed by the application of paragrapn (1) 
to such property, proper adjustment shall be made in applying 
paragraph (1). 
"(3) CARRYBACKS AND CARRYOVERS ADJUSTED.—In the case of 
any cessation described in paragraph (1) or any change in use 
described in paragraph (2), the carrybacks and carryovers under 
section 46(b) shall be adjusted by reason of such cessation (or 
change in use). 
"(4) PROPERTY DESTROYED B
Y CASUALTY, ETC.—No increase shall 
, „ be made und6r paragraph (1) and no adjustment shall be made 
under'paragraph (3) in any case in which— 
"(A) any property is disposed of, or otherwise ceases to 
be section 38 property with respect to the taxpayer, on 
account of its destruction or damage by fire, storm, ship-
wreck, or other casualty, or by reason of its theft, 
76 STAT. 3 
PUBLIC LAW 87-834-OCT. 16, 1962 
967 
"(B) section 38 property is placed in service by the tax- 
Ante, p. 962. 
payer to replace the property described in subparagraph 
(A), and 
"(C) the reduction in basis or cost of such section 38 prop-
erty described in the first sentence of section 46(c)(4) is 
Ante, p. 965. 
equal to or; greater than the reduction in qualified investment 
which (but tor this paragraph) would be made by reason of 
the substitution required by paragraph (1) with respect to 
the property described in subparagraph (A). 
"(b) 
SECTION NOT TO APPLY IN CERTAIN CASES.—Subsection (a) 
shall not apply to— 
"(1) a transfer by reason of death, or 
" (2) a transaction to which section 381 (a) applies. 
26 use 381. 
For purposes of subsection (a), property shall not be treated as ceasing 
to be section 38 property with respect to the taxpayer by reason of a 
mere change in the form of conducting the trade or business so long 
as the property is retained in such trade or business as section 38 
property and the taxpayer retains a substantial interest in such trade 
or business. 
"(c) SPECIAL, RUI^.—Any increase in tax under subsection (a) 
shall not be treated as tax imposed by this chapter for purposes of 
determining the amount of any credit allowable under subpart A. 
-SEC. 48. DEFINITIONS; SPECIAL RULES. 
"(a) 
SECTION 38 PROPERTY.— 
"(1) I N GENERAL.—Except as provided in this subsection, the 
term 'section 38 property' means— 
"^A) tangible personal property, or 
"(B) other tangible property (not including a building 
and its structural components) but only if such property— 
" (i) is used as an integral part of manufacturing, pro-
duction, or extraction or of furnishing transportation, 
communications, electrical energy, gas, water, or sewage 
disposal services, or 
"(ii) constitutes a research or storage facility used in 
connection with any of the activities referred to in clause 
Such term includes onljr property with respect to which depreci-
ation (or amortization in lieu of depreciation) is allowable and 
having a useful life (determined as of the time such property is 
placed in service) of 4 years or more. 
"(2) 
PROPERTY USED OUTSIDE THE UNITED STATES.— 
"(A) I N GENERAL.—Except as provided in subparagraph 
(B), the term 'section 38 property^ does not include property 
which is used predominantly outside the United States. 
"(B) EXCEPTIONS.—Subparagraph (A) shall not apply 
to— 
"(i) any aircraft which is registered by the Adminis-
trator of the Federal Aviation Agency and which is 
operated to and from the United States; 
"(ii) rolling stock,'of a domestic railroad corporation 
subject to part I of the Interstate Commerce Act, which 
24 stat. 379. 
is used within and without the United States; 
^^ "^^ ' «' ^^i-
"(iii) any vessel documented under the laws of the 
United States which is operated in the foreign or domes-
tic commerce of the United States; 
"(iv) any motor vehicle of a United States person (as 
defined in section 7701(a) (30)) which is operated to 
Post, p. 988. 
and from the United States; 
968 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(v) any container of a United States person which 
is used in the transportation of property to and from the 
United States; and 
" (vi) any property (other than a vessel or an aircraft) 
of a United States person which is used for the purpose 
of exploring for, developing, removing, or transporting 
resources from the outer Continental Shelf (within the 
meaning of section 2 of the Outer Continental Shelf 
Lands Act, as amended and supplemented; 43 U.S.C. 
67 Stat. 462. 
SCC. 1 3 3 1 ) . 
"(3) PROPERTY USED FOR LODGING.—Property which is used pre-
dominantly to furnish lodging or in connection with the furnish-
Ante, p. 962. 
iug of lodging shall not be treated as section 38 property. 
The 
preceding sentence shall not apply to— 
"(A) nonlodging commercial facilities which are available 
to persons not using the lodging facilities on the same basis as 
they are available to persons using the lodging facilities, and 
"(B) property used bv a hotel or motel in connection with 
the trade or business of furnishing lodging where the pre-
dominant portion of the accommodations is used by tran-
sients. 
"(4) 
PROPERTY USED BY CERTAIN TAX-EXEMPT ORGANIZATIONS.— 
Property used by an organization (other than a cooperative de-
26 use 521. 
scribed in section 521) which is exempt from the tax imposed by 
this chapter shall be treated as section 38 property only if such 
property is used predominantly in an unrelated trade or business 
the income of which is subject to tax under section 511. 
"(5) PROPERTY USED BY GOVERNMENTAL UNITS.—Property used 
by the United States, any State or political subdivision thereof, 
any international organization, or any agency or instrumentality 
of any of the foregoing shall not be treated as section 38 property. 
"(6) LIVESTOCK.—Livestock shall not be treated as section 38 
property. 
"(b) NEW SECTION 38 PROPERTY.—For purposes of this subpart, the 
term 'new section 38 property' means section 38 property— 
"(1) the construction, reconstruction, or erection of which is 
completed by the taxpayer after December 31, 1961, or 
"(2) acquired after December 31, 1961, if the original use of 
such property commences with the taxpayer and commences after 
such date. 
Ante. p. 964. 
In applying section 46(c) (1) (A) in the case of property described in 
paragraph (1), there shall be taken into account only that portion of 
the basis which is properly attributable to construction, reconstruction, 
or erection after December 31, 1961. 
"(c) 
USED SECTION 38 PROPERTY.— 
" (1) I N GENERAL.—For purposes of this subpart, the term 'used 
section 38 property' means section 38 property acquired by pur-
chase after December 31, 1961, which is not new section 38 prop-
erty. Property shall not be treated as 'used section 38 property' 
if, after its acquisition by the taxpayer, it is used by a person who 
used such property before such acquisition (or by a person who 
26 use 179. 
bears a relationship described in section 179(d) (2) (A) or (B) to 
a person who used such property before such acquisition). 
"(2) 
DOLLAR LIMITATION.— 
"(A) I N GENERAL.—The cost of used section 38 property 
taken into account under section 46 (c) (1) (B) for any taxable 
year shall not exceed $50,000. If such cost exceeds $50,000, the 
taxpayer shall select (at such time and in such manner as the 
Secretary or his delegate shall by regulations prescribe) the 
76 STAT. 3 
PUBLIC LAW 87-834-OCT. 16, 1962 
969 
items to be taken into account, but only to the extent of an 
aggregate cost of $50,000. Such a selection, once made, may 
be changed only in the manner, and to the extent, provided by 
such regulations. 
"(B) MARRIED INDIVIDUALS.—In the case of a husband or 
wife who files a separate return, the limitation under subpara-
graph (A) shall be $25,000 in lieu of $50,000. This subpara-
graph shall not apply if the spouse of the taxpayer has no 
used section 38 property which may be taken into account as 
qualified investment for the taxable year of such spouse which 
ends within or with the taxpayer's taxable year. 
"(C) AFFILIATED GROUPS.—In the case of an affiliated group, 
the $50,000 amount specified under subparagraph (A) shall 
be reduced for each member of the group by apportioning 
$50,000 among the members of such group in accordance with 
their respective amounts of used section 38 property which 
may be taken into account. 
"(D) PARTNERSHIPS.—In the case of a jiartnership, the 
limitation contained in subparagraph (A) shall apply with 
respect to the partnership and with respect to each partner. 
"(3) DEFINITIONS.—For purposes of this subsection— 
"(A) PURCHASE.—The term 'purchase' has the meaning 
assigned to such term by section 179(d) (2). 
"(B) COST.—^The cost of used section 38 property does not 
include so much of the basis of such property as is deter-
mined by reference to the adjusted basis of other property 
held at any time by the person acquiring such property. If 
property is disposed of (other than by reason of its destruc-
tion or damagelby fire, storm, shipwreck, or other casualty, or 
its theft) and used section 38 property similar or related in 
service or use is acquired as a replacement therefor in a 
transaction to which the preceding sentence does not apply, 
the cost of the used section 38 property acquired shall be its 
basis reduced by the adjusted basis of the property replaced. 
The cost of used section 38 property shall not be reduced with 
respect to the adjusted basis of any property disposed of if, 
by reason of section 47, such disposition involved an in-
crease of tax or a reduction of the unused credit carrybacks 
or carryovers described in section 46(b). 
"(C) AFFILIATED GROUP.—The term 'affiliated group' has 
the meaning assigned to such term by section 1504(a), except 
that— 
"(i) the phrase 'more than 50 percent' shall be sub-
stituted for the phrase 'at least 80 percent' each place 
it appears in section 1504(a), and 
"(ii) all corporations shall be treated as includible 
corporations 
(without any exclusion under section 
1504(b)). 
"(d) CERTAIN LEASED PROPERTY.—A person (other than a person 
refeiTed to in section 46(d)) who is a lessor of property may (at such 
time, in such manner, and subject to such conditions as are provided by 
regulations 
prescribed by the Secretary or his delegate) elect with 
i-espect to any new section 38 property to treat the lessee as having 
acquired such property for an amount equal to— 
"(1) if such property was constructed by the lessor (or by a 
corporation which controls or is controlled by the lessor within 
the meaning of section 368(c)), the fair market value of such 
property, or 
"(2) if paragraph (1) does not apply, the basis of such prop-
erty to the lessor. 
Ante, p. 968. 
Ante, 
968. 
pp. 962, 
26 use 179. 
Ante, p. 966. 
Ante, p. 963. 
26 use 1504. 
Ante, p. 965. 
26 use 368. 
970 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
The election provided by the preceding sentence may be made only 
Ante. p. 968. 
with respcct to property which would be new section 38 property if 
acquired by the lessee. For purposes of the preceding sentence and 
Ante, p. 964. 
sectiou 46(c), the useful life of property in the hands of the lessee is 
the useful life of such property in .the hands of the lessor. If a lessor 
makes the election provided by this subsection with respect to any 
property, the lessee shall be treated for all purposes of this subpart as 
having acquired such property. If a lessor makes the election pro-
vided by this subsection with respect to any property, then, under 
regulations prescribed by the Secretary or his delegate, subsection (g) 
shall not apply with respect to such property and the deductions 
26 use 162; 
otlicrwise allowable under section 162 to the lessee for amounts paid 
Post. p. 973. 
^Q ^jjg lessor under the lease shall be adjusted in a manner consistent 
with the provisions of subsection (g). 
"(e) SUBCHAPTER S CORPORATIONS.—^In the case of an electing small 
business corporation (as defined in section 1371)— 
"(1) the qualified investment for each taxable year shall be 
apportioned pro rata among the persons who are shareholders of 
such corporation on the last day of such taxable year; and 
" (2) any person to whom any investment has been apportioned 
under paragraph (1) shall be treated (for purposes of this sub-
part) as the taxpayer with respect to such investment, and such 
investment shall not (by reason of such apportionment) lose its 
character as an investment in new section 38 property or used 
Ante, p. 968. 
sectiou 38 property, as the case may be. 
"(f) ESTATES AND TRUSTS.—In the case of an estate or trust— 
"(1) the qualified investment for any taxable year shall be 
apportioned between the estate or trust and the beneficiaries on 
the basis of the income of the estate or trust allocable to each, 
"(2) any beneficiary to whom any investment has been appor-
tioned under paragraph (1) shall be treated (for purposes of this 
subpart) as the taxpayer with respect to such investment, and 
sucn investment shall not (by reason of such apportionment) 
lose its character as an investment in new section 38 property or 
used section 38 property, as the case may be, and 
"(3) the $25,000 amount specified under subparagraphs (A) 
Ante, p. 963. 
and (B) of sectiou 46(a) (2) applicable to such estate or trust 
shall be reduced to an amount which bears the same ratio to 
$25,000 as the amount of the qualified investment allocated to the 
estate or trust under paragraph (1) bears to the entire amount 
of the qualified investment. 
"(g) 
ADJUSTMENTS TO BASIS OF PROPERTY.— 
"(1) I N GENERXVL.—The basis of any section 38 property shall 
be reduced, for purposes of this subtitle other than this subpart, 
by an amount equal to 7 percent of the qualified investment as 
determined under section 46(c) with respect to such property. 
"(2) CERTAIN DISPOSITIONS, ETC.—If the tax under this chapter 
is increased for any taxable year under paragraph (1) or (2) of 
Ante, p. 966. 
sectiou 47(a) or an adjustment in carrybacks or carryovers is 
made under paragraph (3) of such section, the basis of the 
property described in such paragraph (1) or (2), as the case 
may be (immediately before the event on account of which such 
paragraph (1), (2), or (|3) applies), shall be increased by an 
amount equal to the portion of such increase and the portion of 
such adjustment attributable to such property. 
"(h) 
CROSS REFERENCE.— 
Tor application of this subpart to certain acquiring corporations, 
Post, p. 971. 
see section 381(c)(23)." 
(c) DEDUCTION FOR UNUSED CREDIT.—Part VI of subchapter B of 
26 use 161-180. chapter 1 (relating to itemized deductions for individuals and corpo-
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
971 
rations) is amended by adding at the end thereof the following new 
section: 
"SEC. 181. DEDUCTION FOR CERTAIN UNUSED INVESTMENT CREDIT. 
"If the amount of the credit determined under section 46(a) (1) for Ante. p. 963. 
any taxable year exceeds the limitation provided by section 46(a) (2) 
for such taxable year and if the amount of such excess has not, after 
the application of section 46(b), been allowed to the taxpayer as a 
credit under section 38 for any taxable year,\hen an amount equal 
Ante, p. 962. 
to the amount of such excess not so allowed as a credit shall be allowed 
to the.taxpayer as a deduction for the first taxable year following the 
last taxable year in which such excess could under section 46(b) have 
been allowed as a credit. If h taxpayer dies or ceases to exist prior 
to the first taxable year following the last taxable y6ar in which the 
excess described in the preceding sentence could under section 46(b) 
have bee^i allowed as a credit, the amount described in the preceding 
sentence, or the proper portion thereof, shall, under regulations pre-
scribed by the Secretary or his delegate, be allowed to the taxpayer 
as a deduction for the taxable year in which such death or cessation 
occurs." 
(d) CERTAIN CORPORATE ACQUISITIONS.—Section 381(c) (relating 
26 use asi. 
to items taken into account in certain corporate acquisitions) is 
amended by adding at the end thereof the following new paragraph: 
"(23) CREDIT UNDER SECTION 38 FOR INVESTMENT IN CERTAIN DE-
PRECIABLE PROPERTY,—The acquiring corporation shall take into 
account (to the extent proper to carry out the purposes of this 
section and section 38, and under such regulations as may be pre-
scribed by the Secretary or his delegate) the items required to be 
taken into account for purposes of section 38 in respect of the dis-
tributor or transferor corporation." 
(e) 
STATUTES OF LIMITATIONS AND INTEREST RELATING TO INVEST-
MENT CREDIT CARRYBACKS.— 
(1) ASSESSMENT AND COLLECTION.—Section 6501 (relating to 
26usc65oi. 
limitations on assessment and collection) is amended by redesig-
nating subsection (j) as subsection (k), and inserting after sub-
section (i) the following new subsection: 
"(j) 
INVESTMENT CREDIT CARRYBACKS.—In the case of a deficiency 
attributable to the application to the taxpayer of an investment credit 
carryback, such deficiency may be assessed at any time before the ex-
piration of the period within which a deficiency for the taxable year 
of the unused investment credit w^hich results in such carryback may 
be assessed." 
(2) CREDITOR-REFUND.—Subsection (d) of section 6511 (relat- 
26usc65ii. 
ing to limitations on credit or refund) is amended by adding after 
paragraph (3) thereof the following new paragraph: 
" ( 4 ) 
SPECIAL PERIOD OF LIMITATION W I T H RESPECT TO INVEST-
MENT CREDIT CARRYBACKS.— 
"(A) 
PERIOD OF LIMITATION.—If the claim for credit or 
refund relates to an overpayment attributable to an invest-
ment credit carryback, in lieu of the 3-year period of limita-
tion prescribed in subsection (a), the period shall be that 
period which ends with the expiration of the 15th day of the 
40th month (or 39th month, in the case of a corporation) fol-
lowing the end of the taxable year of the unused investment 
credit which results in such carryback, or the period pre-
scribed in subsection (c) in respect of such taxable year, 
whichever expires later. In the case of such a claim, the 
amount of the credit or refund may exceed the portion of the 
tax paid within the period provided in subsection (b) (2) or 
(c), whichever is applicable, to the extent of the amount of 
the overpayment attributable to such carryback. 
972 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(B) 
APPLICABLE RULES.—If the allowance of a credit 
or refund of an overpayment of tax attributable to an invest-
ment credit carryback is otherwise prevented by the opera-
26 use 7122. 
tion of any law or rule of law other than section 7122, relat-
ing to compromises, such credit or refund may be allowed or 
made, if claim therefor is filed within the period provided in 
subparagraph (A) of this paragraph. In the case of any 
such claim for credit or refund, the determination by any 
court, including the Tax Court, in any proceeding in which 
the decision of the court has become final, shall not be con-
clusive with respect to the investment credit, and the effect 
of such credit, to the extent that such credit is affected by a 
carryback which was not in issue in such proceeding." 
(8) INTEREST ON UNDERPAYMENTS.—Section 6601(e) (rehiting 
to interest on underpayment, nonpayment, or extensions of time 
for payment, of tax) is amended to read as follows: 
"(e) INCOME TAX REDUCED BY CARRYBACK.— 
"(1) NET OPERATING LOSS CARRYBACK.—If the amount of any 
tax imposed by subtitle A is reduced by reason of a carrybaclc of 
a net operating loss, such reduction in tax shall not affect the com-
putation of interest under this section for the period ending with 
the last day of the taxable year in which the net operating loss 
arises. 
"(2) INVESTMENT CREDIT CARRYBACK.—If the credit allowed by 
section 38 for any taxable year is increased by reason of an invest-
ment credit carryback, such increase shall not affect the coiTi])uta-
tion of interest under this section for the period ending witli t!jc 
last day of the taxable year in which the investment credit carry-
back arises." 
(4) INTEREST ON OVERPAYMENTS.—Section 6611(f) (relating to 
interest on overpayments) is amended to read as follows: 
"(f) REFUND or INCOME TAX CAUSED BY CARRYBACK.— 
"(1) NET OPERATING LOSS CARRYBACK.—For purposes of subsec-
tion (a), if any overpayment of tax imposed by subtitle A results 
from a carryback of a net operating loss, such overpayment shall 
be deemed not to have been made prior to the close of the taxable 
year in which such net operating loss arises. 
"(2) INVESTMENT CREDIT CARRYBACK.—For purposes of subsec-
tion (a), if any overpayment of tax imposed by subtitle A results 
from an investment credit carryback, such overpayment shall be 
deemed not to have been made prior to the close of the taxable 
year in which such investment credit carryback arises." 
(f) TECHNICAL AMENDMENT.—Section 1016(a) (relating to adjust-
ments to basis) is amended— 
(1) by striking out the period at the end of paragraph (18) 
and inserting in lieu thereof a semicolon; and 
(2) by adding after paragraph (18) the following new para-
graph : 
Ante, p. 970. 
"(l*"^) fo the exteut provided in section 48(g) in the case of 
property which is or has been section 38 property (as defined in 
section 48(a)) ;". 
(g) CLERICAL AMENDMENTS.— 
26 use 31-38. 
(1) Part IV of subchapter A of chapter 1 is amended by insert-
ing after the heading and before the table of sections the 
following: 
"Subpart A. Credits allowable. 
"Subpart B. Rules for computing credit for investment in eertnin 
depreciable proi)erty. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
97a 
"Subpart A—Credits Allowable" 
(2) The table of sections for part IV of subchapter A of 
chapter 1 is amended by striking out 
Ante, p. 962. 
"Sec. 38. Overpayments of tax." 
and inserting in lieu thereof 
"Sec. 38. Investment in certain depreciable property. 
"Sec. 39. Overpayments of tax." 
(3) The table of sections for part VI of subchapter B of 
chapter 1 is amended by adding at the end thereof the following: 
Ante, p. 971. 
"Sec. 181. Deduction for certain unused investment credit." 
(h) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years ending after December 31, 1961. 
SEC. 3. APPEARANCES, ETC., WITH RESPECT TO LEGISLATION. 
(a) I N GENERAL.—Section 162 (relating to trade or business ex- 
26 use 162. 
penses) is amended by redesignating subsection (e) as subsection (f) 
and by inserting after subsection (d) the following new subsection; 
"(e) APPEARANCES, ETC., W I T H KESPECT TO LEGISLATION.— 
"(1) I N GENERAL.—The deduction allowed by subsection (a) 
shall include all the ordinary and necessary expenses (including, 
but not limited to, traveling expenses described in subsection 
(a) (2) and the cost of preparing testimony) paid or incurred 
during the taxable year m carrying on any trade or business— 
"(A) in direct connection with appearances before, sub-
mission of statements to, or sending communications to, the 
committees, or individual members, of Congress or of any 
legislative body of a State, a possession of the United States, 
or a political subdivision of any of the foregoing with respect 
to legislation or proposed legislation of direct interest to the 
taxpayer, or 
"(B) in direct connection with communication of informa-
tion between the taxpayer and an organization of which he is 
a member with respect to legislation or proposed legislation 
of direct interest to the taxpayer and to such organization, 
and that portion of the dues so paid or incurred with respect to 
any organization of which the taxpayer is a member which is 
attributable to the expenses of the activities described in sub-
paragraphs (A) and (B) carried on by such organization. 
"(2) LIMITATION.—The provisions of paragraph (1) shall not 
be construed as allowing tne-deduction of any amount paid or 
incurred (whether by way of contribution, gift, or otherwise)— 
" (A) for participation in, or intervention in, any political 
campaign on behalf of any candidate for public office, or 
"(B) in connection with any attempt to influence the gen-
eral public, or segments thereof, with respect to legislative 
matters, elections, or referendums." 
(b) EFFECTFSTC DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1962. 
974 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
SEC. 4. DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC., EX-
PENSES. 
(a) 
DP2NIAL OF DEDUCTION.— 
26 use 261-273. 
(1) Part I X of subchapter B of chapter 1 (relating to items 
not deductible in computing taxable income) is amended by 
adding at the end thereof the following new section: 
"SEC. 274. DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC., EX-
PENSES. 
"(a) 
ENTERTAINMENT, AMUSEMENT, OR RECREATION,— 
" (1) I N GENERAL.—NO deduction otherwise allowable under 
this chapter shall be allowed for any item— 
"(A) ACTIVITY.—With respect to an activity which is of a 
type generally considered to constitute entertainment, amuse-
ment, or recreation, unless the taxpayer establishes that the 
item was directly related to, or, in the case of an item directly 
preceding or following a substantial and bona fide business 
discussion (including Dusiness meetings at a convention or 
otherwise), that such item was associated with, the active 
conduct of the taxpayer's trade or business, or 
"(B) FACILITY.—With respect to a facility used in connec-
tion with an activity referred to in subparagraph (A), unless 
the taxpayer establishes that the facility was used primarily 
for the furtherance of the taxpayer's trade or business and 
that the item was directly related to the active conduct of 
such trade or business, 
and such deduction shall in no event exceed the portion of such 
item directly related to, or, in the case of an item described in sub-
i
)aragraph (A) directly preceding or following a substantial anil 
>ona fide business discussion (including business meetings at a 
' convention or otherwise), the portion of such item associated with, 
the active conduct of the taxpayer's trade or business. 
"(2) 
SPECIAL RULES.—For purposes of applying paraj^rapli 
( 1 ) -
"(A) Dues or fees to any social, athletic, or sporting club 
or organization shall be treated as items with respect to 
facilities. 
26 use 212. 
"(B) An activity described in section 212 shall be treated as 
a trade or business. 
"(b) GIFTS.— 
" (1) LIMITATION.—No deduction shall be allowed under section 
26 usc^i6^2; 
"[(^2 or sectiou 212 for any expense for gifts made directly or 
indirectly to any individual to" 
the extent that such expense, when 
added to prior expenses of the taxpayer for gifts made to such 
individual during the same taxable year, exceeds $25. For pur-
poses of this section, the term 'gift' means any item excludable 
from gross income of the recipient under section 102 which is not 
excludable from his gross income under any other provision of this 
chapter, but such term does not include— 
"(A) an item having a cost to the taxpayer not in excass 
of $4.00 on which the name of the taxpayer is clearly and 
permanently imprinted and which is one of a number of 
identical items distributed generally by the taxpayer, 
"(B) a sign, display rack, or other promotional material 
to be used on the business premises of the recipient, or 
"(C) an item of tangible personal property having a cost 
to the taxpayer not in excess of $100 which is awarded to 
an employee by reason of length of service or for safety 
a(;hievement. 
Ante, 
p. 973. 
Ante, 
p. 973. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
975 
''(2) SPECIAL RULES.— 
"(A) In the case of a gift by a partnership, the limitation 
contained in paragraph (1) shall apply to the partnership as 
well as to each member thereof. 
"(B) For purposes of paragraph (1), a husband and wife 
shall be treated as one taxpayer. 
"(c) TRAVELING.—In the case of any individual who is traveling 
away from home in pursuit of a trade or business or in pursuit of an 
activity described in section 212, no deduction shall be allowed under 
26 use 212. 
section 162 or section 212 for that portion of the expenses of such 
26 use i62; 
travel otherwise allowable under such section which, under regulations 
prescribed by the Secretary or his delegate, is not allocable to such 
trade or business or to such activity. This subsection shall not apply 
to the expenses of any travel away from home which does not exceed 
one week or where the portion of the time away from home which is 
not attributable to the pursuit of the taxpayer's trade or business or an 
activity described in section 212 is less than 25 percent of the total time 
aAvay from home on such travel. 
"(d) SuBSTANTL\TiON REQUIRED.—No deductiou sliall be allowed— 
" (1) under section 162 or 212 for any traveling expense (includ-
ing meals and lodging while away from home), 
"(2) for any item with respect to an activity which is of a 
type generally considered to constitute entertainment, amusement, 
or recreation, or with respect to a facility used in connection with 
such an activity, or 
"(3) for any expense for gifts, 
unless the taxpayer substantiates by adequate records or by sufficient 
evidence corroborating his own statement (A) the amount of such 
expense or other item, (B) the time and place of the travel, entertain-
ment, amusement, recreation, or use of the facility, or the date and 
description of the gift, (C) the business purpose of the expense or 
other item, and (D) the business relationship to the taxpayer of 
persons entertained, using the facility, or receiving the gift. 
The 
Secretary or his delegate may by regulations provide that some or all 
of the requirements of the preceding sentence shall not apply in the 
case of an expense which does not exceed an amount prescribed pur-
suant to such regulations. 
"(e) 
SPECIFIC EXCEPTIONS TO APPLICATION or SUBSECTION 
(a).— 
Subsection (a) shall not apply to— 
"(1) BUSINESS MEALS.—Expenses for food and b e v e r a ^ fur-
nished to any individual under circumstances which (taking into 
account the surroundings in which furnished, the taxpayer's 
trade, business, or income-producing activity and the relationship 
to such trade, business, or activity of the persons to whom the 
food and beverages are furnished) are of a type generally con-
sidered to be conducive to a business discussion. 
"(2) FOOD AND BEVERAGES FOR EMPLOYEES.—Expenses for food 
and beverages (and facilities used in connection therewith) fur-
nished on the business premises of the taxpayer primarily for his 
employees. 
"(3) 
EXPENSES 
TREATED 
AS COMPENSATION.—Expenses 
for 
goods, services, and facilities, to the extent that the expenses are 
treated by the taxpayer, with respect to the recipient of the 
entertainment, amusement, or recreation, as compensation to an 
employee on the taxpayer's return of tax under this chapter and 
as wages to such employee for purposes of chapter 24 (relating 
to withholding of income tax at source on wages). 
"(4) REIMBURSED EXPENSES.—Expenses paid or incurred by 
the taxpayer, in connection with the performance by him of serv-
976 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
ices for another person (whether or not such other person is his 
employer), under a reimbursement or other expense allowance 
arrangement with such other person, but this paragraph shall 
apply— 
"(A) where the services are performed for an employer, 
only if the employer has not treated such expenses in the 
manner provided in paragraph (3), or 
"(B) where the services are performed for a person other 
than an employer, only if the taxpayer accounts (to the 
extent provided by subsection (d)) to such person. 
"(5) 
RECREATIONAL, ETC., EXPENSES FOR EMPLOYEES.—Expenses 
for recreational, social, or similar activities (including facilities 
therefor) primarily for the benefit of employees (other than 
employees who are officers, shareholders or other owners, or highly 
compensated employees). For purposes of this paragraph, an 
individual owning less than a 10-percent interest in the taxpayer's 
trade or business shall not be considered a shareholder or other 
owner, and for such purposes an individual shall be treated as 
owning any interest owned by a member of his family (within the 
26 use 267. 
meaning of section 267 (c) (4)). 
"(6) 
EMPLOYEE, 
STOCKHOLDER, ETC., BUSINESS 
MEETINGS.— 
Expenses incurred by a taxpayer which are directly related to 
business meetings of his employees, stockholders, agents, or 
directors. 
"(7) 
MEETINGS or BUSINESS LEAGUES, ETC.—Expenses directly 
related and necessary to attendance at a business meeting or con-
26 use 501. 
vention of any organization described in section 501(c) (6) (relat-
ing to business leagues, chambers of commerce, real estate boards, 
and boards of trade) and exempt from taxation under section 
501(a). 
"(8) ITEMS AVAILABLE TO PUBLIC.—Expenses for goods, serv-
ices, and facilities made available by the taxpayer to the general 
public. 
" (9) ENTERTAINMENT SOLD TO CUSTOMERS.—Expenses for goods 
or services (including the use of facilities) which are sold by 
the taxpayer in a bona fide transaction for an adequate and full 
consideration in money or money's worth. 
For purposes of this subsection, any item referred to in subsection 
(a) shall be treated as an expense. 
"(f) 
INTEREST, TAXES, CASUALTY LOSSES, ETC.—This section shall 
not apply to any deduction allowable to the taxpayer without regard 
to its connection with his trade or business (or with his income-pro-
ducing activity). In the case of a taxpayer which is not an individual, 
the preceding sentence shall be applied as if it were an individual. 
"(g) 
TREATMENT OF ENTERTAINMENT, ETC.. TYPE FACILITY.—For 
purposes of this chapter, if deductions are disallowed under subsection 
(a) with respect to any portion of a facility, such portion shall be 
treated as an asset which is used for personal, living, and family pur-
poses (and not as an asset used in the trade or business). 
"(h) REGULATORY AUTHORITY.—The Secretary or his delegate shall 
prescribe such regulations as he may deem necessary to carry out the 
purposes of this section, including regulations prescribing whether 
subsection (a) or subsection (b) applies in cases where both such sub-
sections would otherwise apply." 
Ante, p. 974. 
(2) The table of sections for such part I X is amended by 
adding at the end thereof the following: 
"See. 274. Disallowance of certain entertainment, etc., expenses." 
26 use 162. 
(b) TRAVELING EXPENSES.—Section. 162(a) (2) (relating to travel-
ing expenses) is amended by striking out "(including the entire 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
977 
amount expended for meals and lodging)" and inserting in lieu 
thereof "(including amounts expended for meals and lodging other 
than amounts which are lavish or extravagant under the circum-
stances)". 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years ending after December 31, 1962, 
but only in respect of periods after such date. 
SEC. 5. AMOUNT OF DISTRIBUTION WHERE CERTAIN FOREIGN COR-
PORATIONS DISTRIBUTE PROPERTY IN KIND. 
(a) AMOUNT DISTRIBUTED.—Section 301(b) (1) (relating to amount 
26usc3oi; 
distributed to corporate distributees) is amended by adding at the ^°'^'' P* ^°^^* 
end thereof the following new subparagraph: 
"(C) 
CERTAIN CORPORATE DISTRIBUTEES OF FOREIGN CORPO-
RATION.—Notwithstanding subparagraph (B), if the share-
holder is a corporation and the distributing corporation is 
a foreign corporation, the amount taken into account with 
respect to property (other than money) shall be the fair 
market value of such property; except that if any deduction 
is allowable under section 245 with respect to such distribu- 
26 use 245. 
tion, then the amount taken into account shall be the sum 
(determined under regulations prescribed by the Secretary or 
his delegate) of— 
"(i) the proportion of the adjusted basis of such prop-
erty (or, if lower, its fair market value) properly at-
tributable to gross income from sources within the Ignited 
States, and 
"(ii) the proportion of the fair market A'alue of such 
property properly attributable to gross income from 
sources without the United States." 
(b) BASIS.—Section 301(d) 
(relating to basis of property) is 
26 use 301; 
amended by adding at the end thereof the following new paragraph: 
^°^^' P- '°^^-
"(3) 
CERTAIN CORPORATE DISTRIBUTEES OF FOREIGN CORPORA-
TION.—In the case of property described in subparagraph (C) of 
subsection (b) (1), the basis shall be determined by substituting 
the amount determined under such subparagraph (C) for the 
amount described in paragraph (2) of this subsection." 
(c) 
DIVIDENDS RECEIVED FROM CERTAIN FOREIGN CORPORATIONS.— 
(1) Section 245 (relating to dividends received from certain 
foreign corporations) is amended by adding at the end thereof the 
following new subsection: 
"(b) PROPERTY DISTRIBUTIONS.—For purposes of subsection (a), the 
amount of any distribution of property other than money shall be the 
amount determined by applying section 301 (b(1) (B)." 
(2) Section 245 is amended by striking out "In the case of" and 
inserting in lieu thereof "(a) GENERAL RULE.—In the case of". 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply to distributions made after December 31, 1962. 
SEC. 6. MUTUAL SAVINGS BANKS, ETC. 
(a) RESERVES FOR LOSSES ON LOANS.—Section 593 is amended to read 
as follows: 
"SEC. 593. RESERVES FOR LOSSES ON LOANS. 
" (a) ORGANIZATIONS TO W H I C H SECITON APPLIES.—This section shall 
apply to any mutual savings bank not having capital stock repre-
sented by shares, domestic building and loan association, or coopera-
tive bank without capital stock organized and operated for mutual 
purposes and without profit. 
78135 0-63—65 
978 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
" (b) ADDITION TO RESERVES FOR BAD DEBTS.— 
26 use 166. 
"(1) I N GENERAL.—FoF purposes of section 166(c), the reason-
able addition for the taxable year to the reserve for bad debts of 
any taxpayer described in subsection (a) shall be an amount equal 
to the sum of— 
"(A) the amount determined under section 166(c) to be a 
reasonable addition to the reserve for losses on nonqualifying 
loans, plus 
"(B) the amount determined by the taxpayer to be a 
i-easonable addition to the reserve for losses on qualifying 
real property loans, but such amount shall not exceed the 
amount determined under paragraph (2), (3), or (4), which-
ever amount is the largest, but the amount determined under 
this subparagraph shall in no case be greater than the larger 
of— 
"(i) the amount determined under paragraph (4), or 
"(ii) the amount which, when added to the amount 
determined under subparagraph (A), equals the amount 
by which 12 percent of the total deposits or withdraw-
able accounts of depositors of the taxpayer at the 
close of such year exceeds the sum of its surplus, undi-
vided profits, and reserves at the beginning of such year 
(taking into account any portion thereof attributable to 
the period before the first taxable year beginning after 
December 31,1951). 
"(2) PERCENTAGE OF TAXABLE INCOME METHOD.—The amount 
determined under this paragraph for the taxable year shall be 
the excess of— 
" (A) an amount equal to 60 percent of the taxable income 
for such year, over 
"(B) the amount referred to in paragraph (1) (A) for 
such year, 
but the amount determined under this paragraph shall not exceed 
the amount necessary to increase the balance (as of the close of 
the taxable year) of the reserve for losses on qualifying real 
property loans to 6 percent of such loans outstanding at such 
time. For purposes of this paragraph, taxable income shall be 
computed (i) by excluding from gross income any amount 
included therein by reason of subsection (f), and (ii) without 
regard to any deduction allowable for any addition to the reserve 
for bad debts. 
"(3) PERCENTAGE OF REAL PROPERTY LOANS METHOD.—^The 
amount determined under this paragraph for the taxable year 
shall be an amount equal to the amount necessary to increase the 
balance (as of the close of the taxable year) of the reserve for 
losses on qualifying real property loans to an amount equal to— 
" (A) 3 percent of such loans outstanding at such time, plus 
"(B) in the case of a taxpayer which is a new company 
and which does not have capital stock with respect to which 
26 use 317. 
distributions of property (as defined in section 317(a)) are 
26 use 591; 
uot allowable as a deduction under section 591, an amount 
Post. p. 984. 
eq^jal to— 
" (i) 2 percent of so much of the amount of such loans 
outstanding at such time as does not exceed $4,000,000, 
reduced (but not below zero) by 
" (ii) the amount, if any, of the balance (as of the close 
of such taxable year) of the taxpayer's supplemental 
reserve for losses on loans. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
979 
For purposes of subparagraph (B), a taxpayer is a new company 
for any taxable year only if such taxable year begins not more 
than 10 years after the first day on which it (or any predecessor) 
was authorized to do business as an organization described in 
subsection (a). 
"(4) EXPERIENCE METHOD.—The amount determined under this 
paragraph for the taxable year shall be an amount equal to the 
amount determined under section 166(c) (without regard to this 
26 use lee. 
subsection) to be a reasonable addition to the reserve for losses 
on qualifying real property loans. 
'•(5) 
LIMITATION IN CASE OF CERTAIN DOMESTIC BIHLDINO AKD 
L
O
A
N ASSOCIATIONS.—If the percentage of the assets of a domestic 
building and loan association which are not assets described in 
section 7701(a) (19) (D) (ii) exceeds 36 percent for the taxable 
Post, p. 983. 
year (as determined for purposes of section 7701(a) (19) for such 
Post, p. 982. 
year), the amount determined under paragraph (2), and the 
amount determined under paragraph (3), shall in each case be 
the amount (detemiined without regard to this paragraph but 
with regard to the limits contained in paragraphs (2), (3), and 
(1) (B)) reduced by the amount determined under the following 
table: 
If the i>ercentage 
exceeds— 
36 percent 
37 percent 
38 percent 
39 percent 
40 perceht 
but does not 
exceed— 
.
H
7 percent 
38 percent 
39 percent 
40 percent 
41 percent 
the reduction shall be the following proportion of the amount so 
determined without regard to this paragraph— 
1/12 
1/6 
1/4 
1/3 
5/12 
"(c) 
TREATMENT OF RESERVES FOR BAD DEBTS.— 
"(1) ESTABLISHMENT OF RESERVES.—Each taxpayer described 
in subsection (a) which uses the reserve method of accounting 
for bad debts shall establish and maintain a reserve for losses on 
qualifying real property loans, a reserve for losses on nonquali-
fying loans, and a supplemental reserve for losses on loans. For 
purposes of this title, such reserves shall be treated as reserves 
for bad debts, but no deduction shall be allowed for any addition 
to the supplemental reserve for losses on loans. 
"(2) ALLOCATION OF PRE-I9 63 RESERVES.—For purposes of this 
section, the pre-1963 reserves shall, as of the close of December 
31, 1962, be allocated to, and constitute the opening balance of— 
"(A) the reserve for losses on nonqualifying loans, 
"(B) the reserve for losses on qualifying real property 
loans, and 
"(C) the supplemental reserve for losses on loans. 
"(3) METHOD OF ALIXX:ATION.—The allocation provided by para-
graph (2) shall be made— 
"(A) first, to the reserve described in paragraph (2) (A), 
; 
to the extent such reserve is not increased above the amount 
which would be a reasonable addition under section 166(c) 
for a period in which the nonqualifying loans increased from 
zero to the amount thereof outstanding at the close of 
December 31, 1962; 
"(B) second, to the reserve described in paragraph (2) (B), 
to the extent such reserve is not increased above the amount 
which would be determined under paragraph (3) (A) or (4) 
of subsection (b) (whichever such amount is the larger) for 
a period in which the qualifying real property loans increased 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
from zero to the amount thereof outstanding at the close of 
December 31, 1962; and 
"(C) then to the supplemental reserve for losses on loans. 
"(4) PRE-196 3 RESERVES DEFINED.—For purposcs of this sub-
section, the term 'pre-1963 reserves' means the net amount, deter-
mined as of the close of December 31, 1962 (after applying 
subsection (d)(1)), accumulated in the reserve for bad debts 
26 use 166. 
pursuant to section 166(c) (or the corresponding provisions of 
prior revenue laws) for taxable years beginning after December 
31,1951. 
"(5) CERTAIN PRE-1952 SURPLUS.—If after the application of 
paragraph (3), the opening balance of the reserve described in 
paragraph (2) (B) is less than the amount described in para-
graph (3)(B), then, for purposes of this subsection, the term 
'pre-1963 reserves' includes so much of the surplus, undivided 
profits, and bad debt reserves (determined as of December. 31, 
1962) attributable to the period before the first taxable year 
beginning after December 31,1951, as does not exceed the amount 
by which such opening balance is less than the amount described 
in paragraph (3) (B). For purposes of the preceding sentence, 
the surplus, undivided profits, and bad debt reserves attributable 
to the period before the first taxable year beginning after De-
cember 31, 1951, shall be reduced by the amount thereof which is 
attributable to interest which would have been excludable from 
gross income under section 22(b)(4) of the Internal Revenue 
53 Stat. 10. 
Code of 1939 (relating to interest on governmental obligations) 
or the corresponding provisions of prior laws. 
Notwithstanding 
the second sentence of paragraph (1), any amount which, by 
reason of the application of the first sentence of this paragraph, 
is allocated to the reserve described in paragraph (2) (B) shall 
not be treated as a reserve for bad debts for any purpose other 
than determining the amount referred to itf suDsection (b)(1) 
(B), and for such purpose such amount shall be treated as re-
maining in such reserve. 
"(6) CHARGING or BAD DEBTS TO RESERVES.—Any debt becoming 
worthless or partially worthless in respect of a qualifying real 
property loan shall be charged to the reserve for losses on such 
loans, and any debt becoming worthless or partially worthless in 
respect of a nonqualifying loan shall be charged to the reserve 
for losses on nonqualifying loans; except that any such debt may, 
at the election of the taxpayer, be charged in whole or in part 
to the supplemental reserve for losses on loans. 
"(d) TAXABLE YEARS BEGINNING IN 1962 AND ENDING IN 1963.—In 
the case of a taxable year beginning before January 1. 1963, and end-
ing after December 31,1962, of a taxpayer described in subsection (a) 
which uses the reserve method of accounting for bad debts, the taxable 
income shall be the sum of— 
" ( 1 ) that portion of the taxable income allocable to the part 
of the taxable year occurring before January 1, 1963, reduced by 
the amount of the deduction for an addition to a reserve for bad 
debts which would be allowable under section 166(c) (without 
regard to the amendments made by section 6 of the Revenue Act 
of 196?) if such part year constituted a taxable year, plus 
"(2) that portion of the taxable income allocable to the part 
of the taxable year occurring after December 31, 1962, reduced 
by the amount of the deduction for an addition to a reserve for 
bad debts which would be allowed under section 166(c) (taking 
into account the amendments made by sec<don 6 of the Revenue 
Act of 1962) if such part year constituted a taxable year. 
76 STAT. 3 
PUBLIC LAW 87-834-OCT. 16, 1962 
981 
For purposes of the preceding sentence, the taxable income shall be 
determined without regard to any deduction under section 166(c), 
26 use lee. 
and ther portion thereof allocable to each part year shall be determined 
on the basis of the ratio which the number of days in such part year 
bears to the number of days in the entire taxable year. 
" (e) LOANS DEFINED.—For purposes of this section— 
" (1) QUALIFYING REAL PROPERTY LOANS.—The term 'qualifying 
real property loan' means any loan secured by an interest in 
improved real property or secured by an interest in real property 
which is to be improved out of the proceeds of the loan, but 
sUch term does not include— 
"(A) any loan evidenced by a security (as defined in sec-
tion 165(g) (2) ( C ) ) ; 
26 use 165. 
"(B) any loan, whether or not evidenced by a security (as 
defiined in section 165(g)(2)(C)), the primary obligor on 
which is— 
"(i) a government or political subdivision or instru-
mentality thereof; 
"^ii) a bank (as defined in section 581); or 
"(iii) another member of the same affiliated group; 
"(C) any loan, to the extent secured by a deposit in or share 
of the taxpayer; or 
"(D) any loan which, within a 60-day period beginning in 
one taxable year of the creditor and ending in its next taxable 
year, is made or acquired and then repaid or disposed of, 
unless the transactions by which such loan was made or 
acquired and then repaid or disposed of are established to 
be for bona fide business purposes. 
For purposes of subparagraph (B) (iii), the term 'affiliated group' 
has the meaning assigned to such term by section 1504(a); except 
26 use i504. 
that (i) the phrase 'more than 50 percent' shall be substituted for 
the phrase 'at least 80 percent' each place it appears in section 
1504(a), and (ii) all corporations shall be treated as includible 
corporations (without any exclusion under section 1504(b)). 
"(2) NONQUALIFYING LOANS.—^The term 'nonqualifying loan' 
means any loan which is not a qualifying real property loan. 
"(3) LOAN.—The term 'loan' means debt, as the term 'debt' is 
used in section 166. 
"(f) DISTRIBUTIONS TO SHAREHOLDERS.— 
"(1) I N GENERAL.—For purposes of this chapter, any distribu-
tion of property (as defined in section 317(a)) by a domestic 
26 use 317. 
building and loan association to a shareholder with respect to its 
stock, if such distribution is not allowable as a deduction under 
section 591. shall be treated as made— 
"(A) first out of its earnings and profits accumulated in 
taxable years beginning after December 31,1951, to the extent 
thereof, 
"(B) then out of the reserve for losses on qualifying real 
property loans, to the extent additions to such reserve exceed 
the additions which would have been allowed under sub-
section (b) (4), 
"(C) then out of the supplemental reserve for losses on 
loans, to the extent thereof, 
"(D) then out of such other accounts as may be proper. 
This paragraph shall apply in the case of any distribution in 
redemption of stock or m partial or complete liquidation of the 
association, except that any such distribution shall be treated as 
made first out of the amount referred to in subparagraph (B), 
second out of the amount referred to in subparagraph (C), third 
982 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
out of the amount referred to in subparagraph (A), and then 
out of such other accounts as may be proper. 
"(2) 
AMOUNTS CHARGED TO RESERVE ACCOUNTS AND INCLUDED IN 
GR03S INCOME.—If any distribution is treated under paragraph 
(1) as having been made out of the reserves described in sub-
paragraphs (B) and (C) of such paragraph, the amount charged 
against such reserve shall be the amount which, when reduced 
by the amount of tax imposed under this chapter and attributable 
to the inclusion of such amount in gross income, is equal to the 
amount of such distribution; and the amount so charged against 
such reserve shall be included in gross income of the taxpayer. 
"(3) 
SPECIAL RULES.— 
"(xA) For purposes of paragraph (1)(B), additions to 
the reserve for losses on qualifying real property loans for 
the taxable year in which the distribution occurs shall be 
taken into account. 
"(B) For purposes of computing under this section the 
amount of a reasonable addition to the reserve for losses on 
qualifying real property loans for any taxable year, any 
amount charged during any year to such reserve pursuant to 
the provisions of paragraph (2) shall not be taken into 
account." 
(b) 
FORECLOSURE ON PROPERTY SECURING LOANS.—Part I I of 
sub-
26 use 591-594. chapter H of chapter 1 (relating to mutual savings banks, etc.) is 
amended by adding at the end thereof the following new section: 
"SEC. 5
9
5
. 
FORECLOSURE 
ON PROPERTY 
SECURING 
LOANS. 
"(a) NONRECOGNITION OF GAIN OR Loss AS A RESULT OF FORE-
CLOSURE.—In the case of a creditor which is an organization described 
Ante. p. 977. 
in section 593(a), no gain or loss shall be recognized, and no debt 
shall be considered as becoming worthless or partially worthless, as the 
result of such organization having bid in at foreclosure, or having 
otherwise reduced to ownership or possession by agreement or process 
of law, any property which was security for the payment of any in-
debtedness. 
"(b) CHARACTER or PROPERTY.—For purposes of sections 166 and 
26 use 166, 
1221, any property acquired in a transaction with respect to which 
gain or loss to an organization was not recognized by reason of sub-
section (a) shall be considered as property having the same character-
istics as the indebtedness for which such property was security. Any 
amount realized by such organization with respect to such property 
shall be treated for purposes of this chapter as a payment on account 
of such indebtedness, and any loss with respect thereto shall be treated 
as a bad debt to which the provisions of section 166 (relating to allow-
ance of a deduction for bad debts) apply. 
"(c) BASIS.—The basis of any property to which subsection (a) 
applies shall be the basis of the indebtedness for which such property 
was security (determined as of the date of the acquisition of such prop-
erty), properly increased for costs of acquisition. 
"(d) REGULATORY AUTHORITY.—The Secretary or his delegate shall 
prescribe such regulations as he may deem necessary to carry out the 
purposes of this section." 
(c) 
DEFINITION OF DOMESTIC BUILDING AND LOAN ASSOCIATION.— 
Paragraph (19) of section 7701(a) (definition of domestic building 
and loan association) is amended to read as follows: 
"(19) DOMESTIC BUILDING AND LOAN ASSOCIATION.—The term 
'domestic building and loan association' means a domestic build-
ing and loan association, a domestic savings and loan association, 
and a Federal savings and loan association— 
221. 
76 STAT. ] 
PUBLIC LAW 87.834-OCT. 16, 1962 
983 
"(A) which either (i) is an insured iiistitution within the 
meaning of section 401(a) of the National Housing Act (12 
U.S.C., sec. 1724(a)), or (ii) is subject by law to supervision 
48 stat. i25s. 
and examination by State or Federal authority having super-
vision over such associations; 
"(B) substantially all of the business of which consists 
of acquiring the savings of the public and investing in loans 
described in subparagraph (C); 
"(C) at least 90 percent of the amount of the total assets 
of which (as of the close of the taxable"year) consists of (i) 
cash, (ii) obligations of the United States or of a State or 
political subdivision thereof, stock or obligations of a cor-
poration which is an instrumentality of the United States 
or of a State or political subdivision thereof, and certificates 
of deposit in, or obligations of, a corporation organized under 
a State law which specifically authorizes such corporation to 
insure the deposits or share accounts"bf member associations, 
(iii) loans secured by an interest in real property and loans 
: 
made for the improvement of real property, (iv) loans 
secured by a deposit or share of a member, (v) property 
i*^! - 
acquired through the liq^uidation of defaulted loans descried 
in cUiuse (iii), and (vi) property used by the association 
in the conduct of the business described in subparagraph 
< • * > ! . 
. 
. 
•
, 
"(iJ) ot the assets of which taken mto account under sub-
[wiragraph (C) as assets constituting the 90 percent of total 
assets—-* 
"(i) at least 80 percent of the amount of such assets 
* 
consists of assets described in clauses (i), (ii), (iv), and 
~ 
(vi) of such subparagraph and of loans secured by an 
interest in retrt property which is (or, from the proceeds 
of the loan, will become) residential real property of 
real property used primarily for church purposes, loans 
made for the improvement of residential real property 
or real property used primarily for church purposes, 
or property acquired through the liquidation of de-
i^^' 
fauIted loans desei'ibed in this clause; and 
?' V 
"(ii) at least 60 percent of the amount of such assets 
consists of assets described in clauses (i), (ii), (iv), and 
(vi) of such subparagraph and of loans secare^ by an 
interest in real property which is (or, from the proceeds 
of the loan, will become) residential real property con-
taining 4 or fewer family units or real property used 
primarily for church purposes, loans made for the im-
provement of residential real property containing 4 or 
fewer family units or real property used primarily for 
church purposes, or property acquired through the liqui-
'"-• 
dation of defaulted loans described in this clause; 
"(E) not more than 18 percent of the amount of the total 
assets of which (as of the close of the taxable year) consists 
of assets other than those described in clause (i) of subpara-
gi'aph (D), and not more than 36 percent of tlie amount of 
tiie total assets of which (as of the close of the taxable year) 
consists of assets other than those described in clause (ii) 
of subparagraph (D); and 
"(F) except for property described in subparagraph (C), 
not more than 3 percent of the assets of which consists of 
stock of any corporation. 
f84 
PUBLIC LAW 87-834~OCT. 16, 1962 
[76 STAT. 
The term 'domestic building and loan association' also includes 
any association which, for the taxable year, would satisfy the re-
quirements of the first sentence of this paragraph if '41 percent' 
were substituted for '36 percent' in subparagraph (E). Except 
in the case of the taxpayer's first taxable year beginning after the 
date of the enactment of the Revenue Act of 1962, the second 
sentence of this paragraph shall not apply to an association for 
the taxable year unless such association (i) was a domestic build-
ing and loan association within the meaning of the first sentence 
of this paragraph for the first taxable year preceding tlie taxable 
year, or (ii) was. a domestic building and loan association solely 
by reason of the second sentence of this paragraph for the first 
taxable year preceding the taxable year (but not for the second 
preceding taxable year). At the election of the taxpayer, the 
percentages specified in this paragraph shall be applied on the 
basis of the average assets outstanding during the taxable year, 
in lieu of the close of the taxable year, computed under regula-
tions prescribed by the Secretary or his delegate." 
(d) CLERICAL AMENDMENTS.—The table of sections for part I I of 
26 use 591-S&4. subchapter H of chapter 1 is amended— 
(1) by striking out the third item and inserting in lieu thereof 
the following: 
"Sec. 593. Reserves for losses on loans." 
and 
(2) by adding at the end thereof the following: 
"Sec. .595. Foreclosure on property securing loans." 
(e) REPEAL OF EXEMPTION FROM CERTAIN TAXES.— 
(1) AMENDMENT TO HOME OWNERS' LOAN ACT OF 1933.—Section 
5(h) of the Home Owners' Loan Act of 1933, as amended (12 
48 Stat. 133; 
U.S.C. sec. 1464(h)), is amended to read as follows: 
65 Stat.490. 
^^(h) No State, county, municipal, or local taxing authority shall 
impose any tax on such associations or their franchise, capital, reserves, 
surplus, loans, or income greater than that imposed by such authority 
fm otlier similar local mutual or cooperative thrift and home financing. 
institutions." 
26 use 4382. 
( 2 ) C E R T A I N DOCUMENTARY STAMP TAXES, 
SectioU 4 3 8 2 ( a ) ( 2 ) 
(relating to exemptions from documentary stamp taxes) is 
amended to read as follows:. 
"(2) DOMESTIC BUILDING AND LOAN ASSOCIATIONS AND MUTUAL 
DITCH O
R IRRIGATION COMPANIES.—Shares or certificates of stock 
issued by domestic building and loan associations and cooperative 
banks, to the extent such shares or certificates represent deposits 
or withdrawable accounts; or shares or certificates of stock and 
certificates of indebtedness issued by mutual ditch or irrigation 
companies." 
(f) DEDUCTION FOR DIVIDENDS OR INTEREST PAID ON DEPOSITS.—Sec-
tion 591 (relating to deduction for dividends paid on deposits) is 
amended— 
(1) by striking out "and domestic building and loan associa-
tions" and inserting in lieu thereof the following: "domestic build-
ing and loan associations, and other savings institutions char-
tered and supervised as savings and loan or similar associations 
under Federal or State law"; and 
(2) by inserting after "dividends" the following: "or interest". 
(g) EFFECTIVE DATES.— 
(1) The amendment made by subsection (a) shall apply to 
taxable years ending after December 31, 1962, except that section 
Ante, p. 981. 
593(f) of the Internal Revenue Code of 1954 shall apply to dis-
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
985 
tributions after December 31,1962, in taxable years ending after 
such date. 
(2) The amendment made by subsection (b) shall apply to 
transactions described in section 595(a) of the Internal Eevenue 
Code of 1954 occurring after December 31, 1962, in taxable years 
^nte, p. 982. 
ending after such date. 
(3) The amendment made by subsection (c) shall apply to 
taxable years beginning after the date of the enactment of this 
Act. 
(4) Subsection (e) of this section shall become effective on 
January 1,1963, except that—. 
(A) in the case of the tax imposed by section 4251 of the 
Internal Kevenue Code of 1954, such subsection shall apply 
26 use 4251. 
only with respect to amounts paid pursuant to bills rendered 
after December 31, 1962; and 
(B) in the case of the tax imposed by section 4261 of such 
Code, such subsection shall apply only with respect to trans-
portation beginning after December 31, 1962. 
SEC. 7. DISTRIBUTIONS BY FOREIGN TRUSTS. 
(a) 
DEFINITIONS.— 
(1) INCOME OF FOREIGN TRUST.—Section 643(a)(6) (relating 
to modifications taken into account in computing distributable 
net income) is amended to read as follows: 
"(6) INCOME OF FOREION TRUST.—In the case of a foreign 
trust— 
"(A) There shall be included the amounts of gross income 
from sources without the United States, reduced by any 
amounts which would be deductible in respect of disburse-
ments allocable to such income but for the provisions of sec-
tion 265(1) (relating to disallowance of certain deductions). 
"(B) Gross income from sources within the United States 
shall be determined without regard to section 894 (relating 
to income exempt under treaty). 
"(C) Paragraph (3) shall not apply to a foreign trust 
created by a United States person. In the case of such a 
trust, (i) there shall be included gains from the sale or 
exchange of capital assets, reduced by losses from such sales or 
exchanges to the extent such losses do not exceed gains from 
such sales or exchanges, and (ii) the deduction under section 
1202 (relating to deduction for excess of capital gains over 
capital losses) shall not be taken into account." 
(2) FOREIGN TRUSTS.—Section 643 (relating to definitions) is 
amended by adding at the end thereof the following new sub-
section : 
"(d) 
FOREIGN TRUSTS CREATED BY UNITED STATES PERSONS.—For 
purposes of this part, the term 'foreign trust created by a United 
States person' means that portion of a foreign trust (as defined in 
section 7701(a) (31)) attributable to money or property transferred 
Post. p. 988. 
directly or indirectly by a United States person (as defined in sec-
tion 7701(a) (30)), or under the will of a decedent who at the date 
Post, p. 988. 
of his death was a United States citizen or resident." 
(b) ACCUMULATION DISTRIBUTIONS OF FOREIGN TRUSTS.—-
(1) Section 665(b) (relating to definitions applicable to sub-
part D) is amended by striking out "(b) ACCUMULATION DISTRI-
BUTION.—For purposes of this subpart," and inserting in lieu 
thereof the following: 
"(b) 
ACCUMULATION DISTRIBUTIONS OP TRUSTS OTHER THAN CER-
TAIN FOREIGN TRUSTS.—For purposes of this subpart, in the case of 
986 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
a trust (other than a foreign trust created by a United States 
person),", 
26 use 665. 
(2) Section 665 is amended by redesignating subsections (c) 
and (d) as (d) and (e), respectively, and by inserting after sub-
section (b) the following new subsection: 
"(c) ACCUMULATION DISTRIBUTION or CERTAIN FOREIGN TRUSTS.— 
For purposes of this subpart, in the case of a foreign trust created 
by a United States person, the term 'accumulation distribution' for 
any taxable year of the trust means the amount by which the amounts 
specified in paragraph (2) of section 661(a) for such taxable year 
exceed distributable net income, reduced by the amounts specified in 
paragraph (1) of section 661(a). For purposes of this subsection, 
the amount specified in paragraph (2) of section 661(a) shall be 
determined without regard to section 666. Any amount paid to a 
United States person which is from a payor who is not a United States 
person and which is derived directly or indirectly from a foreign 
trust created by a United States person shall be deemed in the year 
of payment to have been directly paid by the forei^ trust." 
(c) 
ALLOCATION OF ACCUMULATION DISTRIBUTIONS TO PRECEDING 
26 use 666. 
YEARS.—Section 666(a) (relating to accumulation distribution allo-
cated to 5 preceding years) is amended— 
(1) by striking out "(a) AMOUNT ALLOCATED.—In the case of 
a trust" and inserting in lieu thereof the following: 
"(a) AMOUNT ALLOCATED.—In the case of a trust (other than a 
foreign trust created by a United States person)"; and 
(2) by adding at the end thereof the following new sentence: 
"In the case of a foreign trust created by a United States person, 
this subsection shall apply to the preceding taxable years of the trust 
without regard to any provision of the preceding sentences which 
Avould (but for this sentence) limit its application to the 5 preceding 
taxable years." 
(d) AMOUNTS TREATED AS RECEn^) IN PRIOR YEARS.—Section 668 
(a) (relating to amounts treated as received in prior taxable years) 
is amended by adding at the end thereof the following new sentence: 
"Except as provided in section 669, in the case of a foreign trust 
created by a United States person the preceding sentence shall not 
apply to any beneficiary who is a United States person." 
(e) SPECIAL RULES FOR FOREIGN TRUSTS.—Subpart D of part I of 
26 use 665-668. Subchapter J of chapter 1 (relating to treatment of excess distribu-
tions by trusts) is amended by adding at the end thereof the following 
new section: 
• 
**SEC. 669. SPECIAL RULES APPLICABLE TO CERTAIN FOREIGN 
TRUSTS. 
"(a) LIMITATION ON TAX.— 
"(1) GENERAL RULE.—At the election of a beneficiary who is a 
Post, p. 988. 
United States person (as defined in section 7701 (a) (30)) and 
who satisfies the requirements of subsection (b), the tax attrib-
utable to the amounts treated under section 668(a) as having been 
received by him from a foreign trust created by a United States 
person on the last day of a preceding taxable year of the trust 
shall not be greater than— 
"(A) the tax determined under the next to the last sentence 
of section 668(a), or 
"(B) the tax determined by multiplying by the number of 
preceding taxable years of the trust, on the last day of each 
Supra. 
of which an amount is deemed under section 666(a) to have 
been distributed, the average of the increase in tax attributable 
to recomputing the beneficiary's gross income for the taxable 
year and each of his 2 taxable years immediately preceding 
76 STAT. ] 
PUBLIC LAW 87.834-OCT. 16, 1962 
987 
the year of the accumulation distribution by addmg to the 
income of each of such years an amount determined by divid-
ing the amount required to be included in income under sec-
tion 668(a) by such number of preceding taxable years of the 
26 use ees; 
trust. The recomputation for the taxable year shall be made ^"'®' P- ^^^• 
without regard to the inclusion in income required by section 
668(a) of any amount other than pursuant to this paragraph. 
si 
"(2) EXCEPTIONS.— 
"(A) When an accumulation distribution is deemed under 
section 666(a) to have been distributed on the last day of less 
26 use 666; 
than 3 taxable years of the trust, the taxable years of the "*"'*' ^- ^^^' 
? , ,, 
beneficiary for which a recomputation is made under subsec-
tion (a)(1)(B) shall equal the number of years to which 
section 666(a) applies, commencing with the most recent 
taxable year of the beneficiary. 
"(B) If a beneficiary was not alive on the last day of each 
t 
precedm^ taxable year of the trust with respect to which a 
distribution is deemed made under section 666(a), paragraph 
(1) (A) of this subsection shall not apply. 
In applying 
^,,; 
paragraph (1) (B) of this subsection, no recomputation shall 
be made for a beneficiary for a taxable year for which he 
was not alive; if he has no preceding taxable year, the recom-
putation shall be made on the basis of his taxable year with-
out regard tb the inclusion in income required by section 
668(a) of any amount other than pursuant to paragraph 
"(3) EFFECT OF PRIOR ELECTXPN.—In computing the limitation 
on tax under paragraph 
(1) of this subsection for any 
beneficiary— 
" ( A ) 
S U B S E Q U E N T ELECTION UNDER PARAGRAPH ( 1 ) ( A ) . — I f 
an election has been made under paragraph (1)(B) of this 
subsection, for purposes of a subsequent election under para-
graph (1) (A) the income of any year with respect to which 
an amount is deemed distributed to a beneficiary under section 
666(a) shall include amounts previously deemed distributed 
^ 
' 
to such beneficiary for such year as a result of an accumula-
tion distribution with respect to which an election under 
. .
^ ; 
paragraph (1) (B) was made. 
"(B) 
SUBSEQUENT ELECTION UNDER PARAGRAPH ( 1 ) ( B ) . — 
hmn. 
If with respect to an accumulation distribution an election 
,^^ , . ; 
has been made under either paragraph (1) (A) or paragraph 
-,t s. 
(1) (B) of this subsection, or the next to the last sentence of 
section 668(a) has applied, for purposes of a subsequent 
election under paragraph (1) (B) the number of preceding 
taxable years of the trust with respect to which an amount 
is deemed distributed to a beneficiary under section 666{&) 
•
{
<
v .; 
shall be determined without regard to any such year with 
; 
respect to which an amount was previously deemed distributed 
' 
to such beneficiary. 
"(b) INFORMATION REQUIREMENT.—The election of a beneficiary to 
apply the limitations on tax provided in subsection (a) of this section 
shall not be effective unless the beneficiary at the time of making the 
election supplies such information with respect to the operation and 
accounts of the trust, for each taxable year on the last day of which 
an amount is deemed distributed under section 666 (a), as the Secretary 
or his delegate may by regulations prescribe." 
(f) 
INFORMATION RETURNS W I T H RESPECT TO FOREIGN TRUSTS.— 
Subpart B of part I I I of subchapter A of chapter 61 (relating to ihfor-
6659. 
PUBLIC LAW 87.834-OCT. 16, 1962 
[76 STAT. 
mation concerning transactions with other persons) is amended by 
adding at the end thereof the following new section: 
"SEC. 6048. RETURNS AS TO CREATION OF OR TRANSFERS TO CERTAIN 
FOREIGN TRUSTS. 
" (a) GENERAL RULE.—On or before the 90th day after— 
" (1) the creation of any foreign trust by a United States person, 
or 
"(2) the transfer of any money or property to a foreign trust 
by a United States person, 
the grantor in the case of an inter vivos trust, the fiduciary of an estate 
in the case of a testamentary trust, or the transferor, as the case may 
be, shall make a return in compliance with the provisions of subsection 
(b). 
"(b) FORM AND CONTENTS or RETURNS.—The returns required by 
subsection (a) shall be in such form and shall set forth, in respect of 
the foreign trust, such information as the Secretary or his delegate 
prescribes by regulation as necessary for carrying out the provisions of 
the income tax laws. 
"(c) CROSS REFERENCES.— 
"(1) For provisions relating to penalties for violations of this 
Infra; 26 usc 
section. See sections 6677 and 7203. 
^203. 
"(2) For definition of the term 'foreign trust created by a United 
Ante, p. 985. 
States person', see section 643(d)." 
(g) FAILURE To FILE INFORMATION RETURNS.—Subchapter B of 
26 usc 6651- 
chapter 68 (relating to assessable penalties) is amended by adding at 
the end thereof the following new section: 
"SEC. 6677. FAILURE TO FILE INFORMATION RETURNS WITH RESPECT 
TO CERTAIN FOREIGN TRUSTS. 
"(a) CIVIL PENALTY.—In addition to any criminal penalty pro-
vided by law, any person required to file a return under section 6048 
who fails to file such return at the time provided in such section, or 
who files a return which does not show the information required pur-
suant to suoh section, shall pay a penalty equal to 5 percent of the 
amount transferred to a trust, but not more than $1,000, unless it is 
shown that such failure is due to reasonable cause. 
"(b) DEFICIENCY PROCEDURES NOT To APPLY.—Subchapter B of 
26 usc 6211- 
chapter 63 (relating to deficiency procedures for income, estate, and 
gift taxes) shall not apply in respect of the assessment or collection of 
any penalty imposed by subsection (a)." 
26 usc 7701. 
(h) UNITED STATES PERSON DEFINED.—Section 7701(a) is amended 
by adding at the end thereof the following new paragraphs: 
" (30) UNI'IT.D STATES PERSON.—The term 'United States person' 
means— 
" (A) a citizen or resident of the United States, 
"(B) a domestic partnership, 
"(C) a domestic corporation, and 
"(D) any estate or trust (other than a foreign estate or 
foreign trust, within the meaning of section 7701 (a) (31)). 
"(31) FOREIGN ESTATE OR TRUST.—The terms 'foreign estate' 
and 'foreign trust' mean an estate or trust, as the case may be, 
the income of which from sources without the United States is 
not includible in gross income under subtitle A." 
(i) TECHNICAL AMENDMENTS.— 
(1) The table of'sections for subpart D of subchapter J of 
chapter 1 (relating to treatment of excess distributions by trusts) 
is amended by adding at the end thereof 
"Sec. 669. Special rules applicable to certain foreign trusts." 
6216. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
989 
(2) The table of sections for subpart B of part I I I of subchapter 
A of chapter 61 (relating to information concerning transactions 
with other persons) is amended by adding at the end thereof 
'•Sec. 6048. Returns as to creation of or transfers to certain foreign 
trusts." 
(3) The table of sections for subchapter B of chapter 68 (re-
lating to assessable penalties) is amended by adding at the end 
thereof 
"Sec. 6677. Failure to file information returns with respect to cer-
tain foreign trusts." 
(j) EFFECTIVE DATE.—The amendments made by this section (other 
than by subsections (f), (g), and (h)) shall apply with respect to 
distributions made after December 31, 1962. 
SEC. 8. MUTUAL INSURANCE 
COMPANIES (OTHER 
THAN LIFE, 
MARINE, AND CERTAIN FIRE OR FLOOD INSURANCE COM-
PANIES), ETC. 
(a) IMPOSITION or TAX.—So much of part I I of subchapter L (re- 
26 use 821-826; 
lating to mutual insurance companies, other than life or marine or ^"^^' ^- ^ ^^^ 
fire insurance companies issuing perpetual policies) of chapter 1 as 
precedes section 822 is amended to read as follows: 
"PART II—MUTUAL INSURANCE COMPANIES (OTHER 
THAN LIFE AND CERTAIN MARINE INSUR-
ANCE COMPANIES AND OTHER THAN FIRE 
OR FLOOD INSURANCE COMPANIES WHICH 
OPERATE ON BASIS OF PERPETUAL POLI-
CIES OR PREMIUM DEPOSITS) 
"Sec. 821. Tax on mutual insurance companies to which! part II 
applies. 
"Sec. 822. Determination of taxable investment income. 
"Sec. 823. Determination of statutory underwriting income or loss. 
"Sec. 824. Adjustments to provide protection against losses. 
"Sec. 825. Unused loss deduction. 
"Sec. 826. Election by reciprocal. 
"SEC. 821. TAX ON MUTUAL 
INSURANCE 
COMPANIES TO WHICH 
PART II APPLIES. 
"(a) IMPOSITION OF TAX.—A tax is hereby imposed for each taxable 
year beginning after December 31,1962, on the mutual insurance com-
pany taxable income of every mutual insurance company (other than 
a life insurance company and other than a fire, flood, or marine insur-
ance company subject to the tax imposed by Section 831). 
Such tax 
Post, pp.997, 
shall consist of— 
^^*-
*' (1) NORMAL TAX.— 
"(A) TAXABLE YEARS BEGINNINO BEFORE JULY 1, i963.— 
In the case of taxable years beginning before July 1, 1963, a 
normal tax of 30 percent of the mutual insurance company 
taxable income, or 60 percent of the amount by which such 
taxable income exceeds $6,000, whichever is the lesser; 
"(B) 
TAXABU; YEARS BEGINNING AFTER JUNE 30, loes.— 
In the case of taxable years beginning after June 30, 1963, 
a normal tax of 25 percent of the mutual insurance company 
taxable income, or 50 percent of the amount by which such 
taxable income exceeds $6^00, whichever is the lesser; plus 
"(2) SURTAX,—A surtax of 22 percent of the mutual insurance 
company taxable income (computed without regard to the deduc-
tion provided in section 242 for partially tax-exempt interest) 
26 use 242. 
in excess of $25,000. 
"(b) MUTUAL INSUTJANC^E COMPANY TAXABLE INCOME DEFINED.— 
For purposes of this part, the term 'mutual insurance company tax-
990 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
able income' means, with respect to any taxable year, the amount by 
which— 
"(1) the sum of— 
"(A) the taxable investment income (as defined in section 
Post, p.992. 
822(a)(1)), 
"(B) the statutory underwriting income (as defined in 
Post, p.992. 
section 823(a)(1)), and 
Post, p. 994. 
"(C) the amounts required by section 824(d) to be sub-
tracted from the protection against loss account, exceeds 
"(2) the sum of— 
"(A) the investment loss (as defined in section 822(a) 
(2)), 
"(B) the statutory underwriting loss (as defined in sec-
tion 823(a) (2)), and 
Post, p. 995. 
"(C) the unused loss deduction provided by section 825 (a). 
"(c) ALTERNATIVE TAX FOR CERTAIN SMALL COMPANIES.— 
"(1) IMPOSITION OF TAX.—In the case of taxable years begin-
ning after December 31, 1962, there is hereby imposed for each 
taxable year on the income of each mutual insurance company to 
which this subsection applies a tax (which shall be in lieu of 
the tax imposed by subsection (a)) computed as follows: 
"(A) NORMAL TAX.— 
" ( i ) TAXABLE YEARS BEGINNING BEFORE J U L Y i, i963.— 
In the case of taxable years beginning before July 1, 
1963, a normal tax of 30 percent of the taxable invest-
ment income, or 60 percent of the amount by which such 
taxable income exceeds $3,000, whichever is the lesser; 
" (ii) TAXABLE YEARS BEGINNING AFTER J U N E 3 O , 19 6 3.— 
In the case of taxable years beginning after June 30, 
1963, a normal tax of 25 percent of the taxable investment 
income, or 50 percent of the amount by which such tax-
able income exceeds $3,000, whichever is the lesser; plus 
"(B) SURTAX.—A surtax of 22 percent of the taxable 
investment income (computed without regard to the deduc-
26 use 242. 
tion provided in section 242 for partially tax-exempt interest) 
in excess of $25,000. 
"(2) GROSS AMOUNT RECEIVED, OVER $I5O,OOO BUT LESS THAN 
.$250,000.—If the gross amount received during the taxable year 
from the items described in section 822(b) (other than paragraph 
(1) (D) thereof) and premiums (including deposits and assess-
ments) is over $150,000 but less than $250,000, the tax imposed by 
paragraph (1^ shall be reduced to an amount which bears the 
same proportion to the amount of the tax determined under 
paragraph (1) as the excess over $150,000 of such gross amount 
received bears to $100,000. 
"(3) COMPANIES TO WHICH SUBSECTION APPLIES.— 
"(A) I N GENERAL.—Except as provided in subparagraph 
(B), this subsection shall apply to every mutual insurance 
company (other than a life insurance company and other 
than a fire, flood, or marine insurance companj^ subject to the 
tax imposed by section 831) which received during the taxable 
Post, pp.997, 
year from the items described in section 822(b) (other than 
^^*- 
paragraph 
(1) (D) 
thereof) 
and premiums 
(including 
deposits and assessments) a gross amount in excess of $150,000 
but not in excess of $500,000. 
"(B) EXCEPTIONS.—This subsection shall not apply to a 
mutual insurance company for the taxable year if— 
"(i) there is in effect an election by such company 
made under subsection (d) to be taxable under subsection 
(a); or 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
991 
"(ii) there is any amount in the protection against 
loss account at the beginning of the taxable year. 
"(d) ELECTION To INCLUDE STATUTORY UNDERWRITING INCOME OR 
Loss.— 
"(1) I N GENERAL.—Any mutual insurance company which is 
subject to the tax imposed by subsection (c) may elect, in such 
manner and at such time as the Secretary or his delegate may by 
regulations prescribe, to be subject to the tax imposed by sub-
section (a). 
"(2) EFFECT OF ELECTION.—If an election is made under para-
graph (1), the electing company shall be subject to the tax 
imposed by subsection (a) (and shall not be subject to the tax 
imposed by subsection (c)) for the first taxable year for which 
such election is made and for all taxable years thereafter unless 
the Secretary or his delegate consents to a revocation of such 
election. 
"(e) No UNiTTiD STATES INSURANCE BUSINESS.—Foreign mutual 
insurance companies (other than a life insurance company and other 
than a fire, flood, or marine insurance company subject to the tax im-
posed by section 831) not carrying on an insurance business within 
Post, PP.997, 
the United States shall not be subject to this part but shall be taxable ^'8-
as other foreign corporations. 
"(f) 
SPECIAL TRANSITIONAL UNDERWRITING Loss.— 
"(1) COMPANIES TO WHICH SUBSECTION APPLIES.—This subsec-
tion shall apply to every mutual insurance company which has 
been subject to the tax imposed by this section (as in effect before 
the enactment of this subsection) for the 5 taxable years immedi-
ately preceding January 1, 1962, and has incurred an under-
writing loss for each of such 5 taxable years. 
"(2) REDUCTION OF STATUTORY UNDERWRITING INCOME.—For 
purposes of this part, the statutory underwriting income of a 
company described in paragraph (1) for the taxable year shall be 
the statutory underwriting income for the taxable year (deter-
mined without regard to this subsection) reduced by the amount 
by which— 
"(A) the sum of the underwriting losses of such company 
ej 
for the 5 taxable years immediately preceding January 1, 
1962, exceeds 
» 
"(B) the total amount by which the company's statutory 
underwriting income was reduced by reason of this subsec-
tion for prior taxable years. 
" ( 3 ) 
UNDERWRlftNG LOSS DEFINED. 
F o P purpOSeS of tllis Sub-
section, the term 'under.writing loss' means statutory underwriting 
loss, computed without any deduction under section 824(a) and Post, p. 993. 
without any deduction under section 832(c) (11). 
Post, p. 997. 
"^(4) YEARS TO WHICH SUBSECTION APPLIES.—This subsection 
shall apply with respect to any taxable year beginning after 
December 31, 1962, and before January 1, 1968, for which the 
taxpayer is subject to the tax imposed by subsection (a). 
"(g) CROSS REFERENCES.— 
"(1) For exemption from tax of certain mutual insurance com-
>;,, 
panies, see section 501(c) (15). 
26 use 501; 
"(2) For alternative tax in case of capital gains, see section Post, p. \997. 
1201(a).'' 
26 use 1201; 
Post, p. 999. 
(b) TAXABLE INVESTMENT INCOME.— 
(1) I N GENERAL.—Section 822 (relating to determination of 
26 use 822; 
mutual insurance company taxable income) is amended by strik- ^°®'' P-992. 
992 
PUBLIC LAW 8 7 - 8 3 4 - O C T . 16, 1962 
[76 
STAT. 
ing out the heading and subsection (a) and inserting in lieu 
thereof the following: 
"SEC. 822. DETERMINATION OF TAXABLE INVESTMENT INCOME. 
" (a) DEFINITIONS.—For purposes of this part— 
"(1) T h e term 'taxable investment income' means the gross 
investment income, minus the deductions provided in subsection 
(c). 
" (2) The term 'investment loss' means the amount by which the 
deductions provided in subsection (c) exceed the gross investment 
income." 
(2) 
CONFORMING AMENDMENTS,—Subsections (c) and 
(e) of 
26 use 822. 
section 822 are each amended by striking out "mutual insurance 
company taxable income" each place it f^ppears and inserting in 
lieu thereof "taxable investment income". 
(3) 
DIVIDENDS RECEIVED DEDUCTION.—Section 822(c)(7) 
(re-
lating to special deductions) is amended by adding at the end 
26 use 246. 
thereof the following new sentence: " I n applying section 246(b) 
(relating to limitation on aggregate amount of deductions for 
dividends received) for purposes of this paragraph, the reference 
in such section to 'taxable income' shall be treated as a reference 
to 'taxable investment income'." 
(4) REDESIGNATiON OF SECTION 8 23.—Part I I of subchapter L 
of chapter 1 is amended by striking out 
**SEC. 823. OTHER DEFINITIONS. 
"For purposes of this part—", 
and inserting in lieu thereof (at the end of section 822) the 
following: 
" ( f ) DEFINITIONS.—For purposes of this part—". 
(c) STATUTORY UNDERWRITING INCOME OR Loss.—Part I I of sub-
chapter L of chapter 1 is amended by adding after section 822(f) (as 
redesignated by subsection (b) (4) of this section) the following new 
sections: 
"SEC. 823. DETERMINATION OF STATUTORY UNDERWRITING INCOME 
OR LOSS. 
"(a) I N GENERAL.—For purposes of this part— 
"(1) T h e term 'statutory underwriting income' means the 
amount by which— 
" ( A ) the gross income which w^ould be taken iiito account 
26 use 832. 
in computing taxable income under section 832 if the tax-
Post, pp. 997, 
payer were subject to the tax imposed by section 831, reduced 
by the gross investment income, exceeds 
" ( B ) the sum of (i) the deductions which would be taken 
into account in computing taxable income if the taxpayer 
were subject to the tax imposed by section 831, reduced by 
Supra; 
the deductious provided m section 822(c), plus (ii) the 
) use 822. 
deductions provided in subsection (c) and section 824(a). 
"(2) T h e term^^statutory underwriting loss' means the excess 
of the amount referred to in paragraph (1) (B) over the amount 
referred to in paragraph (1) ( A ) . 
" ( b ) 
MODIFICATIONS.—In applying subsection (a) — 
" ( 1 ) N E T OPERATING LOSS DEDUCTION.—The deduction for net 
26 use 172. 
operating losses provided in section 172 shall not be allowed. 
"(2) INTERINSURERS.—In the case of a mutual insurance com-
pany which is an interinsurer or reciprocal underwriter— 
" ( A ) there shall be allowed as a deduction the increase for 
the taxable year in savings credited to subscriber accounts, or 
" ( B ) there shall be included as an item of gross income 
the decrease for the taxable year in savings credited to sub-
scriber accounts. 
998. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
993 
For purposes of the preceding sentence, the term 'savings credited 
to subscriber accounts' means such portion of the surplus as is 
credited to the individual accounts of subscribers before the 16th 
day of the third month following the close of the taxable year, 
but only if the company would be obligated to pay such amount 
promptly to such subscriber if he terminated his contract at the 
close of the company's taxable year. For purposes of determining 
his taxable income, the subscriber shall treat any such savings 
credited to his account as a dividend paid or declared. 
"(c) SPECIAL DEDUCTION FOR SMALL COMPANY HAVING GROSS 
AMOUNT OF LESS THAN $1,100,000.— 
"(1) I N GENERAL.—If the gross amount received during the 
taxable year by a taxpayer subject to the tax imposed by section 
821(a) from the items described in section 822(b) (other than 
paragraph (1)(D) thereof) and premiums (including deposits 
and assessments) does not equal or exceed $1,100,000, then in 
determining the statutory underwriting income or loss for the 
taxable year there shall be allowed an additional deduction of 
$6,000; except that if such gross amount exceeds $500,000, such 
additional deduction shall be equal to 1 percent of the amount by 
which $1,100,000 exceeds such gross amount. 
"(2) LIMITATION.—The amount of the deduction allowed 
under paragraph (1) shall not exceed the statutory underwriting 
income for the taxable year, computed without regard to any 
deduction under this subsection or section 824(a). 
"SEC. 824. ADJUSTMENTS TO PROVIDE PROTECTION AGAINST LOSSES. 
"(a) ALLOWANCE OF DEDUCTION.— 
"(1) I N GENERAL.—In determining the statutory underwriting 
income or loss for any taxable year there shall be allowed as a 
deduction the sum of— 
"(^A) an amount equal to 1 percent of the losses incurred 
during the taxable year (as determined under section 8-32(b) 
26 use 832. 
(5)), plus 
"(B) an amount equal to 25 percent of the underwriting 
gain for the taxable year, plus 
"(C) if the concentrated windstorm, etc., premium per-
centage for the taxable year exceeds 40 percent, an amount 
determined by applying so much of such percentage as ex-
ceeds 40 percent to the underwriting gain for the taxable 
year. 
For purposes of this paragraph, the term 'underwriting gain' 
means statutory underwriting income, computed without any 
deduction under this subsection. 
" (2) SPECIAL RULE FOR COMPANIES HAVING CONCENTRATED WIND-
STORM, ETC., RISKS.—For purposes of paragraph (1) (C), the term 
'concentrated windstorm, etc., premium percentage' means, with 
respect to any taxable year, the percentage obtained by dividing— 
"(A) the amount of the premiums earned on insurance 
contracts during the taxable year (as defined in section 832 
(b) (4)), to the extent attributable to insuring against losses 
26 use 832; 
arising, either in any one State or within 200 miles of any ^°^'' ^- ^^^" 
fixed point selected by the taxpayer, from windstorm, hail, 
flood, earthquake, or similar hazards, by 
"(B) the amount of the premiums earned on insurance 
contracts during the taxable year (as so defined). 
"(b) PROTECTION AGAINST LOSS ACCOUNT.—Each insurance company 
subject to the tax imposed by section 821 (a) for any taxable year shall. 
Ante, p. 989. 
for purposes of this part, establish and maintain a protection against 
loss account. 
78135 0-63-66 
M4 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(c) ADDITIONS TO ACCOUNT.—There shall be added to the protec-
tion against loss account for each taxable year an amount equal to the 
amount allowable as a deduction for the taxable year under subsec-
tion (a)(1). 
"(d) 
SUBTRACTIONS.— 
"(1) ANNUAL SUBTOACTIONS.—After applying subsection (c), 
there shall be subtracted for the taxable year from the protection 
against loss account— 
"(AJ first, an amount equal to the excess (if any) of the 
deduction allowed under subsection (a) for the taxable year 
over the underwriting gain (within the meaning of subsec-
tion (a) (1)) for the taxable year, 
"(B) then, the amount (if any) by which— 
"(i) the sum of the investment loss for such year and 
the statutory underwriting loss (reduced by the amount 
referred to m subparagraph (A)) for such year, exceeds 
" (ii) the sum of the statutory underwriting income for 
such taxable year and the taxable investment income for 
such taxable year, 
"(C) next (in the order in which the losses occurred), 
amounts equal to the unused loss carryovers to such year, 
"(D) next, any amount remaining which was added to the 
account for the fifth preceding taxable year, minus one-half 
of the amount remaining in the account for such taxable year 
which was added by reason of subsection (a)(1)(B), and 
"(E) finally, the amount by Avhich the total amount ii]kthe 
account exceeds whichever of the following is the greater: 
"(i) 10 percent of premiums earned on insurance con-
tracts during the taxable year (as defuied in section 832 
(b) (4)) less dividends to policyholders (as defined in 
Poat. p. 997. 
section 832(c) (11)), or 
"(ii) the total amount in the account at the close of the 
preceding taxable year. 
" (2) RULES FOR CEILING ON PROTECTION AGAINST LOSS ACCOUNT.— 
For purposes of paragraph (1) (E), the total amount in the ac-
count shall be determined— 
"(A) after the application of this section without regard 
to paragraph (1) (E), and 
"(B) without taking into consideration amounts remain-
ing in the account which were added, with respect to all tax-
able years, by reason of subsection (a)(1)(C). 
"(3) PRIORITIES.—The amounts required to be subtracted from 
the protection against loss account— 
"(A) under subparagraphs (A), (B), and (C) of para-
graph (1) shall be subtracted— 
"(i) first (on a first-in, first-out, basis) from amounts 
in the account with respect to the five preceding taxable 
years and the taxable year, and 
"(ii) then from amounts in the account with respect 
to earlier years, 
"(B) under subparagraph (E) of paragraph (1) shall be 
subtracted only from amounts in the account with respect to 
tliQ taxable year, and 
"(C) under paragraphs (A), ^B), (C), and (E) of para-
graph (1) shall, if the amount to be subtracted from the total 
amounts in the account with respect to any taxable year is 
;. jj .^j« 
less than such total, be subtracted from each of the amounts 
(referred to in subsection (a)(1)) in the account with 
respect to such year in the proportion which eacli bears to 
such total. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
995 
"(4) TERMINATION OF TAXABILITY UNDER SECTION 8 21.—If the 
taxpayer is not subject to tax under section 821 for any taxable 
Ante, p. 989. 
year, the entire amount in the account at the close of the preceding 
taxable year shall be subtracted from the account in such preced-
ing taxable year. 
"(5) ELECTION TO SUBTRACT AMOUNT FROM ACCOUNT.— 
"(A) A taxpayer may elect for any taxable year for 
which it is subject to tax under section 821(a) to subtract 
from its protection against loss account any amount which, 
but for the application of this subparagraph, would be in 
such account as of the close of such taxable year. 
"(B) The election provided by subparagraph (A) for any 
taxable year shall be made (in such manner and in such 
form as the Secretary or his delegate may by regulations 
prescribe) after the close of such taxable year and not later 
than the time prescribed by law for filing the return (in-
cluding extensions thereof) for the taxable year following 
such taxable year. 
Such an election, once made, may not 
be revoked. 
"SEC. 825. UNUSED LOSS DEDUCTION. 
"(a) AMOUNT OF DEDUCTION.—For purposes of this part, the un-
used loss deduction for the taxable year shall be an amount equal to 
the unused loss carryovers or carrybacks to the taxable year. 
"(b) UNUSED Loss DEFINED.—For purposes of this part, the term 
'unused loss' means, with respect to any taxable year, the amount (if 
any) by which— 
"(1) the sum of the statutory underwriting loss and the in-
vestment loss, exceeds 
"(2) the sum of— 
"^A) the taxable investment income, 
"(B) the statutory underwriting income, and 
"(C) the amounts re(juired by section 824(d) to be subr 
Ante. p. 994. 
tracted from the protection against loss account. 
"(c) Loss YEAR DEFINED.—For purposes of this part, the term 'loss 
year' means, with respect to any company subject to the tax imposed 
by section 821(a), any taxable year in which the unused loss <^as de-
fined in subsection (b)) of such taxpayer is more than zero. 
"(d) YEARS TO W H I C H CARRIED.—The unused loss for any loss year 
shall be— 
"(1) an unused loss carryback to each of the 3 taxable yp°rs 
preceding the loss year, and 
"(2) an unused loss carryover to each of the 5 taxable years 
following the loss year. 
"(e) AMOUNT OF CARRYBACKS AND CARRYOVERS.—The entire amount 
of the unused loss for any loss year shall be carried to the earliest of 
the taxable years to which such loss may be carried. 
The portion of 
such loss which shall be carried to each of the other taxable years shall 
he the excess (if any) of the amount of such loss over the sum of the 
offsets (as defined in subsection (f)) for each of the prior taxable years 
to which such loss may be carried. 
"(f) OFFSET DEFINED.—For purposes of subsection (e), the term 
'offset' means with respect to any taxable year (hereinafter referred 
to as the 'offset year')— 
" (1) in the case of an unused loss carryback from the loss year 
to the offset year, the mutual insurance company taxable income 
for the offset year; or 
"(2) in the case of an unused loss carryover from the loss 
year to the offset year, an amount equal to the sum of—. 
996 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
" (A) the amount required to be subtracted from the pro-
Ante, p. 994. 
tectioH agaJust loss account under section 824(d) (1) (C) for 
the offset year, plus 
"(B) the mutual insurance company taxable income for 
the offset year. 
For purposes of paragraphs (1) and (2) (B), the mutual insurance 
company taxable income for the offset year shall be determined with-
out regard to any unused loss carryback or carryover from the loss 
year or any taxable year thereafter. 
"(g) LIMITATIONS.—For purposes of this part, an unused loss shall 
not be carried— 
"(1) to or from any taxable year beginning before January 1, 
1963, 
"(2) to or from any taxable year for which the insurance 
Ante. p. 989. 
compauy is not subject to the tax imposed by section 821(a), nor 
"(3) to'^any taxable year if, between the loss year and such 
taxable year, there is an intervening taxable year for which the 
insurance company was not subject to the tax imposed by section 
821(a). 
"SEC. 826. ELECTION BY RECIPROCAL. 
"(a) I N GENERAL.—Except as otherwise provided in this section, 
any mutual insurance company which is an interinsurer or reciprocal 
underwriter (hereinafter in this section referred to as a 'reciprocal') 
subject to the taxes imposed by section 821 (a) may, under regulations 
f
)rescribed by the Secretary or his delegate, elect to be subject to the 
imitation provided in subsection (b). Such election shall be effec-
tive for the taxable year for which made and for all succeeding tax-
able years, and shall not be revoked except with the consent of the 
Secretary or his delegate. 
"(b) LiMiTAiTON.—The deduction for amounts paid or incurred 
in the taxable year to the attorney-in-fact by a reciprocal making the 
election provided in subsection (a) shall be limited to, but in no case 
increased by, the deductions of the attorney-in-fact allocable, in ac-
cordance with regulations prescribed by the Secretary or his delegate, 
to the income received by the attorney-in-fact from the reciprocal. 
"(c) ExcEFfiON.—An election may not be made by a reciprocal 
under subsection ^a) unless the attorney-in-fact of such reciprocal— 
"(1) is subject to the taxes imposed by section 11 (b) and (c); 
"(2) consents in such manner as the Secretary or his delegate 
shall prescribe by regulations to make available such information 
as may be required during the period in which the election pro-
vided in subsection (a) is in effect, under regulations prescribed 
by the Secretary or his delegate; 
"(3) reports the income received from the reciprocal and the 
deductions allocable thereto under the same method of account-
ing under which the reciprocal reports deductions for amounts 
paid to the attorney-in-fact; and 
" (4) files its return on the calendar year basis. 
i4nte, p.994. 
"(d) SPECIAL RULE.—In applying section 824(d)(1)(D), any 
amount which was added to the protection against loss account by 
reason of an election under this section shall be treated as having 
Ante, p. 993. 
been added by reason of section 824(a) (1) (A). 
"(e) CREDIT.—Any reciprocal electing to be subject to the limita-
tion provided in subsection (b) shall be credited with so much 
of the tax paid by the attorney-in-fact as is attributable, under regu-
lations pi-escribed by the Secretary or his delegate, to the income 
received by the attorney-in-fact from the reciprocal in such taxable 
year. 
26 u s e II; 
Ante, p. 114. 
76 STAT. 3 
PUBLIC LAW 87-834-OCT. 16, 1962 
997 
"(f) 
SURTAX EXEMPTION DENIED.—^Any increase in taxable income 
of a reciprocal attributable to the limitation provided in subsection 
(b) shall be taxed without regard to the surtax exemption provided 
in section 821 (a) (2). 
Ante, p. 989. 
"(g) ADJUSTMENT FOR REFUND.—If for any taxable year an 
attorney-in-fact is allowed a credit or refund for taxes paid with 
respect to which credit or refund to the reciprocal resulted under sub-
section (e), the taxes of such reciprocal for such taxable year shall 
be properly adjusted under regulations prescribed by the Secretary 
or his delegate. 
"(h) TAXES OF ATTORNEY-IN-FACT UNAFFECTED.—Nothing in this 
section shall increase or decrease the taxes imposed by this chapter on 
the income of the attorney-in-fact." 
(d) EXEMPTION 
FROM TAX.—Section 501(c) (15) 
(relating to 
26usc5oi. 
exemption from tax of certain mutual insurance companies) is amended 
by striking out "$75,000" and in lieu thereof inserting "$150,000". 
(e) MUTUAL FIRE INSURANCE COMPANIES OPERATING ON BASIS OF 
PREMIUM DEPOSITS.— 
(1) APPLICATION OF SECTION 831(a).—Section 831(a) (impos- 
aeuscsai. 
ing a tax on certain mutual marine and fire insurance companies 
and on stock insurance companies which are not life insurance 
companies) is amended to read as follows: 
"(a) IMPOSITION OF TAX.—Taxes computed as provided in section 
11 shall be imposed for each taxable year or the ttixable income of— 
26 use i u 
"(1) every insurance company (other than a life or mutual *"*"' ^' ^^*' 
insurance company), 
"(2) every mutual marine insurance company, and 
"(3) every mutual fire or flood insurance company— 
"(A) exclusively issuing perpetual policies, or 
"(B) whose principal business is the issuance of policies 
for which the premium deposits are the same, regardless of 
the length of the term for which the policies are written, if 
the unabsorbed portion of such premium deposits not re-
quired for losses, expenses, or establishment of reserves is re-
turned or credited to the policyholder on cancellation or 
expiration of the policy." 
(2) 
TREATMENT OF ITNABSORBED PREMIUM DEPOSITS.—Section 
832 (b) (4) (relating to definition of premiums earned) is amended 
26 use 832. 
by adding at the end thereof the following new sentence: "For 
purposes of this subsection, unearned premiums of mutual fire 
or flood insurance companies described in section 831(a) (3) (B) "iupra. 
means (with respect to the policies described in section 831(a) 
(3) (B)) the amount of unabsorbed premium deposits which the 
company would be obligated to return to its policyholders at the 
close of the taxable year if all of its policies were terminated at 
such time; and the determination of such amomit shall be based 
on the schedule of unabsorbed premium deposit returns for each 
such company then in effect. 
Premiums paid by the subscriber 
of a mutual flood insurance company referred to in paragraph (3) 
of section 831(a) shall be treated, ior purposes of computing the 
taxable income of such subscriber, in the same manner as pre-
miums paid by a policyholder to a mutual fire insurance company 
referred to in such paragraph (3)." 
(3) CONFORMING 
AMENDMENT.—Section 
832(b)(1)(C) 
is 
« u s e 832. 
amended by striking out "section 831(a)," and inserting in lieu 
thereof "section 831 (a) (3) (A),". 
26 use 831. 
(4) ADJUSTMENT OF PREMIUM DEI»OSIT.—Section 832(c) (11) is 
amended to read as follows: 
"(11) dividends and similar distributions paid or declared to 
policyholders in their capacity as such, except in the case of a 
998 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
Ante. p. 997. 
Hiutual fire insurance company described in section 831(a)(3) 
(A). 
For purposes of the preceding sentence, the term'dividends 
and similar distributions' includes amounts returned or credited 
to policyholders on cancellation or expiration of policies described 
in section 831(a) (3) (B). For purposes of this paragraph, the 
term 'paid or declared' shall be construed according to the method 
of accounting regularly employed in keeping the books of the 
insurance company; and". 
26 use 832, 
(5) ADDITIONAL 
ITEM 
OF INCOME.—Section 
832(b)(1) 
is 
amended by striking out "and" at the end of subparagraph (B), 
by striking out the period at the end of subparagraph (C) and 
inserting in lieu thereof ", and", and by adding at the end thereof 
the following new subparagraph: 
"(D) in the case of a mutual fire or flood insurance com-
pany described in section 831(a) (3) (B), an amount equal to 
2 percent of the premiums earned on insurance contracts 
during the taxable year with respect to policies described in 
section 831(a)(3)(B) after deduction of premium deposits 
returned or credited during the same taxable year." 
(f) 
ELECTION OF CERTAIN MUTUAL COMPANIES To B E TAXED ON 
Ante, p. 997. 
ToTAL INCOME.—Sectiou 831 is amended by redesignating subsection 
(c) as subsection (d), and by inserting after subsection (b) the follow-
ing new subsection: 
"(c) 
ELECTION FOR MULTIPLE LINE COMPANY To B E TAXED ON 
TOTAL INCOME.— 
" (1) I N GENERAL.—Any mutual insurance company engaged in 
writing marine, fire, and casualty insurance which for any 5-year 
period beginning after December 31, 1941, and ending before 
January 1,1962, was subject to the tax imposed by section 831 (or 
the tax imposed by corresponding provisions of prior law) may 
elect, in such manner and at such time as the Secretary or his 
delegate may by regulations prescribe, to be subject to the tax 
imposed by section 831, whether or not marine insurance is its 
predominant source of premium income. 
"(2) EFFECT OF ELECTION.—If an election is made under para-
graph (1), the electing company shall (in lieu of being subject 
Ante, p. 989. 
to the tax imposed by section 821) be subject to the tax imposed 
by this section for taxable years beginning after December 31, 
1961. 
Such election shall not be revoked except with the consent 
of the Secretary or his delegate." 
(g) 
TECHNICAL AMENDMENTS, ETC.— 
26 use 841. 
(1) CREDIT FOR FOREIGN TAXES.—Section 841 (relating to credit 
for foreign taxes) is amended by striking out "and" at the end 
of paragraph (1), by renumbering paragraph (2) as paragraph 
(3), and by inserting after paragraph (1) the following new 
paragraph: 
"(2) in the case of the tax imposed by section 821(a), the 
mutual insurance company taxable income (as defined in section 
821(b)); and in the case of the tax imposed by section 821(c), 
the taxable investment income (as defined in section 822(a)), 
and". 
(2) ADJUSTMENTS TO BASIS FOR DEPRECIATION SUSTAINED.—Sec-
26 use 1016. 
tion 1016(a) (3) (relating to adjustments to basis for depreciation, 
- , . 
etc., sustained) is amended by striking out "and" at the end of 
subparagraph (B), by inserting "and" at the end of subparagraph 
, 
^^, ,,., 
(C), and by inserting after subparagraph (C) the following new 
. subparagraph: 
"(D) since February 28,1913, during which such property 
was held by a person subject to tax under part I I of sub-
chapter L (or the corresponding provisions of prior income 
tax laws), to the extent that paragraph (2) does not apply,". 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
999 
(3) 
ALTERNATIVE TAX ON CAPITAL GAINS.—Section 1201(a) 
26 use 1201. 
(relating to alternative tax on corporations) is amended by strik-
ing out "821 (a) (1) or (b)," and inserting in lieu thereof "821 
(a) or (C),". 
^n'«' P-989. 
(4) CLERICAL AMENDMENTS.— 
(A) The table of parts for subchapter L is amended by 
striking out the portion referring to part I I and inserting 
in lieu thereof the following: 
"Part II. Mutual insurance companies (other than life and certain 
marine insurance companies and other than fire or 
flood insurance companies which operate on basis of 
perpetual iwlicies or premium deposits)." 
(B) The heading to section 831 is amended to read as 
follows: 
"SEC. 
8
3
1
. 
TAX 
ON 
INSURANCE 
COMPANIES 
(OTHER 
THAN LIFE 
OR 
MUTUAL), MUTUAL MARINE INSURANCE COMPANIES, 
AND CERTAIN MUTUAL FIRE OR FLOOD INSURANCE 
COMPANIES." 
(C) The table of sections for part I I I of subchapter L is 
amended by striking out the portion referring to section 831 
and inserting in lieu thereof the following: 
"Sec. 831. Tax on insurance companies (other than life or mutual), 
mutual 
marine insurance 
companies, and certain 
mutual fire or flood insurance companies." 
(h) EFFECTIVE DATE.-—The amendments made by this section (other 
than h^ subsection (f)) shall apply with respect to taxable years 
beginning after December 31, 1962. 
SEC. 9. DOMESTIC CORPORATIONS RECEIVING DIVIDENDS FROM 
FOREIGN CORPORATIONS. 
(a) FOREIGN TAXES DEEMED PAID BY DOMESTIC (CORPORATIONS.— 
Section 902 (relating to credit for corporate stockholder in foreign 
26 use 902. 
corporations) is amended to read as follows: 
"SEC. 
9
0
2
. 
CREDIT FOR CORPORATE STOCKHOLDER IN FOREIGN 
CORPORATION. 
"(a) TREATMENT OF TAXES PAID BY FOREIGN CORPORATION.—For 
purposes of this subpart, a domestic corporation which owns at least 
10 percent of the voting stock of a foreign corporation from which 
it receives dividends in any taxable year shall— 
"(1) to the extent such dividends are paid by such foreign 
corporation out of accumulated profits (as defined in subsection 
(c) (1) (A)) of a year for which such foreign corporation is not 
a less developed country corporation, be deemed to have paid the 
same proportion of any income, war profits^ or excess profits 
taxes paid'Or deemed to be paid by such foreign corporation to 
any foreign country or to any possession of the United States on 
or with respect to such accumulated profits, which the amount of 
such dividends (determined without regard to section 78) bears 
Post, p. 1001. 
to the amount of such accumulated profits in excess of such income, 
war profits, and excess profits taxes (other than those deemed 
\- 
paid); and 
"(2) to the extent such dividends are paid by such foreign 
corporation out of accumulated profits (as defined in subsection 
(c)(1)(B)) of a year for which such foreign corporation is a 
less developed country corporation, be deemed to have j)aid the 
same proportion of any income, war profits, or excess profits 
taxes paid or deemed to be paid by such foreign corporation to 
any foreign country or to any possession of the United States on 
or with respect to such accumulated profits, which the amount 
of such dividends bears to the amount of such accumulated profits. 
1000 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(b) FOREIGN SUBSIDIARY OF FOREIGN CORPORATION.—If such for-
eign corporation owns 50 percent or more of the voting stock of another 
foreign corporation from which it receives dividends in any taxable 
year, it shall be deemed to have paid the same proportion of any 
income, war profits, or excess profits taxes paid by such other foreign 
corporation to any foreign country or to any possession of the United 
States, on or with respect to the accumulated profits of the corpora-
tion from which such dividends were paid which— 
"(1) for purposes of applying subsection (a)(1), the amount 
of such dividends bears to the amount of the accumulated profits 
(as defined in subsection (c)(1)(A)) of such other foreign cor-
poration from which such dividends were paid in excess of such 
income, war profits, and excess profits taxes, or 
"(2) for purposes of applying subsection (a)(2), the amount 
of such dividends bears to the amount of the accumulated profits 
(as defined in subsection (c)(1)(B)) of such other foreign cor-
poration from which such dividends were paid. 
"(c) 
APPLICABLE RULES.— 
"(1) ACCUMULATED PROFITS DEFINED.—For purposes of this 
section, the term 'accumulated profits' means with respect to 
any foreign corporation— 
"(A) for purposes of subsections (a) (1) and (b) (1), the 
amount of its gains, profits, or income computed without re-
duction by the amount of the income, war profits, and excess 
profits taxes imposed on or with respect to such profits or 
income by any foreign country or any possession of the United 
States; and 
"(B) for purposes of subsections (a) (2) and (b) (2), the 
amount of its gains, profits, or income in excess of the income, 
war profits, and excess profits taxes imposed on or with respect 
to such profits or income. 
The Secretary or his delegate shall have full power to determine 
from the accumulated profits of what year or years such dividends 
were paid, treating dividends paid in the first 60 days of any year 
as having been paid from the accumulated profits of the preced-
ing year or years (unless to his satisfaction shown otherwise), 
and in other respects treating dividends as having been paid from 
the most recently accumulated gains, profits, or earnings. 
"(2) ACCOUNTING PERIODS.—In the case of a foreign corpora-
tion, the income, war profits, and excess profits taxes of which 
are determined on the basis or an accounting period of less than 1 
year, the word 'year' as used in this subsection shall be construed 
to mean such accounting period. 
"(d) LESS DEVELOPED COUNTRY CORPORATION DEFINED.—For pur-
poses of this section, the term 'less developed country corporation' 
means— 
"(1) a foreign corporation which, for its taxable year, is a 
less developed country corporation within the meaning of section 
Post. p. 1014. 
965(c) (1) or (2), and 
"(2) a foreign corporation which owns 10 percent or more of 
the total combined voting pow«r of all classes of stock entitled to 
vote of a foreign corporation which is a less developed country 
- corporation within the meaning of section 955(c) (1), and— 
• 
"(A) 80 percent or more of the gross income of which for 
its taxable year meets the requirement of section 955(c) (1) 
(A); and 
"(B) 80 percent or more in value of the assets of which on 
each day of such year consists of property described in section 
955(c)(1)(B). 
76 STAT. ] 
PUBLIC LAW 8 7 - 8 3 4 - O C T . 16, 1962 
1001 
A foreign corporation which is a less developed country corporation 
for its first taxable year beginning after December 31,1962, shall, for 
purposes of this section, be treated as having been a less developed 
country corporation for each of its taxable years beginning 
before 
J a n u a r y 1, 1963. 
" ( e ) 
CROSS REFERENCES.— 
"(1) For inclusion in gross income of an amount equal to taxes 
deemed paid under subsection (a)(1), see section 78. 
intra. 
"(2) For application of subsections (a) and (b) with respect to 
taxes deemed paid in a prior taxable year by a United States share-
holder with respect to a controlled foreign corporation, see sec-
tion 960. 
Pos<' P- 1020. 
"(3) For reduction of credit with respect to dividends paid out 
of accumulated profits for years for which certain information is 
not furnished, see section 6038." 
Post, p. 1059. 
(b) INCLUSION I N GROSS INCOME OF A M O U N T 
EQUAL TO TAXES 
DEEMED PAID,—Part I I of'subchapter B of chapter 1 (relating to 
26 use 71-77. 
items specifically included in gross income) is amended by adding at 
the end thereof the following new section: 
"SEC. 78. DIVIDENDS RECEIVED FROM CERTAIN FOREIGN CORPORA-
TIONS BY DOMESTIC CORPORATIONS CHOOSING FOREIGN 
TAX CREDIT. 
"If a domestic corporation chooses to liave the benefits of subpart A 
of part I I I of subcliapter N (relating to foreign tax credit) for any 
taxable year, an amount equal to the taxes deemed to be paid by such 
corporation under section 902(a) (1) (relating to credit tor corporate 
Ante, p. 999. 
stockholder in foreign corporation) or under section 960(a)(1)(C) 
Post, p. 1020. 
(relating to taxes paid by foreign corporation) for such taxable year 
shall be treated for purposes of this title (other than section 245) as 
a dividend received by such domestic corporation from the foreign 
corporation." 
(c) 
DETERMINATION 
OF SOURCE 
OF DIVIDENDS 
RECEIVED 
FROM 
(CERTAIN FOREIGN CORPORATIONS.—Section 861(a)(2)(B) 
(relating 
to dividends from foreign corporations treated as income from sources 
within the United States) is amended by striking out "to the extent 
exceeding the amount of the deduction allowable under section 245 
26 use 24s; 
in respect of such dividends" and inserting in lieu thereof "to the ^"*°' P-^''^-
extent exceeding the amount which is 100/85ths of the amount of the 
deduction allowable under section 245 in respect of such dividends". 
(d) 
TECHNICAL AMENDMENTS.— 
(1) The table of sections for part I I of subchapter B of chap-
ter 1 is amended by adding at the end thereof the following: 
"Sec. 78. Dividends received from certain foreign 
corporations 
by domestic corporations choosing foreign tax credit." 
(2) Section 535(b) (1) and the first sentence of section 545(b) 
26 use 535, 
(1) are each amended by striking out "accrued during the taxable ^^^" 
year," and inserting in lieu thereof "accrued during the taxable 
year or deemed to be paid by a domestic corporation under section 
902(a)(1) or 960(a)(1)(C) for the taxable year,". 
(3) Section 901(d) is amended by adding the following new 
26 use 901. 
paragraph: 
"(4) For reduction of credit for failure of a United States person 
to furnish certain information with respect to a foreign corporation 
controlled by him, see section 6038." 
(e) EFFECTIVE DATE.—The amendments made by this section shall 
apply— 
(1) in respect of any distribution received by a domestic cor-
poration after December 31,1964, and 
(2) in respect of any distribution received by a domestic cor-
poration before January 1, 1965, in a taxable year of such 
1002 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
corporation beginning after December 31, 1962, but only to the 
extent that such distribution is made out of the accumulated 
profits of a foreign corporation for a taxable year (of such 
foreign corporation) beginning after December 31,1962. 
Fov purposes of paragraph (2), a distribution made by a foreign 
corporation out of its profits which are attributable to a distribution 
Ante, p. 1000. 
leceived from a foreign subsidiary to which section 902(b) applies 
shall be treated as made out of the accumulated profits of a foreign 
corporation for a taxable year beginning before January 1, 1963, to 
the extent that such distribution was paid out of the accumulated 
profits of such foreign subsidiary for a taxable year beginning before 
January 1,1963. 
SEC. 10. SEPARATE LIMITATION ON FOREIGN TAX CREDIT WITH 
RESPECT TO CERTAIN INTEREST INCOME. 
26 use 904. 
(a) LIMITATION ON FOREIGN TAX CREDIT.—Section 904 (relating 
to limitations on foreign tax credit) is amended by redesignatiing 
Post, p. 1031. 
subsection (f) as subsection (g) and by inserting after subsection (e) 
the following new subsection: 
"(f) 
APPLICATION 
OF SECTION 
IN CASE OF CERTAIN 
INTEREST 
INCOME.— 
•'(1) I N GENERAL.—The pi'ovisions of subscctioiis (a), (c), (d), 
and (e) of this section shall be applied separately with respect 
to— 
"(A) the interest income described in paragraph (2), and 
•'(B) income other than the interest income described,in 
paragraph (2). 
"(2) 
INTEREST IN(^OME TO WHICH APPLICABLE.—For purposes of 
this subsection, the interest income described in this paragraph 
is interest other than interest— 
" (A) derived from any transaction which is directly related 
to the active conduct of a trade or business in a foreign 
country or a possession of the United States, 
"(B) derived in the conduct of a banking, financing, or 
similar business, 
' 
'HC) received from a corporation in which the taxpayer 
owns at least 10 percent of the voting stock, or 
"(D) received on obligations acquired as a result of the 
disposition of a trade or business actively conducted by the 
taxpayer in a foreign country or possession of the United 
'•" 
States or as a result of the disposition of stock or obligations 
of a corporation in Avhich the taxpayer owned at least 10 
percent of the voting stock. 
"(3) OVERALL LIMITATION NOT TO APPLY.—The limitation pro-
vided by subsection (a) (2) shall not apply with respect to the 
interest income described in paragraph (2). The Secretary or his 
delegate shall by regulations prescribe the manner of application 
of subsection (e) with i-espect to cases in which the limitation 
provided by subsection (a) (2) applies with respect to income 
so ^i-xj ^
r 
other than the interest income described in paragraph (2). 
" ( 4 ) TRANSITIONAL RULES FOR CARRYBACKS AND CARRYOVERS.— 
" ( A ) 
CARRYBACKS TO YEARS PRIOR TO REVENUE ACT OF 
196 2.—^Where, under the provisions of subsection (d), taxes 
^ 
(i) paid or accrued to any foreign country or possession of 
the United States in any taxable year beginning after the 
date of the enactment of the Revenue Act of 1962 are deemed 
,; 
(ii) paid or accrued in one or more taxable years beginning 
on or before the date of enactment of the ReA^enue Act of 
1962, the amount of such taxes deemed paid or accrued shall 
be determined without regard to the provisions of this sub-
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1003 
section. 
To the extent the taxes paid or accrued to a foreign 
country or possession of the United States in any taxable year 
described in clause (i) are not, with the application of the 
preceding sentence, deemed paid or accrued in any taxable 
year described in clause (ii), such taxes shall, for purposes 
of applying subsection (d), be deemed paid or .accrued in a 
taxable year beginning after the date of the enactment of the 
Revenue Act of 1962, with respect to interest income described 
in paragraph (2), and with respect to income other than in-
terest income described in paragraph (2), in the same ratios 
as the amount of such taxes paid or accrued with respect to^ 
interest income described in paragraph (2), and the amount 
of such taxes paid or accrued with respect to income other 
than interest income described in paragraph (2), respec-
tively, bear to the total amount of such taxes paid or accrued 
to such foreign country or possession of the United States. 
"(B) CARRYOVERS TO YEARS AFTER REVENUE ACT or i962.— 
Where, under the provisions of subsection (d), taxes (i) j)aid 
or accrued to any foreign country or possession of the United 
States in any taxable year beginning on or before the date 
of the enactment of the Revenue Act of 1962 are deemed (ii) 
paid or accrued in one or more taxable years beginning after 
the date of the enactment of the Revenue Act of 1962, the 
amount of such taxes deemed paid or accrued in any year 
described in clause (ii) shall, with respect to interest income 
described in paragraph (2), be an amount which bears the 
same ratio to the amount of such taxes deemed paid or 
accrued as the amount of the taxes paid or accrued to such 
foreign country or possession for such year with respect to 
interest income described in paragraph (2) bears to the total 
amount of the taxes paid or accrued to such foreign country 
or possession for such year; and the amount of such taxes 
deemed paid or accrued in any year described in clause (ii) 
with respect to income other than interest income described in 
paragraph (2) shall be an amount which bears the same ratio 
to the amount of such taxes deemed paid or accrued for such 
year as the amount of taxes paid or accrued to such foreign 
country or possession for such year with respect to income 
other than interest income described in paragraph (2) bears 
to the total amount of the taxes paid or accrued to such for-
eign country or possession for such year." 
(b) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall apply with respect to taxable years beginning after the date of 
the enactment of this Act, but only with respect to interest resulting 
from transactions consummated after April 2, 1962. 
SEC. 11. EARNED INCOME FROM SOURCES WITHOUT THE UNITED 
STATES. 
(a) LIMITATION ON AMOUNT AND TYPE or INCOME EXCLUDED.—Sec-
tion 911 (relating to earned income from sources without the United 
26 use 9ii; 
States) is amendwi to read as follows: 
Post. p. 
"SEC. 911. EARNED INCOME FROM SOURCES WITHOUT THE UNITED 
STATES. 
"(a) GENERAL RULE.—The following items shall not be included 
in gross income and shall be exempt from taxation under this subtitle: 
"(1) BONA FIDE RESIDENT OF FOREIGN COUNTRY.—In the case of 
an individual citizen of the United States who establishes to the 
satisfaction of the Secretary or his delegate that he has been a 
bona fide resident of a foreign country or countries for an unin-
terrupted period which includes an entire taxable year, amounts 
1005. 
1004 
PUBLIC LAW 87-834~OCT. 16, 1962 
[76 STAT. 
received from sources without the United States (except amounts 
paid by the L^nited States or any agency thereof) which con-
stitute earned income attributable to services performed during 
such uninteri-upted period. The amount excluded under this 
paragraph for nny taxable year shall be computed by applying 
the special rules contained in subsection (c). 
"(2) 
PRESENCE IN FOREIGN COUNTRY FOR IT MONTHS.—In the 
case of an individual citizen of the United States who during any 
period of 18 consecutive months is present in a foreign country 
or countries during at least 510 full days in such period, amounts 
* 
received from sources without the United States (except amounts 
paid by the United States or any agency thereof) which con-
stitute earned income attributable to services performed during 
such 18-month period. 
The amount excluded under this para-
graph for any taxable year shall be computed by applying the 
special rules contained in subsection (c). 
An individual shall not be allowed, as a deduction from his gross 
26 use 151. 
income, any deductions (other than those allowed by section 151, 
relating to personal exemptions) properly allocable to or chargeable 
against amounts excluded from gross income under this subsection. 
"(b) DEFINITION OF EARNED INCOME.—For purposes of this sec-
tion, the term 'earned income' means wages, salaries, or professional 
fee^s, and other amounts received as compensation for personal serv-
ices actually rendered, but does not include that part of the compen-
sation derived by the taxpayer for personal services rendered by him 
to a corporation which represents a distribution of earnings or profits 
rather than a reasonable allowance as compensation for the personal 
services actually rendered. In the case ot a taxpayer engaged in a 
trade or business in which both pei-sonal services and capital are 
material income-producing factors, under regulations pi-^cribed by 
tlie Secretary or his delegate, a i-easonable allowance as compensation 
for the personal services rendered by the taxpayer, not in excess of 
JiO percent of his share of the net profits of such trade or business, shall 
be considered as earned income. 
"(c) Si:^ECiAL RULES.—For purposes of computing the amount 
excludable under subsection (a), the following rules shall apply: 
"(1) 
LIMITATIONS ON AMOUNT OF EXCLUSION.—The amount 
excluded from the gross income of an individual under subsection 
(a) for any taxable year shall not exceed an amount which shall 
be computed on a daily basis at an annual rate of— 
"(A) except as provided in subparagraph (B), $20,000 
in the case of an individual who qualifies Under subsection 
('^)'^^" , 
. 
. . . 
"(B) $85,000 in the case of an individual who qualifies 
under subsection (a) (1), but only with respect to that por-
tion of such taxable year occurring after such individual 
has been a bona fide resident of a foreign country or coun-
tries for an uninterrupted period of 3 consecutive yeai-s. 
" ( 2 ) 
A T T R I B U T I O N TO Y E A R IN WHICH SERVICES ARE P E R F O R M E D . — 
For purposes of applying paragraph (1), amounts received shall 
be considered received in the taxable year in which the services 
to which the amounts are attributable are performed. 
"(3) TREATMENT OF COMMUNITY INCOME.—In applying para-
graph (1) with respect to amounts received for services per-
formed by a husband or wife which are community income under 
community proi)erty laws applicable to such income, the aggre-
gate amount excludable under subsection (a) from the gross in-
come of such husband and wife shall equal the amount which 
would be excludable if such amounts did not constitute such 
community income. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1005 
" (4) REQUIREMENT AS TO TIME OF RECEIPT.—No amount received 
after the close of the taxable year following the taxable year in 
which the services to which the amounts are attributable are per-
formed may be excluded under subsection (a). 
"(5) CERTAIN AMOUNTS NOT EXCLUDABLE.—No amount— 
"(A) received as a pension or annuity, or 
"(B) iticluded in gross income by reason of section 402(b) 
26 use 402. 
(relatin*^ to taxability of beneficiary of non-exempt trust), 
section 403(c) (relating to taxability of beneficiary under a 
26 use 403. 
non-qualified annuity), or section 403(d) (relating to taxa-
bility of beneficiary under certain forfeitable contracts pur-
chased by exempt organizations), 
may be excluded under subsection (a). 
"(6) TEST OF BONA FIDE RESIDENCE.—A statement by an indi-
vidual who has earned income from sources within a foreign 
country to the authorities of that country that he is not a resident 
of that country, if he is held not subject as a resident of that 
country to the income tax of that country by its authorities with 
respect to such earnings, shall be conclusive evidence with respect 
to such earnings that he is not a bona fide resident of that country 
for purposes of subsection (a) (1). 
"(^7) CERTAIN NONCASH REMUNERATION.—If an individual who 
qualifies under subsection (a)(1) receives compensation from 
sources without the United States (except from the United States 
or any agency thereof) in the form of the right to use property or 
facilities, the limitation under paragraph (1) applicable with 
respect to such individual— 
"(A) for a taxable year ending in 1963, shall be increased 
by an amount equal to the amount of such compensation so 
received during such taxable year; 
"(B) for a taxable year ending in 1964, shall be increased 
by an amount equal to two-thirds of such compensation so 
received during such taxable year; and 
"(C) for a taxable year ending in 1965, shall be increased 
by an amount equal to one-third of such compensation so 
received during such taxable year. 
"(d) CROSS REFERENCES.— 
"For administratiye and penal provisions relating to the exclusion 
provided for in this section, see sections 6001, 6011, 6012(c), and the 
other provisions of subtitle F." 
(b) COMPUTATION OF EMPLOYEES' CONTRIBUTIONS.—Section 72(f) 
26 use 72; 
(relating to special rules for computing employees' contributions) is ''°®'' P- ^°°^-
amended by adding after paragraph (2) the following new sentences: 
"Paragraph (2) shall not apply to amounts which were contributed 
by the employer after December 31, 1962, and which would not have 
been includible in the gross income of the employee by reason of the 
application of section 911 if such amounts had been paid directly to 
Ante, p. 1003. 
the employee at the time of contribution. The preceding sentence 
shall not apply to amounts which were contributed by the employer, 
as determined under regulations prescribed by the Secretary or his 
delegate, to provide pension or annuity credits, to the extent such 
credits are attributable to services performed before January 1, 1963, 
and are provided pursuant to pension or annuity plan provisions in 
existence on March 12, 1962, and on that date applicable to such 
services." 
(c) EFFECTIVE DATES.— 
(1) AMENDMENT TO SECTION 911.—The amendment made by 
subsection (a) shall apply to taxable years ending after Septem-
ber 4,1962, but only with respect to amounts— 
1006 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
(A) received after March 12, 1962, which are attributable 
to services performed after December 31,1962, or 
(B) received after December 31, 1962, which are attribut-
able to services performed on or befqre December 31, 1962, 
unless on March 12, 1962, there existed a right (whether 
forfeitable or nonforfeitable) to receive such amounts. 
Ante. p. 1005. 
^2) AMENDMENT T
O SECTION 72(f)-.—The amendment made by 
subsection (b) shall apply to taxable years ending after December 
31,1962. 
SEC. 
1
2
. 
CONTROLLED 
FOREIGN 
CORPORATIONS. 
26 use 901 et 
(a) I N GENERAL.—Part I I I of subchapter N of chapter 1 (relating 
*®* 
to income from sources without the United States) is amended by 
adding at the end thereof the following new subparts: 
"Subpart F—Controlled Foreign Corporations 
"Sec. 951. Amounts included in gross income of United States 
shareholders. 
"Sec. 952. Subpart F income defined. 
"Sec. 953. Income from insurance of United States rislcs. 
"Sec. 954. Foreign base company income. 
"Sec. 955. Withdrawal of previously excluded subpart F income 
from qualified investment. 
"Sec. 956. Investment of earnings in United States property. 
"Sec. 957. Controlled foreign corix>rations; United States persons. 
"Sec. 958. Rules for determining stock ownership. 
"Sec. 959. Exclusion from gross income of previously taxed earn-
ings and profits. 
"Sec. 960. Special rules for foreign tax credit. 
"Sec. 961. Adjustments to basis of stock in controlled foreign cor-
porations and of other property. 
"Sec. 962. Election by individuals to be subject to tax at corporate 
rates. 
"Sec. 963. Receipt of minimum distributions by domestic corpora-
tions. 
"Sec. 964. Miscellaneous provisions. 
"SEC. 951. AMOUNTS INCLUDED IN GROSS INCOME OF UNITED STATES 
SHAREHOLDERS. 
" ( a ) 
A M O U N T S INCLUDED.— 
"(1) I N GENERAL.—If a foreign corporation is a controlled 
foreign corporation for an uninterrupted period of 30 days or 
more during any taxable year beginning after December 31, 
1962, every person who is a United States shareholder (as defined 
in subsection (b)) of such corporation and who owns (within the 
Post, p. 1018. 
meaning of section 958(a)) stock in such corporation on the last 
day, in such year, on which such corporation is a controlled foreign 
corporation shall include in his gross income, for his taxable year 
in which or with which such taxable year of the corporation ends— 
"(A) the sum of— 
Post, p. 1023. 
"(i) except as provided in section 963, his pro rata 
share (determined under paragraph (2)) of the corpora-
tion's subpart F income for such year, ana 
"(ii) his pro rata share (determined under section 
955 (a) (3)) of the corporation's previously excluded sub-
part F income withdrawn from investment in less devel-
oped countries for such year; and 
"(B) his pro rata share (determined under section 956 
Post, p. 1016. 
(a)(2)) of the corporation's increase in earnings invested in 
United States property for such year (but only to the extent 
Poet, p. 1019. 
not excluded from gross income under section 959(a) (2)). 
"(2) PRO R
A
T
A SHARE OF SUBPART F INCOME.—The pro rata share 
referred to in paragraph ( l ) ( A ) ( i ) in the case of any United 
States shareholder is the amount— 
,,,,-> v.• 
-ra*^ 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1007 
"(A) which would have been distributed with respect to 
the stock which such shareholder owns (within the meaning 
of section 958(a)) in such corporation if on the last day, in 
Post, p. lois. 
its taxable year, on which the corporation is a controlled for-
eign corporation it had distributed pro rata to its sharehold-
ers an amount (i) which bears the same ratio to its subpart F 
income for the taxable year, as (ii) the part of such year dur-
ing which the corporation is a controlled foreign corporation 
bears to the entire year, reduced by 
"(B) the amount of distributions received by any other 
person during such year as a dividend with respect to such 
stock, but only to the extent of the dividend which would 
. 
have been received if the distribution by the corporation had 
been the amount (i) which bears the same ratio to the subpart 
F income of such corporation for the taxable year, as (ii) the 
part of such year during which such shareholder did not own 
(within the meaning of section 958(a)) such stock bears to 
the entire year. 
"(3) 
LIMITATION ON PRO RATA SHARE OF PREVIOUSLY EXCLUDED 
SUBPART F INCOME WITHDRAWN FROM INVESTMENT.—FOT purpOSeS 
of paragraph (1) (A) (ii), the pro rata share of any United States 
shareholder of the previously excluded subpart F income of a 
controlled foreign corporation withdrawn from investment in 
less developed countries shall not exceed an amount (A) which 
bears the same ratio to his pro rata share of such income with-
drawn (as determined under section 955(a) (3)) for the taxable 
Post, p. lois. 
year, as (B) the part of such year during which the corporation 
IS a controlled foreign corporation bears to the entire year. 
"(4) 
LIMITATION ON PRO RATA SHARE OF INVESTMENT IN UNITED 
STATES PROPERTY.—FoT purposcs of paragraph (1)(B), the pro 
rata share of any United States shareholder in the increase of 
the earnings of a controlled foreign corporation invested in 
United States property shall not exceed an amount (A) which 
bears the same ratio to his pro rata share of such increase (as 
determined under section 956(a)(2)) for the taxable ^ear, as 
(B) the part of such year during which the corporation is a con-
trolled foreign corporation bears to the entire year. 
"(b) UNITED STATES SHAREHOLDER DEFINED.—For purposes of this 
subpart, the term 'United States shareholder' means, with respect to 
any foreign corporation, a United States person (as defined in section 
957(d)) who owns (within the meaning of section 958(a)), or is con-
sidered as owning by applying the rules of ownership of section 
958(b), 10 percent or more of the total combined voting power of all 
classes of stock entitled to vote of such foreign corporation. 
"(c) COORDINATION W I T H ELECTION OF A FOREIGN INVESTMENT COM-
PANY To DISTRIBUTE INCOME.—^A United States shareholder Who, for 
his taxable year, is a qualified shareholder (within the meaning of 
section 1247(c)) of a foreign investment company with respect to Post. p. 1039. 
which an election under section 1247 is in effect shall not be required 
to include in gross income, for such taxable year, any amount under 
subsection (a) with respect to such company. 
"(d) 
COORDINATION WITH FOREIGN PERSONAL HOLDING COMPANY 
PROVISIONS.—^A United States shareholder who, for his taxable year, 
is subject to tax under section 651(b) (relating to foreign personal 
26 use ssi. 
holding company income included in gross income of United States 
shareholders) on income of a controlled foreign corporation shall not 
be required to include in gross income, for such taxable year, any 
amount under subsection (a) with respect to such company. 
1008 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"SEC. 952. SUBPART F INCOME DEFINED. 
" (a) I N GENERAL.—For purposes of this subpart, the term 'subpart 
F income' means, in the case of any controlled foreign corporation, the 
sum of— 
"(1) the income derived from the insurance of United States 
Intra. 
risks (as determined under section 953), and 
"(2) the foreign base company income (as determined under 
section 954). 
"(b) EXCLUSION OF UNITED STATES INCOME.—Subpart F income 
does not include any item includible in gross income under this chapter 
(other than this subpart) as income derived from sources within the 
United States of a foreign corporation engaged in trade or business 
in the United States. 
"(c) LIMITATION.—For purposes of subsection (a), the subpart F 
income of any controlled foreign corporation for any taxable year shall 
not exceed the earnings and profits of such corporation for such year 
I'educed by the amount (if any) by which— 
"(1) an amount equal to— 
"(A) the sum of the deficits in earnings and profits for 
prior taxable years beginning after December 31, 1962, plus 
"(B) the sum of the deficits in earnings and profits for 
taxable yeai-s beginning after December 31, 1959, and before 
January 1, 1963 (reduced by the sum of the earnings and 
profits for such taxable years) ; exceeds 
" (2) an amount equal to the sum of the earnings and profits for 
prior taxable years beginning after December 31, 1962, allocated 
Poat. p. 1020. 
to other earnings and profits under section 959(c) (3). 
For purposes of the preceding sentence, any deficit in earnings and 
profits for any prior taxable year shall be taken into account under 
paragraph (1) for any taxable year only to the extent it has not been 
taken into account under such paragraph for any preceding taxable 
year to reduce earnings and profits of such preceding year. 
" (d) SPECIAL RULE IN CASE or INDIRECT OWNERSHIP.—For purposes 
of subsection (c), if— 
"(1) a United States shareholder owns (within the meaning of 
section 958(a)) stock of a foreign corporation, and by reason of 
such ownership owns (within the meaning of such section) stock 
of any otlier foreign corporation, and 
"(2) any of such foreign corporations has a deficit in earnings 
and profits for the taxable year, 
then the earnings and profits for the taxable year of each such foreign 
corporation which is a controlled foreign corporation shall, with 
respect to such United States shareholder, be properly reduced to take 
into account any deficit described in paragraph (2) in such manner as 
the Secretary or his delegate shall prescribe by regulations. 
"SEC. 953. INCOME FROM INSURANCE OF UNITED STATES RISKS. 
"(a) GENERAL RULE.—For purposes of section 952(a) (1), the term 
'income derived from the insurance of United States risks' means that 
income which— , 
"(1) is attributable to the reinsurance or the issuing of any 
insurance or annuity contract— 
"(A) in connection with property in, or liability arising 
out of activity in, or in connection with the lives or health of 
residents of, the United States, or 
"(B) in connection with risks not included in subparagraph 
(A) as the result of any arrangement whereby another cor-
poration receives a substantially equal amount of premiums 
or other consideration in respect to any reinsurance or the 
issuing of any insurance or annuity contract in connection 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1009 
with property in, or liability arising out of activity in, or in 
connection with the lives or health of residents of, the United 
States, and 
"(2) would (subject to the modifications provided by para-
graphs (1), (2), and (3) of subsection (b)) be taxed under 
subchapter L of this chapter if such income were the income of a 
domestic insurance corporation. 
This section shall apply only in the case of a controlled foreign corpo-
ration which receives, during any taxable year, premiums or other 
consideration in respect of the reinsurance, and the issuing, of insur-
ance and annuity contracts described in paragraph (1) in excess of 
5 percent of the total of premiums and other consideration received 
during such taxable year m respect of all reinsurance and issuing of 
insurance and annuity contracts. 
"(b) SPECIAL RULES.—For purposes of subsection (a)— 
"(1) In the application of part I of subchapter L, life insur-
ance company taxable income is the gain from operations as 
defined in section 809(b). 
26 use 809. 
"(2) A corporation which would, if it were a domestic insur-
ance corporation, be taxable under part I I of subchapter L 
26 use 821-826; 
shall apply subsection (a) as if it were taxable under part I I I ^Q^ggg^' *^'*' 
of subchapter L. 
" (3) The following provisions of subchapter L shall not apply: 
"(A) Section 809(d)(4) (operations loss deduction). 
"(B) 
Section 
809(d)(5) 
(certain 
nonparticipating 
contracts). 
"(C) Section 809(d) (6) (group life, accident, and health 
insurance). 
"(D) Section 809(d) (10) (small business deduction). 
"(E) Section 817(b) (gain on property held on December 
31, 1958, and certain substituted property acquired after 
1958). 
"(F) Section 832(b) (5) (certain capital losses). 
" (4) The items referred to in— 
"(A) section 809(c) (1) (relating to gross amount of pre-
miums and other considerations), 
"(B) 
section 809(c)(2) 
(relating to net decrease in 
reserves), 
"(C) 
section 809(d)(2) 
(relating to net increase in 
reserves), and 
"(D) section 832(b) (4) (relating to premiums earned on 
insurance contracts), 
shall be taken into account only to the extent they are in respect 
of any reinsurance or the issuing of any insurance or annuity 
contract described in subsection (a) (1). 
"(5) All items of income, expenses, losses, and deductions 
(other than those taken into account under paragraph (4)) shall 
be properly allocated or apportioned under regulations prescribed 
by the Secretary or his delegate. 
"SEC. 954. FOREIGN BASE COMPANY INCOME. 
"(a) FOREIGN BASE COMPANY INCOME.—For purposes of section 
952(a) (2), the term 'foreign base company income' means for any 
taxable year the sum of— 
"(1) the foreign personal holding company income for the tax-
able year (determined under subsection (c) and reduced as pro-
vided in subsection (b) (5)), 
"(2) the foreign base company sales income for the taxable 
year (determinea under subsection (d) and reduced as provided 
m subsection (b) (5)), and 
78135 0-63—67 
1010 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(3) the foreign base company services income for the taxable 
year (determined under subsection (e) and reduced as provided 
in subsection (b) (5)). 
"(b) 
EXCLUSIONS A
N
D SPECIAL RULES.— 
"(1) 
EXCLUSION OF CERTAIN DIVIDENDS, INTEREST, AND GAINS 
FROM QUALIFIED INVESTMENTS IN LESS DEVELOPED COUNTRIES.—FOR 
purposes of subsection (a), foreign base company income does not 
include— 
"(A) dividends and interest received during the taxable 
year from investments which at the time of receipt are quali-
fied investments in less developed countries (as defined in 
Post, p. 1013. 
section 955(b)), or 
"(B) if the gains from the sale or exchange during the 
taxable year of investments which at the time of sale or 
exchange are qualified investments in less developed countries 
exceed the losses from the sale or exchange during the taxable 
year of such qualified investments, the amount by which such 
gains exceed such losses. 
The preceding sentence shall apply only to the extent that the sum 
of the dividends and interest described in subparagraph (A) and 
the amount described in subparagraph (B) does not exceed the 
increase for the taxable year in qualified investments in less devel-
oped countries of the controlled foreign corporation (as deter-
mined under subsection (f)). 
"(2) EXCLUSION OF CERTAIN SHIPPING INCOME.—For purposes 
of subsection (a), foreign base company income does not include 
income derived from, or in connection with, the use (or hiring 
or leasing for use) of any aircraft or vessel in foreign commerce, 
or the performance of services directly related to the use of any 
such aircraft or vessel. 
" ( 3 ) 
S P E C I A L R U L E W H E R E FOREIGN BASE C O M P A N Y I N C O M E IS LESS 
THAN 30 PERCENT OR MORE THAN 7 0 PERCENT OF GROSS INCOME.—For 
purposes of subsection (a)— 
"(A) If the foreign base company income (determined 
without regard to paragraphs (1) and (5)) is less than 30 
percent of gross income, no part of the gross income of the 
a 
. >
s taxable year shall be treated as foreign base company income. 
"(B) If the foreign base company income (determined 
if 
without regard to paragraphs (1) and (5)) exceeds 70 per-
cent of gross income, the entire gross income of the taxable 
', 
year shall, subject to the provisions of paragraphs (1), (2), 
(4), and (5), be treated as foreign base company income. 
"(4) 
EXCEPTION FOR FOREIGN CORPORATIONS NOT AVAILED OF TO 
REDUCE TAXES.—For purposes of subsection (a), foreign base 
company income does not include any item of income received 
by a controlled foreign corporation if it is established to the 
satisfaction of the Secretary or his delegate \ ith respect to such 
item that the creation or organization of the iontrolled foreign 
corporation receiving such item under the laws of the foreign 
country in which it is incorporated does not have the effect of sub-
stantial reduction of income, war profits, or excess profits taxes 
or similar taxes. 
" (5) DEDUCTIONS TO BE TAKEN INTO ACCOUNT.—For j)urposes of 
subsection (a), the foreign personal holding company income, the 
foreign base company sales income, and the foreign base company 
services income shall be reduced, under regulations prescribed by 
the Secretary or his delegate, so as to take into account deductions 
(including taxes) properly allocable to such income. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1011 
"(c) FOREIGN PERSONAL HOLDING COMPANY INCOME.— 
" (1) I N GENERAL.—For purposes of subsection (a)(1), the term 
'foreign personal holding company income' means the foreign 
personal holding company income (as defined in section 553), 
26 use 553. 
modified and adjusted as provided in paragraphs (2), (3), and 
(4). 
"(2) RENTS INCLUDED WITHOUT REGARD TO 50 PERCENT LIMITA-
TION.—For purposes of paragraph (1), all rents shall be included 
in foreign personal holding company income without regard to 
whether or not such rents constitute 50 percent or more of gross 
income. 
"(3) CERTAIN INCOME DERIVED IN ACTIVE CONDUCT OF TRADE OR 
BUSINESS.—For purposes of paragraph (1), foreign personal 
holding company income does not include— 
"(A) rents and royalties which are derived in the active 
conduct of a trade or business and which are received from 
a person other than a related person (within the meaning of 
subsection (d) (3)), or 
"(B) dividends, interest, and gains from the sale or 
exchange of stock or securities derived in the conduct of a 
banking, financing, or similar business, or derived from the 
investments made by an insurance company of its unearned 
premiums or reserves ordinary and necessary for the proper 
conduct of its insurance business, and which are received 
from a person other than a related person (within the mean-
ing of subsection (d) (3)). 
"(4) CERTAIN INCOME RECEIVED FROM RELATED PERSONS.—For 
purposes of paragraph (1), foreign personal holding company 
income does not include— 
" (A) dividends and interest received from a related pereon 
which (i) is created or Organized under the laws of the same 
foreign country under the laws of which the controlled forei^i 
corporation is created or organized, and (ii) has a substantial 
part of its assets used in its trade or business located in such 
same foreign country; 
"(B) interest received in the conduct of a banking, financ-
ing, or similar business from a related person engaged in the 
conduct of a banking, financing, or similar business if the 
businesses of the recipient and the payor are predominantly 
with persons other than related persons; and 
"(C) rents, royalties, and similar amounts received from 
a related j)erson for the use of, or the privilege of using, 
property within the country under the laws of which the con-
trolled foreign corporation is created or organized. 
"(d) FOREIGN BASE COMPANY SALES INCOME.— 
"(1) I N GENERAL.—For purposes of subsection (a) (2), the term 
'foreign base company sales income" means income (whether in 
the form of profits, commissions, fees, or otherwise) derived in 
connection with the purchase of personal property from a related 
person and its sale to any person, the sale of personal property 
to any person on behalf of a related person, the purchase of per-
sonal property from any person and its sale to a related person, 
or the purchase of personal property from any person on behalf 
of a related person where— 
"(A) the property which is purchased (or in the case of 
property sold on behalf of a related person, the property 
which is sold) is manufactured, produced, grown, or extracted 
outside the country under the laws of which the controlled 
foreign corporation is created or organized, and 
1012 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(B) the property is sold for use, consumption, or dispo-
sition outside such foreign country, or, in the case of property 
purchased on behalf of a related person, is purchased for 
use, consumption, or disposition outside such foreign country. 
"(2) CERTAIN BRANCH INCOME.—For purposes of determining 
foreign base company sales income in situations in which the 
carrying on of activities by a controlled foreign corporation 
through a brancli or similar establishment outside the country of 
incorporation of the controlled foreign corporation has substan-
tially the same effect as if such branch or similar establishment 
were a wholly owned subsidiary corporation deriving such in-
come, under regulations prescribed by. the Secretary or his dele-
gate the income attributable to the carrying on of such activities 
of such branch or similar establishment shall be treated as income 
derived by a wholly owned subsidiary of the controlled foreign 
corporation and shall constitute foreign base company sales 
income of the controlled foreign corporation. 
"(3) RELATED PERSON DEFINED.—For purposes of this section, 
a person is a related person Avith respect to a controlled foreign 
corporation, if— 
"(A) such pei-son is an individual, partnership, trust, or 
estate which controls the controlled foreign corporation; 
"(B) such person is a corporation which controls, or is 
controlled by, the controlled foreign corporation; or 
"(C) such person is a corporation which is controlled by 
the same person or persons which control the controlled 
foreign corporation. 
For purposes of the preceding sentence, control means the owner-
ship, directly or indirectly, of stock possessing more than 50 per-
cent of the total combined voting power of all classes of stock 
entitled to vote. For purposes of this paragraph, the rules for 
determining ownership of sto^k prescribed by section 958 shall 
apply. 
"(e) FOREIGN BASE COMPANY SERVICES INCOME.—For purposes of 
subsection (a)(3), the term 'foreign base company services income' 
means income (whether in the form of compensation, commissions, 
fees, or otherwise) derived in connection with the performance of 
technical, managerial, engineering, architectural, scientific, skilled, 
industrial, commercial, or Tike services which— 
"(1) are performed for or on behalf of any related person 
(within the meaning of subsection (d)(3)), and 
"(2) are performed outside the country under the laws of 
which the controlled foreign corporation is created or organized. 
The preceding sentence shall not apply to income derived in connec-
tion with the performance of services which are directly related to the 
sale or exchange by the controlled foreign corporation of property 
manufactured, produced, grown, or extracted by it and which are per-
formed prior to the time of the sale or exchange, or of services directly 
related to an offer or effort to sell or exchange such property. 
"(f) 
INCREASE IN QXTALIFIED INVESTMENTS IN LESS DEVEIX)PED 
COUNTRIES.—For purposes of subsection (b) (1), the increase for any 
taxable year in qualified investments in less developed countries of any 
controlled foreign corporation is the amount by which— 
"(1) the qualified investments in less developed countries (as 
Post, p. 1013. 
defined in section 055(b)) of the controlled foreign corporation at 
the close of the taxable year, exceeds 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1013 
"(2) the'qualified investments in less developed countries (as 
so defined) of the controlled foreign corporation at the close of 
the preceding taxable year. 
"SEC. 955. WITHDRAWAL OF PREVIOUSLY EXCLUDED SUBPART F 
INCOME FROM QUALIFIED INVESTMENT. 
" (a) GENERAL RULES.— 
"(1) AMOUNT WITHDRAWN.—For purposes of this subpart, the 
amount of previously excluded subpart F income of any con-
trolled foreign corporation withdrawn from investment m less 
developed countries for any taxable year is an amount equal to 
the decrease in the amount of qualified investments in less de-
veloped countries of the controlled foreign corporation for such 
year, but only to the extent that the amount of such decrease does 
not exceed an amount equal to— 
"(A) the sum of the amounts excluded under section 954 
(b) (1) from the foreign base company income of such cor-
poration for all prior taxable years, reduced by 
"(B) the sum of the amounts of previously excluded sub-
part F income withdrawn from investment in less developed 
countries of such corporation determined under this subsec-
tion for all prior taxable years. 
"(2) DECREASE IN QUALIFIED INVESTMENTS.—For purposes of 
paragraph (1), the amount of the decrease in qualified invest-
ments in less developed countries of any controlled foreign cor-
poration for any taxable year is the amount by which— 
"(A) the amount of qualified investments in less developed 
countries of the controlled foreign corporation at the close 
of the preceding taxable year, exceeds 
"(B^ the amount of qualified investments in less developed 
countries of the controlled foreign corporation at the close 
of the taxable year, 
to the extent the amount of such decrease does not exceed the 
sum of the earnings and profits for the taxable year and the earn-
ings and profits accumulated for prior taxable years beginning 
after December 31, 1962. For purposes of this paragraph, if 
i^ualified investments in less developed countries are disposed of 
by the controlled foreign corporation during the taxable year, the 
amount of the decrease in qualified investments in less developed 
countries of such controlled foreign corporation for such year 
shall be reduced by an amount equal to the amount (if any) by 
which the losses on such dispositions during such year exceed 
the gains on such dispositions during such year. 
"(3) PRO RATA SHARE OF AMOUNT WITHDRAWN.—In the case of 
any United States shareholder, the pro rata share of tlie amount 
of previously excluded subpart F income of any controlled for-
eign corporation withdrawn from investment :n less developed 
countries for any taxable year is his pro rata share of the amount 
determined under paragraph (1). 
"(b) 
QUALIFIED INVESTMENTS IN LESS DEVELOPED COUNTRIES.— 
"(1) I N GENERAL.—For purposes of this subpart, the term 
'qualified investments in less developed countries' means property 
which is— 
"(A) stock of a less developed country corporation held by 
the controlled foreign corporation, but only if the controlled 
foreign corporation owns 10 percent or more of the total com-
bined voting power of all classes of stock of such less de-
veloped country corporation; 
"'(B) an obligation of a less developed country corporation 
held by the controlled foreign corporation, which, at the 
1014 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
time of its acquisition by the controlled foreign corporation, 
has a maturity of one year or more, but only if the controlled 
foreign corporation owns 10 percent or more of the total 
combined voting power of all classes of stock of such less 
developed country corporation; or 
" (C) an obligation of a less developed country. 
" (2) COUNTRY CEASES TO BE LESS DEVELOPED COUNTRY.—For pur-
poses of this subpart, property which would be a qualified invest-
ment in less developed countries, but for the fact that a foreign 
country has, after the acquisition of such property by the con-
trolled foreign corporation, ceased to be a less developed country, 
shall be treated as a qualified investment in less developed coun-
tries. 
"(3) SPECIAL RULE.—For purposes of this subpart, a United 
States shareholder of a controlled foreign corporation may, under 
regulations prescribed by the Secretary or his delegate, make the 
determinations under subsection (a)(2) of this section and under 
Ante. p. 1012. 
subscctiou (f) of scctioii 954 as of the close of the years following 
the years referred to in such subsections, or as of the close of such 
longer period of time as such regulations may permit, in lieu of 
on the last day of such years. Any election under this paragraph 
made with respect to any taxable year shall apply to such year 
and to all succeeding taxable years unless the Secretary or his 
delegate consents to the revocation of such election. 
" (4) EXCEPTION.—For purposes of this subpart, property shall 
not constitute c^ualified investments in less developed countries if 
such property is disposed of within 6 months after the date of 
its acquisition. 
"(5) AMOUNT ATTRIBUTABLE TO PROPERTY.—The amount taken 
into account under this subpart with respect to any property 
described in paragraph (1) or (2) shall be its adjusted basis, 
reduced by any liability to which such property is subject. 
" (c) LESS DEVELOPED COUNTRY CORPORATIONS.— 
"(1) I N GENERAL.—For purposes of this subpart, the term 'less 
developed country corporation' means a foreign corporation which 
during the taxable year is engaged in the active conduct of one 
or more trades or businesses and— 
"(A) 80 percent or more of the gross income of which for 
the taxable year is derived from sources within less developed 
countries; and 
"(B) 80 percent or morojin value of the assets of which on 
each dav of the taxable year consists of— 
"(i) property used in such trades or businesses and 
located in less developed countries, 
"(ii) money, and deposits with persons carrying on 
the banking business, 
"(iii) stock, and obligations which, at the time of their 
acquisition, have a maturity of one year or more, of any 
other less developed country corporation, 
"(iv) an obligation .of a less developed country, 
"(v) an investment which is required because of 
restrictions imposed by a less developed country, and 
Post, p. 1016. 
"(vi) property described in section 956(b) (2). 
For purposes of subparagraph (A), the determination as to 
whether income is derived from sources within less developed 
countries shall be made under regulations prescribed by the 
Secretary or his delegate. 
"(2) SHIPPING COMPANIES.—For purposes of this subpart, the 
term 'less developed country corporation' also means a foreign 
corporation— 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1015 
"(A) 80 percent or more of the gross income of which for 
the taxable year consists of^ 
" (i) gross income derived from, or in connection with, 
the using (or hiring or leasing for use) in foreign com-
merce of aircraft or vessels registered under the laws of 
a less developed country, or from, or in connection with, 
the performance of services directly related to use of such 
aircraft or vessels, or from the sale or exchange of such 
aircraft or vessels, and 
"(ii) dividends and interest received from foreign cor-
porations which are less developed country corporations 
within the meaning of this paragraph and 10 percent or 
%,.^-i 
more of the total combined voting power of all classes 
of stock of which are owned by the foreign corporation, 
and gain from the sale or exchange of stock or obliga-
tions of foreign corporations which are such less devel-
oped country corporations, and 
"(B) 80 percent or more of the assets of which on each day 
of the taxable year consists of (i) assets used, or held for 
use, for or in connection with the production of income de-
scribed in subparagraph (A), and (ii) property described in 
section 956(b)(2). 
Post, P. loie. 
"(3) LESS DEVELOPED COUNTRY DEFINED.—For purposes of this 
subpart, the term 'less developed country' means (in respect of 
any foreign corporation) any foreign country (other than an area 
within the Sino-Soviet bloc) or any possession of the United 
States with respect to which, on the first day of the taxable year, 
there is in effect an Executive order by the President of the United 
States designating such coimtry or possession as an economically 
less developed country for purposes of this subpart. For pur-
poses of the preceding sentence, an overseas territory, department, 
province, or possession may be treated as a separate country. No 
designation shall be made under this paragraph with respect to— 
Australia 
Liechtenstein 
Austria 
Luxembourg 
Belgium 
Monaco 
ifi 
Canada 
Netherlands 
Denmark 
New Zealand 
j.r. 
France 
Norway 
Germany (Federal Republic) 
Union of South Africa 
Hong Kong 
San Marino 
Italy 
Sweden 
Japan 
Switzerland 
United Kingdom 
After the President has designated any foreign country or any pos-
session of the United States as an economically less developed country 
for purposes of this subpart, he shall not terminate such desig-
nation (either by issuing an Executive order for that purpose or by 
issuing an Executive order under the first sentence of this paragraph 
which has the effect of terminating such designation) unless, at least 
30 days prior to such termination, he has notified the Senate and the 
House of Representatives of his intention to terminate such desig-
nation, 
"SEC. 956. INVESTMENT OF EARNINGS IN UNITED STATES PROPERTY. 
"(a) GENERAL RULES.—For purposes of this subpart— 
"(1) AMOUNT OF INVESTMENT.—The amount of earnings of a 
controlled foreign corporation invested in United States property 
at the close of any taxable year is the aggregate amount of such 
property held, directly or indirectly, by the controlled foreign 
1016 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
corporation at the close of the taxable year, to the extent such 
amount would have constituted a dividend (determined after the 
Ante, p. 1013. 
application of section 955 (a)) if it had been distributed. 
" (2) PRO RATA SHARE or INCREASE FOR YEAR.^—In the case of any 
United States shareholder, the pro rata share of the increase for 
any taxable year in the earnings of a controlled foreign corpora-
tion invested in United States property is the amount determined 
by subtracting his pro rata share of— 
"(A) the amount determined under paragraph (1) for 
the close of the preceding taxable year, reduced by amounts 
paid during such preceding taxable year to which section 
Post, p. 1019. 
959(c) (1) applies, from 
"(B) the amount determined under paragraph (1) for 
the close of the taxable year. 
TliQ determinations under subparagraphs (A) and (B) shall be 
made on the basis of stock owned (within the meaning of section 
Post, p. 1018. 
958(a)) by such United States shareholder on the last day during 
the taxable year on which the foreign corporation is a controlled 
foreign corporation. 
"(3) AMOUNT ATTRIBUTABLE TO PROPERTY.—The amount taken 
into account under paragraph (1) or (2) with respect to any 
property shall be its adjusted basis, reduced Ijy any liability to 
which the property is subject, 
(b) UNITED STATES PROPERTY DEFINED.— 
"(1) I N GENERAL.—For purposes of subsection (a), the term 
'United States property' means any property acquired after De-
cember 31, 1962, which is— 
"(A) tangible property located in the United States; 
"(B) stock of a domestic corporation; 
"(C) an obligation of a United States person; or 
"(D) any right to the use in the United States of— 
"(i) a patent or copyright, 
"(ii) an invention, model, or design (whether or not 
patented). 
"Hii) a secret formula or process, or 
"(iv) 
) any other similar property right, 
which is acquired or developed by the controlled foreign cor-
poration for use in the United States. 
"(2) EXCEPTIONS.—For purposes of subsection (a), the term 
'United States property' does not include— 
"(A) obligations of the United States, money, or deposits 
with persons carrying on the banking business; 
"(B) property located in the United States which is pur-
chased in the United States for export to, or use in, foreign 
countries; 
"(C) any obligation of a United States person arising in 
connection with the sale or processing of property if the 
amount of such obligation outstanding at no time during the 
taxable year exceeds the amount which would be ordinary 
and necessary to carry on the trade or business of both the 
other party to the sale or processing transaction and the 
United States person had the sale or processing transaction 
been made between unrelated persons; 
"(D) any aircraft, railroad rolling stock, vessel, motor 
vehicle, or container used in the transportation of pei'sons or 
property in foreign commerce and used predominantly out-
side the United States; 
"(E) an amount of assets of an insurance company equiv-
alent to the unearned premiums or reserves ordinary and 
necessary for the proper conduct of its insurance business 
76 STAT. 3 
PUBLIC LAW 87-834-OCT. 16, 1962 
1017 
attributable to contracts which are not contracts described in 
section 953(a) (1); and 
Ante, p. loos. 
"(F) an amount of assets of the controlled foreign corpo-
ration equal to the earnings and profits accumulated after 
December 31, 1962, and excluded from subpart F income 
under section 952(b). 
Ante. p. loos. 
"(c) PLEDGES AND GUARANTEES.—For purposes of subsection (a), 
a controlled foreign corporation shall, under regulations prescribed by 
the Secretary or his delegate, be considered as holding an obligation 
of a United States person if such controlled foreign corporation is a 
pledgor or guarantor of such obligation. 
"SEC. 957. CONTROLLED FOREIGN CORPORATIONS; UNITED STATES 
PERSONS. 
"(a) GENERAL RULE.—For purposes of this subpart, the term 'con-
trolled foreign corporation' means any foreign corporation of which 
more than 50 percent of the total combined voting power of all classes 
of stock entitled to vote is owned (within the meaning of section 
958(a)), or is considered as owned by applying the rules of ownership 
Post, p. lois. 
of section 958(b), by United States shareholders on any day during 
the taxable year of such foreign corporation. 
"(b) SPECIAL RULE FOR INSURANCE.—For purposes only of taking 
into account income described in section 953(a) (relating to income 
derived from insurance of United States risks), the term 'controlled 
foreign corporation' includes not only a foreign corporation as defined 
by subsection (a) but also one of which more than 25 percent of the 
total combined voting power of all classes of stock is owned (within 
the meaning of section 958(a)), or is considered as owned by apply-
ing the rules of ownership of section 958(b), by United States share-
holders on any day during the taxable year of such corporation, if 
the gross amount of premiums or other consideration in respect of the 
reinsurance or the issuing of insurance or annuity contracts described 
in section 953(a)(1) exceeds 75 percent of the gross amount of all 
premiums or other consideration in respect of all risks. 
"(c) CORPORATIONS ORGANIZED IN UNITED STATES POSSESSIONS.— 
For purposes of this subpart, the term 'controlled foreign corporation' 
does not include any corporation created or organized in the Common-
wealth of Puerto Rico or a possession of the United States or under 
the laws of the Commonwealth of Puerto Rico or a possession of the 
United States if— 
"(1) 80 percent or more of the gross income of such corpora-
tion for the 3-year period immediately preceding the close of the 
taxable year (or for such part of such period immediately pre-
ceding the close of such taxable year as may be applicable) was 
derived from sources within the Commonwealth of Puerto Rico 
or a possession of the United States; and 
" (2) 50 percent or more of the gross income of such corporation 
for such period, or for such part thereof, was derived from the 
active conduct within the Commonwealth of Puerto Rico or a 
possession of the United States of any trades or businesses con-
stituting the manufacture or processing of goods, wares, merchan-
dise, or other tangible personal property; the processing of agri-
cultural or horticultural products or commodities (including but 
not limited to livestock, poultry, or fur-bearing animals); the 
catching or taking of any kind of fish or the mining or extraction 
of natural resources, or any manufacturing or processing of any 
products or commodities obtained from such activities; or the 
ownership or operation of hotels. 
For purposes of paragraphs (1) and (2), the determination as to 
whether income was derived from sources within the Commonwealth 
1018 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
of Puerto Rico or a possession of the United States and was derived 
from the active conduct of a described trade or business within the 
Commonwealth of Puerto Rico or a possession of the United States 
shall be made under regulations prescribed by the Secretary or his 
delegate. 
"(d) ITNITED STATES PERSON.—For purposes of this subpart, the 
term 'United States person' has the meaning assigned to it by section 
Ante. p. 988. 
7701 (a) (80) except that— 
"(1) with respect to a corporation organized under the laws 
of the Commoilwealth of Puerto Rico, sucli term does not include 
an individual who is a bona fide resident of Puerto Rico, if a 
di^ idend received by such individual during the taxable year from 
26 use 933. 
such corporatiou would, for purposes of section 933(1), be treated 
as income derived from sources within Puerto Rico, 
"'(2) with respect to a corporation organized under the laws 
of the Virgin Islands, such term does not include an individual 
who is a bona tide resident of the Virgin Islands and whose in-
come tax obligation under this subtitle for the taxable year is 
satisfied pursuant to section 28(a) of the Revised Organic Act 
68 Stat. 508. 
of the Virgin Islands, approved July 22, 1954 (48 U.S.C. 1642), 
by paying tax on income derived from all sources both within 
and outside the Virgin Islands into the treasury of the Virgin 
Islands, and 
"(3) with respect to a corporation organized under the laws 
of any other possession of the United States, such term does not 
include an individual Avho is a bona fide resident of any such other 
possession and whose income derived from sources within 
possessions of the United States is not, by reason of section 931 
(a), includible in gross income under this subtitle for the taxable 
year. 
"SEC. 958. RULES FOR DETERMINING STOCK OWNERSHIP. 
"(a) 
DIRECT AND INDIRECT OWNERSHIP.— 
" (1) (TENERAL RUEE.—For purposes of this subpart (other than 
Ante, p. 1013. 
sectioiis 9r)5(b)(l) (A) and (B), 955(c) (2) (A) (ii), and 960 
Post, p. 1020. 
(a)(1)), stock owned means— 
"(A) stock owned directly, and 
"(B) stock owned with the application of pamgraph (2). 
'"(2) STOCK OWNERSIIH' THROUGH FOREIGN ENTITIES.—For pur-
poses of subparagraph (B) of paragraph (1), stock owned, 
directly or indirectly, by or for a foreign corporation, foreign 
partnership, or foreign trust or foreign estate (within the mean-
Ante, p. 988. 
uig of sectioii 7701(a) (31)) shall be considered as being owned 
proportionately by its shareholders, partners, or beneficiaries. 
Stock considered to be owned by a person by reason of the appli-
cation of the preceding sentence shall, for purposes of applying 
such sentence, be treated as actually owned by such person. 
"(3) 
SPECIAL RULE FOR MUTUAL INSURANCE COMPXVNIES.—For 
purposes of applying paragraph (1) in the case of a foreign 
mutual insurance company, the term 'stock' shall include any 
certificate entitling the holder to voting power in the corporation. 
"(b) CONSTRUCTIVE OWNERSHIP.—For purposes of sections 951(b), 
26 use 318. 
954(d) (3), and 957, section 318(a) (relating to constructive owner-
ship of stock) shall apply to the extent that the effect is to treat any 
United States person as a United States shareholder within the mean-
ing of section 951(b), to treat a person as a related person within the 
meaning of section 954(d) (3), or to treat a foreign corporation as a 
controlled foreign corporation under section 957, except that— 
"(1) In applying paragraph (1) (A) of section 318(a), stock 
owned by a nonresident alien individual (other than a foreign 
trust or foreign estate) shall not be considered as owned by a 
citizen or by a resident alien individual. 
76 STAT. ] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1019 
"(2) In applying the first sentence of subparagraphs (A) and 
(B), and in applying clause (i) of subparagraph (C), of section 
318(a)(2), if a partnership, estate, trust, or corporation owns, 
26 use sis. 
directly or indirectly, more than 50 percent of the total combined 
voting power of all classes of stock entitled to vote of a corpora-
tion, it shall be considered as owning all the stock entitled to vote. 
" (3) Stock owned by a partnership, estate, trust, or corporation, 
by reason of the application of the second sentence of subpara-
graphs (A) and (B), and the application of clause (ii) of sub-
paragraph (C), of section 318(a) (2), shall not be considered as 
owned by such partnership, estate, trust, or corporation, for pur-
poses of applying the first sentence of subparagraphs (A) and 
(B), and in applying clause (i) of subparagraph (C), of section 
318(a)(2). 
"(4) In a])plying clause (i) of subparagraph (C) of section 
318(a)(2), the phrase '10 percent' shall be substituted for the 
phrase '50 percent' used in subparagraph (C). 
"(5) The second sentence of subparagraphs (A) and (B), and 
clause (ii) of subparagraph (C), of section 318(a)(2) shall not 
be applied so as to consider a LTnited States person as owning stock 
which is owned by a person who is not a United States person. 
"SEC. 959. EXCLUSION FROM GROSS INCOME OF PREVIOUSLY TAXED 
EARNINGS AND PROFITS. 
"(a) EXCLUSION FROM GROSS INCOME OF UNITED STATES PERSONS.— 
For purposes of this chapter, the earnings and profits for a taxable 
year of a foreign corporation attributable to amounts which are, or 
have been, included in the gross income of a LTnited States shareholder 
under section 951 (a) shall not, when— 
" (1) such amounts are distributed to, or 
"(2) such amounts would, but for this subsection, be included 
under section 951(a) (1) (B) in the gross income of. 
Ante, p. looe. 
such shareholder (or any other United States person who acquires 
from any person any portion of the interest of such United States 
shareholder in such foreign corporation, but only to the extent of such 
portion, and subject to such proof of the identity of such interest as 
the Secretary or his delegate may by regulations prescribe) directly, 
or indirectly through a chain of ownership described under section 
958(a), be again included in the gross income of such United States 
shareholder (or of such other United States person). 
"(b) 
EXCLUSION 
FROM 
GROSS 
INCOME OF CERTAIN 
FOREIGN 
SUBSIDIARIES.—Foi" purposes of section 951(a), the earnings and 
profits for a taxable year of a controlled foreign corporation attrib-
utable to amounts which are, or have been, included in the gross income 
of a United States shareholder under section 951(a), shall not, when 
distributed through a chain of ownership described under section 
958(a), be also included in the gross income of another controlled 
foreign corporation in such chain for purposes of the application of 
section 951(a) to such other controlled foreign corporation with re-
spect to such United States shareholder (or to any other United States 
shareholder who acquires from any person any portion of the interest 
of such United States shareholder in the controlled foreign corpora-
tion, but only to the extent of such portion, and subject to such proof 
of identity of such interest as the Secretary or his delegate may pre-
scribe by regulations). 
"(c) ALLOCATION OF DISTRIHUTIONS.—For purposes of subsections 
(a) and (b), section 316(a) shall be applied by applying paragraph 
26 use 3i6. 
(2) thereof, and then paragraph (1) thereof— 
"(1) first to earnings and profits attributable to amounts 
included in gross income under section 951(a) (1) (B) (or* which 
1020 
PUBUC L
A
W 87-834-OCT. 16, 1962 
[76 STAT. 
would have been included except for subsection (a) (2) of this 
section), 
"(2) then to earnings and profits attributable to amounts 
Ante. p. 1006. 
included in gross income und!er section 961(a)(1)(A) 
(but 
reduced by amounts not included under section 951(a)(1)(B) 
because of the exclusion in subsection (a) (2) of this section), and 
"(3) then to other earnings and profits. 
"(d) 
DISTRIBUTIONS EXCLUDED FROM GROSS INCOME NOT To B E 
Infra. 
TREATED AS DIVIDENDS.—Exccpt as provided in section 960(a) (3), any 
distribution excluded from gross income under subsection (a) shall be 
treated, for purposes of this chapter, as a distribution which is not a 
dividend. 
"SEC. 960. SPECIAL RULES FOR FOREIGN TAX CREDIT. 
"(a) 
TAXES PAID BY A FOREIGN CORPORATION.— 
"(1) GENERAL RULE.—For purposes of subpart A of this part, 
if there is included, under section 951(a), in the gross income of 
a domestic corporation any amount attributable to earnings and 
profits— 
"(A) of a foreign corporation at least 10 percent of the 
voting stock of which is owned by such domestic corpora-
tion, or 
"(B) of a foreign corporation at least 50 percent of the 
voting stock of which is owned by a foreign corporation at 
least 10 percent of the voting stock of which is in turn owned 
by such domestic corporation, 
then, under regulations prescribed by the Secretary or his dele-
gate, such domestic corporation shall be deemed to have paid the 
same proportion of the total income, war profits, and excess profits 
taxes paid (or deemed paid) by such foreign corporation to a 
foreign country or possession of the United States for the taxable 
year on or with respect to the earnings and profits of such foreign 
corporation which the amount of earnings and profits of such 
foreign corporation so included in gross income of the domestic 
corporation bears to— 
"(C) if the foreign corporation at least 10 percent of the 
voting stock of which is owned by such domestic corporation 
referred to in subparagraph (A) or (B) is not a less devel-
Ante, p. 1000. 
oped country corporation (as defined in section 902(d)) for 
such taxable year, the entire amount of the earnings and 
profits of such foreign corporation for such taxable year, or 
"(D) if the foreign corporation at least 10 percent of the 
voting stock of which is owned by such domestic corporation 
referred to in subparagraph (A) or (B) is a less developed 
country corporation (as defined in section 902(d)) for such 
taxable year, the sum of the entire amount of the earnings 
and profits of such foreign corporation for such taxable year 
and the total income, war profits, and excess profits taxes paid 
by such foreign corporation to foreign countries or possessions 
of the United States for such taxable year. 
"(2) 
TAXES PREVIOUSLY DEEMED PAID BY DOMESTIC CORPORA-
TioN.-^If a domestic corporation receives a distribution from a 
foreign corporation, any portion of which is excluded from gross 
Ante, p. 1019. 
iucome under section 959, the income, war profits, and excess 
profits taxes paid or deemed paid by such foreign corporation 
to any foreign country or to any possession of the United States 
in connection with the earnings and profits of such foreign cor-
poration from which such distribution is made shall not be taken 
into account for purposes of section 902, to the extent such taxes 
76 STAT. ] 
PUBUC LAW 87-834-OCT. 16, 1962 
1021 
were deemed paid by a domestic corporation under paragraph (1) 
for any prior taxable year. 
"(3) 
TAXES PAID BY FOREIGN CORPORATION AND NOT PREVIOUSLY 
DEEMED PAID BY DOMESTIC CORPORATION.—Any portion of a dis-
tribution from a foreign corporation received by a domestic cor-
poration which is excluded from gross income under section 959 
(a) shall be treated by the domestic corporation as a dividend, 
Ante, p. 1019. 
solely for purposes of taking into account under section 902 any 
Ante, p. 999. 
income, war profits, or excess profits taxes paid to any foreign 
country or to any possession of the United States, on or with re-
spect to the accumulated profits of such foreign corporation from 
which such distribution is made, which were not deemed paid by 
the domestic corporation under paragraph (1) for any prior tax-
able year. 
" ( b ) 
SPECIAL R U L E S FOR FOREIGN T A X CREDIT I N YEAR OF RECEIPT 
OF PREVIOUSLY TAXED EARNINGS AND PROFITS.— 
"(1) INCREASE IN SECTION 904 LIMITATION.—In the case of any 
taxpayer who— 
"(A) either (i) chose to have the benefits of subpart A 
of this part for a taxable year in which he was required 
under section 951 (a) to include in his gross income an amount 
Ante, p. 1006. 
in respect of a controlled foreign corporation, or (ii) did 
not pay or accrue for such taxable year any income, war 
profits, or excess profits taxes to any foreign country or to 
any possession of the United States, and 
"(B) chooses to have the benefits of subpart A of this part 
for the taxable year in which he receives a distribution or 
amount which is excluded from gross income under section 
959(a) and which is attributable to earnings and profits of 
the controlled foreign corporation which was included in his 
gross income for the taxable year referred to in subparagraph 
(A), and 
"(C) for the taxable year in which such distribution or 
amount is received, pays, or is deemed to have paid, or accrues 
income, war profits, or excess profits taxes to a foreign coun-
try or to any possession of the United States with respect to 
such distribution or amount, 
the applicable limitation under section 904 for the taxable year 
26 use 904. 
in which such distribution or amount is received shall be increased 
as provided in paragraph (2), but such increase shall not exceed 
the amount of such taxes paid, or deemed paid, or accrued with 
respect to such distribution or amount. 
"(2) AMOUNT OF INCREASE.—The amount of increase of the 
applicable limitation under section 904(a) for the taxable year 
74 stat. 1010. 
in which the distribution or amount referred to in paragraph 
^^ "®^ ®°'*" 
(1) (B) is received shall be an amount equal to— 
" (A) the amount by which the applicable limitation under 
section 904(a) for the taxable year referred to in paragraph 
(1) (A) was increased by reason of the inclusion in gro^s 
income under section 951(a) of the amount in respect of the 
controlled foreign corporation, reduced by 
"(B) the amount of any income, war profits, and excess 
profits taxes paid, or deemed paid, or accrued to any foreign 
country or possession of the United States which were allow-
able as a credit under section 901 for the taxable year referred 
26 use 901; 
to in paragraph (1)(A) and which would not have been p"^^' p" 1031. 
allowable but for the inclusion in gross income of the amount 
described in subparagraph (A). 
1022 
PUBUC L
A
W 87-834-OCT. 16, 1962 
[76 STAT. 
" (3) CASES IN WHICH TAXES NOT TO BE ALLOWED AS DEDUCTION.— 
In the case of any taxpayer who— 
" (A) chose to have the benefits of subpart A of this part 
for a taxable year in which he was required under section 
951(a) to include in his gross income an amount in respect 
of a controlled foreign corporation, and 
"(B) does not choose to have the benefits of subpart A of 
this part for the taxable year in which he receives a distribu-
tion or amount which is excluded from gross income under 
section 959(a) and which is attributable to earnings and 
profits of the controlled foreign corporation Avhich was 
included in his gross income for the taxable year referred to 
in subparagraph (A), 
26 use 164. 
no deduction shall be allowed under section 164 for the taxable 
year in which such distribution or amount is received for any 
mcome, war profits, or excess profits taxes paid or accrued to any 
foreign country or to any possession of the United States on or 
with respect to such distribution or amount. 
"(4) 
INSUFFICIENT TAXABLE INCOME.—If an increase in 
the 
limitation under this subsection exceeds the tax imposed by this 
chapter for such year, the amount of such excess shall be deemed 
an overpayment of tax for such year. 
"SEC. 961. ADJUSTMENTS TO BASIS OF STOCK IN CONTROLLED FOR-
EIGN CORPORATIONS AND OF OTHER PROPERTY. 
"(a) INCREASE IN BASIS.—Under regulations prescribed by the 
Secretary or his delegate, the basis of a United States shareholder's 
stock in a controlled foreign corporation, and the basis of property of 
a United States shareholder by reason of which he is considered under 
Ante, p. 1018. 
scctiou 958(a)(2) as owning stock of a controlled foreign corpora-
tion, shall be increased by the amount required to be included in his 
Ante, p. 1006. 
gross iucome under section 951(a) with respect to such stock or with 
respect to such property, as the case may be, but only to the extent to 
which such amount was included in the gross income of such United 
States shareholder. 
In the case of a United States shareholder who 
Poet. p. 1023. 
has made an election under section 962 for the taxable year, the increase 
in basis provided by this subsection shall not exceed an amount equal 
to the amount of tax paid under this chapter with respect to the 
amounts required to be included in his gross income under section 
951(a). 
"(b) 
REDUCTION IN BASIS.— 
" (1) I N GENERAL.—Under regulations prescribed by the Secre-
tary or his delegate, the adjusted basis of stock or other property 
witli respect to which a United States shareholder or a United 
States person receives an amount which is excluded from gross 
Ante, p. 1019. 
iucome Under section 959(a) shall be reduced by the amount so 
excluded. 
In the case of a United States shareholder who has 
made an election under section 962 for any prior taxable year, 
the reduction in basis provided by this paragraph shall not exceed 
an amount equal to the amount received which is excluded from 
gross income under section 959(a) after the application of section 
962(d). 
"(2) AMOUNT IN EXCESS OF BASIS.—To the extent that an 
amount excluded from gross income under section 959(a) exceeds 
the adjusted basis of the stock or other property with respect to 
which it is received, the amount shall be treated as gain from 
the sale or exchange of property. 
76 STAT.] 
P U B U C LAW 8 7 - 8 3 4 - O C T . 16, 1962 
1023 
"SEC. %2. ELECTION BY INDIVIDUALS TO BE SUBJECT TO TAX AT 
CORPORATE RATES. 
"(a) GENERAL RULE.—Under regulations prescribed by the Secre-
tary or his delegate, in the case of a United States shareholder who is 
an individual and who elects to have the provisions of this section 
apply for the taxable year— 
"(1) the tax imposed under this chapter on amounts which are 
included in his gross income under section 951(a) shall (in lieu 
Ante, p. looe. 
of the tax determined under section 1) be an amount equal to the 
tax which would be imposed under section 11 if such amounts 
were received by a domestic corporation, and 
"(2) for purposes of applying the provisions of section 960 
Ante, p. 1020. 
(relating to foreign tax credit) such amounts shall be treated as 
if they were received by a domestic corporation. 
"(b) ELECTION.—An election to have the provisions of this section 
apply for any taxable year shall be made by a United States share-
holder at such time and in such manner as the Secretary or his dele-
gate shall prescribe by regulations. An election made for any taxable 
year may not be revoked except with the consent of the Secretary or 
his delegate. 
"(c) 
SURTAX EXEMPTION.—For purposes of applying subsection 
(a)(1), the surtax exemption provided by section 11(c) shall not 
esAstat. 11. 
exceed, in the case of any United States shareholder, an amount which 
^^ ^^^ ^^• 
bears the same ratio to $25,000 as the amounts included in his gross 
income under section 951 (a) for the taxable year bears to his pro rata 
share of the earnings and profits for the taxable year of all controlled 
foreign corporations with respect to which such United States share-
holder includes any amount in gross income under section 951(a). 
"(d) 
SPJ:CIAL RULE FOR ACTUAL DISTRIBUTIONSS,—The earnings and 
profits of a foreign corporation attributable to amounts which were 
included in the gross income of a United States shareholder under 
section 951 (a) and with respect to which an election under this section 
applied shall, when such earnings and profits are distributed, notwith-
standing the provisions of section 959(a) (1), be included in gross 
Ante, p. 1019. 
income to the extent that such earnings and profits so distributed exceed 
the amount of tax paid under this chapter on the amounts to which 
such election applied. 
"SEC. 963. RECEIPT OF MINIMUM DISTRIBUTIONS BY DOMESTIC 
CORPORATIONS. 
"(a) GENERAL RULE.—In the case of a United States shareholder 
which is a domestic corporation and which consents to all the regula-
tions prescribed by the Secretary or his delegate under this section 
prior to the last day prescribed by law for filing its return of the tax 
imposed by this chapter for the taxable year, no amount shall be in-
cluded in gross income under section 951(a) (1) (A) (i) for the tax-
able year with respect to the subpart F income of a controlled foreign 
corporation, if— 
"(1) in the case of a controlled foreign corporation described 
in subsection (c)(1), the United States shareholder receives a 
minimum distribution of the earnings and profits for the taxable 
year of such controlled foreign corporation; 
"(2) in the case of controlled foreign corporations described 
in subsection (c)(2), the United States shareholder receives a 
minimum distribution with respect to the-consolidated earnings 
and profits for the taxable year of all such controlled foreign 
corporations; or 
"(3) in the case of controlled foreign corporations described in 
subsection (c) (3), the United States shareholder receives a min-
1024 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
imum distribution of the consolidated earnings and profits for 
the taxable year of all such controlled foreign corporations. 
"(b) MINIMUM DISTRIBUTIONS.—For purposes of this section, a 
minimum distribution with respect to the earnings and profits for the 
taxable year of any controlled foreign corporation or corporations 
shall, in the case of anj United States shareholder, be its pro rata share 
of an amount determined in accordance with the following table: 
"If the effective foreign tax rate is 
The required minimum distribution of 
(percentage) — 
earnings and profits is (percentage) — 
Under 10 
90 
10 or over but less than 20 
86 
20 or over but less than 28 
82 
28 or over but less than 34 
75 
34 or over but less than 39 
68 
39 or over but less than 42 
55 
42 or over but less than 44 
40 
44 or over but less than 46 
27 
46 or over but less than 47 
14 
47 or over 
0 
"(c) AMGIFNTS TO W H I C H SECTION APPLIES.— 
"(1) FOREIGN SUBSIDIARIES.—Subsection (a)(1) shall apply to 
amounts which (but for the provisions of this section) would be 
included in the gross income of the United States shareholder 
Ante, p. 1006. 
uuder section 951(a) (1) (A) (i) by reason of its ownership, 
Ante, p. 1018. 
withiu the meaning of section 958(a) (1) (A), of stock of a con-
trolled foreign corporation. 
" (2) CHAIN OF CONTROLLED FOREIGN CORPORATIONS.—Subsection 
(a) (2) shall apply to amounts which (but for the provisions of 
this section) would be included in the gross income of the United 
States shareholder under section 951(a) ( l ) ( A ) ( i ) — 
"(A) by reason of its ownership, within the meaning of 
section 958(a) (1) (A), of stock of a controlled foreign cor-
poration, and 
"(B) to the extent that the United States shareholder 
so elects, by reason of its ownership, within the meaning of 
section 958(a) (2), of stock of any other controlled foreign 
corporation (on account of its ownership of the stock 
described in subparagraph (A) or of stock described in this 
subparagraph), but only if there is taken into account the 
earnings and profits of each foreign corporation, whether or 
not a controlled foreign corporation, by reason of which the 
United States shareholder owns, within the meaning of sec-
tion 958(a) (2), stock of such controlled foreign corporation. 
"(3) ALL CONTROLLED FOREIGN CORPORATIONS.—Except as pro-
vided in paragraph (4), subsection (a) (3) shall apply to amounts 
which (but for the provisions of this section) would be included 
in the gross income of the United States shareholder under sec-
tion 951(a) (1) (A) (i)— 
"(A) by reason of its ownership, within the meaning of 
section 958(a) (1) (A), of stock of all controlled foreign cor-
porations in which it owns stock within the meaning of such 
section, and 
^ 
"(B) by reason of its ownership, within the meaning of 
section 958 (^a) (2), of stock of all controlled foreign corpora-
tions in which it owns stock within the meaning of such sec-
tion, but only if there is taken into account the earnings and 
profits of each foreign corporation, whether or not a con-
trolled foreign corporation, by reason of which the United 
States shareholder owns, within the meaning of section 
958(a), stock of any of such controlled foreign corporations. 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1025 
"(4) 
EXCEPTIONS AND SPECIAL RULES.— 
"(A) 
LESS 
DEVELOPED COUNTRY CORPORATIONS.—If 
the 
United States shareholder so elects, subsection (a)(3) and 
paragraph (3) of this subsection shall not apply to amounts 
which would be included in the gross income or such share-
holder under section 951(a) (1) (A) (i) by reason of its own- 
Ante, p. looe. 
ership, within the meaning of section 958(a), of stock of 
controlled foreign corporations which are less developed 
country corporations (as defined in section 955(c)). 
This 
subparagraph shall not apply with respect to a less developed 
country corporation if, by reason of the ownership of the stock 
of such corporation, the LTnited States shareholder owns, 
within the meaning of section 958(a) (2), stock of any other 
controlled foreign corporation which is not a less developed 
country corporation. 
Except as provided in the preceding 
sentence, an election under this subparagraph may be made 
only with respect to all controlled foreign corporations which 
are less developed country corporations and with respect to 
which the domestic corporation making the election is a 
United States shareholder. 
"(B) FOREIGN BRANCHES.—In applying subsection (a) (3) 
and paragraph (3) of this subsection, if a United States 
shareholder so elects, all branches maintained by such share-
holder in foreign countries, the Commonwealth of Puerto 
Rico, or possessions of the United States shall, under regula-
tions prescribed by the Secretary or his delegate, be treated 
as wholly owned subsidiary corporations of such shareholder 
organized under the laws of such foreign countries, the 
Commmon wealth of Puerto Rico, or possessions of the United 
States, as the case may be. Each branch so treated shall, 
for purposes of this section, be considered to have distributed 
to the United States shareholder all of its earnings and 
profits for the taxable year. 
This subparagraph shall not 
apply to a branch maintained by a United States shareholder 
in the Commonwealth of Puerto Rico or a possession of the 
United States unless— 
"(i) such branch would be a controlled foreign cor-
poration (as defined in section 957) if it were incorpo-
rated under the laws of the Commonwealth of Puerto 
Rico or the possession of the United States, as the case 
may be, and 
"(ii) the gross income of the United States share-
holder for the taxable year includes income derived 
from gpurces within the Commonwealth of Puerto Rico 
and possessions of the United States. 
"(C) BLOCKED FOREIGN INCOME.—If a United States share-
holder so elects, the provisions of subsection (a) (3) and of 
paragraph (3) of this subsection shall not apply with respect 
to any foreign corporation, if it is established to the satisfac-
tion of the Secretary or his delegate that the earnings and 
profits of such foreign corporation could not have been 
distributed to United States shareholders who own (within 
the meaning of section 958(a)) stock of such foreign corpora-
tion because of currency or other restrictions or limitations 
imposed under the laws of any foreign country. 
78135 0-63—68 
1026 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(d) EFFECTIVE FOREIGN TAX RATE.—For purposes of this section, 
the term 'effective foreign tax rate' means— 
"(1) with respect to a single controlled foreign corporation, the 
percentage which— 
"(A) the income, war profits, or excess profits taxes paid 
- 
or accrued to foreign countries or possessions of the United 
States by the controlled foreign corporation for the taxable 
year on or with respect to its earnings and profits for the 
taxable year, is of 
"(B) the sum of (i) the earnings and profits of the con-
trolled foreign corporation described in subparagraph (A) 
and (ii) and the taxes described in subparagraph ( A ) ; and 
"(2) with respect to two or more foreign corporations, the per-
centage which— 
"(A) the total income, war profits, or excess profits taxes 
paid or accrued to foreign countries or possessions of the 
United States by such foreign corporations for the taxable 
year on or with respect to the consolidated earnings and 
profits of such foreign corporations for the taxable year, is of 
"(B) the sum of (i) the consolidated earnings and profits 
of such foreign corporations described in subparagraph (A) 
and (ii) the taxes described in subparagraph (A). 
For purposes of the preceding sentence, in the case of any United 
States shareholder, the computation of the effective foreign tax rate 
applicable with respect to any controlled foreign corporation or cor-
porations shall be made without regard to distributions made by such 
controlled foreign corporation or corporations to such United States 
shareholder. 
"(e) 
SPECIAL RULES.— 
"(1) 
YEAR FROM WHICH DISTRIBUTIONS ARE MADE.—For 
pur-
Ante, p. 1000. 
poscs of this scctiou, the second sentence of section 902(c) (1) shall 
apply in determining from the earnings and profits of what year 
distributions are made by any foreign corporation, except that the 
Secretary or his delegate may by regulations provide a period in 
excess of 60 days in lieu of the 60-day period prescribed in such 
section. 
"(2) 
INSUFFICIENT DISTRIBUTIONS.—If— 
"(A) a United States shareholder, in making its return of 
the tax imposed by this chapter for any taxable year, applies 
the provisions of this section with respect to any controlled 
foreign corporation, 
"(B) it is subsequently determined that this section did not 
apply with respect to such controlled foreign corporation 
for such taxable year due to the failure of the United States 
shareholder to receive a minimum distribution with respect to 
such controlled foreign corporation, and 
"(C) such failure is due to reasonable cause, 
then a subsequent distribution made with respect to such con-
trolled foreign corporation may, if made at a time and in a manner 
prescribed by the Secretary or his delegate by regulations, be 
treated, for purposes of this chapter, as having been made for, 
and received in, the taxable year of the United States shareholder 
for which such shareholder applied the provisions of this section. 
"(3) AFFILIATED GROUPS OF CORPORATIONS.—An affiliated group 
of corporations which makes a consolidated return under sec-
26 use 1501. 
tion 1501 for the taxable year, may, if it so elects, be treated as 
a single United States shareholder for purposes of applying this 
section for the taxable year. 
76 STAT.] 
PUBLIC LAW 87-834-OCTa6, 1962 
1027 
"(f) REGULATIONS.—The Secretary or his delegate shall prescribe 
such regulations as he may deem necessary to carry out the provisions 
of this section, including regulations for the determination of the 
amount of foreign tax credit in the case of distributions with respect 
to the earnings and profits of two or more foreign corporations. 
"SEC. 964. MISCELLANEOUS PROVISIONS. 
"(a) EARNINGS AND PROFITS.—For purposes of this subpart, the 
earnings and profits of- any foreign corporation, and the deficit in 
earnings and profits of any foreign corporation, for any taxable year 
shall be determined according to rules substantially similar to those 
applicable to domestic corporations, under regulations prescribed by 
the Secretary or his delegate. 
"(b) BLOCKED FOREIGN INCOME.—Under regulations prescribed by 
the Secretary or his delegate, no part of the earnings and profits of a 
controlled foreign corporation for any taxable year shall be included 
in earnings and profits for purposes of sections 952, 955, and 956, if 
it is established to the satisfaction of the Secretary or his delegate 
that such part could not have been distributed by the controlled foreign 
corporation to United States shareholders who own (within the mean-
ing of section 958(a)) stock of such controlled foreign corporation 
because of currency or other restrictions or limitations imposed under 
the laws of any foreign country. 
"(c) 
RECORDS AND ACCOUNTS OF UNITED STATES SHAREHOLDERS.— 
"(1) RECORDS AND ACCOUNTS TO BE MAINTAINED.—The Secre-
tary or his delegate may by regulations require each person who 
is, or has been, a United States shareholder of a controlled foreign 
corporation to maintain such records and accounts as may be 
'^ 
prescribed by such regulations as necessary to carry out the pro-
visions of this subpart and subpart G. 
"(2) Two O
R M
O
R
E PERSONS REQUIRED T
O MAINTAIN O
R FURNISH 
THE SAME R
E
C
O
R
D
S AND ACCOUNTS WITH RESPECT T
O THE SAME 
FOREIGN CORPORATION.—Wliere, but for this paragraph, two or 
more United States persons would be required to maintain or 
c 
- 
siji 
furnish the same records and accounts as may by regulations be 
required under paragraph (1) with respect to the same controlled 
foreign corporation for the same period, the Secretary or his 
delegate may by regulations provide that the maintenance or 
'>' furnishing of such records and accounts by only one such person 
shall satisfy the requirements of paragraph (1) for such other 
C persons. 
"Subpart G—Export Trade Corporations 
,i 
"Sec. 970. Reduction 
of 
subpart 
F 
income 
of 
export 
trade 
corporations. 
"Sec. 971. Definitions. 
" f
^
'
• 
"Sec. 972. Consolidation of group of export trade corporations. 
"SEC. 970. REDUCTION OF SUBPART F INCOME OF EXPORT TRADE 
CORPORATIONS. 
" ( a ) 
EXPORT TRADE INCOME CONSTITUTING FOREIGN BASE COMPANY 
INCOME,— 
" (1) I N GENERAL.—In the case of a controlled foreign corpora-
- 
tion (as defined in section 957) which for the taxable year is an 
Ante, p. 1017. 
export trade corporation, the subpart F income (determined 
without regard to this subpart) of such corporation for such year 
shall be reduced by an amount equal to so much of the export trade 
income (as defined in section 971(b)) of such corporation for 
such year as constitutes foreign base company income (as defined 
mi-.. . , . . - ; . . , - . . 
1028 
PUBUC LAW 87-834-OCT. 16,1962 
[76 STAT. 
in section 954), but only to the extent that such amount does not 
exceed whicheVer^f the following amounts is the lesser: 
" (A) an amount equal to li/^ times so much of the export 
promotion expenses (as defined in section 971(d)) of such 
corporation for such year as is properly allocable to the 
export trade income which constitutes foreign base company 
income of such corporation for such year, or 
"(B) an amount equal to 10 percent of so much of the gross 
receipts for such year (or, in the case of gross receipts arising 
from commissions, fees, or other compensation for its serv-
ices, so much of the gross amount upon the basis of which 
such commissions, fees, or other compensation is computed) 
accruing to such export trade corporation from the sale, 
installation, operation, maintenance, or use of property in 
respect of which such corporation derives export trade income 
as is properly allocable to the export trade income which 
constitutes foreign base company income of such corporation 
for such year. 
The allocations with respect to export trade income which consti-
tutes foreign base company income under subparagraphs (A) 
and (B) shall be made under regulations prescribed by the Sec-
retary or his delegate. 
"(2) OVERALL LIMITATION.—The reduction under paragraph 
(1) for any taxable year shall not exceed an amount which bears 
the same ratio to the increase in the investments in export trade 
assets (as defined in section 971(c)) of such corporation for such 
year as the export trade income which constitutes foreign base 
company income of such corporation for such year bears to the 
entire export trade income of such corporation for such year. 
"(b) 
INCLUSION OF CERTAIN PREVIOUSLY EXCLUDED AMOUNTS.— 
Each United States shareholder of a controlled foreign corporation 
which for any prior taxable year was an export trade corporation shall 
Ante, p. 1006. 
include in his gross income under section 951(a) (1) (A) (ii), as an 
amount to which section 955 (relating to withdrawal of previouslj 
excluded subpart F income from qualified investment) applies, his 
pro rata share of the amount of decrease in the investments m export 
trade assets of such corporation for such year, but only to the extent 
that his pro rata share of such amount does not exceed an amount 
equal to— 
"(1) his pro rata share of the sum of (A) the amounts by 
which the subpart F income of such corporation was reduced for 
all prior taxable years under subsection (a), and (B) the amounts 
not included in subpart F income (determined without regard to 
this subpart) for all prior taxable years by reason of the applica-
tion of section 972, reduced by 
"(2) the sum of the amounts which were included in his gross 
income under section 951(a) (1) (A) (ii) under the provisions of 
this subsection for all prior taxable years. 
"(c) 
INVESTMENTS IN EXPORT TRADE ASSETS.— 
"(1) AMOUNT OF INVESTMENTS.—For purposes of this section, 
the amount taken into account with respect to any export trade 
asset shall be its adjusted basis, reduced by any liability to which 
the asset is subject. 
"(2) 
INCREASE IN INVESTMENTS IN EXPORT TRADE ASSETS.—For 
purposes of subsection (a), the amount of increase in investments 
m export trade assets of any controlled foreign corporation for 
any taxable year is the amount by which— 
"(A) the amount of such investments at the close of the 
taxable year, exceeds 
76 STAT.] 
P U H J C LAW 87-834-OCT. 16, 1962 
1029 
"(B) the amount of such investments at the close of the 
preceding taxable year. 
"(3) 
DECREASE IN INVESTMENTS IN EXPORT TRADE ASSETS.—For 
purposes of subsection (b), the amount of decrease in investments 
m export trade assets of any controlled foreign corporation for 
any taxable year is the amount by which— 
"(A) the amount of such investments at the close of the 
preceding taxable year (reduced by an amount equal to the 
^ 
amount of net loss sustained during the taxable year with 
respect to export trade assets), exceeds 
a 
"(B) the amount of such investments at the close of the 
taxable year. 
"(4) SPECIAL RULE.—A United States shareholder of an export 
trade corporation may, under regulations prescribed by the Sec-
retary or his delegate, make the determinations under paragraphs 
(2) and (3) as of the close of the 75th day after the close of the 
years referred to in such paragraphs in lieu of on the last day 
;; 
of such years. A United States shareholder of an export trade 
corporation may, under regulations prescribed by the Secretary 
or his delegate, make the determinations under paragraphs (2) 
and (3) with respect to export trade assets described in section 
971 (c) (3) as of the close of the years following the years referred 
to in such paragraphs, or as of the close of such longer period of 
time as such regulations may permit, in lieu of on the last'day 
of such years and in lieu of on the day prescribed in the preceding 
sentence. Any election under this paragraph made with respect 
to any taxable year shall apply to such year and to all succeeding 
taxable years unless the Secretary or his delegate consents to the 
revocation of such election. 
"SEC. 971. DEFINITIONS. 
"(a) EXPORT TRADE CORPORATIONS.—For purposes of this subpart, 
the term 'export trade corporation' means— 
"(1) In GENERAL.—A controlled foreign corporation (as defined 
in section 957) which satisfies the following conditions: 
\ 
"(A) 90 percent or more of the gross income of such cor-
^ 
poration for the 3-year period immediately preceding the 
close of the taxable year (or such part of such period sub-
sequent to the effective date of this subpart during which 
the corporation was in existence) was derived from sources 
without the United States, and 
"(B) 75 percent or more of the gross income of such cor-
poration for such period constituted gross income in respect 
of which such corporation derived export trade income. 
"
" 
"(2) SPECIAL RULE.—If 50 percent or more of the gross income 
of a controlled forei^ corporation in the period specified in sub-
section (a)(1)(A) is gross income in respect of which such 
corporation derived export trade income in respect of agricultural 
products grown in the United States, it may qualify as an export 
trade corporation although it does not meet the requirements of 
subsection (a) (1) (B). 
"(b) EXPORT TRADE INCOME.—For the purposes of this subpart, 
the term 'export trade income' means net income from— 
".(1) the sale to an unrelated person for use, consumption, or 
disposition outside the United States of export property (as 
defined in subsection (e)), or frofm commissions, fees, compensa-
tion, or other income from the performance of commercial, indus-
trial, financial, technical, scientific, managerial, engineering, 
architectural, skilled, or other services in respect of such sales or 
1030 
PUBUC L
A
W 87-834-OCT. 16, 1962 
[76 STAT. 
in respect of the installation or maintenance of such export 
property; 
"(2) commissions, fees, compensation, or other income from 
commercial, industrial, financial, technical, scientific, managerial, 
engineering, arcliitectural, skilled, or other services performed in 
connection with the use by an unrelated person outside the 
United States of patents, copyrights, secret processes and formu-
las, goodwill, trademarks, trade brands, franchises, and other 
like property acquired or developed and owned by the manu-
facturer, producer, grower, or extractor of export property in 
respect of which the export trade corporation earns export trade 
income under paragraph (1); 
"(3) commissions, fees, rentals, or other compensation or 
income attributable to the use of export property by an unrelated 
pei-son or attributable to the use of export property in the rendi-
tion of technical, scientific, or engineering services to an unrelated 
person; and 
"(4) interest from export trade assets described in subsection 
For purposes of paragraph (3), if a controlled foreign corporation 
receives income from an unrelated person attributable to the use of 
export property in the rendition of services to such unrelated person 
together with mcome attributable to the rendition of other services 
to such unrelated person, including personal services, the amount of 
such aggregate income which shall be considered to be attributable to 
the use of the export property shall (if such amount cannot be estab-
lished by reference to transactions between unrelated persons) be that 
part of such aggregate income which the cost of the export property 
consumed in the rendition of such services (including a reasonable 
allowance for depreciation) bears to the total costs and expenses 
attributable to such aggregate income. 
" (c) EXPORT TRADE ASSETS.—For purposes of this subpart, the term 
'export trade assets' means— 
" (1) wo]:"king capital reasonably necessary for the production*of 
export trade income, 
"(2) inventory of export property held for use, consumption, 
or disposition outside the United States, 
" (3) facilities located outside the United States for the storage, 
handling, transportation, packaging, or servicing of export prop-
erty, and 
"(4) evidences of indebtedness executed by persons, other than 
related persons, in connection with payment for purchases of 
export property for use, consumption, or disposition outside the 
United States, or in connection with the payment for services 
described in subsections (b) (2) and (3) 
"(d) 
EXPORT PROMOTION EXPENSES.—For purposes of this subpart, 
the term 'export promotion expenses' means the following expenses 
paid or incurred in the receipt or production of export trade income— 
"(1) a reasonable allowance for salaries or other compensation 
for personal services actually rendered for such purpose, 
" (2) rentals or other payments for the use of property actually 
used for such purpose, 
"(3) a reasonable allowance for the exhaustion, wear and tear, 
or obsolescence of property actually used for such purpose, 
and 
"(4) any other ordinary and necessary expenses of the cor-
poration to the extent reasonably allocable to the receipt or pro-
duction of export trade income. 
.. 
76 STAT.] 
PUBLIC LAW 8 7 - 8 3 4 - O C T . 16, 1962 
W l f 
No expense incurred within the United States shall be treated as an 
export promotion expense within the meaning of the preceding sen-
tence, unless at least 90 percent of each category of expenses described 
in such sentence is incurred outside the United States. 
"(e) EXPORT PROPERTY.—For purposes of this subpart, the term 
'export property' means any property or any interest in property 
manufactured, produced, grown, or extracted in the United States. 
"(f) 
UNRELATED PERSON.—For purposes of this subpart, the term 
'unrelated person' means a person other than a related person as 
defined in section 954(d) (3). 
Ante, p. 1012. 
"SEC. 
9
7
2
. 
CONSOLIDATION 
OF 
GROUP 
OF 
EXPORT 
TRADE 
CORPORA-
TIONS. 
"For purposes of this subpart and subpart F of this part, a United 
States shareholder of a controlled foreign corporation which is an 
export trade corporation may, under regulations prescribed by the 
Secretary or his delegate, treat as a single controlled 
foreign 
corporation— 
"(1) such controlled foreign corporation, 
5 
"(2) all controlled foreign corporations which are export trade 
r 
corporations and 80 percent or more of the total combined voting 
power of all classes of stock entitled to vote of which is owned 
by such controlled foreign corporation; and 
"(3) all controlled foreign corporations which are export trade 
corporations and 80 percent or more of the total combined voting 
power of all classes of stock entitled to vote of which is owned 
by controlled foreign corporations described in paragraph (2)." 
/ (b) 
TECHNICAL AND CLERICAL AMENDMENTS.— 
(1) Section 901 (relating to foreign tax credit) is amended 
by striking out "section 902" and inserting in lieu thereof "sec-
tions 902 and 960". 
(2) Section 904(g) (as redesignated by section 10(a) of this 
Ante. p. 1002. 
Act) is amended to read as follows: 
"(g) 
CROSS REFERENCES.— 
"(1) For increase of applicable limitation under subsection (a) 
for taxes paid with respect to amounts received which were in-
cluded in the gross income of the taxpayer for a prior taxable year 
as a United States shareholder with respect to a controlled foreign 
' 
corporation, see section 960(b). 
Ante, p. 1020. 
"(2) For special rule relating to the application of the credit 
t 
provided by section 901 in the case of aflSliated groups which include 
Western Hemisphere trade corporations for years in which the 
limitation provided by subsection (a)(2) applies, see section 1503(d).'' 
74 stat. l
O 11. 
(3) The table of subparts for part H I of subchapter N of 
chapter 1 is amended by adding at the end thereof the following: 
26 use 90 i-90S. 
> 
"Subpart F. Controlled foreign corporations. 
"Subpart G. Export trade corporations." 
*' 
(4) Section 1016(a) (relating to adjustments to basis) is 
Ante, p. 972. 
amended by adding after paragraph (19) (as added by section 
2(f) of this Act) the following new paragraph: 
"(20) to the extent provided in section 961 in the case of stock 
i 
in controlled foreign corporations (or foreign corporations which 
were controlled foreign corporations) and of property by reason 
" 
of which a person is considered as owning such stock." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years of foreign corporations beginning 
after December 31, 1962, and to taxable years of United States share-
holders within which or with which such taxable years of such foreign 
corporations end. 
1032 
PUBLIC L
A
W 87-834-OCT. 16, 1962 
[76 STAT. 
SEC. 13. GAIN FROM DISPOSITIONS OF CERTAIN DEPRECIABLE 
PROPERTY. 
(a) 
I N GENERAL,— 
26 use 1231- 
(1) Part IV of subchapter P of chapter 1 (relating to special 
'^^'** 
rules for determining capital gains and losses) is amended by 
adding at the end thereof the following new section: 
"SEC. 1245. GAIN FROM DISPOSITIONS OF CERTAIN DEPRECIABLE 
PROPERTY. 
"(a) 
GENERAL RULE.— 
" (1) ORDINARY INCOME.—Except as otherwise provided in this 
section, if section 1245 property is disposed of during a taxable 
year beginning after December 31,1962, the amount by which the 
lower of— 
"(A) the recomputed basis*of the property, or 
" (B) (i) in the case of a sale, exchange, or involuntary con-
version, the amount realized, or 
"(ii) in the case of any other disposition, the fair market 
value of such property, 
exceeds the adjusted basis of such property shall be treated as 
gain from the sale or exchange of property which is neither a 
capital asset nor property described in section 1231. Such gain 
shall be recognized notwithstanding any other provision of this 
subtitle. 
"(2) 
RECOMPUTED BASIS.—For purposes of this section, the 
term 'recomputed basis' means, with respect to any property, its 
adjusted basis recomputed by adding thereto all adjustments, at-
tributable to periods after December 31, 1961, reflected in such 
adjusted basis on account of deductions (whether in respect of 
the same or other property) allowed or allowable to the taxpayer 
or to any other person for depreciation, or for amortization under 
section 168. For purposes of the preceding sentence, if the tax-
payer can establish by adequate records or other sufficient evi-
dence that the amount allowed for depreciation, or for amorti-
zation under section 168, for any period was less than the amount 
allowable, the amount added for such period shall be the amount 
allowed. 
"(3) SECTION 1245 PROPERTY.—For purposes of this section, 
the term 'section 1245 property' means any property (other than 
livestock) which is or has been property of a character subject 
to the allowance for depreciation provided in section 167 and is 
eitlier— 
"(A) personal property, or 
"(B) other property (not including a building or its struc-
tural components) but only if such other property is tangible 
and has an adjusted basis in which there are reflected ad-
justments described in paragraph (2) for a period in which 
such property (or other property)— 
"(i) was used as an integral part of manufacturing, 
production, or extraction or of furnishing transporta-
tion, communications, electrical energy, gas, water, or 
sewage disposal services, or 
"(ii) constituted research or storage facilities used in 
connection with any of the activities referred to in clause 
(i). 
"(b) 
EXCEPTIONS AND LIMITATIONS.— 
"(1) GIFTS.—Subsection (a) shall not apply to a disposition 
by gift. 
76 STAT.] 
PUBLIC LAW 87^34-OCT. 16, 1%2 
1033 
"(2) TRANSFERS AT DEATH.—Except as provided in section 691 
(relating to income in respect of a decedent), subsection (a) shall 
not apply to a transfer at death. 
"(3) CERTAIN TAX-FREE TRANSACTIONS.—If the basis of prop-
erty in the hands of a transferee is determined by reference to its 
basis in the hands of the transferor by reason of the application 
of section 332, 351, 361, 371(a), 374(a), 721, or 731, then the 
amount of gain taken into account by the transferor under sub-
section (a)(1) shall not exceed the amount of gain recognized 
to the transferor on the transfer of such property (determined 
without regard to this section). 
This paragraph shall not apply 
to a disposition to an organization (other than a cooperative de-
scribed in section 521) which is exempt from the tax imposed 
by this chapter. 
"(4) 
LIKE KIND EXCHANGES; INVOLUNTARY CON\'ER8IONS, ETC.— 
If property is disposed of and gain (determined without regard to 
this section) is not recognized in whole or in part under section 
1031 or 1033, then the amount of gain taken into account by the 
transferor under subsection (a) (1) shall not exceed the sum of— 
"(A) the amount of gain recognized on such disposition 
(determined without regard to this section), plus 
"(B) the fair market value of property acquired which is 
not section 1245 property and which is not taken into account 
under subparagraph (A). 
"(5) SECTION IOTI AND losi TRANSACTIONS.—Under regulations 
prescribed by the Secretary or his delegate, rules consistent with 
paragraphs (3) and (4) of this subsection shall apply in the case 
of transactions described in section 1071 (relating to gain from 
sale or exchange to effectuate policies of FCC) or section 1081 
(relating to exchanges in obedience to SEC orders). 
"(6) 
PROPERTY DISTRIBUTED BY A PARTNERSHIP TO A PARTNER.— 
"(A) I N GENERAL.—For purposes of this section, the basis 
of section 1245 property distributed by a partnership to a 
partner shall be deemed to be determined by reference to the 
adjusted basis of such property to the partnership. 
"(B) ADJUSTMENTS A
D
D
E
D BACK.—In the case of any prop-
erty described in subparagraph (A), for purposes of com-
puting the recomputed basis of such property the amount of 
the adjustments added back for periods before the distribu-
tion by the partnership shall be— 
"(i) the amount of the gain to which subsection (a) 
would have applied if such property had been sold by 
the partnership immediately before the distribution at 
its fair market value at such time, reduced by 
"(ii) the amount of such gain to which section 751(b) 
, - 
; , 
applied. 
"(c) ADJUSTMENTS TO BASIS.—The Secretary or his delegate shall 
prescribe such regulations as he may deem necessary to provide for 
adjustments to the basis of property to reflect gain recognized under 
subsection (a). 
"(d) APPLICATION OF SECTION.—^This section shall apply notwith-
standing any other provision of this subtitle." 
(2) The table of sections for such part IV is amended by adding 
26 use 1231-
at the end thereof the following: 
1244. 
"Sec. 1245. Gain from, dispositions of certain depreciable property." 
1034 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
(b) CHANGE IN METHOD OF DEPRECIATION.—Subsection (e) of sec-
26 use 167. 
tion 167 (relating to depreciation) is amended to read as follows: 
"(e) 
CHANGE IN METHOD.— 
"(1) 
CHANGE FROM DECLINING BALANCE METHOD.—In the 
ab-
sence of an agreement under subsection (d) containing a pro-
vision to the contrary, a taxpayer may at any time elect in accord-
ance with regulations prescribed by the Secretary or his delegate 
to change from the method of depreciation described in subsection 
(b) (2) to the method described in subsection (b) (1). 
"(2) CHANGE WITH RESPECT TO SECTION 1245 PROPERTY.—A tax-
payer may, on or before the last day prescribed by law (including 
extensions thereof) for filing his return for his first taxable year 
beginning after December 31, 1962, and in such manner as the 
Secretary or his delegate shall by regulations prescribe, elect to 
change his method of depreciation in respect of section 1245 
Ante, p. 1032. 
property (as defined in section 1245(a) (3)) from any declining 
balance or sum of the years-digits method to the straight line 
method. An election may be made under this paragraph not-
withstanding any provision to the contrary in an agreement under 
subsection (d)." 
(c) SALVAGE VALUE OF PERSONAL PROPERTY.— 
(1) AMOUNT TAKEN INTO ACCOUNT.—Section 167 (relating to 
depreciation) is amended by redesignating subsections (f), (g), 
and (h) as (g), (h), and (i), respectively, and by inserting after 
subsection (e) the following new subsection: 
"(f) SALVAGE VALUE.— 
" (1) GENERAL RULE.—Under regulations prescribed by the Sec-
retary or his delegate, a taxpayer may, for purposes of computing 
the allowance under subsection (a) with respect to personal 
property, reduce the amount taken into account as salvage value 
by an amount which does not exceed 10 percent of the basis of 
such property (as determined under subsection (g) as of the 
time as of which such salvage value is required to be determined). 
"(2) PERSONAL PROPERTY DEFINED.—For purposes of this sub-
section, the term 'personal property' means depreciable personal 
property (other than livestock) with a useful life of 3 years or 
more acquired after the date of the enactment of the Revenue Act 
of 1962." 
(2) 
CONFORMING AMENDMENTS.— 
26 use 179. 
(A) Sections 179(d) (5) and 642(e) are each amended by 
striking out "167(g)" and inserting in lieu thereof "167(h)". 
(B) Section 179(d)(8) is amended by striking out "167 
(f)" and inserting in lieu thereof "167 (g)". 
(d) 
SPECIAL RULE FOR CHARITABLE CONTRIBUTIONS OF SECTION 1245 
26 use 170. 
PROPERTY.—Section 170 (relating to charitable, etc., contributions and 
gifts) is amended by redesignating subsections (e) and (f) as (f) and 
(g), respectively, and by inserting after subsection (d) the following 
new subsection: 
Ante, p. 1032. 
" ( e ) 
S P E C I A L R u L E FOR C H A R I T A B L E CONTRIBUTIONS OF S E C T I O N 1245 
PROPERTY.—The amount of any charitable contribution taken into 
account under this section shall be reduced by the amount which would 
have been treated as gain to which section 1245(a) applies if the prop-
erty contributed had been spld at its fair market value (determined at 
the time of such contribution)." 
(e) COMPUTATION OF TAXABLE INCOME FOR PURPOSES OF LIMITATION 
26 use 613. 
ON PERCENTAGE DEPLETION DEDUCTION.—Section 613(a) (relating to 
percentage depletion) is amended by inserting after the second sen-
tence thereof the following new sentence: "For purposes of the pre-
ceding sentence, the allowable deductions taken into account with 
76 STAT.] 
PUBLIC LAW 87^34-OCT. 16, 1962 
1035 
respect to expenses of mining in computing the taxable income from 
the property shall be decreased by an amount equal to so much of 
any gain which (1) is treated under section 1245 (relating to gain from 
disposition of certain depreciable property) as gain from the sale 
or exchange of property which is neither a capital asset nor property 
described in section 1231, and (2) is properly allocable to the 
property." 
(i) TECHNICAL AMENDMENTS.— 
(1) 
SPECIAL RULE FOR PARTNERSHIPS.—Section 751 (c) (relating 
to definition of "unrealized receivables" for purposes of sub-
chapter K) is amended by adding after paragraph (2) the 
following: 
"For purposes of this section and sections 731, 736, and 741, such 
term also includes section 1245 property (as defined in section 1245 
(a) (3)), but only to the extent of the amount which would be treated 
as gain to which section 1245(a) would apply if (at the time of the 
transaction described in this section or section 731, 736, or 741, as the 
case may be) such property had been sold by the partnership at its 
fair market value." 
(2) CORPORATE DISTRIBUTION OF HROFERTY.—Subsections (b) 
and 
(d) of section 301 (relating to amount distributed) are each 
amended by striking out "siibsection (b) or (c) of section 311" 
and inserting in lieu thereof "subsection (b) or (c) of section 311 
or under section 1245(a)". 
(3) EFFECT ON EARNINGS AND PROFITS.—Section 312(c) (3) (re-
lating to adjustments of earnings and profits) is amended by strik-
ing out "subsection (b) or (c) of section 311" and inserting in 
lieu thereof "subsection (b) or (c) of section 311 or under section 
1245(a)'*. 
(4) COLLAPSIBLE CORPORATIONS.—Section 341(e) (relating to 
collapsible corporations) is amended by inserting after paragraph 
(11) the following new paragraph: 
"(12) NoNAPPLiCATioN OF SECTION 1245(a).—For purposcs of 
this subsection, the determination of whether gain from the sale 
or exchange of property would under any provision of this chap-
ter be considered as gain from the sale or exchange of property 
which is neither a capital asset nor property described in section 
1231 (b) shall be made without regard to the application of section 
1245(a)." 
(5) INSTALLMENT OBLIGATIONS IN CERTAIN LIQUIDATIONS.— 
"*.; . 
(A) Section 453(d)(4)(A) (relating to distribution of 
installment obligations in section 
332 liquidations) 
is 
amended by adding at the end thereof the following new 
3 
sentence: "If the basis of the property of the liquidating 
'• 
corporation in the hands of the distributee is determined 
under section 334(b) (2) then the preceding sentence shall 
*»"^ 
not apply to the extent that under paragraph (1) gain to the 
distributing corporation would be considered as gain to which 
section 1245(a) applies." 
(B) Section 453(d)(4)(B) (relating to distribution of 
' 
installment obligations in liquidations to which section 337 
t 
applies) is amended by adding at the end thereof the fol-
lowing new sentence: "The preceding sentence shall not apply 
to the extent that under paragraph (1) gain to the distribut-
ing corporation would be considered as gain to which section 
1245(a) applies." 
(g) 
EFFECTIVE DATES.—The amendments made by this section 
(other than the amendments made by subsection (c)) shall apply to 
taxable years beginning after December 31, 1962. The amendments 
26 use 1231. 
26 use 75 1. 
Ante, p. 1032. 
26 use 341. 
. . J i - ^ - t 
1244 
1036 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
made by subsection (c) shall apply to taxable years beginning after 
December 31, 1961, and ending after the date of the enactment of 
this Act. 
SEC. 14. FOREIGN INVESTMENT COMPANIES. 
(a) 
TREATMENT OF SALE OF STOCK OF FOREIGN INVESTMENT 
COMPANIES.— 
26 use 1231-^ 
(1) I N GENERAL.—Part IV of subchapter P of chapter 1 (relat-
ing to special rules for determining capital gains and losses) is 
Ante. p. 1032. 
amended by adding after section 1245 (as added by section 13 of 
this Act) the following new sections: 
"SEC. 1246. GAIN ON FOREIGN INVESTMENT COMPANY STOCK. 
"(a)TREATMENT OF GAIN AS ORDINARY INCOME.— 
"(1) GENERAL RULE.—In the case of a sale or exchange (or a 
distribution which, under section 302 or 331, is treated as an ex-
change of stock) after December 31, 1962, of stock in a foreign 
corporation which was a foreign investment company (as defined 
in subsection (b)) at any time during the period during which the 
taxpayer held such stock, any gain shall be treated as gain from 
the sale or exchange of property which is not a capital asset, to 
the extent of the taxpayer's ratable share of the earnings and 
profits of such corporation accumulated for taxable years begin-
ning after December 31, 1962. 
"(2) EATABLE SHARE.—For purposes of this section, the tax-
payer's ratable share shall be determined under regulations pre-
scribed bv the Secretary or his delegate, but shall include only his 
ratable share of the accumulated earnings and profits of such 
corporation— 
"(A) for the period during which the taxpayer held such 
stock, but 
"(B) excluding such earnings and profits attributable to 
any amount previously included in the gross income of such 
Ante. p. 1006. 
taxpayer under section 951 (but only to the extent the in-
clusion of such amount did not result in an exclusion of any 
Ante, p. 1019. 
Other amouut from gross income under section 959). 
"(3) 
TAXPAYER TO ESTABLISH EARNINGS AND PROFITS.—^Unless 
the taxpayer establishes the amount of the accumulated earnings 
and profits of the foreign investment company and the ratable 
share thereof for the period during which the taxpayer held 
such stock, all the gain from the sale or exchaiige of stock in 
such company shall be considered as gain from the sale or ex-
change of property which is not a capital asset. 
" (4) 
HOLDING PERIOD OF STOCK MUST BE MORE THAN 6 MONTHS.— 
This section shall not apply with respect to the. sale or exchange 
of stock where the holding period of such stock as of the date 
of such sale or exchange is 6 months or less. 
"(b) DEFINITION OF FOREIGN INVESTMENT COMPANY.—For pur-
poses of this section, the term 'foreign investment company' means 
any foreign corporation which, for any taxable year beginning after 
December 31,1962, is— 
"(1) registered under the Investment Company Act of 1940, 
54 Stat. 789. 
as amended (15 U.S.C. 80a-l to 80b-2), either as a management 
company or as a unit investment trust, or 
"(2) fengaged (or holding itself out as being engaged) pri-
marily in the business of investing, reinvesting, or trading in 
securities (within the meaning of section 3(a)(1) of such Act, 
as limited by paragraphs (2) through (10) (except paragraph 
(6)(C)) and paragraphs (12) through (15) of section 3(c) of 
such Act) at a time when more than 50 percent of the total com-
76 STAT.] 
P U B U C LAW 87-834-OCT. 16, 1962 
1037 
bined voting power of all classes of stock, entitled to vote, or of 
the total value of shares of all classes of stock, was held, directly 
or indirectly (within the meaning of section 958(a)), by United 
Ante. p. lois. 
States persons (as defined in section 7701(a) (30)). 
Ante, p. 988. 
"(c) 
STOCK HAVING TRANSFERRED OR SUBSTITUTED BASIS.—To the 
extent provided in regulations prescribed by the Secretary or his dele-
gate, stock in a foreign corporation, the basis of which (in the hands 
of the taxpayer selling or exchanging such stock) is determined by 
reference to the basis (in the hands of such taxpayer or any other 
person) of stock in a foreign investment company, shall be treated as 
stock of a foreign investment company and held by the taxpayer 
throughout the holding period for such stock (determined under 
section 1223). 
26 use 1223. 
"(d) 
RULES RELATING TO ENTITIES HOLDING FOREIGN INVESTMENT 
COMPANY STOCK.—To the extent provided in regulations prescribed 
by the Secretary or his delegate— 
"(1) trust certificates of a trust to which section 677 (relating 
26 use 677. 
to income for benefit of grantor) applies, and 
"(2) stock of a domestic corporation, 
shall be treated as stock of a foreign investment company and held by 
the taxpayer throughout the holding period for such certificates 
or stock (determined under section 1223) in the same proportion that 
the investment in stock in a foreign investment company by the trust 
or domestic corporation bears to the total assets of sucn trust or 
corporation. 
"(e) 
RULES RELATING TO STOCK ACQUIRED FROM A DECEDENT.— 
"(1) BASIS.—In the case of stock of a foreign investment com-
pany acquired by bequest, devise, or inheritance (or by the deced-
ent's estate) from a decedent dying after December 31, 1962, the 
basis determined under section 1014 shall be reduced (but not 
26 use 1014. 
below the adjusted basis of such stock in the hands of the decedent 
immediately before his death) by the amount of the decedent's 
ratable share of the earnings and profits of such company accumu-
lated after December 31, 1962. Any stock so acquired shall be 
treated as stock described in subsection (c). 
"(2) DEDUCTION FOR ESTATE TAX.—If stock to which subsection 
(a) applies is acquired from a decedent, the taxpayer shall, under 
regulations prescribed by the Secretary or his delegate, be allowed 
(for the taxable year of the sale or exchange) a deduction from 
gross income equal to that portion of the decedent's estate tax 
deemed paid which is attributable to the excess of (A) the value 
at which such stock was taken into account for purposes of deter-
mining the value of the decedent's gross estate, over (B) the 
value at which it would have been so taken into account if such 
value had been reduced by the amount described in paragraph (1). 
"(f) 
INFORMATION W I T H RESPECT TO CERTAIN FOREIGN INVESTMENT 
COMPANIES.—Every XTnited States person who, on the last day of the 
taxable year of a foreign investment company beginning after Decem-
ber 31,1962, owns 5 percent or more in value of the stock of such com-
pany shall furnish with respect to such company such information as 
the Secretary or his delegate shall by regulations prescribe. 
"(g) 
CROSS REEERENCE.— 
"For special rules relating to the earnings and profits of foreign 
investment companies, see section 312(1). 
"SEC. 1247. ELECTION BY FOREIGN INVESTMENT COMPANIES TO 
DISTRIBUTE INCOME CURRENTLY. 
"(a) 
ELECTION BY FOREIGN INVESTMENT COMPANY.— 
"(1) I N GENERAL.—If a foreign investment company which is 
described in section 1246(b)(1) elects (in the manner provided 
Ante, p. 10.36. 
1038 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
in regulations prescribed by the Secretary or his delegate) on or 
before December 31, 1962, with respect to each taxable year 
beginning after December 31, 1962, to— 
"(A) distribute to its shareholders 90 percent or more of 
what its taxable income would be if it were a domestic cor-
poration; 
"(B) designate in a written notice mailed to its share-
holders at any time before the expiration of 45 days after 
the close of its taxable year the pro rata amount of the excess 
(determined as if such corporation were a domestic corpora-
tion) of the net long-term capital gain over the net short-
term capital loss of the taxable year; and the portion thereof 
which is being distributed; and 
"(C) provide such information as the Secretary or his 
delegate deems necessary to carry out the purposes of this 
section^ 
Ante, p. 1036. 
then sectiou 1246 shall not a^ply with respect to the qualified 
shareholders of such company during any taxable year to which 
such election applies. 
"(2) SPECIAL RULES.— 
"(A) 
COMPUTATION OF TAXABLE INCOME.—For purposes 
of paragraph (1)(A), the taxable income of the company 
shall be computed without regard to— 
"(i) the excess of the net long-term capital gain over 
the net short-term capital loss referred to in paragraph 
(1)(B), 
26 use 172. 
"(ii) section 172 (relating to net operating losses), 
and 
"(iii) any deduction provided by part V I I I of sub-
chapter B (other than the deduction provided by section 
26 use 248. 
248, relating to organizational expenditures). 
"(B) DISTRIBUTIONS AFTER THE CLOSK OF THE TAXABLE 
YEAR.—For purposes of paragraph (1)(A), a distribution 
made after the close of the taxable year and on or before the 
15th day of the third month of the next taxable year shall be 
treated as distributed during the taxable year to the 
extent elected by the company (in accordance with regula-
tions prescribed by the Secretary or his delegate) on or before 
the 15th day of such third month. 
"(C) CARRYOVER OF CAPITAL LOSSES FROM NONELECTION 
YEARS DENIED.—In Computing the excess of the net long-term 
capital gain over the net short-term capital loss referred to in 
26 use 1212. 
paragraph (1)(B), section 1212 shall not apply to losses 
incurred in or with respect to taxable years before the first 
taxable year to which the election applies. 
"(b) YEARS TO W H I C H ELECTION APPLIES.—The election of any 
foreign investment company under this section shall terminate as of 
the close of the taxable year preceding its first taxable year in which 
any of the following occurs: 
"(1) the company fails to comply with the provisions of sub-
paragraph (A), (B), or (C) of subsection (a)(1), unless it is 
shown that such failure is due to reasonable cause and not due to 
willful neglect, 
"(2) the company is a foreign personal holding company, or 
"(3) the company is not a foreign investment company which 
is described in section 1246 (b)(1). 
-Mipiofai) 
76 STAT.] 
P U B U C LAW 87-834-OCT. 16,1962 
1039 
"(c) QUALIFIED SHAREHOLDERS,—For purposes of this section— 
"(1) I N GENERAL.—The term 'qualified shareholder' means any 
shareholder who is a United States person (as defined in section 
7701 (a).(30)), other than a shareholder described in paragraph 
Ante, p. 988. 
(2). 
"(2) 
CERTAIN UNITED STATES PERSONS EXCLUDED FROM DEFINI-
TION.—A United States person shall not be treated as a qualified 
shareholder for the taxable year if for such taxable year (or for 
any prior taxable year) he did not include, in computing his 
long-term capital gains in his return for such taxable year, the 
amount designated by such company pursuant to subsection (a) 
(1)(B) as his share of the undistributed capital gains of such 
J 
company for its taxable year ending within or with such taxable 
year of the taxpayer. 
The preceding sentence shall not apply 
with respect to any failure by the taxpayer to treat an amount 
as provided therein if the taxpayer shows that such failure was 
due to reasonable cause and not due to willful neglect. 
"(d) 
TREATMENT OF DISTRIBUTED AND UNDISTRIBUTED CAPITAL 
GAINS BY A QUALIFIED SHAREHOLDER.—Every qualified shareholder of 
a foreign investment company for any taxable year of such company 
with respect to which an election pursuant to subsection (a) is in 
effect shall include, in computing his long-term capital gains— 
" (1) for his taxable year in which received, his pro rata share of 
the distributed portion of the excess of the net long-term capital 
gain over the net short-term capital loss for such taxable year of 
such company, and 
"(2) for his taxable year in which or with which the taxable 
year of such company ends, his pro rata share of the undistributed 
portion of the excess of the net long-term capital gain over the 
net short-term capital loss for such taxable year of such company. 
"(e) ADJUSTMENTS.—Under regulations prescribed by the Secre-
tary or his delegate, proper adjustment shall be made— 
"(1) in the earnings and profits of the electing foreign invest-
ment company and a qualified shareholder's ratable share thereof, 
and 
"(2) in the adjusted basis of stock of such company held by such 
shareholder,, 
to reflect such shareholder's inclusion in gross income of undistributed 
c 
capital gains. 
"(f) 
ELECTION BY FOREIGN INVESTMENT COMPANY W I T H RESPECT 
TO FOREIGN TAX CREDIT.—A foreign investment company with respect 
to which an election pursuant to subsection (a) is in effect and more 
than 50 percent of the value (as defined in section 851(c)(4)) of 
26 use ssi. 
whose total assets at the close of the taxable year consists of stock 
or securities in foreign corporations may, for such taxable year, elect 
the application of this subsection with respect to income, w ar profits, 
and excess profits taxes described in section 901 (b) (1) which are paid 
26 use 9o i. 
by the foreign investment company during such taxable year to foreign 
countries and possessions of the United States. If such election is 
made— 
"(1) the foreign investment company— 
"(A) shall compute its taxable income, for purposes of 
subsection (a)(1)(A), without any deductions for income, 
war profits, or excess profits taxes paid to foreign countries 
or possessions of the United States, and 
(B) shall treat the amount of such taxes, for purposes 
of subsection (a)(1)(A), as distributed to its shareholders; 
1040 
PUBUC LAW 87-834-OCT. 16,1962 
[76 STAT. 
"(2) each qualified shareholder of such foreign investment 
company— 
"(A) shall include in gross income and treat as paid by 
him his proportionate share of such taxes, and 
"(B) shall treat, for purposes of applying subpart A of 
part I I I of subchapter N, his proportionate share of such 
taxes as having been paid to the country in which the foreign 
investment company is incorporated, and 
"(C) shall treat as gross income from sources within the 
country in which the foreign investment company is incor-
porated, for purposes of applying subpart A of part I I I of 
subchapter N, the sum of his proportionate share of such taxes 
and any dividend paid to him by such foreign investment 
company. 
"(g) NOTICE TO SHAREHOLDERS.—The amounts to be treated by quali-
fied shareholders, for purposes of subsection (f) (2), as their propor-
tionate share of the taxes described in subsection (f) (1) (A) paid by 
a foreign investment company shall not exceed the amounts so desig-
nated by the foreign investment company in a written notice mailed 
to its shareholders not later than 45 days after the close of its taxable 
year. 
"(h) 
MANNER OF MAKING ELECTION AND NOTIFYING SHAREHOLD-
ERS.—The election provided in subsection (f) and the notice to share-
liolders required by subsection (g) shall be made in such manner as 
the Secretary or his delegate may prescribe by regulations. 
"(i) Loss ON SALE OR EXCHANGE OF CERTAIN STOCK HELD LESS THAN 
6 MONTHS.—If— 
"(1) under this section, any qualified shareholder treats any 
amount designated under subsection (a)(1)(B) with respect to 
a share of stock as long-term capital gain, and 
"(2) such share is held by the taxpayer for less than 6 months, 
then any loss on the sale or exchange of such share shall, to the extent 
of the amount described in paragraph (1), be treated as loss from the 
sale or exchange of a capital asset held for more than 6 months." 
(2) The table of sections for such part IV is amended by adding 
at the end thereof the following: 
"Sec. 1246. Gain on foreign investment company stock. 
"Sec. 1247. IJlection by foreign investment companies to distribute 
income currently." 
(b) CONFORMING A M E N D M E N T S . — 
(1) EARNINGS AND PROFITS OF FOREKJN INVESTMENT COMPANIES.— 
Ante, p. 6; 
Sectioii 312 (relating to effect on earnings and profits) is amended 
26 use 312. 
|jy adding after subsection (k) the following new subsection: 
"(1) EARNINGS AND PROFITS OF FOREIGN INVESTMENT COMPANIES.— 
"(1) ALLOCATION WITHIN AFFILIATED GROUP.—In the case of a 
sale or exchange of stock in a foreign investment company (as 
Ante, p. 1036. 
defined in section 1246(b)) by a United States pei-son (as de-
Ante, p. 988. 
fined 
in section 7701(a) (30)), if such company is a member of 
an affiliated group, then the accumulated earnings and profits of 
all members of such affiliated group shall be allocated, under 
regulations prescribed by the Secretary or his delegate, in such 
manner as is proper to carry out the purposes of section 1246. 
"(2) AFFILIATED GROUP DEFINED.—For purposes of paragraph 
(1) of this subsection, the term 'affiliated group' has the meaning 
26 use 1504. 
assigned to such term by section 1504(a) ; except that (A) 'more 
than 50 percent' shall be substituted for '80 percent or more', and 
(B) all corporations shall be treated as includible corporations 
(without regard to the provisions of section 1504(b)). 
76 STAT.] 
PUBLIC L
A
W 87-834-OCT. 16, 1962 
1041 
"(3) 
PARTIAL LIQUIDATIONS AND REDEMPTIONS.— 
"(A) I N GENERAL.—If a foreign investment company (as 
defined in section 1246) distributes amounts in partial liqui- 
Ante, p. i:o36. 
dation or in a redemption to which section 302(a) or 303 
26 use 302,303. 
applies, the part of such distribution which is properlv 
chargeable to earnings and profits shall be an amount which 
is not in excess of the ratable share of the earnings and profits 
of the company accumulated after February 28, 1913, at-
tributable to the stock so redeemed. 
"(B) 
EFFECTIVE DATE.—Subparagraph (A) shall apply 
only with respect to distributions made after December 31, 
1962." 
(2) SALE OR EXCHANGE OF INTEREST IN rARTNERsiiip.—Section 
751(d)(2) (relating to inventory items which have appreciated 
26 use 751. 
substantially in value) is amended by striking out "and" at the 
end of subparagraph (B), and by striking out subparagraph 
(C) and inserting in lieu tliereof the following new subpara-
graphs : 
"(C) any other property of the partnership which, if sold 
or exchanged by the partnership, would result in a gain tax-
able under subsection (a) of section 1246 (relating to gain 
on foreign investment company stock), and 
"(D) any other property held by the partnership which, 
if held by the selling or distributee partner, would be consid-
ered propertv of the type described in subparagraph (A), 
( B ) , o r ( C ) . " 
(3) 
HOLDING PERIOD OF PROPERTY.—Section 1223 (relating to 
26 use 1223. 
liolding period of property) is amended by redesignating para-
graph (10) as paragraph (11) and inserting after paragraph 
(9) the following paragraph: 
"(10) In determining the period for which the taxpayer has 
held trust certificates of a trust to which subsection (d) of section 
1246 applies, or the period for which the taxpayer has held stock 
in a corporation to which subsection (d) of section 1246 applies, 
there shall be included the period for which the trust or corpora-
tion (as the case may be) held the stock of foreign investment 
companies." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years beginning after December 31,1962. 
SEC. 1
5
. 
GAIN 
FROM CERTAIN 
SALES 
OR 
EXCHANGES 
OF 
STOCK 
IN 
CERTAIN 
FOREIGN 
CORPORATIONS. 
(a) TREATMENT OF GAIN FROM THE REDEMPTION, CANCELLATION, OR 
SALE OF STOCK IN CERTAIN FOREIGN CORPORATIONS.—Part IV of sub-
chapter P of chapter 1 (relating to special rules for determining capi-
tal gains and losses) is amended by adding after section 1247 (as added 
by section 14 of this Act) the following new section: 
Ante, p. 1037. 
"SEC. 1248. GAIN FROM CERTAIN SALES OR EXCHANGES OF STOCK IN 
CERTAIN FOREIGN CORPORATIONS. 
"(a) 
GENERAL RULE.—If— 
"(1) a United States person sells or exchanges stock in a for-
eign corporation, or if a United States person receives a dis-
tribution from a foreign corporation which, under section 302 
or 331, is treated as an exchange of stock, and 
26 use 302,33 u 
"(2) such person owns, within the meaning of section 958(a), 
or is considered as owning by applying the rules of ownership 
of section 958(b), 10 percent or more of the total combined vot- 
Ante, p. 1
.
0 is. 
ing power of all classes of stock entitled to vote of such foreign 
corporation at any time during the 5-year period ending on the 
date of the sale or exchange when such foreign corporation was 
a controlled foreign corporation (as defined in section 957), 
Ante. p. 1
1
0
1
7
. 
78135 0-63—69 
1042 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
then the gain recognized on the sale or exchange of such stock shall 
be included in the gross income of such person as a dividend, to the 
extent of the earnings and profits of the foreign corporation attribu-
table (under regulations prescribed by the Secretary or his delegate) 
to such stock which were accumulated in taxable years of such foreign 
corporation beginning after December 31,1962, and during the period 
or periods the stock sold or exchanged was held by such person while 
such foreign corporation was a controlled foreign corporation. 
"(b) LIMITATION ON TAX APPLICABLE TO INDIVIDUALS.—In the case 
of an individual, if the stock sold or exchanged is a capital asset 
26 use 1221. 
(within the meaning of section 1221) and has been held for more than 
6 months, the tax attributable to an amount included in gross income 
as a dividend under subsection (a) shall not be greater than a tax 
equal to the sum of— 
" (1) a pro rata share of the excess of— 
"(A) the taxes that would have been paid by the foreign 
corporation with respect to its income had it been taxed under 
this chapter as a domestic corporation (but without allow-
ance for deduction of, or credit for, taxes described in sub-
paragraph (B)), for the period or periods the stock sold or 
exchanged was held by the United States person in taxable 
years beginning after December 31, 1962, while the foreign 
corporation was a controlled foreign corporation, adjusted 
for distributions and amounts previously included in gross 
Ante, p. 1006. 
lucome of a United States shareholder under section 951, 
over 
"(B) the income, war profits, or excess profits taxes paid 
by the foreign corporation with respect to such income; and 
"(2) an amount equal to the tax that would result by including 
in gross income, as gain from the sale or exchange of a capital 
asset held for more than 6 months, an amount equal to the excess 
of (A) the amount included in gross income as a dividend under 
subsection (a), over (B) the amount determined under paragraph 
"(c) 
DETERMINATION OF EARNINGS AND PROFITS.— 
"(1) I N GENERAL.—For purposes of this section, the earnings 
and profits of any foreign corporation for any taxable year shall 
be determined according to rules substantially similar to those 
applicable to domestic corporations, under regulations prescribed 
by the Secretary or his delegate. 
"(2) 
EARNINGS AND PROFITS OF SUBSIDIARIES OP FOREIGN COR-
PORATIONS.—If— 
"(A) subsection (a) applies to a sale or exchange by a 
"
^ 
United States person of stock of a foreign corporation and, 
by reason of the ownership of the stock sold or exchanged, 
Ante, p. 1018. 
such persou owned within the meaning of section 958(a) (2) 
stock of any other foreign corporation; and 
"(B) such person owned, within the meaning of section 
958(a), or was considered as owning by applying the rules 
of ownership of section 958(b), 10 percent or more of the 
total combined voting power of all classes of stock entitled 
to vote of such other foreign corporation at any time during 
the 5-year period ending on the date of the sale or exchange 
when such other foreign corporation was a controlled foreign 
Ante, p. 1017. 
corporatiou (as defined in section 957), 
then, for purposes of this section, the earnings and profits of the 
foreign corporation the stock of which is sold or exchanged which 
are attributable to the stock sold or exchanged shall be deemed 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1%2 
1043 
to include the earnings and profits of such other foreign corpo-
ration which— 
"(C) are attributable (under regulations prescribed by 
the Secretary or his delegate) to the stock of such other for-
eign corporation which such person owned within the meaning 
of section 958(a)(2) (by reason of his ownership within 
Ante, p. lois. 
the meaning of section 958(a) (1) (A) of the stock sold or 
exchanged) on the date of such sale or exchange; and 
"(D) were accumulated in taxable years of such other 
corporation beginning after December 31, 1962, and during 
the period or periods— 
"(i) such other corporation was a controlled foreign 
corporation, and 
" (ii) such person owned within the meaning of section 
958(a) (2) the stock of such other foreign corporation. 
"(d) 
EXCLUSIONS FROM EARNINGS AND PROFITS.—For purposes of 
this section, the following amounts shall be excluded, with respect to 
any United States person, from the earnings and profits of a foreign 
corporation: 
" (1) A M O U N T S INCLUDED I N GROSS INCOME UNDER SECTION 951.— 
Earnings and profits of the foreign corporation attributable to 
any amount previously included in.the gross income of such person 
under section 951, with respect to the stock sold or exchanged, 
Ante, p. looe. 
but only to the extent the inclusion of such amount did not result 
in an exclusion of an amount from gross income under section 959. 
"(2) 
GAIN REALIZED FROM THE SALE OR EXCHANGE OF PROPERTY 
IN PURSUANCE OF A PLAN OF COMPLETE LIQUIDATION.—If a foreign 
corporation adopts a plan of complete liquidation in a taxable 
year of a foreign corporation beginning after December 31, 
1962, and if section 337(a) would apply if such foreign corpora- 
26 use 337. 
tion were a domestic corporation, earnings and profits of the 
foreign corporation attributable (under regulations prescribed by 
the Secretary or his delegate) to any net gain from the sale or 
exchange of property. 
"(3) 
LESS DEVELOPED COUNTRY CORPORATIONS.—^Earnings 
and 
profits accumulated by a foreign corporation while it was a less 
developed country corporation (as defined in section 902(d)), if 
Ante, p. 1000. 
the stock sold or exchanged was owned for a continuous period 
of at least 10 years, ending with the date of the sale or exchange, 
by the United States person who sold or exchanged such stock. 
In the case of stock sold or exchanged by a corporation, if United 
States persons who are individuals, estates, or trusts (each of 
whom owned within the meaning of section 958(a), or were con-
sidered as owning by applying the rules of ownership of section 
958(b), 10 percent or more of the total combined voting power of 
all classes of stock entitled to vote of such corporation) owned, or 
were considered as owning, at any time during the 10-year period 
ending on the date of the sale or exchange more than 50 percent 
of the total combined voting power of all classes of stock entitled 
to vote of such corporation, this paragraph shall apply only if 
such United States persons owned, or were considered as owning, 
at all times during the remainder of such 10-year period more 
than 50 percent of the total combined voting power of all classes 
of stock entitled to vote of sUch corporation. 
For purposes of 
this paragraph, stock owned by a United States person who is 
an individual, estate, or trust which was acquired by reason 
of the death of the predecessor in interest of such United States 
1044 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
person shall be considered as owned by such United States person 
during the period such stock was owned by such predecessor in 
interest, and during the period such stock was owned by any 
other predecessor in interest if between such United States person 
and such other predecessor in interest there was no transfer other 
than by reason of the death of an individual. 
"(4) UNITED STATES INCOME,—^Any item includible in gross 
income of the foreign corporation under this chapter as income 
derived from sources within the United States of a foreign 
corporation engaged in trade or business in the United States. 
"(5) AMOUNTS INCLUDED IN GROSS INCOME UNDER SECTION 
1247.—If the United States person whose stock is sold or 
exchaihged was a qualified shareholder (as defined in section 
Ante, p. 1039. 
124T(c)) of a foreign corporation which was a foreign invest-
Ante, p. 1036. 
meut compauy (as described in section 1246(b)(1)), the earn-
ings and profits of the foreign corporation for taxable years in 
which such person was a qualified shareholder. 
"(e) SALES OR EXCHANGES OF STOCK IN CERTAIN DOMESTIC COR-
PORATIONS.—Under regulations prescribed by the Secretary or his 
delegate, if— 
"(1) a United States person sells or exchanges stock of a 
domestic corporation, or receives a distribution from a domestic 
26 use 302,331. 
corporatiou which, under section 302 or 331, is treated as an 
exchange of stock, and 
"(2) such domestic corporation was formed or availed of 
principally for the holding, directly or indirectly, of stock of one 
or more foreign corporations, 
such sale or exchange shall, for purposes of this section, be treated 
as a sale or exchange of the stock of the foreign corporation or cor-
porations held by the domestic corporation. 
"(f) EXCEPTIONS.—This section shall not apply to— 
26 use 303. 
"(1) distributions to which section 303 (relating to distribu-
tions in redemption of stock to pay death taxes) applies; 
26 use 356. 
"(2) gain realized on exchanges to which section 356 (relating 
to receipt of additional consideration in certain reorganizations^ 
applies; or 
"(3) any amount to the extent that such amount is, under 
any other provision of this title, treated as— 
"(A) a dividend, 
"(B) gain from the sale of an asset which is not a capital 
asset, or 
"(C) gain from the sale of an asset held for not more than 
6 months. 
"(g) TAXPAYER TO ESTABLISH EARNINGS AND PROFITS.—Unless the 
taxpayer establishes the amount of the eamings and profits of the 
foreign corporation to be taken into account under subsection (a), 
all gain from the sale or exchange shall be considered a dividend 
under subsection (a), and unless the taxpayer establishes the amount 
of foreign taxes to be taken into account under subsection (b), the 
limitation of such subsection shall not apply." 
(b) CLERICAL AMENDMENT.—The table of sections for such part 
IV is amended by adding at the end thereof the following: 
"Sec. 1248. Gain from certain sales or exchanges of stock in certain 
foreign corporations." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to sales or exchanges occurring after December 31, 
1962. 
76 STAT.] 
PUBLIC L
A
W 87-834-OCT. 16, 1962 
1045 
SEC. 16. SALES AND EXCHANGES OF PATENTS, ETC., TO CERTAIN 
FOREIGN CORPORATIONS. 
(a) TREATMENT OF GAIN AS ORDINARY INCOME.—Part IV of sub-
chapter P of chapter 1 (relating to special rules for determining capi-
tal gains and losses) is amended by adding after section 1248 (as 
added by section 15 of this Act) the following new section: 
Ante, p. 1041. 
"SEC. 1249. GAIN FROM CERTAIN SALES OR EXCHANGES OF PATENTS, 
ETC., TO FOREIGN CORPORATIONS. 
"(a) GENERAL RULE.—Except as provided in subsection (c), gain 
from the sale or exchange after December 31, 1962, of a patent, an 
invention, model, or design (whether or not patented), a copyright, 
a secret formula or process, or any other similar property right to 
any foreign corporation by any United States person (as defined in 
section 7701(a) (30)) which controls such foreign corporation shall. 
Ante, p. 988. 
if such gain would (but for the provisions of this subsection) be gain 
from the sale or exchange of a capital asset or of property described 
in section 1231, be considered as gain from the sale or exchange of 
26 use 1231. 
property which is neither a capital asset nor property described in 
section 1231. 
^ 
"(b) CONTROL.—For purposes of subsection (a), control means, 
with respect to any foreign corporation, the ownership, directly or 
indirectly, of stock possessing more than 50 percent of the total com-
bined voting power of all classes of stock entitled to A^ote. For pur-
poses of this subsection, the rules for determining ownership of stock 
})rescribed by section 958 shall apply." 
Ante, p. :ioi8. 
(b) CLERICAL AMENDMENT.—The table of sections for such part IV 
is amended by adding at the end thereof the following: 
"Sec. 1249. Gain from certain sales or exchanges of patents, etc.,. 
to foreign corporations." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
apply to taxable years beginning after December 31,1962. 
SEC. 
1
7
. 
TAX 
TREATMENT 
OF 
COOPERATIVES 
AND 
PATRONS. 
(a) I N GENERAL.—Chapter 1 (relating to normal taxes and sur-
taxes) is amended by adding at the end thereof the following new 
subchapter: 
"Subchapter T—Cooperatives and Their Patrons 
••Part I. Tax treatment of cooperatives. 
"Part II. Tax treatment by patrons of patronage dividends. 
"Part III. Definitions ; special rules. 
"PART I—TAX TREATMENT OF COOPERATIVES 
"Sec. 1381. Organizations to which part applies. 
"Sec. 1382. Taxable income of cooperatives. 
"Sec. 1383. Computation of tax where cooperative redeems non-
qualified written notices of allocation. 
^•SEC. 1381. ORGANIZATIONS TO WHICH PART APPLIES. 
''(a) I N GENERAL.—This part shall apply to— 
"(1^ any organization exempt from tax under section 521 
26 use 521. 
(relating to exemption of farmers' cooperatives from tax), and 
'•(2) any corporation operating on a cooperative basis other 
than an organization— 
" (A) which is exempt from tax under this chapter, 
"(B) which is subject to the provisions of— 
"(i) part I I of subchapter H (relating to mutual sav- 
26 use 591-595. 
ings banks, etc.), or 
1046 
PUBLIC L
A
W 87-834-OCT. 16, 1962 
[76 STAT. 
26 use 801-843. 
"(li) Subchapter L (relating to insurance companies), 
or 
"(C) which is engaged in furnishing electric energy, or 
providing telephone service, to persons in rural areas. 
"(b) TAX ON CERTAIN" FARMERS' COOPERATIVES.—An organization 
described in subsection (a) (1) shall be subject to the taxes imposed 
26 use 11.1201. by section 11 or 1201. 
"SEC. 1382. TAXABLE INCOME OF COOPERATIVES. 
"(a) GROSS INCOME.—Except as provided in subsection (b), the 
gross income of any organization to which this part applies shall be 
determined without any adjustment (as a reduction in gross receipts, 
an increase in cost of goods sold, or otherwise) by reason of any allo-
cation or distribution to a patron out of the net earnings of such 
organization. 
"(b) PATRONAGE DIVIDENDS.—In determining the taxable income 
of an organization to which this part applies, there shall not be taken 
into account amounts paid during the payment period for the taxable 
year— 
Post, p. 1049. 
"(1) as patronage dividends (as defined in section 1388(a)), 
to the extent paid in money, qualified written notices of alloca-
tion (as defined in section 1388(c)), or other property (except 
nonqualified written notices of allocation (as defined in section 
Post, p. 1051. 
1388(d))) with respect to patronage occurring during such tax-
able year; or 
"(2) in money or other property (except written notices of 
allocation) in redemption of a nonqualified written notice of 
allocation which was paid as a patronage dividend during the 
payment period for the taxable year during which the patronage 
occurred. 
For purposes of this title, any amount not taken into account under 
the preceding sentence shall be treated in the same manner as an 
item of gross income and as a deduction therefrom. 
"(c) 
DEDUCTION FOR NONPATRONAGE 
DISTRIBUTIONS, 
ETC.—In 
determining the taxable income of an organization described in section 
Ante, p. 1045. 
1381(a) (1), there shall be allowed as a deduction (in addition to other 
deductions allowable under this chapter) — 
"(1) amounts paid during the taxable year as dividends on its 
capital stock; and 
"(2) amounts paid during the payment period for the taxable 
"(A) in money, qualified written notices of allocation, or 
other property (except nonqualified written notices of alloca-
tion) on a patronage basis to patrons with respect to its earn-
ings during such taxable year whicli are derived from business 
done for the United States or any of its agencies or from 
sources other than patronage, or 
"(B) in money or other property (except written notices 
of allocation) in redemption of a nonqualified written notice 
of allocation which was paid, during the payment period for 
the taxable year during which the earnings were derived, on a 
patronage basis to a patron with respect to earnings derived 
from business or sources described in subparagraph (A). 
"(d) PAYMENT PERIOD FOR EACH TAXABLE YEAR.—For purposes of 
subsections (b) and (c) (2), the payment period for any taxable year 
is the period beginning with the first day of such taxable year and 
ending with the fifteenth day of the ninth month following the close 
of sucTi year. For purposes of subsections (b) (1) and (c) (2) (A), a 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1%2 
1047 
qualified check issued during the payment period shall be treated as 
an amount paid in money during such period if endorsed and cashed 
on or before the 90th day after the close of such period. 
"(e) 
PRODUCTS MARKETED UNDER POOLING ARRANGEMENTS.—For 
purposes of subsection (b), in the case of a pooling arrangement for 
the marketing of products, the patronage shall (to the extent pro-
vided in regulations prescribed by the Secretary or his delegate) be 
treated as patronage occurring during the taxable year in which the 
pool closes. 
"(f) 
TREATMENT 
OF 
EARNINGS 
RECEIVED 
AFTER 
PATRONAGE 
OCCURRED.—If any portion of the earnings from business done with 
or for patrons is includible in the organization's gross income for a 
taxable year, after the taxable year during which the patronage 
occurred, then for purposes of applying subsection (b) to such portion 
the patronage shall, to the extent provided in regulations prescribed 
by the Secretary or his delegate, be considered to have occurred during 
the taxable year of the organization during which such earnings are 
includible in gross income. 
'*SEC. 1383. COMPUTATION OF TAX WHERE COOPERATIVE REDEEMS 
NONQUALIFIED WRITTEN NOTICES OF ALLOCATION. 
"(a) GENERAL RULE.—If, under section 1382(b) (2) or (c) (2) (B), 
Ante, p. io46. 
a deduction is allowable to an organization for the taxable year for 
amounts paid in redemption of nonqualified written notices of allo-
cation, then the tax imposed by this chapter on such organization for 
the taxable year shall be the lesser of the following: 
"(1) the tax for the taxable year computed with such deduc-
tion; or 
"(2) an amount equal to— 
"(A) the tax for the taxable year computed without such 
deduction, minus 
"(B) the decrease in tax under this chapter for any prior 
taxable year (or years) which would result solely from treat-
ing such nonqualified written notices of allocation as quali-
fied written notices of allocation. 
"(b) 
SPECIAL RULES.— 
"(1) If the decrease in tax ascertained under subsection (a) 
(2) (B) exceeds the tax for the taxable year (computed without 
the deduction described in subsection (a)) such excess shall be 
considered to be a payment of tax on the last day prescribed by 
law for the payment of tax for the taxable year, and shall be re-
funded or credited in the same manner as il it were an overpay-
ment for such taxable year. 
"(2) For purposes of determining the decriease in tax under 
subsection (a)(2)(B), the stated dollar amount of any nonquali-
fied written notice of allocation which is to be treated under such 
subsection as a qualified written notice of allocation shall be the 
amount paid in redemption of such written notice of allocation 
which is allowable as a deduction under section 1382(b)(2) or 
(c) (2) (B) for the taxable vear. 
" (3) If the tax imposed fcy this chapter for the taxable year is 
the amount determined under subsection (a) (2), then the deduc-
tion described in subsection (a) shall not be taken into account 
for any purpose of this subtitle other than for purposes of this 
section. 
1048 
PUBUC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
*TART 
II—TAX 
TREATMENT 
BY 
PATRONS 
OF 
PATRON-
AGE 
DIVIDENDS 
''Sec. 1385. Amounts includible in patron's gross income. 
"SEC. 1385. AMOUNTS INCLUDIBLE IN PATRON'S GROSS INCOME. 
"(a) GENERAL RULE.—Except as otherwise provided in subsection 
(b), each person shall include in gross income— 
"(1) the amount of any patronage dividend which is paid in 
money, a qualified written notice of allocation, or other property 
(except a nonqualified written notice of allocation), and which is 
received by him during the taxable year from an organization 
Ante, p. 1045. 
described in section 1381(a), and 
Ante, p. 1046. 
"(2) auy amouut, described in section 1382(c) (2) (A) (relating 
to certain nonpatronage distributions by tax-exempt farmers' 
cooperatives), which is paid in money, a qualified written notice 
of allocation, or other property (^except a nonqualified written 
notice of allocation), and which is received by him during the 
taxable year from an organization described in section 1381(a) 
(1). 
"(b) 
EXCLUSION FROM GROSS INCOME.—Under regulations pre-
scribed by the Secretary or his delegate, the amount of any patronage 
dividend, and any amount received on the redemption, sale, or other 
disposition of a nonqualified written notice of allocation which was 
paid as a patronage dividend, shall not be included in gross income to 
the extent that such amount— 
" (1) is properly taken into account as an adjustment to basis of 
property, or 
"(2) is attributable to personal, living, or family items. 
"(c) TREATMENT OF CERTAIN NONQUALIFIED WRITTEN NOTICES OF 
ALLOCATION.— 
"(1) APPLICATION or SUBSECTION.—This subsection shall apply 
to any nonqualified written notice of allocation which— 
" (A) was paid as a patronage dividend, or 
"(B) was paid by an organization described in section 
1381(a) (1) on a patronage basis with respect to earnings de-
rived from business or sources described in section 1382(c) 
(2) (A). 
"(2) BASIS; AMOUNT or GAIN.—In the case of any nonqualified 
written notice of allocation to which this subsection applies, for 
purposes of this chapter— 
" (A) the basis of such written notice of allocation in the 
hands of the patron to whom such written notice of alloca-
tion was paid shall be zero, 
"(B) the basis of such written notice of allocation which 
was acquired from a decedent shall be its basis in the hands 
of the decedent, and 
"(C) gain on the redemption, sale, or other disposition of 
such written notice of allocation by any person shall, to the 
extent that the stated dollar amount of such written notice 
of allocation exceeds its basis, be considered as gain from 
the sale or exchange of property which is not a capital asset. 
76 STAT.] 
P U B U C L
A
W 87-834-OCT. 16, 1962 
1049 
"PART III—DEFINITIONS; SPECIAL RULES 
"Sec. 1388. Definitions; special rules. 
"SEC. 1388. DEFINITIONS; SPECIAL RULES. 
"(a) PATRONAGE DIVIDEND.—For purposes of this subchapter, the 
term 'patronage dividend' means an amount paid to a patron by an 
organization to which part I of this subchapter applies— 
"(1) on the basis of quantity or value of business done with or 
for such patron, 
"(2) under an obligation of such organization to pay such 
amount, which obligation existed before the organization received 
the amount so paid, and 
"(3) which is determined by reference to the net earnings of 
the organization from business done with or for its patrons. 
Such term does not include any amount paid to a patron to the extent 
that (A) such amount is out of earnings other than from business 
done with or for patrons, or (B) such amount is out of earnings from 
business done with or for other patrons to whom no amounts are paid, 
or to whom smaller amounts are paid, with respect to substantially 
identical transactions. 
"(b) WRITTEN NOTICE or ALLOCATION.—For purposes of this sub-
chapter, the term 'written notice of allocation' means any capital stock, 
revolving fund certificate, retain certificate, certificate of indebted-
ness, letter of advice, or other written notice, which discloses to the 
recipient the stated dollar amount allocated to him by the organiza-
tion and the portion thereof, if any, which constitutes a patronage 
dividend. 
"(c) 
QUALIFIED WRITTEN NOTICE OF ALLOCATION.— 
"(1) DEFINED.—For purposes of this subchapter, the term 
'qualified written notice of allocation' means— 
" (A) a written notice of allocation which may be redeemed 
in cash at its stated dollar amount at any time within a 
period beginning on the date such written notice of alloca-
tion is paid and ending not earlier than 90 days from such 
date, but only if the distributee receives written notice of the 
right of redemption at the time he receives such written 
notice of allocation; and 
"(B) a written notice of allocation which the distributee 
has consented, in the manner provided in paragraph (2), to 
take into account at its stated dollar amount as provided in 
section 1385(a). 
Ante, p. i048. 
Such term does not include any written notice of allocation which 
is paid as part of a patronage dividend or as part of a payment 
described in section 1382(c)(2)(A), unless 20 percent or more 
Ante, p. i046. 
of the amount of such patronage dividend, or such payment, is 
paid in money or by qualified check. 
"(2) MANNER OF OBTAINING CONSENT.—A distributee shall con-
sent to take a written notice of allocation into account as provided 
in paragraph (1) (B) only by— 
(A) making such consent in writing, 
"(B) obtaining or retaining membership in the organiza-
tion after— 
"(i) such organization has adopted (after the date of 
the enactment of the Revenue Act of 1962) a bylaw pro-
viding that membership in the organization constitutes 
such consent, and 
" (ii) he has received a written notification and copy of 
such bylaw, or 
1050 
PUBUC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(C) if neither subparagraph 
(A) nor (B) 
applies, 
endorsing and cashing a qualified check, paid as a part of the 
patronage dividend or payment of which such written notice 
of allocation is also a part, on or before the 90th day after the 
close of the payment period for the taxable year of the 
organization for which such patronage dividend or payment 
is paid. 
" (3) PERIOD FOR WHICH CONSENT IS EFFECTIVE.— 
"(A) GENERAL RULE.—Except as provided in subpara-
graph (B)— 
"(i) a consent described in paragraph (2) (A) shall 
be a consent with respect to all patronage of the 
distributee with the organization occurring (determined 
Ante, p. 1047. 
with the application of section 1382(e)) during the 
taxable year of the organization during which such con-
sent is made and all subsequent taxable years of the 
organization; and 
"(ii) a consent described in paragraph (2) (B) shall 
be a consent with respect to all patronage of the 
distributee with the organization occurring (determined 
without the application of section 1382(e)) after he 
received the notification and copy described in para-
graph(2)(B)(ii). 
'' (B) REVOCATION, ETC.— 
"(i) Any consent described in paragraph (2) (A) 
may be revoked (in writing) by the distributee at any 
time. 
Any such revocation shall be effective with respect 
to patronage occurring on or after the first day of the 
first taxable year of the organization beginning after the 
revocation is filed with such organization; except that in 
the case of a pooling arrangement described in section 
1382(e), a revocation made by a distributee shall not 
be effective as to any pool with respect to which the 
distributee has been a patron before such revocation. 
"(ii) Any consent described in paragraph (2) (B) 
shall not be effective with respect to any patronage 
occurring (determined without the application of sec-
tion 1382(e)) after the distributee ceases to be a member 
of the organization or after the bylaws of the organiza-
tion cease to contain the provision described in para-
graph (2)(B)(i). 
"(4) QUALIFIED CHECK.—For purposes of this subchapter, the 
term 'qualified check' means only a check (or other instrument 
which is redeemable in money) which is paid as a part of a 
patronage dividend, or as a part of a payment described in section 
Ante, p. 1046. 
1382(c)(2)(A), to a distributee who has not given consent as 
provided in paragraph (2) (A) or (B) with respect to such 
patronage dividend or payment, and on which there is clearly 
imprinted a statement that the endorsement and cashing of the 
check (or other instrument) constitutes the consent of the payee 
to include in his gross income, as provided in the Federal income 
tax laws, the stated dollar amount of the written notice of allo-
cation which is a part of the patronage dividend or payment of 
which such qualified check is also a part. 
Such term does not 
include any check (or other instrument) which is paid as part 
of a patronage dividend or payment which does not include a 
written notice of allocation (other than a written notice of allo-
cation described in paragraph (1) (A)). 
76 STAT.] 
P U B U C LAW 87-834-OCT. 16, 1%2 
1051 
"(d) NONQUALIFIED WRITTEN NOTICE OF ALLOCATION.—For pur-
poses of this subchapter, the term 'nonqualified written notice of allo-
cation' means a written notice of allocation which is not described 
in subsection (c) or a qualified check which is not cashed on or before 
the 90th day after the close of the payment period for the taxable 
year for which the distribution of which it is a part is paid. 
"(e) DETERMINATION OF AMOUNT PAID OR EECEIVED.—For purposes 
of this subchapter, in determining amounts paid or received— 
"(1) property (other than a written notice of allocation) shall 
be taken into account at its fair market value, and 
"(2) a qualified written notice of allocation shall be taken 
into account at its stated dollar amount." 
(b) TECHNICAL AMENDMENTS.— 
(1) Section 521 (a) (relating to exemption of farmers' coopera- 
26 use 521. 
tives from tax) is amended by striking out "section 522" each 
place it appears therein and inserting in lieu thereof "part I of 
subchapter T (sec. 1381 and following)". 
Ante, p. i04s. 
(2) Section 522 (relating to tax on farmers' cooperatives) is 
Repeal. 
hereby repealed. 
^^ "^^ ''^^ 
(3) Section 6072(d) (relating to time for filing income tax 
26 use 6072. 
returns of exempt cooperative associations) is amended to read 
as follows: 
"(d) RETURNS OF COOPERATIVE ASSOCIATIONS.—In the case of an 
income tax return of— 
"(1) an exempt cooperative association described in section 
1 3 8 1 ( a ) ( 1 ) , or 
Ante, p. 104S. 
"(2) an organization described in section 1381(a)(2) which 
is under an obligation to pay patronage dividends (as defined in 
section 1388(a)) in an amount equal to at least 50 percent of its 
Ante, p. 1049. 
net earnings from business done with or for its patrons, or which 
paid patronage dividends in such an amount out of the net earn-
ings from business done with or for patrons during the most recent 
taxable year for which it had such net earnings, 
a return made on the basis of a calendar year shall be filed on or before 
the 15th day of September following the close of the calendar year, 
and a return made on the basis of a fiscal year shall be filed on or before 
the 15th day of the 9tli month following the close of the fiscal year." 
(4) The table of subchapters for chapter 1 is amended by 
adding at the end thereof the following: 
"SUBCHAPTER T. Cooperatives and their patrons." 
(5) The table of sections for part I I I of subchapter F of chap-
ter 1 is amended by striking out the last line thereof. 
(c) EFFECTIVE DATES.— 
(1) FOR THE ct)OPERATivES,—Except as provided in paragraph 
(3), the amendments made by subsections (a) and (b) shall apply 
to taxable years of organizations described in section 1381(a) of 
the Internal Revenue Code of 1954 (as added by subsection (a)) 
beginning after December 31,1962. 
(2) FOR THE PATRONS.—Except as provided in paragraph (3), 
section 1385 of the Internal Revenue Code of 1954 (as added by 
Ante, p. io48. 
subsection (a)) shall apply with i-espect to any amount received 
from any organization described in section 1381(a) of such 
Code, to the extent that such amount is paid by sucli organiza-
tion in a taxable year of such organization beginning after 
December 31, 1962. 
(3) APPLICATION or EXISTING LAW.—^In the case of any money, 
written notice of allocation, or other property paid by any organ-
ization described in section 1381(a) — 
seq. 
1052 
PUBLIC lAW 87-834-OCT. 16, 1962 
[76 STAT. 
(A) before the first day of the first taxable year of such 
organization beginning after December 31, 1962, or 
(B) on or after such first day with respect to patronage 
occurring before such first day, 
the tax treatment of such money, written notice of allocation, 
or other property (including the tax treatment of gain or loss 
on the redemption, sale, or other disposition of such written 
notice of allocation) by any person shall be made under the 
Internal Revenue Code of 1954 without regard to subchapter T 
Ante, p. 1045. 
of Chapter 1 of such Code. 
SEC. 18. INCLUSION OF FOREIGN REAL PROPERTY IN GROSS ESTATE. 
(a) 
AMENDMENTS TO INCLUDE FOREIGN REAL PROPERTY.— 
26 use 2031. 
(1) Section 2031(a) (relating to definition of gross estate) is 
amended by striking out ", except real property situated out-
side of the United States". 
2
^
6 use 2001 et 
(2) The following provisions of chapter 11 (imposing an estate 
tax) are amended by striking out "(except real property situated 
outside of the United States)": 
(A) section 2033 (relating to property in which the dece-
dent had an interest), 
(B) section 2034 (relating to dower or curtesy interests), 
(C) section 2035(a) (relating to transactions in contem-
plation of death), 
(D) section 2036(a) (relating to transfers with retained 
life estate), 
(E) section 2037(a) (relating to transfers taking effect 
at death), 
(F) section 2038(a) (relating to revocable transfers), 
(G) section 2040 (relating to joint interests), and 
(H) section 2041 (a) (relating to powers of appointment). 
(b) 
EFFECTIVE DATE.— 
(1) Except as provided in paragraph (2), the amendments 
made by subsection (a) shall apply to the estates of decedents 
dying after the date of the enactment of this Act. 
(2) In the case of a decedent dying after the date of the enact-
ment of this Act and before July 1, 1964, the value of real prop-
erty situated outside of the United States shall not be included 
in the gross estate (as defined in section 2031(a)) of the dece-
dent— 
(A) under section 2033, 2034, 2035(a), 2036(a), 2037(a), 
26 use 2033- 
or 2038(a) to the extent the real property, or the decedent's 
interest in it, was acquired by the decedent before February 1, 
1962; 
26 use 2040. 
(B) under section 2040 to the extent such property or inter-
est was acquired by the decedent before February 1, 1962, or 
was held by the decedent and the survivor in a joint tenancy 
or tenancy by the entirety before February 1, 1962; or 
26 use 2041. 
(C) under section 2041(a) to the extent that before Feb-
ruary 1, 1962, such property or interest 
w a s subject to a gen-
eral 'power of appointment (as defined in section 2041) 
possessed by the decedent. 
In the case of real property, or an interest therein, situated outside 
of the United States (including a general power of appointment 
in respect of such property or interest, and including property 
held by the decedent and the survivor in a joint tenancy or ten-
ancy by the entirety) which was acquired by the decedent after 
26 use 2511. 
January 31, 1962, by gift within the meaning of section 2511, 
or from a prior decedent by devise or inheritance, or by reason of 
death, form of ownership, or other conditions (including the exer-
2038. 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1053 
cise or nonexercise of a power of appointment), for purposes of 
this paragraph such property or interest therein shall be deemed 
to have been acquired by the decedent before February 1, 1962, if 
before that date the donor or prior decedent had acquired the 
property or his interest therein or had possessed a power of 
appointment in respect of the property or interest. 
SEC. 19. REPORTING OF INTEREST, DIVIDEND, AND PATRONAGE 
DIVIDEND PAYMENTS OF $10 OR MORE DURING A YEAR. 
(a) RETURNS REGARDING PAYMENT OF DIVIDENDS.—Section 6042 
26 use 6042. 
(relating to returns regarding corporate dividends, earnings, and 
profits) IS amended to read as follows: 
"SEC. 6042. RETURNS REGARDING PAYMENTS OF DIVIDENDS AND 
CORPORATE EARNINGS AND PROFITS. 
"(a) 
REQUIREMENT OF REPORTING.— 
"(1) 
I N GENERAL,—Every person— 
"(A) who makes payments of dividends aggregating $10 
or more to any other person during any calendar year, or 
"(B) who receives payments of dividends as a nominee and 
who makes payments aggregating $10 or more during any 
calendar year to any other person with respect to the divi-
dends so received, 
shall make a return according to the forms or regulations pre-
scribed by the Secretary or his delegate, setting forth the aggre-
gate amount of such payments and the name and address of the 
person to whom paid. 
"(2) RETURNS REQUIRED BY THE SECRETARY.—Every person who 
makes payments of dividends aggregating less than $10 to any 
other.person during any calendar year shall, when required by the 
Secretary or his delegate, make a return setting forth the aggre-
gate amount of such payments, and the name and address of the 
Eerson to whom paid. 
) DIVIDEND DEFINED.— 
"(1) GENERAL RULE.—For purposes of this section, the term 
'dividend' means— 
"(A) any distribution by a corporation which is a divi-
dend (as defined in section 316); and 
26 use 316. 
"(B) any payment made by a stockbroker to any person as 
a substitute for a dividend (as so defined). 
"(2) EXCEPTIONS.—For purposes of this section, the term'divi-
dend' does not include— 
"(A) to the extent provided in regulations prescribed by 
the Secretary or his delegate, any distribution or payment— 
"(i) by a foreign corporation, or 
" (ii) to a foreign corporation, a nonresident alien, or a 
partnership not engaged in trade or business in the 
United States and composed in whole or in part of non-
resident aliens; and 
"(B) any amount described in section 1373 (relating to 
26 use 1373. 
undistributed taxable income of electing small business cor-
porations). 
"(3) SPECIAL RULE.—If the person making any payment de-
scribed in subsection (a) (1) (A) or (B) is unable to determine the 
portion of such payment which is a dividend or is paid with 
respect to a dividend, he shall, for purposes of subsection (a) (1), 
treat the entire amount of such payment as a dividend or as an 
amount paid with respect to a dividend. 
1054 
PUBUC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(c) 
STATEMENTS TO. B E FURNISHED TO PERSONS W I T H RESPECT TO 
WHOM INFORMATION I S FURNISHED.—Every person making a return 
under su5section (a) (1) shall furnish to each person whose name is 
set forth in such return a written statement showing— 
"(1) the name and address of the person making such return, 
and 
" (2) the aggregate amount of payments to the person as shown 
on such return. 
The written statement required under the preceding sentence shall be 
furnished to the person on or before January 31 of the year follow-
ing the calendar year for which the returg, under subsection (a) (1) 
was made. 
No statement shall be required to be furnished to any 
person under this subsection if the aggregate amount of payments 
to such person as shown on the return made under subsection (a) (1) 
is less than $10. 
"(d) 
STATEMENTS TO B E FURNISHED BY CORPORATIONS TO SECRE-
TARY.—Every corporation shall, when required by the Secretary or 
his delegate— 
"(1) furnish to the Secretary or his delegate a statement stat-
ing the name and address of each shareholder, and the number 
of shares owned by each shareholder ; 
"(2) furnish to the Secretary or his delegate a statement of 
such facts as will enable him to determine the portion of the 
earnings and profits of the corporation (including gains, profits, 
and income not taxed) accumulated during such periods as the 
Secretary or his delegate may specify, which have been distrib-
uted or ordered to be distributed, respectively, to its shareholders 
during such taxable years as the Secretary or his delegate may 
specify; and 
"(3) furnish to the Secretary or his delegate a statement of 
its accumulated earnings and profits and the names and addresses 
of the individuals or shareholders who would be entitled to such 
accumulated earnings and profits if divided or distributed, and 
of the amounts that would be payable to each." 
(b) 
RETI^RNS REGARDING PAYMENT OF PATRONAGE DIVIDENDS.— 
26 use 6044. 
Sectiou 6044 (relating to returns regarding patronage dividends) is 
amended to read as follows: 
"SEC. 6044. RETURNS 
REGARDING 
PAYMENTS 
OF 
PATRONAGE 
DIVIDENDS. 
"(a) 
REQUIREMENT O
F REPORTING,— 
"(1) I N GENERAL.—Except as otherwise provided in this sec-
tion, every cooperative to which part I of subchapter T of chapter 
Ante, p. 1045. 
1 appHes, wliicli makes payments of amounts described in sub-
section (b) aggregating $10 or more to any person during any 
calendar year, shall make a return according to the forms or 
regulations prescribed by the Secretary or his delegate, setting 
forth the aggregate amount of such payments and the name 
and address of the person to whom paid. 
"(2) RETURNS REQUIRED BY THE SECRETARY.—Every such co-
operative which makes payments of amounts described in sub-
section (b) aggregating less than $10 to any person during any 
calendar year shall, when required by the Secretary or his dele-
gate, make a return setting forth the aggregate amount of such 
payments and the name and address of the person to whom paid. 
"(b) 
AMOUNTS SI'IUECT TO REPORTING.— 
"(1) GENERAL RULE.—Except as otherwise provided in this 
section, the amounts subject to reporting under subsection (a) 
are— 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1055 
"(A) the amount of any patronage dividend (as defined 
in section 1388(a)) which is paid in money, qualified written 
Ante, p. 1049. 
notices of allocation (as defined in section 1388(c)), or other 
property (except nonqualified written notices of allocation as 
defined in section 1388(d)), 
"(B) any amount described in section 1382(c)(2)(A) 
Ante. p. i046. 
(relating to certain nonpatronage distributions) which is 
paid in money, qualified written notices of allocation, or 
other property (except nonqualified written notices of allo-
cation) by an organization exempt from tax under section 
521 (relating to exemption of farmers' cooperatives from 
26 use 521. 
tax), and 
"(C) any amount described in section 1382(b) (2) (relat-
ing to redemption of nonqualified written notices of alloca-
tion) and, in the case of an organization described in section 
1381(a) (1), any amount described in section 1382(c) (2) (B) 
Ante, p. i04s. 
(relating to redemption of nonqualified written notices of 
allocation paid with respect to earnings derived from sources 
other than patronage). 
"(2) EXCEPTIONS.—The provisions of subsection (a) shall not 
apply, to the extent provided in regulations prescribed by the 
Secretary or his delegate, to any payment— 
"(A) by a foreign corporation, or 
"(B) to a foreign corporation, a nonresident alien, or a 
partnership not engaged in trade or business in the United 
States and composed in whole or in part of nonresident aliens. 
"(c) EXEMPTION FOR CERTAIN CONSUMER COOPERATIVES.—^A coopera-
tive which the Secretary or his delegate determines is primarily 
engaged in selling at retail goods or services of a type that are gen-
erally for personal, living, or family use shall, upon application to the 
Secretary or his delegate, be granted exemption from the reporting 
requirements imposed by subsection (a). Application for exemption 
under this subsection shall be made in accordance with rjegulations 
prescribed by the Secretary or his delegate. 
"(d) DETERMINATION OF AMOUNT PAID.—For purposes of this sec-
tion, in determining the amount of any payment— 
"(1) property (other than a qualified written notice of alloca-
tion) shall be taken into account at its fair market value, and 
"(2) a qualified written notice of allocation shall be taken into 
account at its stated dollar amount, 
"(e) STATEMENTS TO B E FURNISHED TO PERSONS W I T H RESPECT 
TO W H O M INFORMATION I S FURNISHED.—Every cooperative making a 
return under subsection (a)(1) shall furnish to each person whose 
name is set forth in such return a written statement showing— 
"(1) the name and address of the cooperative making such 
return, and 
"(2) the aggregate amount of payments to the person as shown 
on such return. 
The written statement required under the preceding sentence shall 
be furnished to the person on or before January 31 of the year follow-
ing the calendar year for which the return under subsection (a)(1) was 
made. No statement shall be required to be furnished to any person 
under this subsection if the aggregate amount of payments to such 
person as shown on the return made under subsection (a) (1) is less 
than $10." 
(c) RETURNS REGARDING PAYMENT OF INTEREST.—Subpart B of 
part I I I of subchapter A of chapter 61 (relating to information 
returns) is amended by adding after section 6048 (as added by section 
7(f) of this Act) the following new section: 
Ante, p.ess. 
1056 
PUBUC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"SEC. 6049. RETURNS REGARDING PAYMENTS OF INTEREST. 
"(a) REQUIREMENT OF REPORTING.— 
"(1) I N GENERAL.—Every person— 
"(A) who makes payments of interest (as defined in sub-
section (b)) aggregating $10 or more to any other person 
during any calendar year, or 
"(B) who receives payments of interest as a nominee and 
who makes payments aggregating $10 or more during any 
calendar year to any other person with respect to the interest 
so received, 
shall make a return according to the forms or regulations pre-
scribed by the Secretary or his delegate, setting forth the aggre-
gate amount of such payments and the name and address of the 
person to whom paid. 
" (2) RETURNS REQUIRED BY THE SECRETARY.—Every person who 
makes payments of interest (as defined in subsection (b)) aggre-
gating less than $10 to any other person during any calendar year 
shall, when required by the Secretary or his delegate, make a 
return setting forth the aggregate amount of such payments and 
the name and address of the person to whom paid. 
"(3) OTHER RETURNS REQUIRED BY SECRETARY.—Ev^ry corpora-
tion making payments, regardless of amounts, of interest other 
than interest as defined in subsection (b) shall, when required by 
regulations prescribed by the Secretary or his delegate, make a 
return according to the forms or regulations prescribed by the 
Secretary or his delegate, setting forth the amount paid and the 
name and address of the recipient of each such payment. 
"(b) INTEREST DEFINED.— 
"(1) GENERAL RULE.—For purposes of subsections (a) (1) and 
(2), the term 'interest' means— 
"(A) interest on evidences of indebtedness 
(including 
bonds, debentures, notes, and certificates) issued by a cor-
poration in registered form, and, to the extent provided in 
regulations prescribed by the Secretary or his delegate, in-
terest on other evidences of indebtedness issued by a corpora-
tion of a type offered by corporations to the public; 
"(B) interest on deposits with persons carrying on the 
banking business; 
"(C) amounts (whether or not designated as interest) paid 
by a mutual savings bank, savings and loan association, build-
ing and loan association, cooperative bank, homestead asso-
ciation, credit union, or similar organization, in respect of 
deposits, investment certificates, or withdrawable or repur-
chasable shares; 
"(D) interest on amounts held by an insurance company 
under an agreement to pay interest thereon; and 
"(E) interest on deposits with stockbrokers and dealers 
in securities. 
"(2) EXCEPTIONS.—For purposes of subsections (a) (1) and 
(2), the term 'interest' does not include— 
26 use 103. 
"(A^) interest on obligations described in section 103(a) 
(1) or (3) (relating to interest on certain governmental 
obligations) ; 
"(B) to the extent provided in regulations prescribed by 
the Secretary or his delegate, any amount paid by or to a 
foreign corporation, a nonresident alien, or a partnership not 
engaged in trade or business in the United States and com-
posed in whole or in part of nonresident aliens; and 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1057 
"(C) any amount on which the person making payment is 
required to deduct and withhold a tax under section 1451 
26 use usi. 
(relating to tax-free convenant bonds), or would be so 
required but for section 1451(d) (relating to benefit of 
personal exemptions). 
"(c) STATEMENTS To B E FURNISHED TO PERSONS W I T H RESPECT TO 
WHOM INFORMATION I S FURNISHED.—Every person making a return 
under subsection (a)(1) shall furnish to each person whose name 
is set forth in such return a written statement showing— 
"(1) the name and address of the person making such return, 
and 
"(2) the aggregate amount of payments to the person as shown 
on such return. 
'I'he written statement required under the preceding sentence shall be 
furnished to the person on or before January 31 of the year following 
the calendar year for which the return under subsection (a) (1) was 
made. No statement shall be required to be furnished to any person 
inider this subsection if the aggregate amount of payments to such 
person as shown on the return made under subsection (a) (1) is less 
than $10." 
(d) PENALTIES FOR FAILURE TO FILE INFORMATION REITRNS.— 
Section 6652 (relating to failure to file certain information returns) 
26 use 6652. 
is amended to read as follows: 
"SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS. 
"(a) RETURNS RELATING TO PAYMENTS OF DIVIDENDS, INTEREST, 
AND PATRONAGE DIVIDENDS.—In the case of each failure to file a state-
ment of the aggregate amount of payments to another person required 
by section 6042(a) (1^ (relating to payments of dividends aggregat- 
Ante, p. 1053. 
ing $10 or more), section 6044(a) (1) (relating to payments of patron- 
Ante, p. 1054. 
age dividends aggregating $10 or more), or section 6049(a) (1) (re- Ante, p. 1056. 
latiiig to payments of interest aggregating $10 or more), on the date 
prescribed therefor (determined with regard to any extension of time 
for filing), unless it is shown that such failure is due to reasonable 
cause and not to willful neglect, there shall be paid (upon notice and 
demand by the Secretary or his delegate and in the same manner as 
tax), by the person failing to so file the statement, $10 for each such 
statement not so filed, but the total amount imposed on the delinquent 
person for all such failures during any calendar year shall not exceed 
$25,000. 
"(b) OTHER RETURNS.—In the case of each failure to file a state-
ment of a payment to another person required under authority of sec-
tion 6041 (relating to certain infonnation at source), section 6042 
(a) (2) (relating to payments of dividends aggregating less than 
$10), section 6044(a)(2) (relating to payments of patronage divi-
dends aggregating less than $10), section 6049(a)(2) (relating to 
payments of interest aggregating less than $10), section 6049(a) (o) 
(relating to other payments of interest by corporations), or section 
6051(d) (relating to information returns with respect to income tax 26 use eosi. 
withheld), on the date prescribed therefor (determined with regard 
to any extension of time for filing), unless it is shown tliat such 
failure is due to reasonable cause and not to willful neglect, tJiere shall 
be paid (upon notice and demand by the Secretary or his delegate 
and in the same manner as tax) by the person failing to so file the 
statement, $1 for each such statement not so filed, but the total amount 
imposed on the delinquent person for all such failures during tlie 
calendar year shall not exceed $1,000. 
78135 0-63—70 
1058 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
" ( c ) 
ALCOHOL AND TOBACCO T A X E S . — 
"For penalties for failure to file certain information returns with 
respect to alcohol and tobacco taxes, see, generally, subtitle E." 
(e) 
PENALTIES FOR FAILURE T O F U R N I S H STATEMENTS TO PERSONS 
W I T H 
RESPECT TO W H O M 
RETURNS A R E FILED.—Subchapter B of 
chapter 68 (relating to assessable penalties) is amended by adding 
Ante, p. 988. 
after section 6677 (as added by section 7 ( g ) of this Act) the following 
new section: 
"SEC. 6678. FAILURE TO FURNISH CERTAIN STATEMENTS. 
" I n the case of each failure to furnish a statement under section 
Ante, pp.1054- 
6042(c), 6044(e), or 6049(c) on the date prescribed therefor to a 
^°^^- 
person with respect to whom a return has been made under section 
6042(a)(1), 6044(a)(1), or 6049(a)(1), respectively, unless it is 
shown that such failure is due to reasonable cause and not to willful 
neglect, there shall be paid (upon notice and demand by the Secretary 
or his delegate and in the same manner as t a x ) , by the person fail-
ing to so furnish the statement, $10 for each such statement not so 
furnished, but the total amount imposed on the delinquent person 
for all such failures during any calendar year shall not exceed 
$25,000." 
26 use 6041. 
(f) 
TECHNICAL AMENDMENTS.—Section 6041 (relating to informa-
tion at source) is amended— 
(1) by striking out, in subsection (a) thereof, "(other than 
payments described in section 6042(1) or section 6045)" and in-
serting in lieu thereof "(other than payments to which section 
6042(a) (1), 6044(a) (1), or 6049(a) (1) applies, and other than 
payments with respect to which a statement is required under 
the authority of section 6042(a)(2), 6044(a)(2), 6045, 6049 
(a) (2), or 6049(a) ( 3 ) ) " ; and 
(2) by striking out subsection (c) thereof. 
(g) 
CLERICAL A M E N D M E N T S . — 
(1) The table of sections for subpart B of part I I I of sub-
chapter A of chapter 61 is amended— 
(A) by striking out 
"Sec. 6042. Returns regarding corporate dividends, earnings, and 
profits." 
and inserting in lieu thereof 
"Sec. 6042. Returns regarding payments of dividends and corporate 
earnings and profits."; 
( B ) by striking out 
"Sec. 6044. Returns regarding patronage dividends." 
and inserting in lieu thereof 
"Sec..6044. Returns regarding payments of patronage dividends."; 
and 
(C) by adding at the end of such table the following: 
"Sec. 6049. Returns regarding payments of interest.". 
(2) T h e table of sections for subchapter B of chapter 68 is 
amended by adding at the end thereof the following: 
"Sec. 6678. Failure to furnish certain statements." 
(h) 
EFFECTIVE D A T E S . — 
(1) 
DIVIDENDS AND INTEREST.—The amendments made by this 
section shall apply to payments of dividends and interest made 
on or after J a n u a r y 1,1963. 
(2) 
PATRONAGE DIVIDENDS.—The amendments made by 
this 
section shall apply to payments of amounts described in section 
6044(b) of the Internal Revenue Code of 1954 made on or after 
J a n u a r y 1, 1963, with respect to patronage occurring on or after 
the first day of the first taxable year of the cooperative beginning 
on or after J a n u a r y 1, 1963. 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1059 
SEC. 20. INFORMATION WITH RESPECT TO CERTAIN FOREIGN EN-
TITIES. 
(a) iNroRMATioN To B E FURNISHED BY INDIVIDUALS, DOMESTIC 
CORPORATIONS, ETC., W I T H RESPECT TO CERTAIN FOREIGN CORPORA-
TIONS.—Section 6038 is amended to read as follows: 
74 stat. 1014. 
26 use 6038. 
"SEC. 6038. INFORMATION WITH RESPECT TO CERTAIN FOREIGN COR-
PORATIONS. 
"(a) 
REQUIREMENT,— 
"(1) I N GENERAL.—Every United States person shall furnish, 
with respect to any foreign corporation which such person con-
trols (within the meaning of suDsection (d) (1)), such informa-
tion as the Secretary or his delegate may prescribe by regulations 
relating to— 
"(A) the name, the principal place of business, and the 
nature of business of such foreign corporation, and the 
country under whose laws incorporated; 
"(B) the accumulated profits (as defined in section 902(c)) 
Ante, p. :iooo. 
of such foreign corporation, including the items of income 
(whether or not included in gross income under chapter 1), 
deductions (whether or not allowed in computing taxable 
incotoe under chapter 1), and any other items taken into 
account in computing such accumulated profits; 
"(C) a balance sheet for such foreign corporation listing 
assets, liabilities, and capital; 
"(D) transactions between such foreign corporation and— 
"(i) such person, 
"(ii) any other corporation which such person con-
trolsj and 
"(lii) any XJnited States person owning, at the time 
the transaction takes place, 10 percent or more of the 
value of any class of stock outstanding of such foreign 
corporation; and 
"(E) a description of the various classes of stock outstand-
ing, and a list showing the name and address of, and number 
of shares held by, each United States person who is a share-
holder of record owning at any time during the annual ac-
counting period 5 percent or more in value of any class of 
stock outstanding of such foreign corporation. 
The Secretary or his delegate may also require the furnishing 
of any other information which is similar or related in nature to 
that specified in the preceding sentence. 
" (2) 
PERIOD FOR WHICH INFORMATION IS TO BE FURNISHED, ETC.— 
The information required under paragraph (1) shall be furnished 
for the annual accounting period of the foreign corporation end-
ing with or within the United States person's taxable year. Tlie 
information so required shall be furnished at such time and in 
such manner as the Secretary or his delegate shall by regulations 
prescribe. 
"(3) LIMITATION.—No information shall be required to be 
furnished under this subsection with respect to any foreign 
corporation for any annual accounting period unless such in-
formation was required to be furnished under regulations in effect 
on the first day of such annual accounting period. 
"(b) 
EFFECT OF FAILURE TO FURNISH INFORMATION.— 
"(1) I N GENERAL.—If a United States person fails to furnish, 
within the time prescribed under paragraph (2) of subsection 
(a), any information with respect to any foreign corporation 
required under paragraph (1) of subsection (a), then— 
1060 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
26 use 901; 
"(A) ill applying section 901 (relating to taxes of foreign 
fo3i' ^^ ^°°^' 
countries and possessions of the United States) to such 
United StateB person for the taxable year, the amount of 
taxes (other than taxes reduced under subparagraph (B)) 
paid or deemed paid (other than those deemed paid under 
26 use 904. 
section 904(d)) to any foreign country or possession of the 
United Statesi for the taxable year shall be reduced by 10 
percent, and 
Ante, p. 999. 
"(B) in ^bplyiiig scctioiis 902 (relating to foreign tax 
credit for corporate stockholder in foreign corporation) and 
Ante, p. 1020. 
960 (rclatii^ to special rules for foreign tax credit) to any 
such United States person which is a corporation (or to any 
person who acquires from any other person any portion of 
the inter^t of such other person in any such foreign cor-
poration 
J but only to the extent of such portion) for any 
taxable year, the amount of taxes paid or deemed paid by 
each foi/feign corporation with respect to which such person 
is required to furnish information during the annual account-
ing period or periods with respect to which such information 
is required under paragraph (2) of subsection (a) shall be 
reduced by 10 percent. 
If such failure continues 90 days or more after notice by the 
Secretary or his delegate to the United States person, then the 
amount of the reduction under this paragraph shall be 10 percent 
plus an additional 5 percent for each 3-month period, or fraction 
thereof, during which such failure to furnish information con-
tinues after the expiration of such 90-day period. 
"(2) LIMITATION.—The amount of the reduction under para-
graph (1) for each failure to furnish information with respect to 
a foreign corporation required under subsection (a) (1) shall not 
exceed whichever of the following amounts is the greater: 
"(A) $10,000, or 
"(B) the income of the foreign corporation for its annual 
accounting period with respect to which the failure occurs. 
"(3) 
SPECIAL RULES.— 
" (A) No taxes shall be reduced under this subsection more 
than once for the same failure. 
"(B) For purposes of this subsection, the time prescribed 
under paragraph (2) of subsection (a) to furnish informa-
tion (and the beginning of the 90-day period after notice by 
the Secretary) shall be treated as being not earlier than the 
last day on which (as shown to the satisfaction of the Secre-
tary or his delegate) reasonable cause existed for failure to 
furnish such information. 
"(C) In applying subsections (a) and (b) of section 902, 
and in applying subsection (a) of section 960, the reduction 
provided by this subsection shall not apply for purposes of 
determining the amount of accumulated profits m excess of 
income, war profits, and excess profits taxes. 
"(c) 
Two O
R MORE PERSONS REQUIRED To FURNISH INFORMATION 
W I T H RESPECT TO SAME FOREIGN CORPORATION.—^Where, but for this 
.subsection, two or more United States persons would be required to 
furnish information under subsection (a) with respect to the same 
foreign corporation for the same period, the Secretary or his delegate 
may by regulations provide that such information shall be required 
only from one person. 
To the extent practicable, the determination 
of which person shall furnish the information shall be made on the 
basis of actual ownership of stock. 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1061 
"(d) DEFINITIONS.—For purposes of this section— 
"(1) CONTROL.—A person is in control of a corporation if such 
person owns stock possessing more than 50 percent of the total 
combined voting power of all classes of stock entitled to vote, or 
more than 50 percent of the total value of shares of all classes of 
stock, of a corporation. 
If a person is in control (within the 
meaning of the preceding sentence) of a corporation which in 
turn owns more than 50 percent of the total combined voting 
power of all classes of stock entitled to vote of another corpora-
tion, or owns more than 50 percent of the total value of the shares 
of all classes of stock of another corporation, then such person 
shall be treated as in control of such other corporation. 
For pur-
poses of this paragraph, the rules prescribed by section 318(a) for 
26 use 3:i8. 
determining ownership of stock shall apply; except that— 
"(A) the second sentence of subparagraphs (A) and (B), 
and clause (ii) of subparagraph (C), of section 318(a)(2) 
shall not be applied so as to consider a United States person 
as owning stock which is owned by a person who is not a 
United States person, and 
"(B) in applying clause (i) of subparagraph (C) of sec-
tion 318(a) (2), the phrase '10 percent' shall be substituted 
for the phrase '50 percent' used in subparagraph (C). 
"(2) ANNUAL ACCOUNTING PERIOD.—The annual accounting 
period of a foreign corporation is the annual period on the basis 
of which such corporation regularly computes its income in 
keeping its books. 
"(e) 
CROSS EEFERENCES.— 
"(1) For provisions relating to penalties for violations of this 
section, see section 7203. 
"(2) For definition of the term 'United States person', see section 
7701(a)(30)." 
(b) 
INFORMATION AS TO 
ORGANIZATION OR REORGANIZATION OF 
FOREIGN CORPORATIONS AND AS ix) ACQUISITIONS OF T H E I R S T O C K . — 
Section 6046 (relating to returns as to creation or organization, or 
74 stat.ioie. 
reorganization, of foreign corporations) is amended to read as 
^e use 6046. 
follows: 
"SEC. 6046. RETURNS AS TO ORGANIZATION OR REORGANIZATION OF 
FOREIGN CORPORATIONS AND AS TO ACQUISITIONS OF 
THEIR STOCK. 
"(a) REQUIREMENT OF RETURN,—A return complying with the 
requirements of subsection (b) shall be made by— 
"(1) each United States citizen or resident who is on January 1, 
1963, an officer or director of a foreign corporation, 5 percent or 
more in value of the stock of which is owned by a United States 
person (as defined in section 7701(a) (30)), or who becomes such 
Ante, p. 988. 
an officer or director at any time after such date, 
"(2) each United States person who on January 1, 1963, owns 
5 percent or more in value of the stock of a foreign corporation, 
or who, at any time after such date— 
"(A) acquires stock which, when added to any stock owned 
on January 1, 1963, has a value equal to 5 percent or more of 
the value of the stock of a foreign corporation, or 
"(B) acquires an additional 5 percent or more in value of 
the stock of a foreign corporation, and 
"(3) each person who at any time after January 1, 1963, 
becomes a United States person while owning 5 percent or more in 
value of the stock of a foreign corporation. 
"(b) FORM AND CONTENTS OF RETURNS.—The returns required by 
subsection (a) shall be in such form and shall set forth, in respect oi 
1062 
PUBUC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
the foreign corporation, such information as the Secretary or his dele-
gate prescribes by forms or regulations as necessary for carrying out 
the provisions of the income tax laws, except that in the case of persons 
described only in subsection (a)(1) the information required shall be 
limited to the names and addresses of persons described in subsection 
(a)(2). 
"(c) OWNERSHIP OF STOCK.—For purposes of subsection (a), stock 
owned directly or indirectly by a person (including, in the case of 
an individual, stock owned by members of his family) shall be taken 
into account. For purposes of the preceding sentence, the family of 
an individual shall be considered as including only his brothers and 
sisters (whether by the whole or half blood), spouse, ancestors, and 
lineal descendants. 
"(d) TIME FOR FILING.—^Any return required by subsection (a) 
shall be filed on or before the 90th day after the day on which, under 
any provision of subsection (a), the United States citizen, resident, or 
person becomes liable to file such return. 
"(e) LIMITATION.— 
"(1) GENERAL RULE.—Except as provided in paragraph (2), no 
information shall be required to be furnished under this section 
with respect to any foreign corporation unless such information 
was required to be furnished under regulations which have been 
in effect for at least 90 days before the date on which the United 
States citizen, resident, or person becomes liable to file a return 
required under subsection (a). 
"(2) EXCEPTION.—In the case of liability to file a return under 
subsection (a) arising on or after January 1, 1963, and before 
June 1, 1963— 
"(A) no information shall be required to be furnished 
under this section with respect to any foreign corporation 
unless such information was required to be furnished under 
regulations in effect on or before March 1, 1963, and 
"(B) if the date on which such regulations become effec-
tive is later than the day on which such liability arose, any 
return required by subsection (a) shall (in lieu of the time 
prescribed by subsection (d)) be filed on or before the 90th 
day after such date. 
"(f) CROSS KEFERENCE.— 
"For provisions relating to penalties for violations of this section, 
see sections 6679 and 7203." 
(c) CIVIL PENALTY FOR FAILURE To FILE RETURN.—Subchapter B 
of chapter 68 (relating to assessable penalties) is amended by adding 
Ante, p. 1058. 
after section 6678 (as added by section 19(e) of this Act) the following 
new section: 
"SEC. 6679. FAILURE TO FILE RETURNS AS TO ORGANIZATION OR 
REORGANIZATION OF FOREIGN CORPORATIONS AND AS 
TO ACQUISITIONS OF THEIR STOCK. 
"(a) CIVIL PENALTY.—In addition to any criminal penalty pro-
Ante, p. 1061. 
vided by law, any person required to file a return under section 6046 
who fails to file such return at the time provided in such section, or 
who files a return which does not show the information required pur-
suant to such section, shall pay a penalty of $1,000, unless it is shown 
that such failure is due to reasonable cause. 
"(b) 
DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B of 
26 use 6211- 
chapter 63 (relating to deficiency procedure for income, estate, and 
®^*®' 
gift taxes) shall not apply in respect of the assessment or collection of 
any penalty imposed by subsection (a)." 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1063 
(d) TECHNICAL AMENDMENTS,— 
(1) Section 318(b) (relating to cross references) is amended by 
26 use 3is. 
striking out "and" at the end of paragraph (5), by striking out 
the period at the end of paragraph (6) and inserting in lieu 
thereof "; and", and by adding at the end thereof the following: 
"(7) section 6038(d)(1) (relating' to information with respect to 
certain foreign corporations)." 
(2) The table of sections for subpart B of part I I I of subchapter 
A of chapter 61 is amended by striking out 
"Sec. 6046. Returns as to creation or organization, or reorganiza-
tion, of foreign corporations," 
and inserting in lieu thereof 
"Sec. 6046. Returns as to organization or reorganization of foreign 
corporations and as to acquisitions of their stock." 
(3) The table of sections for subchapter B of chapter 68 is 
amended by adding at the end thereof the following: 
"Sec. 6679. Failure to file returns as to organization or reorganiza-
tion of foreign corporations and as to acquisitions of 
their stock." 
(e) 
EFFECTIVE DATE,— 
(1) The amendments made by subsection (a) shall apply with 
respect to annual accounting periods of foreign corporations 
beginning after December 31,1962. 
(2) The amendments made by subsection (b) shall take effect 
on January 1,1963. 
SEC. 2
1
. 
EXPENDITURES 
BY 
FARMERS 
FOR 
CLEARING 
LAND. 
(a) ALLOWANCE OF DEDUCTION,—Part VI of subchapter B of 
chapter 1 (relating to itemized deductions for individuals and cor-
porations) is amended by adding after section 181 (as added by sec- 
Ante, p. 9171. 
tion 2(c) of this Act) the following new section: 
"SEC. 1
8
2
. 
EXPENDITURES 
BY 
FARMERS 
FOR 
CLEARING 
LAND. 
"(a) I N GENERAL.—A taxpayer engaged in the business of farm-
ing may elect to treat expenditures which are paid or incurred by him 
during the taxable year in the clearing of land for the purpose of 
making such land suitable for use in farming as expenses which are 
not chargeable to capital account. The expenditures so treated shall 
be allowed as a deduction. 
"(b) LIMITATION.—The amount deductible under subsection (a) 
for any taxable year shall not exceed whichever of the following 
amounts is the lesser: 
"(1) $5,000, or 
"(2) 25 percent of the taxable income derived from farming 
during the taxable year. 
For purposes of paragraph (2), the term 'taxable income derived 
from farming' means the gross income derived from farming reduced 
by the deductions allowed by this chapter (other than by this sec-
tion) which are attributable to the business of farming. 
"(c) DEFINITIONS.—For purposes of subsection (a)— 
"(1) The term 'clearing of land' includes (but is not limited 
to) the eradication of trees, stumps, and brush, the treatment or 
moving of earth, and the diversion of streams and watercourses. 
"(2) The term 'land suitable for use in farming' means land 
which as a result of the activities described in paragraph (1) 
is suitable for use by the taxpayer or his tenant for the produc-
tion of crops, fruits, or other agricultural products or for the 
sustenance of livestock. 
1064 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
"(d) EXCEPTIONS, ETC.— 
"(1) EXCEPTIONS.—The expenditures to which subsection (a) 
applies shall not include— 
"(A) the purchase, construction, installation, or improve-
ment of structures, appliances, or facilities which are of a 
character which is subject to the allowance for depreciation 
26 use 167. 
provided in section 167, or 
"(B) any amount paid or incurred which is allowable as 
a deduction without regard to this section. 
"(2) CERTAIN PROPERTY USED IN THE CLEARING OF LAND.— 
"(A) ALLOWANCE FOR DEPRECIATION.—The expenditures to 
which subsection (a) applies shall include a reasonable allow-
ance for depreciation with respect to property of the tax-
payer which is used in the clearing of land for the purpose 
of making such land suitable for use in farming and which, 
if used in a trade or business, would be property subject to 
the allowance for depreciation provided by section 167. 
"(B) TREATMENT AS DEPRECIATION DEDUCTION.—For pur-
poses of this chapter, any expenditure described in sub-
paragraph (A) shall, to the extent allowed as a deduction 
under subsection (a), be treated as an amount allowed under 
section 167 for exhaustion, wear and tear, or obsolescence of 
the property which is used in the clearing of land. 
"(e) ELECTION.—The election under subsection (a) for any taxable 
year shall be made within the time prescribed by law (including ex-
tensions thereof) for filing the return for such taxable year. 
Such 
election shall be made in such manner as the Secretary or his dele-
gate ma;^ by regulations prescribe. Such election may not be revoked 
except with the consent of the Secretary or his delegate." 
26 use 263. 
(b) CONFORMING AMENDMENT.—Section 263(a)(1) 
(relating to 
disallowance of deductions for capital expenditures) is amended by 
striking out "or" at the end of subparagraph (C), by striking out 
the period at the end of subparagraph (D) and inserting ", or", and 
by adding at the end thereof the following new subparagraph: 
" (E) expenditures by farmers for clearing land deductible 
under section 182." 
(c) CLERICAL AMENDMENT.—The table of sections for such part 
VI is amended by adding at the end thereof the following: 
"Sec. 182. Expenditures by farmers for clearing land." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
apply with respect to taxable years beginning after December 31,1962. 
SEC. 22. CHARITABLE CONTRIBUTIONS MADE FROM INCOME AT-
TRIBUTABLE TO SEVERAL TAXABLE YEARS. 
(a) TREATMENT FOR PURPOSES OF PART I OF SUBCHAPTER Q.—Sec-
26 use 1307. 
tion 1307 (relating to rules applicable to part I of subchapter Q) 
is amended by adding at the end thereof the following new subsection: 
"(e) ELECTION W I T H RESPECT TO CHARITABLE CONTRIBUTIONS.—In 
the case of an individual who elects (in such manner and at such time 
as the Secretary or his delegate prescribes by regulations) to have 
the provisions of this subsection apply, an amount received or accrued 
to which this part applies shall be reduced, for purposes of computing 
the tax liability of the taxpayer under this part with respect to the 
amount so received or accrued, by an amount equal to that portion 
of (1) the amount of charitable contributions made by the taxpayer 
during the taxable year in which the amount is so received or accrued 
76 STAT.] 
PUBLIC LAW 87-834-OCT. 16, 1962 
1065 
which are allowable as a deduction for such year under section 170 
26 use i70. 
(determined without regard to this part), as (2) the amount received 
or accrued to which this part applies is of the adjusted gross income 
for the taxable year (determined without regard to this part). 
In 
any case in which the taxpayer elects to have the provisions of the 
preceding sentence apply, for purposes of computing the limitation 
on tax under this part— 
"(1) only the same proportion of the amount to which this 
part applies shall be taken into account for purposes of comput-
ing the limitations under section 170(b)(1) (A) and (B) for 
taxable years before the taxable year in which such amoimt is 
received or accrued as (A) the excess of the maximum amount 
which could, if the taxpayer had made additional contributions 
described in clause (i), (ii), or (iii) of section 170(b)(1)(A), 
have been described in clause (1) of the preceding sentence over 
the amount described in such clause (1), bears to (B) such maxi-
mum amount, and 
"(2) the portion of the amount of charitable contributions 
described in the preceding sentence shall not be taken into account 
in computing the tax for the taxable year in which the amount 
to which this part applies is received or accrued." 
(b) EFFECrivE DATE.—The amendment made by subsection (a) 
shall apply with respect to amounts received or accrued in taxable 
years beginning after December 31, 1961. 
SEC. 23, EFFECTIVE DATE OF SECTION 1371(c) OF THE INTERNAL 
REVENUE CODE OF 1954. 
(a) I N GENERAL.—Subject to the provisions of subsection (b), 
section 1371(c) of the Internal Revenue Code of 1954 (as added by 
26 use 1371. 
section 2(a) of the Act entitled "An Act to amend the Internal Reve-
nue Code of 1951 to provide a personal exemption for children placed 
for adoption and to clarify certain provisions relating to the election 
of small business corporations as to taxable status", approved Septem-
ber 23, 1959 (Public Law 86-376)), shall (notwithstanding the provi-
sions of the first sentence of section 2(d) of such Act) also apply to 
taxable years beginning after December 31, 1957, and before January 
1, 1960. 
(b) 
ELECTION AND CONSENT BY CORPORATIONS ; CONSENTS BY SHARE-
HOLDERS.—Subsection (a) shall apply with respect to any corporation 
and its shareholders only if, within one year after the date of the 
enactment of this Act— 
(1) such corporation (in such manner as the Secretary of the 
Treasury or his delegate prescribes by regulations) elects to have 
the provisions of subsection (a) apply and consents to the applica-
tion of subsection (c); and 
(2) each person Avho is a shareholder of such corporation on 
the date on which such corporation makes such election, and each 
person who was a shareholder of such corporation during any 
taxable year of such corporation beginning after December 31, 
1957, and ending before the date of such election, consents (in such 
manner and at such time as the Secretary of the Treasury or his 
delegate prescribes by regulations) to such election and to the 
apnlication of subsection (c). 
(c) TOLLING OF STATUTES OF LIMITATIONS.—In any case in which 
a corporation makes an election under subsection (b)— 
(1) if the assessment of any deficiency against the corporation 
making such election, or any shareholder of such corporation 
1066 
PUBLIC LAW 87-834-OCT. 16,1%2 
[76 STAT. 
who consents to such election, for any taxable year is prevented, 
at any time on or before the expiration of one year after the 
date of such election, by the operation of any law or nile of 
law, assessment of such deficiency may, nevertheless, be made, to 
the extent such deficiency is attributable to the application of 
subsection (a), at any time on or before the expiration of such 
one-year period; and 
(2) if credit or refund of any overpayment of tax by the 
corporation making such election, or any shareholder of such 
corporation who consents to such election, for any taxable year 
is prevented, at any time on or before the expiration of one year 
after the date of such election, by the operation of any law or rule 
of law, credit or refund of such overpayment may, nevertheless, 
be allowed or made, to the extent such overpayment is attributable 
to the application of subsection (a), if claim therefor is filed on 
or before the expiration of such one-year period. 
SEC. 24. CERTAIN LOSSES SUSTAINED IN CONVERTING FROM STREET 
RAILWAY TO BUS OPERATIONS. 
(a) I N GENERAL.—If a corporation has a net operating loss for the 
taxable year ending December 31, 1953, or the taxable year ending 
December 31,1954, principally as the result of conversion from street 
railways to bus operations with respect to part or all of the company's 
operations, then its unused conversion loss will be subject to the treat-
ment provided in subsection (c). 
(b) UNUSED CONVERSION Loss DEFINED.—The amount of the unused 
conversion loss shall be the sum of the part of the net operating loss 
for each year described in subsection (a) which (without regard to 
this section) would be carried over to the sixth taxable year following 
26 use 172. 
the loss year if section 172(b) of the Internal Kevenue Code of 1954 
(or, where applicable, section 122(b) (2) (B) of the Internal Revenue 
64 Stat. 938. 
Code of 1939) permitted such a carryover. 
(c) TREATMENT OF UNUSED CONVERSION Loss.—If a taxpayer has 
an unused con 
version, loss, then in determining the amount of the net 
operating loss carryover from the taxable year ending December 31, 
1959, to each of the 5 taxable years following such taxable year for 
purposes of section 172 of the Internal Revenue Code of 1954, such 
unused conversion loss shall be treated as a net operating loss for the 
taxable year ending December 31, 1959. This subsection shall apply 
only for years in which the taxpayer is engaged in the furnishing or 
sale of transportation (as defined in section 1503(c)(1)(A) of the 
26 use 1503. 
Internal Revenue Code of 1954). 
(d) REGULATIONS.—The Secretary of the Treasury, or his delegate, 
may prescribe by regulation such rules as may be necessary to carry 
out the purposes of this section. 
SEC. 25. PENSION PLAN OF LOCAL UNION NUMBERED 435, INTER-
NATIONAL HOD CARRIERS' BUILDING AND COMMON 
LABORERS' UNION OF AMERICA. 
The pension plan of Local Union Numbered 435 of the Interna-
tional Hod Carriers' Building ^and Common Laborers' I'nion of 
America, which was negotiated to take effect May 1, 1980, pursuant 
to an agreement between such union and the Building Trades Employ-
ers Association of Rochester, New York, Incorporated, and which 
has been held by the Internal Revenue Service to constitute a qualified 
26 use 401. 
trust under section 401(a) of the Internal Revenue Code of 1954, and 
26 use 501. 
to be exempt from taxation under section 501(a) of such Code, shall 
be held and considered to have been a qualified trust under such sec-
76 STAT.] 
P U B U C LAW 87-834-OCT. 16, 1962 
1067 
tion 401 (a), and to have been exempt from taxation under such section 
26 use 40i. 
501(a), for the period beginning May 1, 1960, and ending April 20, 
26 use soi. 
1961, but only if it is shown to the satisfaction of the Secretary of 
the Treasury or his delegate that the trust has not in this period been 
operated in a manner which would jeopardize the interests of its 
beneficiaries. 
SEC. 26. CONTINUATION OF A PARTNERSHIP YEAR FOR SURVIVING 
PARTNER IN A TWO-MAN PARTNERSHIP WHERE ONE DIES. 
(a) 
CLOSE OF TAXABLE YEAR or TWO-MAN PARTNERSHIP W H E N ONE 
PARTNER DIES.—Section 188 of the Internal Kevenue Code of 1939 
sastat. 7i. 
(relating to different taxable years of partner and partnership) is 
amended— 
(1) by striking out "If" and inserting in lieu thereof "(a) 
GENERAL RULE.—If"; and 
(2) by adding at the end of such section 188 the following new 
subsection: 
"(b) TWO-MAN PARTNERSHIP.—For the purpose of this chapter, the 
death of one of the partners of a partnership consisting of two mem-
bers shall not, if the surviving partner so elects within one year after 
the date of enactment of this subsection, result in the termination of 
the partnership or in the closing of the taxable year of the partner-
ship with respect to the surviving partner prior to the time the part-
nership year would have closed if neither partner had died or disposed 
of his interest." 
(b) EFFECTIVE DATE, ETC.—The amendments made by subsection 
(a) shall apply with respect to taxable years of a partnership begin-
ning after December 31, 1946, to which the Internal Revenue Code of 
1939 applies. If refund or credit of any overpayment resulting from 
the application of the amendments made by subsection (a) of this 
section (including interest, additions to the tax, and additional 
amounts), is prevented on the date of enactment of this Act, or within 
one year from such date, by the operation of any law or rule of law 
(other than section 3760 of the Internal Revenue Code of 1939 or sec- 
53 stat. 462. 
tion 7121 of the Internal Revenue Code of 1954, relating to closing 
26 use 7121. 
agreements, and other than section 3761 of the Internal Revenue Code 
S3 stat. 462. 
of 1939 or section 7122 of the Internal Revenue Code of 1954, relating 
26 use 7122. 
to compromises), such refund or credit of such overpayment, may, 
nevertheless, be made or allowed if claim therefor is filed within one 
year after the date of the enactment of this Act. No interest shall be 
allowed or paid on any overpayment resulting from the enactment of 
this section. 
SEC. 27. EXCLUSION FROM GROSS INCOME OF CERTAIN AWARDS MADE 
PURSUANT TO EVACUATION CLAIMS OF JAPANESE-AMER-
ICAN PERSONS. 
(a) I N GENERAL.—No amount received as an award under the Act 
entitled "An Act to authorize the Attorney General to adjudicate cer-
tain claims resulting from evacuation of certain persons of Japanese 
ancestry under military orders", approved July 2, 1948, as amended 
by Public Law 116, Eighty-second Congress, and Public Law 673, 
Eighty-fourth Congress (50 U.S.C. App., sees. 1981-1987), shall be 
included in gross income for purposes of chapter 1 of the Internal 
Revenue Code of 1939 or chapter 1 of the Internal Revenue Code of 
ss stat. 4. 
1954. 
26 u s e 1 etseq. 
(b) EFFECTIVE DATE, ETC.—Subsection (a) shall apply with respect 
to taxable years ending after July 2, 1948. If refund or credit of 
any overpayment of Federal income tax resulting from the application 
1068 
PUBLIC LAW 87-834-OCT. 16, 1962 
[76 STAT. 
of subsection (a) (including interest, additions to the tax, additional 
amounts, and penalties) is prevented on the date of the enactment of 
this Act, or within one year from such date, by the operation of any 
law or rule of law, the refund or credit of such overpayment may 
nevertheless be made or allowed if claim therefor is filed within one 
year after the date of enactment of this Act. In the case of a claim 
to which the preceding sentence applies, the amount to be refunded 
or credited as an overpayment shall not be diminished by any credit 
or setoff based upon any item other than the amount of the award 
referred to in subsection (a). No interest shall be allowed or paid on 
any overpayment resulting from the application of this section. 
SEC. 
2
8
. 
DEDUCTION 
FOR 
DEPRECIATION 
BY 
TENANT-STOCKHOLDER 
OF COOPERATIVE 
HOUSING 
CORPORATION. 
26 use 216. 
(a) ALLOWANCE OF DEDUCTION.—Section 216 (relating to deduc-
tions by tenant-stockholders of a cooperative housing corporation) is 
amended by— 
(1) amending the heading thereof to read as follows: 
"SEC. 216. DEDUCTION OF TAXES, INTEREST, AND BUSINESS DE-
PRECIATION BY COOPERATIVE HOUSING CORPORATION 
TENANT-STOCKHOLDER."; and 
(2) adding at the end of section 216 the following new sub-
section : 
"(c) TREATMENT AS PROPERTY SUBJECT TO DEPRECIATION.—So much 
of the stock of a tenant-stockholder in a cooperative housing corpora-
tion as is allocable, under regulations prescribed by the Secretary or 
his delegate, to a proprietary lease or right of tenancy in property 
26 use 167. 
subject to the allowance for depreciation under section 167(a) shall, 
to the extent such proprietary lease or right of tenancy is used by such 
tenant-stockholder in a trade or business or for the production of 
income, be treated as property subject to the allowance for deprecia-
tion under section 167(a)." 
(b) CLERICAL AMENDMENT.—The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking out the item relating 
to section 216 and inserting in lieu thereof the following: 
"Sec. 216. Deduction of taxes, interest, and business depreciation by 
cooperative housing corporation 
tenant-stockholder." 
(c) EFFECTIVE DATE.—The amendments made by subsection (a) 
shall be effective with respect to taxable years beginning after Decem-
ber 31,1961. 
SEC. 29. DEDUCTION FOR INCOME TAX PURPOSES OF CONTRIBUTIONS 
TO CERTAIN ORGANIZATIONS FOR JUDICIAL REFORM. 
26 use 170. 
For purposes of section 170 of the Internal Revenue Code of 1954 
(relating to deduction for charitable, etc., contributions and gifts), 
a contribution or gift made after December 31,1961, with respect to a 
referendum occurring during the calendar year 1962 to or for the use 
of any nonprofit organization created and operated exclusively— 
(1) to consider proposals for the reorganization of the judicial 
branch of the government of any State of the United States or 
political subdivision of such State, and 
(2) to provide information, make recommendations, and seek 
public support or opposition as to such proposals, 
shall be treated as a charitable contribution if no part of the net 
earnings of such organization inures to the benefit of any private share-
holder or individual. The provisions of the preceding sentence shall 
not apply to any organization which participates in, or intervenes in, 
any political campaign on behalf of any candidate for public office. 
76 STAT.] 
PUBLIC LAW 87-835-OCT. 16, 1962 
1069 
SEC. 30. EFFECTIVE DATE OF AMENDMENT TO SECTION 1374(b). 
The amendment made by section 2(b) of Public Law 86-376 (73 
Stat. 699) shall take effect on September 2,1958. 
SEC. 31. TREATIES. 
Section 7852(d) of the Internal Kevenue Code of 1954 (relating to 
treaty obligations) shallnot apply in respect of any amendment made 
by this Act. 
Approved October 16, 1962, 10:30 a.m. 
26 use 78S2. 
Public Law 87-835 
AN ACT 
To amend the National Science Foundation Act of 1950 to require certain 
additional information to be filed by an applicant for a scholarship or fellow-
ship, and to amend the National Defense Education Act of 1958 with respect 
to certain requirements for payments or loans under the provisions of such 
Act, and for other purposes. 
October 16, 1962 
[H. R. 8556] 
Be it enacted hy the Senate and House of Representatives 
of the 
United States of America in Congress assembled^ That section 16(d) 
of the National Science Foundation Act of 1950 is amended to read 
as follows: 
"(d)(1) No part of any funds appropriated or otherwise made 
available for expenditure by the Foundation under authority of this 
Act shall be used to make payments under any scholarship or fellow-
ship awarded to any individual under section 10, unless such 
individual— 
"(A) has taken and subscribed to an oath or affirmation in the 
following form: 'I do solemnly swear (or affirm) that I bear true 
faith and allegiance to the United States of America and will 
support and defend the Constitution and laws of the United 
States against all its enemies, foreign and domestic'; and 
"(B) has provided the Foundation (in the case of applications 
made on or after October 1, 1962) with a full statement regard-
ing any crimes of which he has ever been convicted (other than 
crimes committed before attaining sixteen years of age and minor 
traffic violations for which a fine of $25 or less was imposed) and 
regarding any criminal charges punishable by confinement of 
thirty da^p^s or more which may be pending against him at the 
time of his application for such scholarship or fellowship. 
The provisions of section 1001 of title 18, United States Code, shall 
be applicable with respect to the oath or affirmation and statement 
herem required. 
"(2) (A) When any Communist organization, as defined in para-
graph (5) of section 3 of the Subversive Activities Control Act of 
1950, is registered or there is in effect a final order of the Subversive 
Activities Control Board requiring such organization to register, it 
shall be unlawful for any member of such organization with knowl-
edge or notice that such organization is so registered or that such 
order has become final (i) to make application for any scholarship 
or fellowship which is to be awarded from funds part or all of which 
are appropriated or otherwise made available for expenditure under 
National 1?cience 
Foundation. 
Scholarships. 
64 Stat. 156; 
72 Stat. 353. 
42 use 1874. 
Oath, 
Criminal record, 
statement. 
62 Stat. 749. 
68 Stat. 777. 
50 u s e 782.