Page:United States Statutes at Large Volume 47 Part 1.djvu/228

 204 INCOME TAX Conditions. Distributions in liq- uidation, to be in full payment for stock. Gain or loss to d is- tributes. Ante , pp.195, 196. Partial liq uidation distribu tion. Distribu tions not o u t of increase in value be- fore March 1, 1913, nor from earnings or prof- its. Distributions by per- sonal service corpora- tions. Exemptions. Vol . 42, p. 245; Vol. 44, p.32. Stock dividend s not taxable. Redemption of stock. Treatment of pro- ceeds of. "Amounts distr ibut- ed in partial liquida- tion," c onstrued. Exclusions from gross income. Additional items ex- enlAp t ate, from tax. p. 178 . Earned income of nonresident ci tizens, from sources without United States. 72d CONGRESS. SESS. I. CH. 209 . JUNE 6, 1932 . have been distributed, but any such tax-free distribution shall be applied against a nd reduce the basis of the stock provide d in section 113 . (c) DISTRIBUTIONS IN LIQUIDATION .-Amounts distributed in com- plete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquida- tion of a corporation shall be treated as in part or full payment in exchange for the stock. The gain or loss to the distributee resulting from such exchange shall be determined under section 111, but shall be recognized only to the extent provided in section 112. In the case of amounts distri buted in partial liq uidation (other than a distribu- tion within the provisions of section 112(h) of stock or securities in connection with a reorganization) the part of such distribution which is properly chargeable to capital account shall not be con- sidered a distribution of earnings or profits within the meaning of subsection (b) of this section for the purpose of determining the taxa bil ity of subs equ ent dis trib uti ons by the cor pora tio n. (d) OTHER DISTRIBUTIONS FROM CAPITAL.-If any distr ibuti on (not in partial or complete liquidation) made by a corporation to its shareholders is not out of increase in value of property accrued before March 1, 1913, and is not out of earnings or profits, then the amount of such distribution shall be applied against and reduce the basis of the stock provided in section 113, and if in excess of such basis, such excess shall be taxable in the same manner as a gain from the sale or exchange of property. (e) DISTRIBUTIONS BY PERSONAL SERVICE CORPORATIONS .-Any di s- tribution made by a corporation, which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 or the Revenue Act of 1921, out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Reve- nue Act of 1918 or section 218 of the Revenue Act of 1921, shall be exempt from tax to the distributees. (f) STOCK DIVIDENDS .-A stock dividend shall not be subject to tax. (g) REDEMPTION OF STOCK .-If a cor porat ion canc els or r edeem s its stock (whether or not such stock was issued as a stock dividend) at such time and in such manner as to make the distribution and cancellation or redem ption in whole or in part essentially eq uivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock, to the extent that it represents a distribution of earnings or profits accumulated after February 28, 1913, sh all be treated as a taxable dividend. (h) DEFINITION OF PARTIAL LIQUIDATION .-As used in this section the t erm " amounts distributed in partial liquidation " means a dis- tribution by a corporation in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock. SEC. 116. EXCLUSIONS FROM GROSS INCOME. In addition to the items specified in section 22(b), the following items shall not be included in gross income and shall be exempt from taxation under this title : ~7 (a) EARNED INC OME FR OM SOU RCE S W ITH OUT UNI TED STATES .- In the case of an individual citizen of the United States, a bona fide nonresident of the United States for more than six months during the taxable year, amounts received from sources without the United States (exc ept a mounts paid by the United . States or any agency thereof) if such amounts constitute earned income ; but such indi- vidual shall not be allowed as a deduction from his gross income any