Page:United States Statutes at Large Volume 50 Part 1.djvu/841

 816 Option rule in lieu of family an d partner- ship rule. Convertible securi- ties. Undi stribut ed ad- justed net income. Definition. Computation. Adjusted net in- come. Definition. Additional deduc- tions. Computation. 49 Stat . 1658, 1676, 17 32 . Charitable, etc ., contributions . 49 Stat. 1661. 75T H CON GRESS, 1ST SESSION-CH. 815-AUGUST 26, 1937 "(6) OPTION R ULE IN LI EU OF FAM ILY AND PARTNERSHIP RULE.- If stock m ay be con sidered as owned by an indivi dual unde r either paragraph (2) or (3) it shall be considered as owned by him under paragraph (3) . " (b) CO NVE RTI BLE SECURITIES. -Outstanding securi ties conver ti- ble Into stock (whether or not convertible during the taxable year) shall be co nsider ed as outs tandin g sto ck- "( 1) For the purpose of the stock ownership requirement-pro- vided in section 352 (a) (2), but only if the effect of the inclu- sion of all such securities is to make the corporation a personal holding company ; "( 2) For the purpose of section 353 (e) (relating to personal service contracts), but only if the effect of the inclusion of all such securities is to make the amounts therein referred to includ- ible under such subsection as personal holding company income ; and "(3) For the purpose of section 353 (f) (relating to the use of property by shareholders), but only if the effect of the inclu- si on of all s uch securit ies is to m ake the amo unts therei n referred t o inc ludibl e und er suc h sub secti on as perso nal h olding comp any income. "The requirement in paragraphs (1), (2), and (3) that all convertible securities must be included if any are to be included shall be subject to the exception that, where some of the outstanding securities are convertible only after a later date than in the case of others, the class having the earlier conversion date may be included although the others are not included, but no convertible securities shall be included unless all outstanding securities having a prior conversion date are also included. "SEC . 355. UNDISTRIBUTED ADJUSTED NET INCOME . "For the purposes of this title the term undistributed adjusted net income' means the adjusted net income (as defined in section 356) minus- " (a) The amount of the dividends paid credit p rovided in section 27, computed without the benefit of subsection (b) thereof (relating to the dividend carry-over) ; and "( b) Amounts used or irrevocably set aside to pay or to retire indebtedness of any kind incurred prior to January 1, 1934, if such amounts are reasonable with reference to the size and terms of such i ndebte dness. "SEC . 356. A DJUSTED NET INCOM E . "For the purposes of this title the term adjusted net income' means the net income with the following adjustments "( a) ADDITIONAL DEDUCTIONS .-There shal l be allowed as deductions- "( 1) Federal income, war-profits, and excess-profits taxes paid or accrued during the taxable year to the extent not allowed as a deduction under section 23 ; but not including the tax imposed by section 102, section 351 (either before or after its amendment by the Revenue Act of 1937), or a section of a prior income-tax law corresponding to either of such sections. "( 2) In lieu of the deduction allowed by section 23 (q), co n- tributions or gifts made within the taxable year to or for the use of donees described in section 23 (q) for the purposes therein specified, to an amount which does not exceed 15 per centum of the taxpayer's net income, c omputed without the benefit of this paragraph and section 23 (q), and without the deduction of the amount disallowed under subsection (b) of this section.