SEC. 1341-Continued (b) (2)-(amended 1958) Continued Do.. (sentence added) Do.. (in part) (b) (3) (added) utility (as defined in section 1503 (c) without regard to paragraph (2) thereof) if such refunds or repayments are required to be made by the Government, political subdivision, agency, or instrumentality referred to in such section, or by an order of a court, or are made in settlement of litgation or under threat or imminence of litigation." Applicability: Taxable years beginning after December 31, 1957. (Id., § 60(e), 72 Stat. 1647.) Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 60(c), 72 Stat. 1647: Amended Sec. 1341 (b)(2) (as amended by P.L. 85-866, § 60(b)) by adding at the end thereof the following new sentence: "This paragraph shall not apply if the deduction arises out of payments or repayments made pursuant to a price redetermination provision in a subcontract entered into before January 1, 1958, between persons other than those bearing the relationship set forth in section 267 (b), if the subcontract containing the price redetermination provision is subject to statutory renegotiation and section 1481 (relating to mitigation of effect of renegotiation of Government contracts) does not apply to such payment or repayment solely because such payment or repayment is not paid or repaid to the United States or any agency threof." 312 Applicability: Taxable years beginning after December 31, 1953, and ending after August 16, 1954. (Id., § 1(c)(1), 72 Stat. 1606. See n. 36, p. 79, above.) Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 234(b) (7), 78 Stat. 116: Amended Sec. 1341(b)(2) (as amended by P.L. 85–866, § 60(b),(c)) by striking out "(as defined by section 1503 (c) without regard to paragraph (2) thereof)" and inserting in lieu thereof "(as defined in section 7701 (a) (33) without regard to the limitation contained in the last two sentences thereof)". Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 60 (d), 72 Stat. 1647: Amended Sec. 1341 (b) (special rules) by adding at the end thereof, after paragraph (2) (as amended by P.L. 85-866, § 60(b) and (c)), the following new paragraph (3): "(3) If the tax imposed by this chapter for the taxable year is the amount determined under subsection (a) (5), then the deduction referred to in subsection (a) (2) shall not be taken into account for any purpose of this subtitle other than this section." Applicability: Taxable years beginning after December 31, 1953, and ending after August 16, 1954. (Id. § 1(c)(1), 72 Stat. 1606. See n. 36, p. 79 above.) 312 With respect to this amendment P.L. 85–866, § 60(e) contained the following provision: "No interest shall be allowed or paid on any overpayment resulting from the application of the amendment made by subsection (c)." See "ANCILLARY PROVISIONS" under Sec. 6611, p. 1119 below. SEC. 1341-Continued (b)(4), (5)... Oct. 23, 1962, H.R. 10620, P.L. 87-863, § 5(a), 76 Stat. 1142: (added) Amended Sec. 1341(b) by adding at the end thereof, after paragraph (3) (as added by P.L. 85-866, § 60(d)), the following new paragraphs (4) and (5): "(4) For purposes of determining whether paragraph (4) or paragraph (5) of subsection (a) applies "(A) in any case where the deduction referred to in paragraph (4) of subsection (a) results in a net operating loss, such loss shall, for purposes of computing the tax for the taxable year under such paragraph (4), be carried back to the same extent and in the same manner as is provided under section 172; and "(B) in any case where the exclusion referred to in paragraph (5) (B) of subsection (a) results in a net operating loss or capital loss for the prior taxable year (or years), such loss shall, for purposes of computing the decrease in tax for the prior taxable year (or years) under such paragraph (5) (B), be carried back and carried over to the same extent and in the same manner as is provided under section 172 or section 1212, except that no carryover beyond the taxable year shall be taken into account. "(5) For purposes of this chapter, the net operating loss described in paragraph (4) (A) of this subsection, or the net operating loss or capital loss described in paragraph (4)(B) of this subsection, as the case may be, shall (after the application of paragraph (4) or (5)(B) of subsection (a) for the taxable year) be taken into account under section 172 or 1212 for taxable years after the taxable year to the same extent and in the same manner as "(A) a net operating loss sustained for the taxable year, if paragraph (4) of subsection (a) applied, or "(B) a net operating loss or capital loss sustained for the prior taxable year (or years), if paragraph (5) (B) of subsection (a) applied." Applicability: Taxable years beginning on or after January 1, 1962. (Id., § 5(b), 76 Stat. 1143.) SEC. 1342. COMPUTATION OF TAX WHERE TAXPAYER RECOVERS SUBSTANTIAL AMOUNT HELD BY ANOTHER UNDER CLAIM OF RIGHT (Added 1955— 69 Stat. 717): Added Aug. 12, 1955, H.R. 257, P.L. 84-384, § 3, 69 Stat. 717: Amended Part V of Subchapter Q of Chapter 1 (relating to readjustment of tax with respect to claim of right) by adding after section 1341 (computation of tax where taxpayer restores substantial amount held under claim of right) the following new section 1342: "SEC. 1342. COMPUTATION OF TAX WHERE TAXPAYER RECOVERS SUBSTANTIAL AMOUNT HELD BY ANOTHER UNDER CLAIM OF RIGHT. "(a) GENERAL RULE.-If "(1) an item was deducted from gross income for a prior taxable year (or years) because it appeared that another person held an unrestricted right to such item as a result of a court decision in a patent infringement suit (whether or not the taxpayer is a party to such suit); and "(2) gross income is increased for the taxable year because it was established after the close of such prior taxable year (or years) that such other person did not have an unrestricted right SEC. 1342 (added 1955)-Continued to such item or to a portion of such item because of the subsequent reversal of such court decision on the ground that such decision was induced by fraud or undue influence; and "(3) the amount of such increase in gross income exceeds $3,000, then the tax imposed by this chapter for the taxable year shall be the lesser of the following: "(4) the tax for the taxable year computed with the gross income so increased; or "(5) an amount equal to "(A) the tax for the taxable year computed without such increase in gross income, plus "(B) the increase in tax (including interest) under this chapter (or the corresponding provisions of prior revenue laws) for the prior taxable year (or years) which would result solely from the elimination of such item (or portion thereof) as a deduction from gross income for such prior taxable year (or years). "(b) SPECIAL RULE. For purposes of subsection (a) (5) (B) interest shall be computed from the due date of the return for such prior taxable year to the due date of the return for the taxable year." Applicability: Taxable years beginning after December 31, 1954. (Id., § 4, 69 Stat. 717.) CH. 1, SUBCH. Q, PART VI-OTHER LIMITATIONS (68A Stat. 349): NOTE: The table of sections for Part VI of Subchapter Q of Chapter 1 reads as follows (68A Stat. 349): "Sec. 1346. Recovery of unconstitutional Federal taxes. "Sec. 1347. Claims against United States involving acquisition of property." This table has not been amended. SEC. 1347. CLAIMS AGAINST THE UNITED STATES INVOLVING ACQUISITION OF PROPERTY (68A Stat. 349): In part- Do.... (sen'ce added) Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 61(a)(1), 72 Stat. 1648: "SEC. 1347. CLAIMS AGAINST UNITED STATES INVOLVING ACQUISI- "In the case of amounts (other than interest) received by a taxpayer from the United States with respect to a claim against the United States involving the acquisition of property and remaining unpaid for more than 15 years, the tax imposed by section 1 attributable to such receipt shall not exceed 30 percent of the amount (other than interest) so received.", by striking out "the tax imposed by section 1" and inserting in lieu thereof "the surtax imposed by section 1". Applicability: Only taxable years beginning after December 31, 1957. (Id., § 61(b), 72 Stat. 1648.) Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 61 (a) (2), 72 Stat. 1648: Amended Sec. 1347 (as amended by P.L. 85-866, § 61(a)(1)) by adding at the end thereof the following new sentence: "This section shall apply only if claim was filed with the United States before January 1, 1958." SEC. 1347 (amended 1958)-Continued Applicability: Taxable years beginning after December 31, 1953, and ending after August 16, 1954. (Id., § 1(c)(1), 72 Stat. 1606. See n. 36, p. 79 above.) CH. 1, SUBCHAPTER R-ELECTION OF CERTAIN PARTNERSHIPS AND PROPRIETORSHIPS AS TO TAXABLE STATUS (68A Stat. 350–352): NOTE: The table of sections for Subchapter R of Chapter 1 reads as follows (68A Stat. 350): "Sec. 1361. Unincorporated business enterprises electing to be taxed as domestic corporations." This table has not been amended. SEC. 1361. UNINCORPORATED BUSINESS ENTERPRISES ELECTING TO BE TAXED AS DOMESTIC CORPORATIONS (68A Stat. 350-352): (d). (clause added) (i) Oct. 10, 1962, H.R. 10, P.L. 87-792, § 7(h), 76 Stat. 829: "(d) LIMITATION.-A partner or proprietor of an unincorporated business enterprise as to which an election has been made under subsection (a) shall not be considered an employee for purposes of section 401(a) (relating to employees' pension trusts, etc.).", by inserting before the period at the end thereof the following: "other than an employee within the meaning of section 401 (c) (1) (relating to self-employed individuals), or for purposes of section 405 (relating to qualified bond purchase plans) other than an employee described in section 405(f)”. Applicability: Taxable years beginning after December 31, 1962. Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 225(k) (5), 78 Stat. 94: "(i) PERSONAL HOLDING COMPANY INCOME. "(1) EXCLUDED FROM INCOME OF ENTERPRISE.-There shall be excluded from the gross income of the enterprise as to which an 313 Subsection (i) of section 1361 originally read as follows (68A Stat. 351): "(i) PERSONAL HOLDING COMPANY INCOME. "(1) EXCLUDED FROM INCOME OF ENTERPRISE.-There shall not be included in the gross income of the enterprise as to which an election has been made under subsection (a) any personal holding company income (as defined in section 543), except income earned by such enterprise from buying and selling real property, stock, securities, or commodities for the account of others. "(2) INCOME AND DEDUCTIONS OF OWNERS. Any personal holding company income not included in the gross income of the enterprise under paragraph (1), and the expenses attributable thereto, shall be treated as the income and deductions of the proprietor or partners (in accordance with their distributive shares of partnership income) of such enterprise. (3) DISTRIBUTIONS.-If the amount of personal holding company income includible under paragraph (2) in the income of the proprietor or partner is distributed to him during the year earned, such amount shall not be taxed as a corporate distribution. The amount of such income not distributed during such year shall be considered as paid-in surplus or as a contribution to capital as of the close of such year. "(4) RENTS AND ROYALTIES.-For the purpose of determining whether rents, and mineral, oil, or gas royalties constitute personal holding company income under paragraph (1), all income earned by the enterprise in any taxable year shall enter into the determination of its gross income for such year." SEC. 1361-Continued (i) (revised 1964)-Continued election has been made under subsection (a) any item of gross income (computed without regard to the adjustments provided in section 543(b) (3) or (4)) if, but for this paragraph, such item (adjusted, where applicable, as provided in section 543(b) (3) or (4)) would constitute personal holding company income (as defined in section 543(a)) of such enterprise. "(2) INCOME AND DEDUCTIONS OF OWNERS.-Items excluded from the gross income of the enterprise under paragraph (1), and the expenses attributable thereto, shall be treated as the income and deductions of the proprietor or partners (in accordance with their distributive shares of partnership income) of such enterprise. "(3) DISTRIBUTIONS.-If "(A) the amount excluded from gross income under paragraph (2) exceeds the expenses attributable thereto, and "(B) any portion of such excess is distributed to the proprietor or partner during the year earned, such portion shall not be taxed as a corporate distribution. The portion of such excess not distributed during such year shall be considered as paid-in surplus or as a contribution to capital as of the close of such year." Applicability: Taxable years beginning after December 31, 1963. (Id., § 225(1)(1), 78 Stat. 94) ANCILLARY PROVISIONS: Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 63, 72 Stat. 1649: "SEC. 63. REVOCATION OF ELECTION PERMITTING CERTAIN PROPRIETORSHIPS AND PARTNERSHIPS TO BE TAXED AS CORPORATIONS. "(a) REVOCATION OF ELECTION.-If "(1) a statement of an election to be taxed as a domestic corporation is heretofore or hereafter filed with respect to any unincorporated business enterprise under section 1361 of the Internal Revenue Code of 1954, and "(2) such filing is in accordance with regulations prescribed by the Secretary of the Treasury or his delegate, then such statement of election shall be treated as a valid election; but such election may be revoked (in accordance with regulations prescribed by the Secretary of the Treasury or his delegate) after the date of the enactment of this section [September 2, 1958] and on or before the last day of the third month following the month in which regulations prescribed under such section 1361 are published in the Federal Register 314 "(b) TOLLING OF STATUTE OF LIMITATIONS.-In the case of any election referred to in subsection (a) with respect to any unincorporated business enterprise "(1) The statutory period for the assessment of any deficiency against any taxpayer for any taxable year, to the extent such deficiency is attributable to such enterprise and to the period to which such election applies (or would apply but for a revocation under subsection (a)), shall not expire before the expiration date specified in subsection (c); and such deficiency may be assessed at any time on or 314 The regulations under section 1361 of the Internal Revenue Code of 1954, issued pursuant to section 63 of P.L. 85-866, were published in the Federal Register October 11, 1960 (25 F.R. 9723). They superseded paragraph 23 of T.D. 6118 (19 F.R. 9896), as amended by T.D. 6124 (20 F.R. 1204), and T.D. 6332, § 18.1-2, and were made applicable to taxable years beginning after December 31, 1953, and ending after August 16, 1954. See "ANCILLARY PROVISIONS" under Secs. 6501 and 6511, pp. 1090 and 1108 below. |