(2) The names of the beneficiaries and the amounts of their respective shares in such capital net gain or capital net loss.

SEC. 169. NET LOSSES.

The benefit of the special deduction for net losses allowed by section 117 shall be allowed to an estate or trust under regulations prescribed by the Commissioner with the approval of the Secretary.

SEC. 170. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF UNITED STATES.

The amount of income, war-profits, and excess-profits taxes imposed by foreign countries or possessions of the United States shall be allowed as credit against the tax of the beneficiary of an estate or trust to the extent provided in section 131.

SUPPLEMENT F-PARTNERSHIPS

SEC. 181. PARTNERSHIP NOT TAXABLE.

Individuals carrying on business in partnership shall be liable for income tax only in their individual capacity.

SEC. 182. TAX OF PARTNERS.

(a) General rule.-There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year. If the taxable year of a partner is different from that of the partnership, the amount so included shall be based upon the income of the partnership for any taxable year of the partnership ending within his taxable year.

(b) Partnership year embracing calendar years with different laws.— If a fiscal year of a partnership begins in one calendar year and ends in another calendar year, and the law applicable to the second calendar year is different from the law applicable to the first calendar year, then

(1) the rates for the calendar year during which such fiscal year begins shall apply to an amount of each partner's share of such partnership net income (determined under the law applicable to such calendar year) equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year, and

(2) the rates for the calendar year during which such fiscal year ends shall apply to an amount of each partner's share of such partnership net income (determined under the law applicable to such calendar year) equal to the proportion which the part of such fiscal year falling within such calendar year bears to the full fiscal year.

In such cases the part of such income subject to the rates in effect for the most recent calendar year shall be added to the other income of the taxpayer subject to such rates and the resulting amount shall be placed in the lower brackets of the rate schedule applicable to such year, and the part of such income subject to the rates in effect for the

next preceding calendar year shall be placed in the next higher brackets of the rate schedule applicable to such year.

SEC. 183. COMPUTATION OF PARTNERSHIP INCOME.

The net income of the partnership shall be computed in the same manner and on the same basis as in the case of an individual, except that the so-called "charitable contribution deduction provided in section 23 (n) shall not be allowed.

ART. 901. Partnerships.-Partnerships as such are not subject to taxation under the Act, but are required to make returns of income. (See section 189 and articles 941 and 942.) Individuals carrying on business in partnership are, however, taxable upon their distributive shares of the net income of such partnership, whether distributed or not, and are required to include such distributive shares in their returns. The net income of the partnership shall be computed in the same manner and on the same basis as the net income of an individual, except that the deduction of contributions or gifts is not permitted, as these are allowable deductions, subject to the limitations provided by section 23 (n), to the respective partners in their individual returns. (See sections 22-24 and 41-47 and the articles thereunder.) In the case of a partnership closely related to other trades or businesses, see section 45. For definition of what the term "partnership" includes, see article 1313.

ART. 902. Distributive shares of partners.-The distributive share of the net income of the partnership which a partner is required to include in his return is his proportionate share of the net income of the partnership, either—

(a) For the taxable year upon the basis of which the partner's net income is computed, or

(b) If the partner's net income is computed upon the basis of a taxable year different from that upon the basis of which the net income of the partnership is computed, for the taxable year of the partnership ending within the taxable year upon the basis of which the partner's net income is computed.

Amounts earned and distributed to a partner by a partnership after the end of its taxable year and before the end of his corresponding taxable year should be accounted for both by the partnership and by the partner in their returns for their next succeeding taxable years. Where the result of partnership operation is a net loss, the loss will be divisible by the partners in the same proportion as net income would have been divisible (or, if the partnership agreement provides for the division of a loss in a manner different

Art. 902

§ 183

from the division of a gain, in the manner so provided), and may be taken by the individual partners in their returns of income.

ART. 903. Taxation of partners in partnership with fiscal year ending in 1932. If the fiscal year of a partnership began in the calendar year 1931 and ended in the calendar year 1932, the method of computing the taxes of the partners is as follows:

(a) The amount of each partner's distributive share of the net income of the partnership for such fiscal year attributable to the calendar year 1931 is found by determining the net income of the partnership for its entire fiscal year in accordance with the law applicable to the calendar year 1931 (Title I of the Revenue Act of 1928) and the distributive share thereof of each partner, and then taking such proportion of that distributive share as the part of the taxable period falling within the calendar year 1931 bears to the entire taxable period.

(b) The amount of each partner's distributive share of the net income of the partnership for such fiscal year attributable to the calendar year 1932 is found by determining the net income of the partnership for its entire fiscal year in accordance with the law applicable to the calendar year 1932 and the distributive share thereof of each partner, and then taking such proportion of that distributive share as the part of the taxable period falling within the calendar year 1932 bears to the entire taxable period.

The tax upon the amount of each partner's distributive share attributable to the calendar year 1931 shall be determined at the rates applicable to that year under the Revenue Act of 1928, and the tax upon such share attributable to the calendar year 1932 shall be determined at the rates prescribed in the Revenue Act of 1932. The distributive share of the partner which is subject to the rates in effect for 1932 shall be added to the partner's other income which is subject to such rates, and the resulting amount shall be placed in the lower brackets of the rate schedule applicable to 1932. The distributive share of the partner subject to the rates in effect in 1931 shall be placed in the next higher brackets of the rate schedule applicable to 1931.

SEC. 184. CREDITS AGAINST NET INCOME.

The partner shall, for the purpose of the normal tax, be allowed as a credit against his net income, in addition to the credits allowed to him under section 25, his proportionate share of such amounts of dividends and interest specified in section 25 (a) and (b) as are received by the partnership.

ART. 911. Credits allowed partners.-In addition to the credits ordinarily allowed to an individual, a partner is entitled to a credit

against net income for the purpose of the normal tax only of a proportionate share of such dividends specified in section 25 (a) and article 291 and of such interest not entirely exempt from tax upon obligations of the United States as are received by the partnership. There shall be included in the return of the partnership a statement of the amounts of such dividends and interest and the proportionate share thereof of each partner.

SEC. 185. EARNED INCOME.

In the case of the members of a partnership the proper part of each share of the net income which consists of earned income shall be determined under rules and regulations to be prescribed by the Commissioner with the approval of the Secretary and shall be separately shown in the return of the partnership and shall be taxed to the member as provided in this Supplement.

SEC. 186. CAPITAL NET GAINS AND LOSSES.

In the case of the members of a partnership the proper part of each share of the net income which consists, respectively, of ordinary net income, capital net gain, or capital net loss, shall be determined under the rules and regulations to be prescribed by the Commissioner with the approval of the Secretary, and shall be separately shown in the . return of the partnership and shall be taxed to the member as provided in this Supplement, but at the rates and in the manner provided in section 101 (a) and (b), relating to capital net gains and losses. ART. 931. Capital net gains and losses in the case of partnerships.Members of a partnership may, with respect to any capital net gain, elect to be taxed as provided in section 101 (a). Where the net income of a partnership consists in whole or in part of capital net gain, there shall be attached to the return (upon the request of any member) a statement showing—

(1) All items of capital gain, capital loss, and capital deductions, as provided in article 502, and

(2) The names of the members and the amounts of their respective shares in such capital net gain or capital net loss.

SEC. 187. NET LOSSES.

The benefit of the special deduction for net losses allowed by section 117 shall be allowed to the members of a partnership under regulations prescribed by the Commissioner with the approval of the Secretary. SEC. 188. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF UNITED STATES.

The amount of income, war-profits, and excess-profits taxes imposed by foreign countries or possessions of the United States shall be allowed as a credit against the tax of the member of a partnership to the extent provided in section 131.

SEC. 189. PARTNERSHIP RETURNS.

Every partnership shall make a return for each taxable year, stating specifically the itcms of its gross income and the deductions allowed by this title, and shall include in the return the names and addresses of the individuals who would be entitled to share in the net income if distributed and the amount of the distributive share of each individual. The return shall be sworn to by any one of the partners. ART. 941. Partnership returns.-Every partnership must make a return of income, regardless of the amount of its net income. The return shall be on Form 1065 and shall be sworn to by one of the partners. Such return shall be made for the taxable year of the partnership, that is, for its annual accounting period (fiscal year or calendar year, as the case may be), irrespective of the taxable years of the partners. (See sections 182 and 183 and articles 901-903.) If the partnership makes any change in its accounting period, it shall make its return in accordance with the provisions of section 47 and article 371. (See also article 744.)

ART. 942. Contents of partnership return.-The return of a partnership shall state specifically—

(a) The items of its gross income enumerated in section 22; (b) The deductions enumerated in sections 23 and 213, other than the deduction provided in sections 23 (n) and 213 (c);

(c) The amounts specified in section 25 (a) and (b) received by the partnership;

(d) The amount of any income, war-profits, and excess-profits taxes of the partnership paid during the taxable year to a foreign country or to any possession of the United States, and the amount of any such taxes accrued but not paid during the taxable year;

(e) The names and addresses of the individuals who would be entitled to share in the net income of the partnership if distributed; (f) The amount of the distributive share of such net income of each such individual; and

(g) Such other facts as are required by Form 1065.

SUPPLEMENT G-INSURANCE COMPANIES

SEC. 201. TAX ON LIFE INSURANCE COMPANIES.

(a) Definition.-When used in this title the term "life insurance company means an insurance company engaged in the business of issuing life insurance and annuity contracts (including contracts of combined life, health, and accident insurance), the reserve funds of which held for the fulfillment of such contracts comprise more than 50 per centum of its total reserve funds.

(b) Rate of tax.-In lieu of the tax imposed by section 13, there shall be levied, collected, and paid for each taxable year upon the net income of every life insurance company a tax as follows: