52 STAT.] 75TH CONG., 3D SESS.-CH. 289-MAY 28, 1938 such corporations, with respect to the taxable year of the corporation preceding the date of the sale or exchange was, under the law applicable to such taxable year, a personal holding company or a foreign personal holding company; (D) Between a grantor and a fiduciary of any trust; (E) Between the fiduciary of a trust and the fiduciary of another trust, if the same person is a grantor with respect to each trust; or (F) Between a fiduciary of a trust and a beneficiary of such trust. (2) STOCK OWNERSHIP, FAMILY, AND PARTNERSHIP RULE.- For the purposes of determining, in applying paragraph (1), the ownership of stock- (A) Stock owned, directly or indirectly, by or for a cor- poration, partnership, estate, or trust, shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries; (B) An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family; (C) An individual owning (otherwise than by the appli- cation of subparagraph (B)) any stock in a corporation shall be considered as owning the stock owned, directly or indi- rectly, by or for his partner; (D) The family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and (E) CONSTRUCTIVE OWNERSHIP AS ACTUAL OWNERSHIP.- Stock constructively owned by a person by reason of the application of subparagraph (A) shall, for the purpose of applying subparagraph (A), (B), or (C), be treated as actually owned by such person, but stock constructively owned by an individual by reason of the application of sub- paragraph (B) or (C) shall not be treated as owned by him for the purpose of again applying either of such subpara- graphs in order to make another the constructive owner of such stock. (c) UNPAID EXPENSES AND INTEREST. -In computing net income no deduction shall be allowed under section 23 (a), relating to expenses incurred, or under section 23 (b), relating to interest accrued- (1) If such expenses or interest are not paid within the tax- able year or within two and one-half months after the close thereof; and (2) If, by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not, unless paid, includible in the gross income of such person for the taxable year in which or with which the taxable year of the taxpayer ends; and (3) If, at the close of the taxable year of the taxpayer or at any time within two and one-half months thereafter, both the taxpayer and the person to whom the payment is to be made are persons between whom losses would be disallowed under section 24 (b). (d) HOLDERS OF LIFE OR TERMINABLE INTEREST.- Amounts paid under the laws of any State, Territory, District of Columbia, pos- session of the United States, or foreign country as income to the holder of a life or terminable interest acquired by gift, bequest, or inheritance shall not be reduced or diminished by any deduction for 36525°-38 -30 465 Between grantor and fiduciary. Between fiduciaries if grantor same person. Between fiduciary and beneficiary. Stock ownership, family, and partner- ship rule. Constructive owner- ship as actual owner- ship. Unpaid expenses and interest. Ante, p. 460. Holders of life or terminable interest.
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