PUBLIC LAWS--CL 289-MAY 28, 1938 Ante, p. 490. Qualification. 48 Stat. 710; 49 Stat. 1687. Distributions by corporations. "Dividend" defined. Post, pp. 523, 527. Source of distribu- tions. Accumulations, etc. , before March 1, 1913, exemption. Ante, p. 490. Distributions in liquidation. Gain or loss to dis- tributee. Ante, p. 484 . Post, 1. .500 . "Complete liquida- tion" construed. Amounts distrib- uted in partial liqui- dation. allowance shall be applied in the case of the property for all taxable years in which it is in the hands of such taxpayer, or of any other person if the basis of the property (for deter- mining gain) in his hands is, under section 113, determined by reference to the basis in the hands of such taxpayer, either directly or through one or more substituted bases, as defined in that section. The above right of election shall be subject to the qualification that this paragraph shall, for the purpose of determining whether the method of computing the depletion allowance follows the property, be considered a continuation of section 114 (b) (4) of the Revenue Act of 1934 and the Revenue Act of 1936, and as giving no new election in cases where either of such sections would, if applied, give no new election. SEC. 115. DISTRIBUTIONS BY CORPORATIONS. (a) DEFINITION OF DIVIDEND. -The term "dividend" when used in this title (except in section 203 (a) (3) and section 207 (c) (1), relat- ing to insurance companies) means any distribution made by a corpo- ration to its shareholders, whether in money or in other property, (1) out of its earnings or profits accumulated after February 28, 1913, or (2) out of the earnings or profits of the taxable year (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year), without regard to the amount of the earnings and profits at the time the distribution was made. (b) SOURCE OF DISTRmIBUTONS. - For the purposes of this Act every distribution is made out of earnings or profits to the extent thereof, and from the most recently accumulated earnings or profits. Any earnings or profits accumulated, or increase in value of property accrued, before March 1, 1913, may be distributed exempt from tax, after the earnings and profits accumulated after February 28, 1913, have been distributed, but any such tax-free distribution shall be applied against and reduce the adjusted basis of the stock provided in section 113. (c) DISTRIBu'IONS 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. Despite the provisions of section 117, the gain so recognized shall be considered as a short-term capital gain, except in the case of amounts distributed in complete liquidation. For the purpose of the preceding sentence, "complete liquidation" includes any one of a series of distributions made by a corporation in complete cancellation or redemption of all of its stock in accordance with a bona fide plan of liquidation and under which the transfer of the property under the liquidation is to be completed within a time specified in the plan, not exceeding, from the close of the taxable year during which is made the first of the series of distributions under the plan, (1) three years, if the first of such series of distributions is made in a taxable year beginning after December 31, 1937, or (2) two years, if the first of such series of distributions was made in a taxable year beginning before January 1, 1938. In the case of amounts distributed (whether before Janu- ary 1, 1938, or on or after such date) in partial liquidation (other than a distribution to which the provisions of subsection (h) of this section are applicable) the part of such distribution which is prop- erly chargeable to capital account shall not be considered a distribu- 496 [52 STAT.
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