PUBLIC LAWS-CH. 289-MAY 28, 1938 Exception. of all such securities is to make the corporation a personal holding company; (2) For the purpose of section 403 (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 403 (f) (relating to the use of property by shareholders), but only if the effect of the inclusion of all such securities is to make the amounts therein referred to includible under such subsection as personal holding company income. The requirement in paragraphs (1), (2), and (3) that all con- vertible 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. Undistributed Title SEC. 405. UNDISTRIBUTED TITLE IA NET INCOME. IA net income. Term defined. For the purposes of this title the term "undistributed Title IA net income" means the Title IA net income (as defined in section 406) minus- Dividends paid rDiidends aid (a) The amount of the dividends paid credit provided in section 27 (a) without the benefit of paragraphs (3) and (4) thereof Ante, p. 468. (computed without its reduction, under section 27 (b) (1), by the amount of the credit provided in section 26 (a), relating to inter- est on certain obligations of the United States and Government Computation. corporations); but, in the computation of the dividends paid credit for the purposes of this title, the amount allowed under subsection (c) of this section in the computation of the tax under this title for any preceding taxable year shall be considered as a dividend paid in such preceding taxable year and not in the year of distribution; Amounts set aside (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 indebtedness; Dividends. (c) Dividends paid after the close of the taxable year and before the 15th day of the third month following the close of the taxable year, if claimed under this subsection in the return, but only to the extent to which such dividends are includible, for the purposes of Title I, in the computation of the basic surtax credit for the year of ailaxidmu. amount distribution; but the amount allowed under this subsection shall not exceed either: (1) The accumulated earnings and profits as of the close of the taxable year; or (2) The undistributed Title IA net income for the taxable year computed without regard to this subsection; or (3) 10 per centum of the sum of- (A) The dividends paid during the taxable year (reduced by the amount allowed under this subsection in the compu- tation of the tax under this title for the taxable year pre- ceding the taxable year); and (B) The consent dividends credit for the taxable year. [52 STrT.
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