55 STAT.] 77TH CONG. , 1ST SESS.-CH. 10-MAR . 7 , 1941 "(b) EFFECT OF ELECTION. - If the taxpayer exercises the election authorized under subsection (a)- "(1) The net income for each taxable year in the base period shall be considered to be the net income computed with such deductions disallowed, and such deductions shall not be con- sidered as having diminished earnings and profits. This par- agraph shall be retroactively applied as if it were a part of the law applicable to each taxable year in the base period; and "(2) The treatment of such expenditures as deductions for a taxable year in the base period shall, for the purposes of section 734 (b) (2), be considered treatment which was not correct under the law applicable to such year." (b) AMENDMENT TO CHAPTER 1. - Section 23 (a) of the Internal Revenue Code is amended by adding at the end thereof a new paragraph, applicable to taxable years beginning after December 31, 1939, reading as follows: "(3) EXPENDITURES FOR ADVERTISING AND GOOD WILL.-If a cor- poration has, for the purpose of computing its excess profits credit under chapter 2E, claimed the benefits of the election provided in section 733, no deduction shall be allowable under paragraph (1) to such corporation for expenditures for adver- tising or the promotion of good will which, under the rules and regulations prescribed under section 733 (a), may be regarded as capital investments." SEC. 11 . ADJUSTMENT IN CASE OF INCONSISTENT POSITION. Part 1 of subchapter E of chapter 2 of the Internal Revenue Code is amended by inserting at the end thereof the following new section: "SEC. 734. ADJUSTMENT IN CASE OF POSITION INCONSISTENT WITH PRIOR INCOME TAX LIABILITY. "(a) DEFNITIoNs. - For the purposes of this section- "(1) TAXPAYER. -T he term 'taxpayer' means any person sub- ject to a tax under the applicable revenue Act. "(2) INCOME TAx.-T he term 'income tax' means an income tax imposed by chapter 1 or chapter 2A of this title; Title I and Title IA of the Revenue Acts of 1938, 1936, and 1934; Title I of the Revenue Acts of 1932 and 1928; Title II of the Revenue Acts of 1926 and 1924; Title II of the Revenue Acts of 1921 and 1918; Title I of the Revenue Act of 1917; Title I of the Revenue Act of 1916; or section II of the Act of October 3, 1913; a war profits or excess profits tax imposed by Title III of the Revenue Acts of 1921 and 1918; or Title II of the Revenue Act of 1917; or an income, war profits, or excess profits tax imposed by any of the foregoing provisions, as amended or supplemented. '(3) PRIoR TAXABLE YEAi-A taxable year beginning after December 31, 1939, shall not be considered a prior taxable year. "(b) CIRCUMSTANCES OF ADJUSTMENT.- "(1) If- "(A) in determining at any time the tax of a taxpayer under this subchapter an item affecting the determination of the excess profits credit is treated in a manner incon- sistent with the treatment accorded such item in the deter- mination of the income-tax liability of such taxpayer or a predecessor for a prior taxable year or years, and "(B) the treatment of such item in the prior taxable year or years consistently with the determination under this sub- 27 Post, p. 28. 53 Stat. 12 . 26U.S.C.§23(a). 54 Stat. 975. Ante, p. 26 . 54 Stat. 975, 991. 63 Stat. 4, 104. 20 U. SC. §§1, 50.
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