77TH CONG. , 2D SESS.-CH. 619-OCT. 21, 1942 this subsection. This paragraph shall not apply in the case of a taxpayer, other than a corporation, with respect to a non- business debt, as defined in paragraph (4) of this subsection. "(2) SECURITIES BECOMING WORTHLESS. - If any securities (as defined in paragraph (3) of this subsection) become worthless within the taxable year and are capital assets, the loss resulting therefrom shall, in the case of a taxpayer other than a bank, as defined in section 104, for the purposes of this chapter, be con- sidered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. "(3) DEFINITION OF SECURITIES. - As used in paragraphs (1); (2), and (4) of this subsection the term 'securities' means bonds, debentures, notes, or certificates, or other evidences of indebted- ness, issued by any corporation (including those issued by a gov- ernment or political subdivision thereof), with interest coupons or in registered form. "(4) NON-BUSINESS DEBTS. - In the case of a taxpayer, other than a corporation, if a non-business debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 6 months. The term 'non-business debt' means a debt other than a debt evi- denced by a security as defined in paragraph (3) and other than a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business. "(5) SECURITIEs OF AFFILIATED CORPORATIONS.- Bonds deben- tures, notes or certificates, or other evidences of indebtedness issued with interest coupons or in registered form by any cor- poration affiliated with the taxpayer shall not be deemed capital assets for the purposes of paragraph (2) and paragraph (1) shall apply with respect to such debt except that no such deduction shall be allowed under such paragraph with respect to any such debt which is recoverable only in part. For the purposes of this paragraph a corporation shall be deemed to be affiliated with the taxpayer only if: "(A) at least 95 per centum of each class of its stock is owned directly by the taxpayer; and "(B) more than 90 per centum of the aggregate of its gross incomes for all taxable years has been from sources other than royalties, rents, dividends, interest or annuities or gains from sales or exchanges of stock and securities; and "(C) the taxpayer is a domestic corporation." (b) INSURANCE COMPANIES.-Section 204 (c) (6) (relating to deductions allowed insurance companies other than life or mutual) is amended to read as follows: " (6) Debts in the nature of agency balances and bills receivable which become worthless within the taxable year ;". (c) INTEREST DISALLOWED. -Section 3771 (relating to interest allow- able on claims for refund or credit) is amended by adding at the end thereof the following: "(d) CLAIMS BASED ON DEDUCTION FOR BAD DEBTS OR WORTHLESS SECURITIES.-If credit or refund of any part of an overpayment would be barred under section 322 (b), except for paragraph (5) thereof, or under section 322 (d), except for clause (2) thereof, no interest shall be allowed or paid with respect to such part of the overpayment for any period beginning after the expiration of the period of limitation pro- vided in section 322 (b) (1) for filing claim for credit or refund of such part of the overpayment and ending at the expiration of six "Securities." "Non-business debt." 53 Stat. 74. 26U. .C.I204(c) (6). 53 Stat. 465 . 26 U. S.C . 3771. 53 Stat. 91, 92. 26U. S.C. 322(b), (d). Post, pp. 876, 877. 821 56 STAT.]
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