(c) EARNINGS AND PROFITS OF TRANSFEROR AND TRANSFEREE.-SeC- 54Stat. 18 c tion 718 (c) (relating to rules for determining invested capital) is Supp. I, 718 (c). amended by inserting at the end thereof the following new para- graph: "(5) DEFICIT IN EARNINGS AND PROFITS-EARNINGS AND PROFITS OF TRANSFEROR AND TRANSFEREE. -If a corporation (hereinafter called 'transferor') transfers substantially all its property to another corporation formed to acquire such property (herein- after called 'transferee'), if- "(A) the sole consideration for the transfer of such prop- erty is the transfer to the transferor or its shareholders of all the stock of all classes (except qualifying shares) of the transferee. (In determining whether the transfer is solely for stock, the assumption by the transferee of a liability of the transferor or the fact that the property acquired is subject to a liability shall be disregarded); "(B) the basis of the property, in the hands of the trans- feree. for the purposes of this subsection, is determined by reference to the basis of the property in the hands of the transferor; "(C) the transferor is forthwith completely liquidated in pursuance of the plan under which the acquisition of the property is made; and "(D) immediately after the liquidation the shareholders of the transferor own all such stock; for the purposes of this subchapter, in computing the equity invested capital for any day after the date of the acquisition of the property, the earnings and profits or deficit in earnings and profits of the transferee and the transferor shall be computed as if, immediately before the beginning of the taxable year in which such transfer occurs, the transferee had been in existence and sustained a recognized loss, and the transferor had realized a recognized gain, equal to the portion of the deficit in earnings and profits of the transferor attributable to such property." (d) TAXABLE YEARS TO WHICH AMENDMENTS APPLICABLE.-The amendments made by this section shall be applicable to taxable years beginning after December 31, 1939. SEC. 220. AMORTIZABLE BOND PREMIUM ON CERTAIN GOVERNMENT OBLIGATIONS. 54 Stat. 985. 26 U. S. C. 720(d). Ante, p. 911. Ante, pp . 822,811. 55 Stat. 22 ,23. 26U. S. C., Supp. I, 721 (c), (d). The first sentence of section 720 (d) (relating to increase in excess profits net income where Government obligations treated as admis- sible assets) is amended to read as follows: "If the excess profits credit for any taxable year is computed under section 714, the tax- payer may in its return for such year elect to increase its normal- tax net income for such taxable year by an amount equal to the amount of the interest on, reduced by the amount of the amortizable bond premium under section 125 attributable to, all obligations held dur- ing the taxable year which are described in section 22 (b) (4) any part of the interest from which is excludible from gross income or allowable as a credit against net income." SEC. 221 . ABNORMALITIES IN INCOME IN TAXABLE PERIOD. (a) RULE FOR COMPUTATIONSO-Section 721 (c) and (d) (relating to computation of tax in case of abnormalities in income in the tax- able period) is amended to read as follows: "(c) COMPUTATION OF TAX FOR CURRENT TAXABLE YEAR. -The tax under this subchapter for the taxable year, in which the whole of such 912 PUBLIC LAWS--CH:. 619-OCT. 21 , 1942 [56 STAT.
�
