1 exceeding $5,000, or imprisoned for a term not exceeding

2 one year, or both, in the discretion of the court.

3

8

"(g) The tax herein imposed upon gains, profits, and 4 incomes not falling under the foregoing and not returned 5 and paid by virtue of the foregoing or as otherwise 6 provided by law shall be assessed by personal return 7 under rules and regulations to be prescribed by the Commissioner of Internal Revenue and approved by the 9 Secretary of the Treasury. The intent and purpose of this 10 title is that all gains, profits, and income of a taxable class, 11 as defined by this title, shall be charged and assessed with the 12 corresponding tax, normal and additional, prescribed by this 13 title, and said tax shall be paid by the owner of such income, 14 or the proper representative having the receipt, custody, con15 trol, or disposal of the same. For the purpose of this title 16 ownership or liability shall be determined as of the year for 17 which a return is required to be rendered.

18

"The provisions of this section relating to the deduc19 tion and payment of the tax at the source of income shall only 20 apply to the normal tax hereinbefore imposed upon non21 resident alien individuals."

22

(2) Subdivisions (c), (d), and (e) of section nine of such

23 Act of September eighth, nineteen hundred and sixteen, are 24 hereby repealed.

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2

3

4

SEC. 1206. (1) That the first paragraph of section ten of

such Act of September eighth, nineteen hundred and sixteen,

is hereby amended to read as follows:

"SEC. 10. (a) That there shall be levied, assessed, col

5 lected, and paid annually upon the total net income received 6 in the preceding calendar year from all sources by every cor7 poration, joint-stock company or association, or insurance com8 pany, organized in the United States, no matter how created

9

10

or organized, but not including partnerships, a tax of two per

centum upon such income; and a like tax shall be levied, 11 assessed, collected, and paid annually upon the total net 12 income received in the preceding calendar year from all 13 sources within the United States by every corporation, joint14 stock company or association, or insurance company, organ15 ized, authorized, or existing under the laws of any foreign 16 country, including interest on bonds, notes, or other interest17 bearing obligations of residents, corporate or otherwise, and 18 including the income derived from dividends on capital stock 19 or from net earnings of resident corporations, joint-stock com20 panies or associations, or insurance companies, whose net 21 income is taxable under this title: Provided, That the term 22 "dividends" as used in this title shall be held to mean any 23 distribution made or ordered to be made by a corporation, 24 joint-stock company, association, or insurance company, out 25 of its earnings or profits accrued since March first, nineteen

1

hundred and thirteen, and payable to its shareholders, whether 2 in cash or in stock of the corporation, joint-stock company,

3 association, or insurance company, which stock dividend shall 4 be considered income, to the amount of the earnings or profits 5 so distributed: Provided further, That any distribution made

6

to the shareholders of a corporation, joint-stock company or 7 association, or insurance company, in the year nineteen hun8 dred and seventeen, or subsequent tax years, shall be deemed 9 to have been made from the net income of the year in which 10 such distribution is made or, if such income is insufficient, 11 from the most recently accumulated undivided profits or sur12 plus, and shall constitute a part of the annual income of the 13 shareholder for the respective years in which earned by the 14 corporation, joint-stock company, association, or insurance 15 company, and shall be taxed to the shareholder at the rate 16 prescribed by law for such years."

17

(2) Section ten of such Act of September eight, nineteen 18 hundred and sixteen, is hereby further amended by adding a new subdivision as follows:

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20

21

"(b) In addition to the income tax imposed by subdivision (a) of this section there shall be levied, assessed, 22 collected, and paid annually an additional tax of ten per 23 centum upon the amount, remaining undistributed six 24 months after the end of each calendar or fiscal year,

25

of the total net income of every corporation, joint-stock 3777° S. Doc. 74, 65-1-8

1 company or association, or insurance company, received 2 during the year, as determined for the purposes of the tax 3 imposed by such subdivision (a), but including the amount

allowed as a credit under subdivision (d) of section twelve. 5 The tax imposed by this subdivision shall not apply to 6 that portion of such undistributed net income which is actually 7 invested and employed in the business or is retained for employ8 ment in the reasonable requirements of the business: Pro9 vided, That if the Secretary of the Treasury ascertains and 10 finds that any portion of such amount so retained at any time 11 for employment in the business is not so employed or is not 12 reasonably required in the business a tax of fifteen per centum 13 shall be levied, assessed, collected, and paid thereon, and the 14 finding and ruling of the Secretary of the Treasury in any and all such cases shall be conclusive and final.

15

16

The foregoing tax rate shall apply to the undistrib17 uted net income received by every taxable corporation, joint18 stock company or association, or insurance company in the 19 calendar year nineteen hundred and seventeen and in each 20 year thereafter, except that if it has fixed its own fiscal year 21 under the provisions of existing law, the foregoing rate shall 22 apply to the proportion of the taxable undistributed net income 23 returned for the fiscal year ending prior to December thirty24 first, nineteen hundred and seventeen, which the period 25 between January first, nineteen hundred and seventeen, and

1 the end of such fiscal year bears to the whole of such fiscal

2 year."

3

SEC. 1207. (1) That paragraphs third and fourth of sub

4 division (a) of section twelve of such Act of September 5 eighth, nineteen hundred and sixteen, are hereby amended to

6 read as follows:

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9

"Third. The amount of interest paid within the year on 8 its indebtedness (except on indebtedness incurred for the purchase of obligations or securities the interest upon which is 10 exempt from taxation as income under this title) to an amount 11 of such indebtedness not in excess of the sum of (a) the entire 12 amount of the paid-up capital stock outstanding at the close 13 of the year, or, if no capital stock. the entire amount of cap14 ital employed in the business at the close of the year, and (b) 15 one-half of its interest-bearing indebtedness then outstanding: 16 Provided, That for the purpose of this title preferred capital 17 stock shall not be considered interest-bearing indebtedness, 18 and interest or dividends paid upon this stock shall not be 19 deductible from gross income: Provided further, That in 20 cases wherein shares of capital stock are issued without par or nominal value, the amount of paid-up capital stock, within the meaning of this section, as represented by such shares,

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23

will be the amount of cash, or its equivalent, paid or trans24 ferred to the corporation as a consideration for such shares: 25 Provided further, That in the case of indebtedness wholly