under section 922 (relating to Western Hemisphere trade corporations). (6) Computation of deduction for dividends received, etc. The deductions allowed by sections 243 (relating to dividends received by corporations), 244 (relating to dividends received on certain preferred stock of public utilities), and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246 (b) (relating to limitation on aggregate amount of deductions); and the deduction allowed by section 247 (relating to dividends paid on certain preferred stock of public utilities) shall be computed without regard to subsection (a) (1) (B) of such section. (e) Law applicable to computations. In determining the amount of any net operating loss carryback or carryover to any taxable year, the necessary computations involving any other taxable year shall be made under the law applicable to such other taxable year. The preceding sentence shall apply with respect to all taxable years, whether they begin before, on, or after January 1, 1954. (f) Taxable years beginning in 1953 and ending in 1954. In the case of a taxable year beginning in 1953 and ending in 1954 (1) In lieu of the amount specified in subsection (c), the net operating loss for such year shall be the sum of (A) that portion of the net operating loss for such year computed without regard to this subsection which the number of days in the loss year after December 31, 1953, bears to the total number of days in such year, and (B) that portion of the net operating loss for such year computed under section 122 of the Internal Revenue Code of 1939 as if this section had not been enacted which the number of days in the loss year before January 1, 1954, bears to the total number of days in such year. (2) The amount of any net operating loss for such year which shall be carried to the second preceding taxable year is the amount which bears the same ratio to such net operating loss as the number of days in the loss year after December 31, 1953, bears to the total number of days in such year. In determining the amount carried to any other taxable year, the reduction for the second taxable year preceding the loss year shall not exceed the portion of the net operating loss which is carried to the second preceding taxable year. (3) The net operating loss deduction for such year shall be, in lieu of the amount specified in section 122 (c) of the Internal Revenue Code of 1939, the sum of (A) that portion of the net operating loss deduction for such year, computed as if subsection (a) of this section were applicable to the taxable year, which the number of days in such year after December 31, 1953, bears to the total number of days in such year, and (B) that portion of the net operating loss deduction for such year, computed under section 122 (c) of the Internal Revenue Code of 1939 as if this paragraph had not been enacted, which the number of days in such year before January 1, 1954, bears to the total number of days in such year. (4) For purposes of the second sentence of subsection (b) (2), the taxable income for such year shall be the sum of (A) that portion of the net income for such year, computed without regard to this paragraph, which the number of days in such year before January 1, 1954, bears to the total number of days in such year, and (B) that portion of the net income for such year, computed— (i) without regard to paragraphs (1) and (2) of section 122 (d) of the Internal Revenue Code of 1939, and (ii) by allowing as a deduction an amount equal to the sum of the credits provided in subsections (b) and (h) of section 26 of such Code, which the number of days in such year after December 31, 1953, bears to the total number of days in such year. (g) Special transitional rules. (1) Losses for taxable years ending before January 1, 1954. For purposes of this section, the determination of the taxable years ending after December 31, 1953, to which a net operating loss for any taxable year ending before January 1, 1954, may be carried shall be made under the Internal Revenue Code of 1939. (2) Losses for taxable years ending after December 31, 1953. For purposes of section 122 of the Internal Revenue Code of 1939 (A) the determination of the taxable years ending before January 1, 1954, to which a net operating loss for any taxable year ending after December 31, 1953, may be carried shall be made under subsection (b) (1) (A) of this section; and (B) in determining the amount of the carryback to the first taxable year preceding the first taxable year ending after December 31, 1953, the portion of the net operating loss carried to such year shall be such net operating loss reduced by (i) the net income for the second preceding taxable year computed as if the second sentence of section 122 (b) (2) (B) of the Internal Revenue Code of 1939 applied, or (ii) if smaller, the portion of the net operating loss which by reason of subsection (f) of this section is carried to the second preceding taxable year. (3) Taxable years beginning after December 31, 1953, and ending before August 17, 1954. In the case of a taxable year which begins after December 31, 1953, and ends before August 17, 1954 (A) the net operating loss deduction for such year shall be computed as if subsection (a) of this section applied to such taxable year, and (B) for purposes of the second sentence of subsection (b) (2), the taxable income for such taxable year shall be the net income for such taxable year, computed (i) without regard to paragraphs (1) and (2) of section 122 (d) of the Internal Revenue Code of 1939, and (ii) by allowing as a deduction an amount equal to the sum of the credits provided in subsections (b) and (h) of section 26 of such Code. (4) Excess profits tax not affected. For purposes of subchapter D of chapter 1 of the Internal Revenue Code of 1939, excess profits net income shall be computed as if this section had not been enacted and as if section 122 of such Code continued to apply to taxable years to which this subtitle applies. (h) Disallowance of net operating loss of electing small business corporations. In determining the amount of the net operating loss deduction under subsection (a) of any corporation, there shall be disregarded the net operating loss of such corporation for any taxable year for which such corporation is an electing small business corporation under subchapter S. (i) Carryback of net operating loss for taxable years beginning in 1957 and ending in 1958. In the case of a taxable year beginning in 1957 and ending in 1958, the amount of any net operating loss for such year which shall be carried to the third preceding taxable year is the amount which bears the same ratio to such net operating loss as the number of days in the loss year after December 31, 1957, bears to the total number of days in such year. In determining the amount carried to any other taxable year, the reduction for the third taxable year preceding the loss year shall not exceed the portion of the net operating loss which is carried to the third preceding taxable year. (j) Carryover of net operating loss for certain regulated transportation corporations. (1) Definition For purposes of subsection (b) (1) (C), the term "regulated transportation corporation" means a corporation (A) 80 percent or more of the gross income of which (computed without regard to dividends and capital gains and losses) for the taxable year is derived from the furnishing or sale of transportation described in subparagraph (A), (C) (i), (E), or (F) of section 7701 (a) (33) and taken into account for purposes of the limitation contained in the last two sentences of section 7701 (a) (33), (B) which is described in subparagraph (G) or (H) of section 7701 (a) (33), or (C) which is a member of a regulated transportation system. (2) Regulated transportation system. For purposes of this subsection, a corporation shall be treated as a member of a regulated transportation system for a taxable year if— (A) it is a member of an affiliated group of corporations making a consolidated return for such taxable year, and (B) 80 percent or more of the aggregate gross income of the members of such affiliated group (computed without regard to dividends and capital gains and losses) for such taxable year is derived from sources described in paragraph (1) (A). For purposes of subparagraph (B), income derived by a corporation described in subparagraph (G) or (H) of section 7701(a) (33) from leases described in subparagraph (G) thereof shall be considered as derived from sources described in paragraph (1)(A). (3) Limitation. For purposes of subsection (b) (1) (C) — (A) a net operating loss may not be a net operating loss carryover to the 6th taxable year following the loss year unless the taxpayer is a regulated transportation corporation for such 6th taxable year; and (B) a net operating loss may not be a net operating loss carryover to the 7th taxable year following the loss year unless the taxpayer is a regulated transportation corporation for the 6th taxable year following the loss year and for such 7th taxable year. (4) Taxable years beginning in 1955 and ending in 1956. In the case of a net operating loss for a taxable year beginning in 1955 and ending in 1956, the amount of such loss which may be carried— (A) to the 6th taxable year following the loss year shall be the amount which bears the same ratio to the amount which (but for this paragraph) would be carried to such 6th taxable year as the number of days in the loss year after December 31, 1955, bears to the total number of days in the loss year, and (B) to the 7th taxable year following the loss year shall be the amount (if any) by which (i) the amount carried to the 6th taxable year determined under subparagraph (A), exceeds (ii) the taxable income (computed as provided in subsection (b)(2)) for such 6th taxable year. (k) Foreign expropriation loss defined. For purposes of subsection (b) — (1) The term "foreign expropriation loss" means, for any taxable year, the sum of the losses sustained by reason of the expropriation, intervention, seizure, or similar taking of property by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing. For purposes of the preceding sentence, a debt which becomes worthless shall, to the extent of any deduction allowed under section 166(a), be treated as a loss. (2) The portion of the net operating loss for any taxable year attributable to a foreign expropriation loss is the amount of the foreign expropriation loss for such year (but not in excess of the net operating loss for such year). (1) Cross references. (1) For treatment of net operating loss carryovers in certain corporate acquisitions, see section 381. (2) For special limitation on net operating loss carryovers in case of a corporate change of ownership, see section 382. (Aug. 16, 1954, ch. 736, 68A Stat. 63; Sept. 2, 1958, Pub. L. 85-866, title I, §§ 14 (a), (b), 64 (b), title II, § 203 (a), (b), 72 Stat. 1611, 1656, 1678; Sept. 27, 1962, Pub. L. 87-710, § 1, 76 Stat. 648; Oct. 10, 1962, Pub. L. 87-792, § 7(f), 76 Stat. 829; Oct. 11, 1962, Pub. L. 87-794, title III, § 317(b), 76 Stat. 889; Feb. 26, 1964, Pub. L. 88-272, title II, §§ 210 (a), (b), 234 (b) (5), 78 Stat. 47, 48, 115.) REFERENCES IN TEXT Section 317 of the Trade Expansion Act of 1962, referred to in subsec. (b), probably means section 317(a) of Pub. L. 87-794, which is classified to section 1917 of Title 19, Customs Duties. AMENDMENTS 1964 Subsec. (b). Pub. L. 88-272, § 210(a) (1)—(4), (b), inserted subpar. (D) in par. (1), references to such subpar. (D) in par. (1) (A) (1) and (1) (B), subpars. (C) and (D) in par. (3), provided that the net operating loss deduction in par. (2) (B) be determined without regard to that portion of a net operating loss due to a foreign expropriation loss, if such portion may not, under par. (1) (D), be carried back to such prior taxable year, and that if a portion of the net operating loss is attributable to foreign expropriation to which par. (1)(D) applied, such portion shall be considered a separate loss for such year to be applied after the other portion of such net operating loss. Subsec. (j) (1), (2), Pub. L. 88-272, § 234(b) (5), substituted references to section 7701(a)(33) for references to section 1503 (c) (1) or (2), wherever appearing. Subsec. (k). Pub. L. 88-272, § 210(a) (5), added subsec. (k). Former subsec. (k) redesignated (1). Subsec. (1). Pub. L. 88-272, § 210(a) (5), redesignated former subsec. (k) as (1). 1962 Subsec. (b)(1). Pub. L. 87-794 designated existing provisions as cl. (A)(i) and eliminated provisions therefrom which authorized a net operating loss for any taxable year ending after Dec. 31, 1957, to be a net operating loss carryover to each of the 5 taxable years following the taxable year of such loss, and added cls. (A) (ii), (B), and (C). Subsec. (b)(2). Pub. L. 87-794 inserted the reference to subsection (J), and substituted "shall be carried to the earliest of the taxable years to which (by reason of paragraph (1))" for "shall be carried to the earliest of the 8 taxable years to which (by reason of subparagraphs (A) and (B) of paragraph (1))", and "each of the other taxable years" for "each of the other 7 taxable years." Subsec. (b) (3). Pub. L. 87-794 added subsec. (b) (3). Pub. L. 87-710, § 1(a), authorized a carryover of a net operating loss for any taxable year ending after Dec. 31, 1955, to each of the 5 taxable years following the taxable year of loss, or when such loss occurs in the case of regulated transportation corporation, except as provided in subsec. (1), then to each of the 7 taxable years following the taxable year of loss, and eliminated provisions authorizing a net operating loss for any taxable years ending Dec. 31, 1957, to be carried over to each of the 5 taxable years following the taxable year of such loss, in par. (1), and inserted the reference to subsec. (j) in par. (2). Subsec. (d) (4). Pub. L. 87-792 added subpar. (D). Subsec. (1). Pub. L. 87 710, § 1(b), added subsec. (j). Former subsec. (j) redesignated (k). Subsec. (k). Pub. L. 87-710, § 1(b), redesignated former subsec. (1) as (k). 1958-Subsec. (b). Pub. L. 85-866, § 203 (a), substituted "1957" for "1953", and "3" for "2" in par. (1), and substituted "subsection (1)" for "subsection (f)", "8" for "7", and "7" for "6" in par. (2). Subsecs. (f) (3), (4). Pub. L. 85-866, § 14 (a), added subsecs. (f) (3), (4). Subsec. (g) (3). Pub. L. 85-866, § 14(b), added subsec. (g) (3) and redesignated former subsec. (g) (3) as (g) (4). Subsec. (g) (4). Pub. L. 85-866, § 14(b), redesignated former subsec. (g) (3) as (g) (4). Subsec. (h). Pub. L. 85–866, § 64(b), added subsec. (h) and redesignated former subsec. (h) as (i). Subsec. (1). Pub. L. 85-866, § 203(b), added subsec. (1) and redesignated former subsec. (1) as redesignated by § 64 (b) as (1). Subsec. (1). Pub. L. 85-866, § 203(b), redesignated former subsec. (1) as (1). EFFECTIVE DATE OF 1964 AMENDMENT Section 210 (c) of Pub. L. 88-272 provided that: "The amendments made by this section [adding subsec. (k), redesignating former subsec. (k) as (1), and amending subsec. (b) of this section] shall apply in respect of foreign expropriation losses (as defined in section 172(k) of the Internal Revenue Code of 1954, as amended by subsection (a) (5) of this section), sustained in taxable years ending after December 31, 1958." Amendment of subsec. (1) of this section by Pub. L. 88272 applicable to taxable years beginning after Dec. 31, 1963, see section 234 (c) of Pub. L. 88-272, set out as a note under section 1503 of this title. EFFECTIVE DATE OF 1962 AMENDMENTS Section 317(b) of Pub. L. 87-794 provided in part that the amendment of subsec. (b) of this section by Pub. L. 87-794 shall be effective with respect to net operating losses for taxable years ending after Dec. 31, 1955. Amendment of section by Pub. L. 87-792 applicable to taxable years beginning after Dec. 31, 1962, see section 8 of Pub. L. 87-792, set out as a note under sectiion 37 of this title. Section 2 of Pub. L. 87-710 provided that: "The amendments made by the first section of this Act [to this section] shall apply only with respect to net operating losses for taxable years ending after December 31, 1955." EFFECTIVE DATE OF 1958 AMENDMENT Section 203 (c) of Pub. L. 85-866 provided that: "The amendments made by subsections (a) and (b) [to subsecs. (b) (1), (2), and (j) of this section] shall apply in respect of net operating losses for taxable years ending after December 31, 1957." Subsecs. (f) (3), (4), and (g) (3) of this section as applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1 (c) of Pub. L. 85-866, set out as a note under section 165 of this title. Section 64 (e) of Pub. L. 85-866 provided that: "The amendments made by this section [adding sections 1016. (a) (18), 1371-1377, 1504 (b) (8) and 6037 of this title, amending subsecs. (h) and (1) of this section and renumbering former section 6037 as 6038 of this title] shall apply only with respect to taxable years beginning after December 31, 1957". REFUND OR CREDIT OF OVERPAYMENT; LIMITATIONS; INTEREST Section 14 (c) of Pub. L. 85-866 provided that: "If refund or credit of any overpayment resulting from the application of the amendment made by subsection (a) [to subsecs. (f) (3) and (f) (4) of this section] or (b) [to subsecs. (g) 3) and (g) 4) of this section] is prevented on the date of the enactment of this Act [Sept. 2, 1958], or within 6 months after such date, by the operation of any law or rule of law (other than section 3760 of the Internal Revenue Code of 1939 or section 7121 of the Internal Revenue Code of 1954, relating to closing agreements, and other than section 3761 of the Internal Revenue Code of 1939 or section 7122 of the Internal Revenue Code of 1954, relating to compromises), refund or credit of such overpayment may, nevertheless, be made or allowed if claim therefor is filed within 6 months after such date. No interest shall be paid or allowed on any overpayment resulting from the application of the a lendment made by subsection (a) or (b).” INTEREST ATTRIBUTABLE TO NET OPERATING LOSS CARRYBACK FOR CERTAIN TAXABLE YEARS ENDING IN 1954 See note set out under section 6601 of this title. CROSS REFERENCES Adjustments required by changes in method of accounting, see section 481 (b) (3) (A) of this title. Losses generally, see section 165 of this title. Amount and method of adjustment, see section 1314 Extension of time for payment of taxes by corporations expecting carrybacks under this section, see section 6164 of this title. Not allowed to individuals in certain cases, see section 270 of this title. Partnership not allowed deduction, see section 703 of this title. Net operating loss carryover on termination of estate or trust, see section 642 of this title. Special limitations on net operating loss carryovers, see section 382 of this title. § 173. Circulation expenditures. Notwithstanding section 263, all expenditures (other than expenditures for the purchase of land or depreciable property or for the acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical) to establish, maintain, or increase the circulation of a newspaper, magazine, or other periodical shall be allowed as a deduction; except that the deduction shall not be allowed with respect to the portion of such expenditures as, under regulations prescribed by the Secretary or his delegate, is chargeable to capital account if the taxpayer elects, in accordance with such regulations, to treat such portion as so chargeable. Such election, if made, must be for the total amount of such portion of the expenditures which is so chargeable to capital account, and shall be binding for all subsequent taxable years unless, upon application by the taxpayer, the Secretary or his delegate permits a revocation of such election subject to such conditions as he deems necessary. (Aug. 16, 1954, ch. 736, 68A Stat. 65.) CROSS REFERENCES Capital expenditures not deductible, see section 263 of this title. Trade or business expenses deductible, see section 162 of this title. § 174. Research and experimental expenditures. (a) Treatment as expenses. (1) In general. A taxpayer may treat research or experimental expenditures which are paid or incurred by him during the taxable year in connection with his trade or business as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction. (2) When method may be adopted. (A) Without consent. A taxpayer may, without the consent of the Secretary or his delegate, adopt the method provided in this subsection for his first taxable year (i) which begins after December 31, 1953, and ends after the date on which this title is enacted, and (ii) for which expenditures described in paragraph (1) are paid or incurred. (B) With consent. A taxpayer may, with the consent of the Secretary or his delegate, adopt at any time the method provided in this subsection. (3) Scope. The method adopted under this subsection shall apply to all expenditures described in paragraph (1). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of the Secretary or his delegate, a change to a different method is authorized with respect to part or all of such expenditures. (b) Amortization of certain research and experimental expenditures. (1) In general. At the election of the taxpayer, made in accordance with regulations prescribed by the Secretary or his delegate, research or experimental expenditures which are (A) paid or incurred by the taxpayer in connection with his trade or business, (B) not treated as expenses under subsection (a), and (C) chargeable to capital account but not chargeable to property of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion), may be treated as deferred expenses. In computing taxable income, such deferred expenses shall be allowed as a deduction ratably over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the taxpayer first realizes benefits from such expenditures). Such deferred expenses are expenditures properly chargeable to capital account for purposes of section 1016 (a) (1) (relating to adjustments to basis of property). (2) Time for and scope of election. The election provided by paragraph (1) may be made for any taxable year beginning after December 31, 1953, but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless, with the approval of the Secretary or his delegate, a change to a different method (or to a different period) is authorized with respect to part or all of such expenditures. The election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election. (c) Land and other property. This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (d) Exploration expenditures. This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (e) Cross reference. For adjustments to basis of property for amounts allowed as deductions as deferred expenses under subsection (b), see section 1016 (a) (14). (Aug. 16, 1954, ch. 736, 68A Stat. 66.) CROSS REFERENCES Exception from denial of deduction for capital expenditures, see section 263 (a) (1) (B) of this title. Trade or business expenses deductible, see section 162 of this title. § 175. Soil and water conservation expenditures. (a) In general. A taxpayer engaged in the business of farming may treat expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming, as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction. (b) Limitation. The amount deductible under subsection (a) for any taxable year shall not exceed 25 percent of the gross income derived from farming during the taxable year. If for any taxable year the total of the expenditures treated as expenses which are not chargeable to capital account exceeds 25 percent of the gross income derived from farming during the taxable year, such excess shall be deductible for succeeding taxable years in order of time; but the amount deductible under this section for any one such succeeding taxable year (including the expenditures actually paid or incurred during the taxable year) shall not exceed 25 percent of the gross income derived from farming during the taxable year. (c) Definitions. For purposes of subsection (a)— (1) The term "expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming" means expenditures paid or incurred for the treatment or moving of earth, including (but not limited to) leveling, grading and terracing, contour furrowing, the construction, control, and protection of diversion channels, drainage ditches, earthen dams, watercourses, outlets, and ponds, the eradication of brush, and the planting of windbreaks. Such term does not include (A) the purchase, construction, installation, or improvement of structures, appliances, or facilities which are of a character which is subject to the allowance for depreciation provided in section 167, or (B) any amount paid or incurred which is allowable as a deduction without regard to this section. Notwithstanding the preceding sentences, such term also includes any amount, not otherwise allowable as a deduction, paid or incurred to satisfy any part of an assessment levied by a soil or water conservation or drainage district to defray expenditures made by such district which, if paid or incurred by the taxpayer, would without regard to this sentence constitute expenditures deductible under this section. (2) The term "land used in farming" means land used (before or simultaneously with the expenditures described in paragraph (1)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock. (d) When method may be adopted. (1) Without consent. A taxpayer may, without the consent of the Secretary or his delegate, adopt the method provided in this section for his first taxable year(A) which begins after December 31, 1953, and ends after the date on which this title is enacted, and (B) for which expenditures described in subsection (a) are paid or incurred. (2) With consent. A taxpayer may, with the consent of the Secretary or his delegate, adopt at any time the method provided in this section. (e) Scope. The method adopted under this section shall apply to all expenditures described in subsection (a). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of the Secretary or his delegate, a change to a different method is authorized with respect to part or all of such expenditures. (Aug. 16, 1954, ch. 736, 68A Stat. 67.) CROSS REFERENCES Exception from denial of deduction for capital expenditures, see section 263 (a) (1) (c) of this title. Trade or business expenses deductible, see section 162 of this title. § 176. Payments with respect to employees of certain foreign corporations. In the case of a domestic corporation, there shall be allowed as a deduction amounts (to the extent not compensated for) paid or incurred pursuant to an agreement entered into under section 3121 (1) with respect to services performed by United States citizens employed by foreign subsidiary corporations. Any reimbursement of any amount previously allowed as a deduction under this section shall be included in gross income for the taxable year in which received. (Added Sept. 1, 1954, ch. 1206, title II, § 210 (a), 68 Stat. 1096.) § 177. Trademark and trade name expenditures. (a) Election to amortize. Any trademark or trade name expenditure paid or incurred during a taxable year beginning after December 31, 1955, may, at the election of the taxpayer (made in accordance with regulations prescribed by the Secretary or his delegate), be treated as a deferred expense. In computing taxable income, all expenditures paid or incurred during the taxable year which are so treated shall be allowed as a deduction ratably over such period of not less |