"(C) Replacements.-If, in the case of any taxpayer subject to the provisions of subparagraph (A), the closing inventory of the taxpayer for a taxable year, subsequent to the year of involuntary liquidation but prior to the complete replacement of the goods so liquidated, reflects an increase over the opening inventory of such goods for the taxable year, the goods reflecting such increase shall be considered, in the order of their acquisition, as having been acquired in replacement of the goods most recently liquidated (whether or not in a year of involuntary liquidation) and not previously replaced, and if the liquidation was an involuntary liquidation shall be taken into purchases and included in the closing inventory of the taxpayer for the year of replacement at the inventory cost basis of the goods replaced.' (4) EFFECT OF ELECTION.-Section 22 (d) (6) (D) (relating to irrevocable effect of election) is amended by striking out "for subsequent taxable years" and inserting in lieu thereof "for prior and subsequent taxable years".

(5) TAXES AFFECTED BY ADJUSTMENT.-Section 22 (d) (6) (E) (relating to adjustment with respect to closed years) is amended by striking out "Subchapter E of".

(b) EFFECTIVE DATE.-The amendments made by this section shall be applicable with respect to taxable years beginning after December 31, 1940.

SEC. 111. DENIAL OF DEDUCTION FOR FEDERAL EXCISE TAXES NOT DEDUCTIBLE UNDER SECTION 23 (a).

Section 23 (c) (1) (relating to deduction of taxes in computing net income) is amended (a) by striking out "and" at the end of subparagraph (D); (b) by striking out the period at the end of subparagraph (E) and inserting in lieu thereof "; and”; and (c) by inserting at the end thereof the following:

"(F) Federal import duties, and Federal excise and stamp taxes (not described in subparagraph (A), (B), (D), or (E)), but this subsection shall not prevent such duties and taxes from being deducted under subsection (a)."

SEC. 112. DEDUCTION FOR LOSSES ON SECURITIES IN AFFILIATED

CORPORATIONS.

(a) STOCK LOSSES.-Section 23 (g) (4) (B) of the Internal Revenue Code (relating to losses on stock of affiliated corporations) is amended to read as follows:

"(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 (except rents derived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from sales or exchanges of stocks and securities; and".

(b) BOND LOSSES.-Section 23 (k) (5) (B) of the Internal Revenue Code (relating to losses on securities of affiliated corporations) is amended to read as follows:

"(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 (except rents derived from rental of properties to employees of the company in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, or gains from sales or exchanges of stocks and securities; and".

(c) TAXABLE YEARS TO WHICH APPLICABLE.-The amendments made by this section shall be applicable with respect to taxable years beginning after December 31, 1941.

SEC. 113. PARTIALLY WORTHLESS BAD DEBTS.

(a) IN GENERAL.-The first sentence of section 23 (k) (1) (relating to deductions for bad debts) is amended to read as follows: "Debts which become worthless within the taxable year; or (in the discretion of the Commissioner) a reasonable addition to a reserve for bad debts; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction."

(b) YEARS TO WHICH APPLICABLE.-The amendment made by this section shall be effective with respect to taxable years beginning after December 31, 1938.

SEC. 114. CORPORATE CONTRIBUTIONS TO VETERANS' ORGANIZA

TIONS.

Section 23 (q) (relating to charitable and other contributions by corporations) is amended (a) by inserting "veteran rehabilitation service," after "scientific," in paragraph (2), (b) by inserting "or" at the end of paragraph (2), and (c) by inserting after paragraph (2) the following new paragraph:

"(3) Posts or organizations of war veterans, or auxiliary units of, or trusts or foundations for, any such posts or organizations, if such posts, organizations, units, trusts, or foundations are organized in the United States or any of its possessions, and if no part of their net earnings inure to the benefit of any private shareholder or individual;"

SEC. 115. SPECIAL DEDUCTION FOR BLIND.

Section 23 (relating to deductions in computing net income) is amended by inserting after section 23 (x) the following:

"(y) SPECIAL DEDUCTION FOR BLIND INDIVIDUALS.

"(1) IN GENERAL.-In the case of a blind individual, $500. For the purposes of this subsection, the status of the individual, insofar as it affects the application of this subsection to such individual, shall be determined as of July 1 of the taxable year, unless the taxable year does not include July 1, in which case such status shall be determined as of the last day of the taxable year.

"(2) DEFINITION.-For the purposes of this subsection, the term 'blind individual' means an individual whose central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or whose visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees."

SEC. 116. CREDIT FOR DIVIDENDS PAID ON PREFERRED STOCK OF PUBLIC UTILITIES.

(a) DIVIDENDS UNPAID AND ACCUMULATED.-Section 26 (h) (1) (relating to credit for dividends paid on certain preferred stock) is amended by inserting at the end of the first sentence thereof the following: "For the purposes of the credit provided in this subsection the amount of dividends paid shall not include any amount distributed in the current taxable year with respect to dividends unpaid and accumulated in any taxable year ending prior to October 1, 1942. Amounts distributed in the current taxable year with respect to dividends unpaid and accumulated for a prior taxable year shall for the purposes of this paragraph be deemed to be distributed with respect to the earliest year or years for which there are dividends unpaid and accumulated."

(b) STOCK ISSUED TO REPLACE EXISTING SECURITIES.-Section 26 (h) (2) (B) (defining "preferred stock") is amended by inserting at the end thereof the following: "Stock issued on or after October 1, 1942, shall be deemed for the purposes of this paragraph to have been issued prior to October 1, 1942, if it was issued (including issuance either by the same or another corporation in a transaction which is a reorganization, as defined in section 112 (g) (1), or a transaction to which section 112 (b) (10), or so much of section 112 (d) or (e) as relates to section 112 (b) (10), is applicable, or which is a transaction subject to Supplement R) to refund or replace bonds or debentures issued prior to October 1, 1942, or to refund or replace other preferred stock (including stock which is preferred stock by reason of this sentence), but only to the extent that the par or stated value of the new stock does not exceed the par, stated, or face value of the bonds or debentures issued prior to October 1, 1942, or the other preferred stock, which such new stock is issued to refund or replace. The determination of whether stock was issued to refund or replace bonds or debentures issued prior to October 1, 1942, or to refund or replace other preferred stock, shall be made under regulations scribed by the Commissioner with the approval of the Secretary."

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SEC. 117. RETURNS BY ORGANIZATIONS EXEMPT FROM TAXATION.

(a) IN GENERAL.-Section 54 (relating to records and special returns) is amended by inserting after subsection (e) the following: "(f) Every organization, except as hereinafter provided, exempt from taxation under section 101 shall file an annual return, which shall contain or be verified by a written declaration that it is made under the penalties of perjury, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the provisions of this chapter as the Commissioner, with the approval of the Secretary, may by regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Commissioner, with the approval of the Secretary, may from time to time prescribe. No such annual return need be filed under this subsection by any organization exempt from taxation under the provisions of section 101—

"(1) which is a religious organization exempt under section 101 (6); or

"(2) which is an educational organization exempt under section 101 (6), if such organization normally maintains a regular faculty and curriculum and normally has a regularly organized body of pupils or students in attendance at the place where its educational activities are regularly carried on; or

"(3) which is a charitable organization, or an organization for the prevention of cruelty to children or animals, exempt under section 101 (6), if such organization is supported, in whole or in part, by funds contributed by the United States or any State or political subdivision thereof, or is primarily supported by contributions of the general public; or

"(4) which is an organization exempt under section 101 (6), if such organization is operated, supervised, or controlled by or in connection with a religious organization described in paragraph (1); or

"(5) which is an organization exempt solely under section 101 (3); or

"(6) which is an organization exempt under section 101 (15), if such organization is a corporation wholly owned by the United States or any agency or instrumentality thereof, or a wholly owned subsidiary of such a corporation."

(b) YEARS TO WHICH APPLICABLE. The amendments made by subsection (a) shall be applicable with respect to taxable years beginning after December 31, 1942.

SEC. 118. PENALTIES IN CONNECTION WITH ESTIMATED TAX.

(a) IN GENERAL.-Section 294 (relating to additions to the tax) is amended by striking out paragraphs (3), (4), and (5) of subsection (a) and inserting at the end thereof the following:

"(d) ESTIMATED TAX.

"(1) FAILURE TO FILE DECLARATION OR PAY INSTALLMENT OF

ESTIMATED TAX.

"(A) Failure to File Declaration.-In the case of a failure to make and file a declaration of estimated tax within the time prescribed, unless such failure is shown to the satisfaction of the Commissioner to be due to reasonable cause and not to willful neglect, there shall be added to the tax 5 per centum of each installment due but unpaid, and in addition, with respect to each such installment due but unpaid, 1 per centum of the unpaid amount thereof for each month (except the first) or fraction thereof during which such amount remains unpaid. In no event shall the aggregate addition to the tax under this subparagraph with respect to any installment due but unpaid, exceed 10 per centum of the unpaid portion of such installment. For the purposes of this subparagraph each installment shall be considered to be an amount equal to the amount that would have been due and payable if a declaration showing an estimated tax in the amount of the correct tax had been timely filed, and one such installment shall be considered due on the fifteenth day of the last month of that quarter of the taxable year in which the declaration is required to be filed, and another such installment shall be considered due on the fifteenth day of the last month of each succeeding quarter of the taxable year.

"(B) Failure to Pay Installments of Estimated Tax Declared. Where a declaration of estimated tax has been made and filed within the time prescribed, or where a declaration of estimated tax has been made and filed after the time prescribed and the Commissioner has found that failure to make and file such declaration within the time prescribed was due to reasonable cause and not to willful neglect, in the case of a failure to pay an installment of the estimated tax within the time prescribed, unless such failure is shown to the satisfaction of the Commissioner to be due to reasonable cause and not to willful neglect, there shall be added to the tax 5 per centum of the unpaid amount of such installment, and in addition 1 per centum of such unpaid amount for each month (except the first) or fraction thereof during which such amount remains unpaid. In no event shall the aggregate addition to the tax under this subparagraph with respect to any installment due but unpaid, exceed 10 per centum of the unpaid portion of such installment.

"(2) SUBSTANTIAL UNDERESTIMATE OF ESTIMATED TAX.-If 80 per centum of the tax (determined without regard to the credits under sections 32, 35, and 466 (e)), in the case of individuals other than farmers exercising an election under section 60 (a), or 6623 per centum of such tax so determined in the case of such farmers, exceeds the estimated tax (increased by such credits), there shall be added to the tax an amount equal to such excess, or equal to 6 per centum of the amount by which such tax so determined exceeds the estimated tax so increased, whichever is the lesser. This paragraph shall not apply to the taxable year in which falls the death of the taxpayer, nor, under regulations prescribed by the Commissioner with the approval of the Secretary, shall it apply to the taxable year in which the taxpayer makes a timely payment of estimated tax within or before each quarter (excluding, in case the taxable year begins in 1943, any quarter beginning prior to July 1, 1943) of such year (or in the case of farmers exercising an election under section 60 (a), within the last quarter) in an amount at least as great as though computed (under such regulations) on the basis of the taxpayer's status with respect to the personal exemption and credit for dependents on the date of the filing of the declaration for such taxable year (or in the case of any such farmer, or in case the fifteenth day of the third month of the taxable year occurs after July 1, on July 1 of the taxable year) but otherwise on the basis of the facts shown on his return for the preceding taxable year." (b) TECHNICAL AMENDMENT.-Section 60 (b) (relating to the application of declarations of estimated tax to short taxable years) is amended by striking out "294 (a) (3), (4), and (5)" and inserting in lieu thereof "294 (d)".

(c) TAXABLE YEARS TO WHICH APPLICABLE.-The amendments made by this section shall be applicable with respect to taxable years beginning after December 31, 1942.

SEC. 119. BACK PAY ATTRIBUTABLE TO PRIOR YEARS.

(a) IN GENERAL.-Section 107 (relating to compensation for certain services rendered) is amended by inserting at the end thereof the following new subsection: