REFERENCES IN TEXT Sections 5(c) and 6(1) of the Peace Corps Act, referred to in subsec. (b) (4), are sections 5(c) and 6(1) of Pub. L. 87-293, which are classified to sections 2504 (c) and 2505(1) of Title 22, Foreign Relations and Intercourse, respectively. The Peace Corps Act, referred to in subsec. (b)(4), is classified to chapter 34 of Title 22, Foreign Relations and Intercourse. AMENDMENTS 1961-Subsec. (b)(4). Pub. L. 87-293 added subsec. (b) (4). EFFECTIVE DATE OF 1961 AMENDMENT Amendment of this section by Pub. L. 87-293 applicable with respect to taxable years ending after Mar. 1, 1961, see section 201(d) of Pub. L. 87-293, set out as a note under section 912 of this title. § 1307. Rules applicable to this part. * (e) Election with respect to charitable contributions. In the case of an individual who elects (in such maner and at such time as the Secretary or his delegate prescribes by regulations) to have the provisions of this subsection apply, an amount received or accrued to which this part applies shall be reduced, for purposes of computing the tax liability of the taxpayer under this part with respect to the amount so received or accrued, by an amount equal to that portion of (1) the amount of charitable contributions made by the taxpayer during the taxable year in which the amount is so received or accrued which are allowable as a deduction for such year under section 170 (determined without regard to this part), as (2) the amount received or accrued to which this part applies is of the adjusted gross income for the taxable year (determined without regard to this part). In any case in which the taxpayer elects to have the provisions of the preceding sentence apply, for purposes of computing the limitation on tax under this part (1) only the same proportion of the amount to which this part applies shall be taken into account for purposes of computing the limitations under section 170(b) (1) (A) and (B) for taxable years before the taxable year in which such amount is received or accrued as (A) the excess of the maximum amount which could, if the taxpayer had made additional contributions described in clause (i), (ii), or (iii) of section 170(b) (1) (A), have been described in clause (1) of the preceding sentence over the amount described in such clause (1), bears to (B) such maximum amount, and (2) the portion of the amount of charitable contributions described in the preceding sentence shall not be taken into account in computing the tax for the taxable year in which the amount to which this part applies is received or accrued. (As amended Oct. 16, 1962, Pub. L. 87-834, § 22(a), 76 Stat. 1064.) AMENDMENTS 1962-Subsec. (e). Pub. L. 87-834 added subsec. (e). EFFECTIVE DATE OF 1962 AMENDMENT Section 22(b) of Pub. L. 87-834 provided that: "The amendment made by subsection (a) [adding subsec. (e) of this section] shall apply with respect to amounts received or accrued in taxable years beginning after December 31, 1961." PART V.-CLAIM OF RIGHT § 1341. Computation of tax where taxpayer restores substantial amount held under claim of right. (b) Special rules. (4) For purposes of determining whether paragraph (4) or paragraph (5) of subsection (a) applies (A) in any case where the deduction referred to in paragraph (4) of subsection (a) results in a net operating loss, such loss shall, for purposes of computing the tax for the taxable year under such paragraph (4), be carried back to the same extent and in the same manner as is provided under section 172; and (B) in any case where the exclusion referred to in paragraph (5) (B) of subsection (a) results in a net operating loss or capital loss for the prior taxable year (or years), such loss shall, for purposes of computing the decrease in tax for the prior taxable year (or years) under such paragraph (5) (B), be carried back and carried over to the same extent and in the same manner as is provided under section 172 or section 1212, except that no carryover beyond the taxable year shall be taken into account. (5) For purposes of this chapter, the net operating loss described in paragraph (4) (A) of this subsection, or the net operating loss or capital loss described in paragraph (4) (B) of this subsection, as the case may be, shall (after the application of paragraph (4) or (5) (B) of subsection (a) for the taxable year) be taken into account under section 172 or 1212 for taxable years after the taxable year to the same extent and in the same manner as (A) a net operating loss sustained for the taxable year, if paragraph (4) of subsection (a) applied, or (B) a net operating loss or capital loss sustained for the prior taxable year (or years), if paragraph (5) (B) of subsection (a) applied. (As amended Oct. 23, 1962, Pub. L. 87-863, § 5(a), 76 Stat. 1142.) AMENDMENTS 1962 -Subsec. (b) (4), (5). Pub. L. 87-863 added pars. (4) and (5). EFFECTIVE DATE OF 1962 AMENDMENT Section 5(b) of Pub. L. 87-863 provided that: "The amendment made by subsection (a) [to this section] shall be effective with respect to taxable years beginning on or after January 1, 1962." Subchapter R.-Election of Certain Partnerships and Proprietorships as to Taxable Status § 1361. Unincorporated business enterprises electing to be taxed as domestic corporations. (d) Limitation. A partner or proprietor of an unincorporated business enterprise as to which an election has been made under subsection (a) shall not be considered an employee for purposes of section 401(a) (relating to employees' pension trusts, etc.) other than an employee within the meaning of section 401(c) (1) (relating to self-employed individuals) or for purposes of section 405 (relating to qualified bond purchase plans) other than an employee described in section 405(f). (As amended Oct. 10, 1962, Pub. L. 87-792, § 7(h), 76 Stat. 829.) AMENDMENTS 1962-Subsec. (d). Pub. L. 87-792 inserted clause "other than an employee within the meaning of section 401(c) (1) (relating to self-employed individuals), or for purposes of section 405 (relating to qualified bond purchase plans) other than an employee described in section 405 (f)." EFFECTIVE DATE OF 1962 AMENDMENT 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 section 37 of this title. Subchapter S.-Election of Certain Small Business Corporations as to Taxable Status § 1371. Definitions. (c) Stock owned by husband and wife. For purposes of subsection (a) (1) stock which(1) is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, or (2) is held by a husband and wife as joint tenants, tenants by the entirety, or tenants in common, shall be treated as owned by one shareholder. (As amended Pub. L. 86-376, § 2(a), Sept. 23, 1959, 73 Stat. 699.) AMENDMENTS 1959-Subsec. (c). Pub. L. 86-376 added subsec. (c). EFFECTIVE DATE OF 1959 AMENDMENT Section 2(d) of Pub. L. 86-376 provided in part that the amendment by section 2(a) of Pub. L. 86-376 adding subsec. (c) of this section should apply to taxable years beginning after Dec. 31, 1959. APPLICATION OF SUBSEC. (c) TO TAXABLE YEARS BEGINNING AFTER DEC. 31, 1957, AND BEFORE JAN. 1, 1960 Section 23 of Pub. L. 87-834, Oct. 16, 1962, 76 Stat. 1065, provided that: "(a) In general.-Subject to the provisions of subsection (b), section 1371 (c) of the Internal Revenue Code of 1954 [subsec. (c) of this section] (as added by section 2(a) of the Act entitled 'An Act to amend the Internal Revenue Code of 1954 to provide a personal exemption for children placed for adoption and to clarify certain provisions relating to the election of small business corporations as to taxable status', approved September 23, 1959 (Public Law 86-376)), shall (not withstanding the provisions of the first sentence of section 2(d) of such Act) also apply to taxable years beginning after December 31, 1957, and before January 1, 1960. "(b) Election and consent by corporations; consents by shareholders.-Subsection (a) shall apply with respect to any corporation and its shareholders only if, within one year after the date of the enactment of this Act [Oct. 16, 1962] "(1) such corporation (in such manner as the Secretary of the Treasury or his delegate prescribes by regulations) elects to have the provisions of subsection (a) apply and consents to the application of subsection (c); and "(2) each person who is a shareholder of such corporation on the date on which such corporation makes such election, and each person who was a shareholder of such corporation during any taxable year of such corporation beginning after December 31, 1957, and ending before the date of such election, consents (in such manner and at such time as the Secretary of the Treasury or his delegate prescribes by regulations) to such election and to the application of subsection (c). "(c) Tolling of statutes of limitations.-In any case in which a corporation makes an election under subsection (b)— "(1) if the assessment of any deficiency against the corporation making such election, or any shareholder of such corporation who consents to such election, for any taxable year is prevented, at any time on or before the expiration of one year after the date of such election, by the operation of any law or rule of law, assessment of such deficiency may, nevertheless, be made, to the extent such deficiency is attributable to the application of subsection (a), at any time on or before the expiration of such one-year period; and "(2) if credit or refund of any overpayment of tax by the corporation making such election, or any shareholder of such corporation who consents to such election, for any taxable year is prevented, at any time on or before the expiration of one year after the date of such election, by the operation of any law or rule of law, credit or refund of such overpayment may, nevertheless, be allowed or made, to the extent such overpayment is attributable to the application of subsection (a), if claim therefor is filed on or before the expiration of such one-year period." § 1372. Election by small business corporation. (g) Consent to election by certain shareholders of stock held as community property. If a husband and wife owned stock which was community property (or the income from which was community income) under the applicable community property law of a State, and if either spouse filed a timely consent to an election under subsection (a) for a taxable year beginning before January 1, 1961, the time for filing the consent of the other spouse to such election shall not expire prior to May 15, 1961. (As amended Pub. L. 87-29, § 2, May 4, 1961, 75 Stat. 64.) (b) Allowance of deduction. Each person who is a shareholder of an electing small business corporation at any time during a taxable year of the corporation in which it has a net operating loss shall be allowed as a deduction from gross income, for his taxable year in which or with which the taxable year of the corporation ends (or for the final taxable year of a shareholder who dies before the end of the corporation's taxable year), an amount equal to his portion of the corporation's net operating loss (as determined under subsection (c)). (a) In general. This part shall apply to (1) any organization exempt from tax under section 521 (relating to exemption of farmers' cooperatives from tax), and (2) any corporation operating on a cooperative basis other than an organization (A) which is exempt from tax under this chapter, (B) which is subject to the provisions of— (ii) subchapter L (relating to insurance companies), or (C) which is engaged in furnishing electric energy, or providing telephone service, to persons in rural areas. (b) Tax on certain farmers' cooperatives. An organization described in subsection (a) (1) shall be subject to the taxes imposed by section 11 or 1201. (Added Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1045.) EFFECTIVE DATE Section 17(c) of Pub. L. 87-834 provided that: "(1) For the cooperatives.-Except as provided in paragraph (3), the amendments made by subsections (a) and (b) [adding this subchapter, amending sections 521 and 6072 of this title, and repealing section 522 of this title] shall apply to taxable years of organizations described in section 1381(a) of the Internal Revenue Code of 1954 (as added by subsection (a)) [this section] beginning after December 31, 1962. "(2) For the patrons.-Except as provided in paragraph (3), section 1385 of the Internal Revenue Code of 1954 (as added by subsection (a)) [section 1385 (3) of this title] shall apply with respect to any amount received from any organization described in section 1381(a) of such Code [subsec. (a) of this section], to the extent that such amount is paid by such organization in a taxable year of such organization beginning after December 31, 1962. "(3) Application of existing law.—In the case of any money, written notice of allocation, or other property paid by any organization described in section 1381(a) [subsec. (a) of this section] "(A) before the first day of the first taxable year of such organization beginning after December 31, 1962, or "(B) on or after such first day with respect to patronage occurring before such first day, the tax treatment of such money, written notice of allocation, or other property (including the tax treatment of gain or loss on the redemption, sale, or other disposition of such written notice of allocation) by any person shall be made under the Internal Revenue Code of 1954 without regard to subchapter T of chapter 1 of such Code [this subchapter]." § 1382. Taxable income of cooperatives. (a) Gross income. Except as provided in subsection (b), the gross income of any organization to which this part applies shall be determined without any adjustment (as a reduction in gross receipts, an increase in cost of goods sold, or otherwise) by reason of any allo22tion or distribution to a patron out of the net earnings of such organization. (b) Patronage dividends. In determining the taxable income of an organization to which this part applies, there shall not be taken into account amounts paid during the payment period for the taxable year (1) as patronage dividends (as defined in section 1388(a)), to the extent paid in money, qualified written notices of allocation (as defined in section 1388 (c)), or other property (except nonqualified written notices of allocation (as defined in section 1388 (d))) with respect to patronage occurring during such taxable year; or (2) in money or other property (except written notices of allocation) in redemption of a nonqualified written notice of allocation which was paid as a patronage dividend during the payment period for the taxable year during which the patronage occurred. For purposes of this title, any amount not taken into account under the preceding sentence shall be treated in the same manner as an item of gross income and as a deduction therefrom. (c) Deduction for nonpatronage distributions, etc. In determining the taxable income of an organization described in section 1381(a) (1), there shall be allowed as a deduction (in addition to other deductions allowable under this chapter) — (1) amounts paid during the taxable year as dividends on its capital stock; and (2) amounts paid during the payment period for the taxable year (A) in money, qualified written notices of allocation, or other property (except nonqualified written notices of allocation) on a patronage basis to patrons with respect to its earnings during such taxable year which are derived from business done for the United States or any of its agencies or from sources other than patronage, or (B) in money or other property (except written notices of allocation) in redemption of a nonqualified written notice of allocation which was paid, during the payment period for the taxable year during which the earnings were derived, on a patronage basis to a patron with respect to earnings derived from business or sources described in subparagraph (A). (d) Payment period for each taxable year. For purposes of subsections (b) and (c) (2), the payment period for any taxable year is the period beginning with the first day of such taxable year and ending with the fifteenth day of the ninth month following the close of such year. For purposes of subsections (b) (1) and (c) (2) (A), a qualified check issued during the payment period shall be treated as an amount paid in money during such period if endorsed and cashed on or before the 90th day after the close of such period. (e) Products marketed under pooling arrangements. For purposes of subsection (b), in the case of a pooling arrangement for the marketing of products, the patronage shall (to the extent provided in regulations prescribed by the Secretary or his delegate) be treated as patronage occurring during the taxable year in which the pool closes. (f) Treatment of earnings received after patronage occurred. If any portion of the earnings from business done with or for patrons is includible in the organization's gross income for a taxable year after the taxable year during which the patronage occurred, then for purposes of applying subsection (b) to such portion the patronage shall, to the extent provided in regulations prescribed by the Secretary or his delegate, be considered to have occurred during the taxable year of the organization during which such earnings are includible in gross income. (Added Pub. L. 87834, § 17(a), Oct. 16, 1962, 76 Stat. 1046.) EFFECTIVE DATE Except as otherwise provided, section applicable to taxable years of organizations described in section 1381(a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834, set out as a note under section 1381 of this title. § 1383. Computation of tax where cooperative redeems nonqualified written notices of allocation. (a) General rule. If, under section 1382 (b) (2) or (c) (2) (B), a deduction is allowable to an organization for the taxable year for amounts paid in redemption of nonqualified written notices of allocation, then the tax imposed by this chapter on such organization for the taxable year shall be the lesser of the following: (1) the tax for the taxable year computed with such deduction; or (2) an amount equal to (A) the tax for the taxable year computed without such deduction, minus (B) the decrease in tax under this chapter for any prior taxable year (or years) which would result solely from treating such nonqualified written notices of allocation as qualified written notices of allocation. (b) Special rules. (1) If the decrease in tax ascertained under subsection (a) (2) (B) exceeds the tax for the taxable year (computed without the deduction described in subsection (a)) such excess shall be considered to be a payment of tax on the last day prescribed 22-992 0-64-vol. 227 by law for the payment of tax for the taxable year, and shall be refunded or credited in the same manner as if it were an overpayment for such taxable year. (2) For purposes of determining the decrease in tax under subsection (a) (2) (B), the stated dollar amount of any nonqualified written notice of allocation which is to be treated under such subsection as a qualified written notice of allocation shall be the amount paid in redemption of such written notice of allocation which is allowable as a deduction under section 1382 (b)(2) or (c) (2) (B) for the taxable year. (3) If the tax imposed by this chapter for the taxable year is the amount determined under subsection (a) (2), then the deduction described in subsection (a) shall not be taken into account for any purpose of this subtitle other than for purposes of this section. (Added Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1047.) EFFECTIVE DATE -Except as otherwise provided, section applicable to taxable years of organizations described in section 1381(a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834, set out as a note under section 1381 of this title. PART II-TAX TREATMENT BY PATRONS OF PATRONAGE DIVIDENDS Sec. 1385. Amounts includible in patron's gross income. AMENDMENTS 1962-Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1048, added the heading of Part II and item 1385. § 1385. Amounts includible in patron's gross income. (a) General rule. Except as otherwise provided in subsection (b), each person shall include in gross income (1) the amount of any patronage dividend which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a), and (2) any amount, described in section 1382 (c) (2) (A) (relating to certain nonpatronage distributions by tax-exempt farmers' cooperatives), which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381 (a) (1). (b) Exclusion from gross income. Under regulations prescribed by the Secretary or his delegate, the. amount of any patronage dividend, and any amount received on the redemption, sale, or other disposition of a nonqualified written notice of allocation which was paid as a patronage dividend, shall not be included in gross income to the extent that such amount (1) is property taken into account as an adjustment to basis of property, or (2) is attributable to personal, living, or family items. (c) Treatment of certain nonqualified written notices of allocation. (1) Application of subsection. This subsection shall apply to any nonqualified written notice of allocation which (A) was paid as a patronage dividend, or (B) was paid by an organization described in section 1381(a) (1) on a patronage basis with respect to earnings derived from business or sources described in section 1382 (c) (2) (A). (2) Basis; amount of gain. In the case of any nonqualified written notice of allocation to which this subsection applies, for purposes of this chapter (A) the basis of such written notice of allocation in the hands of the patron to whom such written notice of allocation was paid shall be zero, (B) the basis of such written notice of allocation which was acquired from a decedent shall be its basis in the hands of the decedent, and (C) gain on the redemption, sale, or other disposition of such written notice of allocation by any person shall, to the extent that the stated dollar amount of such written notice of allocation exceeds its basis, be considered as gain from the sale or exchange of property which is not a capital asset. (Added Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1048.) EFFECTIVE DATE Except as otherwise provided, section applicable to taxable years of organizations described in section 1381 (a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834, set out as a note under section 1381 of this title. PART III.-DEFINITIONS; SPECIAL RULES Sec. 1388. Definitions; special rules. AMENDMENTS 1962-Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1049, added the heading of Part III and item 1388. § 1388. Definitions; special rules. (a) Patronage dividend. For purposes of this subchapter, the term "patronage dividend" means an amount paid to a patron by an organization to which part I of this subchapter applies (1) on the basis of quantity or value of business done with or for such patron, (2) under an obligation of such organization to pay such amount, which obligation existed before the organization received the amount so paid, and (3) which is determined by reference to the net earnings of the organization from business done with or for its patrons. Such term does not include any amount paid to a patron to the extent that (A) such amount is out of earnings other than from business done with or for patrons, or (B) such amount is out of earnings from business done with or for other patrons to whom no amounts are paid, or to whom smaller amounts are paid, with respect to substantially identical transactions. (b) Written notice of allocation. For purposes of this subchapter, the term “written notice of allocation" means any capital stock, revolving fund certificate, retain certificate, certificate of indebtedness, letter of advice, or other written notice, which discloses to the recipient the stated dollar amount allocated to him by the organization and the portion thereof, if any, which constitutes a patronage dividend. (c) Qualified written notice of allocation. (1) Defined. For purposes of this subchapter, the term "qualified written notice of allocation" means (A) a written notice of allocation which may be redeemed in cash at its stated dollar amount at any time within a period beginning on the date such written notice of allocation is paid and ending not earlier than 90 days from such date, but only if the distributee receives written notice of the right of redemption at the time he receives such written notice of allocation; and (B) a written notice of allocation which the distributee has consented, in the manner provided in paragraph (2), to take into account at its stated dollar amount as provided in section 1385(a). Such term does not include any written notice of allocation which is paid as part of a patronage dividend or as part of a payment described in section 1382(c) (2) (A), unless 20 percent or more of the amount of such patronage dividend, or such payment, is paid in money or by qualified check. (2) Manner of obtaining consent. A distributee shall consent to take a written notice of allocation into account as provided in paragraph (1)(B) only by— (A) making such consent in writing, (B) obtaining or retaining membership in the organization after (i) such organization has adopted (after the date of the enactment of the Revenue Act of 1962) a bylaw providing that membership in the organization constitutes such consent, and (ii) he has received a written notification and copy of such bylaw, or (C) if neither subparagraph (A) nor (B) applies, endorsing and cashing a qualified check, paid as a part of the patronage dividend or payment of which such written notice of allocation is also a part, on or before the 90th day after the close of the payment period for the taxable year of the organization for which such patronage dividend or payment is paid. (3) Period for which consent is effective. (A) General rule. Except as provided in subparagraph (B) — (i) a consent described in paragraph (2) (A) shall be a consent with respect to all patronage of the distributee with the organization occurring (determined with the application of section 1382(e)) during the taxable year of the organization during which such consent is made and all subsequent taxable years of the organization; and |