PUBLIC LAWS-CH. 619--OCT. 21, 1942 54 Stat. 985. 26U.S.C.§720; Supp. I, § 720. Ante, pp . 904,912. 54 Stat. 985. 26U.S.C. §720; Supp. I, § 720. Ante, pp . 904, 912. 53 Stat. 18 . 26U.S.C. 26(a). Ante, p. 825 . 54 Stat. 977. 26T. . c. §711(b) (1); Supp. I, § 711 (b) (1). Ante. pp. 903, 904 720 in reduction of the average invested capital of such cor- poration for the last taxable year beginning in 1939 if such section had been applicable to such year (computed as if the admissible and inadmissible assets of any other such corporation with respect to which it became, in such taxable year, an acquiring corporation, had been held by it). "(2) In case the transaction by which a corporation became a component corporation of its acquiring corporation occurred in the last taxable year of such component corporation beginning in 1939 but on a day in a taxable year of such acquiring corpora- tion beginning in 1940, the excess profits net income of such com- ponent corporation for each base period year described in para- graph (1) shall be an amount equal to 8 per centum of the excess of- "(A) the daily invested capital of such component cor- poration for such day, over "(B) an amount equal to the same percentage of such daily invested capital as would be applicable under section 720 in reduction of the average invested capital of such component corporation for the twelve-month period ending with the preceding day if such twelve-month period constituted a tax- able year and such section had been applicable to such taxable year. "(3) In case any corporation described in paragraph (1) owned stock in any other such corporation on the first day of such owning corporation's first taxable year under this subchap- ter beginning in 1940, the amounts computed under subpara- graphs (A) and (B) of paragraphs (1) and (2) with respect to such corporations shall be adjusted, under regulations prescribed by the Commissioner with the approval of the Secretary, to such extent as may be necessary to prevent the excess profits net income of such corporations for the base period years described in paragraph (1) from reflecting money or property having been paid in by either of such corporations to the other for stock or as paid-in surplus or as a contribution to capital, or from reflect- ing stock of either having been paid in for stock of the other or as paid-in surplus or as a contribution to capital. For the purposes of this paragraph, stock in either such corporation which has in the hands of the other corporation a basis deter- mined with reference to the basis of stock previously acquired by the issuance of such other corporation's own stock shall be deemed to have been paid in for the stock of such other corporation. "(4) In determining whether, for any taxable year, the deduc- tions plus the credit for dividends received and the credit pro- vided in section 26 (a) (relating to interest on certain obligations of the United States and its instrumentalities) exceeded the gross income, and in determining the amount of such excess, the adjust- ments provided in section 711 (b) (1) shall be made. (f) (1) If, after December 31, 1935- "(A) the taxpayer acquired stock in another corporation, and thereafter such other corporation became a component corporation of the taxpayer, or "(B) a corporation (hereinafter called 'first corporation') acquired stock in another corporation (hereinafter called 'second corporation'), and thereafter the first and second cor- porations became component corporations of the taxpayer, [56 STAT. 928
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