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The amount so withheld during any calendar year shall be allowed as a credit for the taxable year beginning in such calendar year. If more than one taxable year begins in a calendar year, such amount shall be allowed as a credit for the last taxable year so beginning.

(b) Credit for special refunds of social security tax. (1) In general.

The Secretary or his delegate may prescribe regulations providing for the crediting against the tax imposed by this subtitle of the amount determined by the taxpayer or the Secretary (or his delegate) to be allowable under section 6413 (c) as a special refund of tax imposed on wages. amount allowed as a credit under such regulations shall, for purposes of this subtitle, be considered an amount withheld at source as tax under section 3402.

(2) Year of credit.

The

Any amount to which paragraph (1) applies shall be allowed as a credit for the taxable year beginning in the calendar year during which the wages were received. If more than one taxable

year begins in the calendar year, such amount shall be allowed as a credit for the last taxable year so beginning.

(Aug. 16, 1954, ch. 736, 68A Stat. 12.)

CROSS REFERENCES

Amount allowable as credit under this section exceeding taxes imposed by chapter 1 considered as overpayment, see section 6401 (b) of this title.

Time tax collected at source deemed paid, see section 6513 (b) of this title.

§ 32. Tax withheld at source on nonresident aliens and foreign corporations and on tax-free covenant bonds.

There shall be allowed as credits against the tax imposed by this chapter

(1) the amount of tax withheld at source under subchapter A of chapter 3 (relating to withholding of tax on nonresident aliens and on foreign corporations), and

(2) the amount of tax withheld at source under subchapter B of chapter 3 (relating to interest on tax-free covenant bonds).

(Aug. 16, 1954, ch. 736, 68A Stat. 13.)

§ 33. Taxes of foreign countries and possessions of the United States.

The amount of taxes imposed by foreign countries and possessions of the United States shall be allowed as a credit against the tax imposed by this chapter to the extent provided in section 901. (Aug. 16, 1954, ch. 736, 68A Stat. 13.)

CROSS REFERENCES

Foreign tax credit, see section 901 of this title.

§ 34. Repealed. Pub. L. 88-272, title II, § 201(b), Feb. 26, 1964, 78 Stat. 31.

Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 13; June 25, 1959, Pub. L. 86-69, § 3(a) (1), 73 Stat. 139; Sept. 14, 1960, Pub. L. 86-779, § 10(e), 74 Stat. 1009; Feb. 26, 1964, Pub. L. 88-272, title II, § 201(a), 78 Stat. 31, related to dividends received by individuals.

EFFECTIVE Date of REPEAL

Section 201 (b) of Pub. L. 88-272 provided in part that this section is repealed effective with respect to dividends received after Dec. 31, 1964.

§ 35. Partially tax-exempt interest received by individuals.

(a) In general.

There shall be allowed to an individual, as a credit against the tax imposed by this subtitle for the taxable year, an amount equal to 3 percent of the amount received as interest on obligations of the United States or on obligations of corporations organized under Act of Congress which are instrumentalities of the United States, but only if—

(1) such interest is included in gross income; and

(2) such interest is exempt from normal tax under the Act authorizing the issuance of such obligations.

(b) Limitation on amount of credit.

The credit allowed by subsection (a) shall not exceed whichever of the following is the lesser:

(1) the amount of the tax imposed by this chapter for the taxable year, reduced by the credit allowable under section 33; or

(2) 3 percent of the taxable income for the taxable year.

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1964 Subsec. (b)(1). Pub. L. 88-272 substituted "the credit allowable under section 33" for "the sum of the credits allowable under sections 33 and 34."

1958 Subsec. (c) added by Pub. L. 85-866, which also redesignated former subsec. (c) as (d).

Subsec. (d), formerly (c), so redesignated by Pub. L. 85-866.

EFFECTIVE DATE OF 1964 AMENDMENT

Section 201 (e) of Pub. L. 88-272 provided that: "The amendments made by subsection (a) [to section 34 of this title] shall apply with respect to taxable years ending after December 31, 1963. The amendment made by subsection (b) [repealing section 34 of this title] shall apply with respect to taxable years ending after December 31, 1964. The amendment made by subsection (c) [to section 116(a) of this title] shall apply with respect to taxable years beginning after December 31, 1963. amendments made by subsection (d) [to this section, the analysis preceding section 31, and sections 37, 46, 116(c) (3), 584, 642, 702, 854, 857, 871, 1375 and 6014 of this title] shall apply with respect to dividends received after December 31, 1964, in taxable years ending after such date".

EFFECTIVE DATE OF 1958 AMENDMENT

The

Amendment of subsecs. (c) and (d) by Pub. L. 85-866 applicable only to taxable years beginning after Dec. 31, 1957, see section 41(c) of Pub. L. 85-866, set out as a note under section 871 of this title.

§ 36. Credits not allowed to individuals paying optional tax or taking standard deductions.

If an individual elects to pay the optional tax imposed by section 3, or if he elects under section 144 to take the standard deduction, the credits provided by sections 32, 33, and 35 shall not be allowed. (Aug. 16, 1954, ch. 736, 68A Stat. 15.)

§ 37. Retirement income. (a) General rule.

In the case of an individual who has received earned income before the beginning of the taxable year, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 17 percent, in the case of a taxable year beginning in 1964, or 15 percent, in the case of a taxable year beginning after December 31, 1964, of the amount received by such individual as retirement income (as defined in subsection (c) and as limited by subsection (d)); but this credit shall not exceed such tax reduced by the credits allowable under section 32(2) (relating to tax withheld at source on tax-free covenant bonds), section 33 (relating to foreign tax credit), and section 35 (relating to partially tax exempt interest).

(b) Individual who has received earned income.

For purposes of subsection (a), an individual shall be considered to have received earned income if he has received, in each of any 10 calendar years be

fore the taxable year, earned income (as defined in subsection (g)) in excess of $600. A widow or widower whose spouse had received such earned income shall be considered to have received earned income.

(c) Retirement income.

For purposes of subsection (a), the term "retirement income" means

(1) in the case of an individual who has attained the age of 65 before the close of the taxable year, income from

(A) pensions and annuities (including in the case of an individual who is, or has been, an employee within the meaning of section 401 (c) (1), distributions by a trust described in section 401(a) which is exempt from tax under section 501 (a)),

(B) interest, (C) rents,

(D) dividends, and

(E) bonds described in section 405(b) (1) which are received under a qualified bond purchase plan described in section 405 (a) or in a distribution from a trust described in section 401(a) which is exempt from tax under section 501(a), or

(2) in the case of an individual who has not attained the age of 65 before the close of the taxable year, income from pensions and annuities under a public retirement system (as defined in subsection (f)),

to the extent included in gross income without reference to this section, but only to the extent such income does not represent compensation for personal services rendered during the taxable year. (d) Limitation on retirement income.

For purposes of subsection (a), the amount of retirement income shall not exceed $1,524 less

(1) in the case of any individual, any amount received by the individual as a pension or annuity

(A) under title II of the Social Security Act, (B) under the Railroad Retirement Acts of 1935 or 1937, or

(C) otherwise excluded from gross income, and

(2) in the case of any individual who has not attained age 72 before the close of the taxable year

(A) if such individual has not attained age 62 before the close of the taxable year, any amount of earned income (as defined in subsection (g) in excess of $900 received by such individual in the taxable year, or

(B) if such individual has attained age 62 before the close of the taxable year, the sum of (i) one-half the amount of earned income received by such individual in the taxable year in excess of $1,200 but not in excess of $1,700, and (ii) the amount of earned income so received in excess of $1,700.

(e) Rule for application of subsection (d) (1). Subsection (d) (1) shall not apply to any amount excluded from gross income under section 72 (relating to annuities), 101 (relating to life insurance

proceeds), 104 (relating to compensation for injuries or sickness), 105 (relating to amounts received under accident and health plans), 402 (relating to taxability of beneficiary of employees' trust), or 403 (relating to taxation of employee annuities).

(f) Public retirement system defined.

For purposes of subsection (c) (2), the term "public retirement system" means a pension, annuity, retirement, or similar fund or system established by the United States, a State, a Territory, a possession of the United States, any political subdivision of any of the foregoing, or the District of Columbia. (g) Earned income defined.

For purposes of subsections (b) and (d) (2), the term "earned income" has the meaning assigned to such term in section 911 (b), except that such term does not include any amount received as a pension or annuity.

(h) Nonresident alien ineligible for credit.

No credit shall be allowed under subsection (a) to any nonresident alien.

(i) Special rules for certain married couples. (1) Election.

A husband and wife who make a joint return for the taxable year and both of whom have attained the age of 65 before the close of the taxable year may elect (at such time and in such manner as the Secretary or his delegate by regulations prescribes) to determine the amount of the credit allowed by subsection (a) by applying the provisions of paragraph (2).

(2) Special rules.

AMENDMENTS

1964 Subsec. (a). Pub. L. 88–272, §§ 113(a), 201(d) (3), substituted "an amount equal to 17 percent, in the case of a taxable year beginning in 1964, or 15 percent, in the case of a taxable year beginning after December 31, 1964, of the amount received by such individual as retirement income (as defined in subsection (c) and as limited by subsection (d));" for "an amount equal to the amount received by such individual as retirement income (as defined in subsection (c) and as limited by subsection (d)), multiplied by the rate provided in section 1 for the first $2,000 of taxable income;", and eliminated "section 34 (relating to credit for dividends received by individuals)", preceding "and section 35."

Subsec. (1). Pub. L. 88-272, § 202(a), added subsec. (1).
Former subsec. (1) redesignated (j).
Subsec. (1). Pub. L. 88-272, § 202(a), redesignated
former subsec. (1) as (1).

1962 Subsec. (c)(1). Pub. L. 87-792 inserted provisions in subpar. (A) requiring inclusion, in the case of an individual who is, or has been, an employee within the meaning of section 401(c)(1), distributions by a trust described in section 401(a) which is exempt from tax under section 501 (a), and added subpar. (E).

Subsec. (d). Pub. L. 87-876 increased the limit on retirement income from $1,200 to $1,524, lowered the age requirement in par. (2) (A) from 65 to 62, and substituted provisions in par. (2) (B) which reduce the amount of retirement income for individuals who reach age 62, by one-half the amount of earned income in excess of $1,200 but not in excess of $1,700, and by the amount received over $1,700, for provisions which reduced such income by the amount earned over $1,200 by persons having reached age 65, and which defined income as in subsec. (g) of this section.

1956 Subsec. (d)(2). Act Jan. 28, 1956, reduced from 75 to 72 the age at which there will be no limitation on earned income and increased from $900 to $1,200 the amount that an individual over 65 can earn without reducing the $1,200 on which the retirement credit is computed.

1955 Subsec. (f). Act Aug. 9, 1955, extended the retirement income tax credit to members of the Armed Forces.

If an election is made under paragraph (1) for the taxable year, for purposes of subsection (a) —

(A) if either spouse is an individual who has received earned income within the meaning of subsection (b), the other spouse shall be considered to be an individual who has received earned income within the meaning of such subsection; and

(B) subsection (d) shall be considered as providing that the amount of the combined retirement income of both spouses shall not exceed $2,286, less the sum of the amounts specified in paragraphs (1) and (2) of subsection (d) for each spouse.

(j) Cross reference.

For disallowance of credit where tax is computed by Secretary or his delegate, see section 6014 (a). (Aug. 16, 1954, ch. 736, 68A Stat. 15; Aug. 9, 1955, ch. 659, § 1, 69 Stat. 591; Jan. 28, 1956, ch. 17, § 1, 70 Stat. 8; Oct. 10, 1962, Pub. L. 87-792; § 7(a), 76 Stat. 828; Oct. 24, 1962, Pub. L. 87-876, § 1, 76 Stat. 1199; Feb. 26, 1964, Pub. L. 88-272, title I, § 113 (a), title II, §§ 201(d) (3), 202 (a), 78 Stat. 24, 32, 33.)

REFERENCES IN TEXT

Title II of the Social Security Act, referred to in subsec. (d), is classified to section 401 et seq. of Title 42, The Public Health and Welfare.

The Railroad Retirement Act of 1935, referred to in subsec. (d), was classified to former sections 215-228 of Title 45, Railroads, and was amended by, and incorporated in, the Railroad Retirement Act of 1937.

The Railroad Retirement Act of 1937, referred to in subsec. (d), is classified to section 228a et seq. of Title 45, Railroads.

EFFECTIVE DATE of 1964 AMENDMENT

Amendment of subsec. (a) by section 113(a) of Pub. L. 88-272, except for purposes of section 21 of this title, effective with respect to taxable years beginning after Dec. 31, 1963, see section 131 of Pub. L. 88-272, set out as a note under section 1 of this title.

Amendment of subsec. (a) by section 201(d)(3) of Pub. L. 88-272 applicable with respect to dividends received after Dec. 31, 1964, in taxable years ending after such date, see section 201(e) of Pub. L. 88–272 set out as a note under section 35 of this title.

Section 202(b) of Pub. L. 88-272 provided that: "The amendments made by subsection (a) [to this section] shall apply to taxable years beginning after December 31, 1963."

EFFECTIVE DATE OF 1962 AMENDMENTS

Section 2 of Pub. L. 87-876 provided that: "The amendment made by the first section of this Act [to subsec. (d) of this section] shall apply only to taxable years ending after the date of the enactment of this Act [Oct. 24, 1962)."

Section 8 of Pub. L. 87–792 provided that: "The amendments made by this Act [enacting sections 405 and 6047 of this title, and amending this section and sections 62, 72, 101, 104, 105, 172, 401-404, 503, 805, 1361, 2039, 2517, 3306, 3401 and 7207 of this title] shall apply to taxable years beginning after December 31, 1962." EFFECTIVE Date of 1956 AMENDMENT

Section 2 of act Jan. 28, 1956, provided that: "The amendment made by the first section of this Act [to subsec. (d) (2)] shall apply only with respect to taxable years beginning after December 31, 1955."

EFFECTIVE DATE OF 1955 AMENDMENT

Section 2 of act Aug. 9, 1955, provided that: "The amendment made by this Act [to subsec. (f)] shall be applicable to taxable years beginning after Dece.nber 31, 1954."

CROSS REFERENCES Dividends received credit not allowed on distributions of electing small business corporations, see section 1375 of this title.

Disallowance of credit where tax is computed by Secretary or his delegate, see section 6014 (a) of this title.

§ 38. Investment in certain depreciable property. (a) General rule.

There shall be allowed, as a credit against the tax imposed by this chapter, the amount determined under subpart B of this part.

(b) Regulations.

The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section and subpart B. (Added Pub. L. 87-834, § 2(a), Oct. 16, 1962, 76 Stat. 962.)

EFFECTIVE DATE

Section 2(h) of Pub. L. 87-834 provided that: "The amendments made by this section [adding this section and sections 46-48 and 181 of this title, amending sections 381, 1016, 6501, 6511, 6601 and 6611 of this title, and redesignating former section 38 as section 39 of this title] shall apply with respect to taxable years ending after December 31, 1961."

SHORT TITLE

Section 1(a) of Pub. L. 87-834 provided that: "This Act [adding this section and sections 46-48, 78, 181, 182, 274, 595, 669, 823-826, 951-964, 970-972, 1245-1249, 13811383, 1385, 1388, 6048, 6049 and 6677-6679 of this title, amending sections 72, 162, 167, 170, 179, 216, 245, 263, 301, 312, 318, 341, 381, 453, 501, 521, 535, 545, 591, 593, 613, 642, 643, 665, 666, 668, 751, 821, 822, 831, 832, 841, 861, 901, 902, 904, 911, 1016, 1201, 1223, 1307, 2031, 2033-2038, 2040, 2041, 4382, 6038, 6041, 6042, 6044, 6046, 6072, 6501, 6511, 6601, 6611, 6652 and 7701 of this title, and section 1464 of Title 12, Banks and Banking, redesignating section 38 as section 39 of this title and section 823 as section 822(f) of this title, repealing section 522 of this title, enacting provisions set out as notes under this section and sections 72, 162, 170, 216, 301, 593, 595, 643, 821, 902, 904, 911, 951, 1245, 1246, 1248, 1249, 1307, 1371, 1374, 1381, 2031, 4382, 6038, 6042, 6046, 7701 and 7852 of this title and under section 1984 of Title 50, Appendix, War and National Defense, and amending section 188 of the Internal Revenue Code of 1939] may be cited as the 'Revenue Act of 1962'."

TREATMENT OF INVESTMENT CREDIT BY FEDERAL REGULATORY AGENCIES

Pub. L. 88-272, title II, § 203 (e), Feb. 26, 1964, 78 Stat. 35, provided that:

"It was the intent of the Congress in providing an investment credit under section 38 of the Internal Revenue Code of 1954, and it is the intent of the Congress in repealing the reduction in basis required by section 48(g) of such Code, to provide an incentive for modernization and growth of private industry (including that portion thereof which is regulated). Accordingly, Congress does not intend that any agency or instrumentality of the United States having jurisdiction with respect to a taxpayer shall, without the consent of the taxpayer, use

"(1) in the case of public utility property (as defined in section 46(c)(3)(B) of the Internal Revenue Code of 1954), more than a proportionate part (determined with reference to the average useful life of the property with respect to which the credit was allowed) of the credit against tax allowed for any taxable year by section 38 of such Code, or

"(2) in the case of any other property, any credit against tax allowed by section 38 of such Code,

to reduce such taxpayer's Federal income taxes for the purpose of establishing the cost of service of the taxpayer or to accomplish a similar result by any other method."

§ 39. Overpayments of tax.

For credit against the tax imposed by this subtitle for overpayments of tax, see section 6401.

(Aug. 16, 1954, ch. 736, § 39, formerly § 38, 68A Stat. 16, renumbered Oct. 16, 1962, Pub. L. 87-834, § 2(a), 76 Stat. 962.)

SUBPART B-RULES FOR Computing Credit FOR INVESTMENT IN CERTAIN DEPRECIABLE PROPERTY

Sec.

46. Amount of credit.

47. Certain dispositions, etc., of section 38 property. 48. Definitions; special rules.

AMENDMENTS

1962-Pub. L. 87-834, § 2(b), Oct. 16, 1962, 76 Stat. 963, added subpart B.

§ 46. Amount of credit.

(a) Determination of amount.

(1) General rule.

The amount of the credit allowed by section 38 for the taxable year shall be equal to 7 percent of the qualified investment (as defined in subsection (c)).

(2) Limitation based on amount of tax.

Notwithstanding paragraph (1), the credit allowed by section 38 for the taxable year shall not exceed

(A) so much of the liability for tax for the taxable year as does not exceed $25,000, plus

(B) 25 percent of so much of the liability for tax for the taxable year as exceeds $25,000. (3) Liability for tax.

For purposes of paragraph (2), the liability for tax for the taxable year shall be the tax imposed by this chapter for such year, reduced by the sum of the credits allowable under

(A) section 33 (relating to foreign tax credit), (B) section 35 (relating to partially tax-exempt interest), and

(C) section 37 (relating to retirement income).

For purposes of this paragraph, any tax imposed for the taxable year by section 531 (relating to accumulated earnings tax) or by section 541 (relating to personal holding company tax) shall not be considered tax imposed by this chapter for such year.

(4) Married individuals.

In the case of a husband or wife who files a separate return, the amount specified under subparagraphs (A) and (B) of paragraph (2) shall be $12,500 in lieu of $25,000. This paragraph shall not apply if the spouse of the taxpayer has no qualified investment for, and no unused credit carryback or carryover to, the taxable year of such spouse which ends within or with the taxpayer's taxable year.

(5) Affiliated groups.

In the case of an affiliated group, the $25,000 amount specified under subparagraphs (A) and (B) of paragraph (2) shall be reduced for each member of the group by apportioning $25,000 among the members of such group in such manner as the Secretary or his delegate shall by regula

tions prescribe. For purposes of the preceding sentence, the term "affiliated group" has the meaning assigned to such term by section 1504(a), except that all corporations shall be treated as includible corporations (without any exclusion under section 1504(b)).

(b) Carryback and carryover of unused credits. (1) Allowance of credit.

If the amount of the credit determined under subsection (a) (1) for any taxable year exceeds the limitation provided by subsection (a) (2) for such taxable year (hereinafter in this subsection referred to as "unused credit year"), such excess shall be

(A) an investment credit carryback to each of the 3 taxable years preceding the unused credit year, and

(B) an investment credit carryover to each of the 5 taxable years following the unused credit year,

and shall be added to the amount allowable as a credit by section 38 for such years, except that such excess may be a carryback only to a taxable year ending after December 31, 1961. The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 8 taxable years to which (by reason of subparagraphs (A) and (B)) such credit may be carried, and then to each of the other 7 taxable years to the extent that, because of the limitation contained in paragraph (2), such unused credit may not be added for a prior taxable year to which such unused credit may be carried.

(2) Limitation.

The amount of the unused credit which may be added under paragraph (1) for any preceding or succeeding taxable year shall not exceed the amount by which the limitation provided by subsection (a) (2) for such taxable year exceeds the sum of

(A) the credit allowable under subsection (a) (1) for such taxable year, and

(B) the amounts which, by reason of this subsection, are added to the amount allowable for such taxable year and attributable to taxable years preceding the unused credit year. (3) Effect of net operating loss carryback.

To the extent that the excess described in paragraph (1) arises by reason of a net operating loss carryback, subparagraph (A) of paragraph (1) shall not apply.

(4) Taxable year beginning before January 1, 1962. For purposes of determining the amount of an investment credit carryback that may be added under paragraph (1) for a taxable year beginning before January 1, 1962, and ending after December 31, 1961, the amount of the limitation provided by subsection (a) (2) is the amount which bears the same ratio to such limitation as the number of days in such taxable year after December 31, 1961, bears to the total number of days in such year.

(c) Qualified investment. (1) In general.

For purposes of this subpart, the term "qualified investment" means, with respect to any taxable year, the aggregate of

(A) the applicable percentage of the basis of each new section 38 property (as defined in section 48(b)) placed in service by the taxpayer during such taxable year, plus

(B) the applicable percentage of the cost of each used section 38 property (as defined in section 48 (c) (1)) placed in service by the taxpayer during such taxable year.

(2) Applicable percentage.

For purposes of paragraph (1), the applicable percentage for any property shall be determined under the following table:

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For purposes of this paragraph, the useful life of any property shall be determined as of the time such property is placed in service by the taxpayer. (3) Public utility property.

(A) In the case of section 38 property which is public utility property, the amount of the qualified investment shall be 3 of the amount determined under paragraph (1)

(B) For purposes of subparagraph (A), the term "public utility property" means property used predominantly in the trade or business of the furnishing or sale of—

(i) electrical energy, water, or disposal services,

(ii) gas through a local system,

(iii) telephone service, or

sewage

distribution

(iv) telegraph service by means of domestic telegraph operations (as defined in section 222(a)(5) of the Communications Act of 1934, as amended; 47 U.S.C., sec. 222(a) (5)), if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by an agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof.

(4) Certain replacement property.

For purposes of paragraph (1), if section 38 property is placed in service by the taxpayer to replace property which was

(A) destroyed or damaged by fire, storm, shipwreck, or other casualty, or

(B) stolen,

the basis of such section 38 property (in the case of new section 38 property), or the cost of such section 38 property (in the case of used section 38 property), which (but for this paragraph) would be taken into account under paragraph (1) shall be reduced by an amount equal to the

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