DECREASE IN INADMISSIBLE ASSETS.

SEC. 507. DECREASE IN INADMISSIBLE ASSETS. Section 435 (g) (relating to net capital addition or reduction) is hereby amended as follows: (a) By adding at the end of paragraph (1) thereof the following: “For further adjustment with respect to the amount determined under the preceding provisions of this paragraph, see paragraph (9).” (b) By adding immediately after paragraph (8), as added by section 506 of this Act, the following new paragraphs: “(9) Decrease in inadmissible assets.— “(A) Except as otherwise provided in subparagraph (B) (relating to banks), the excess of the amount computed under paragraph (2) (A) or (B), whichever is applicable to the taxpayer (whether or not any amount is determined under the first sentence of paragraph (2)), over the amount, if any, computed under the first sentence of paragraph (2) shall be considered the net capital addition for the taxable year or shall be added to the net capital addition otherwise determined under paragraph (1), as the case may be. The amount of the excess so determined shall be subject to the exceptions and limitations provided in paragraph (10). 65 Stat. 548 “(B) In the case of a bank (as defined in section 104), the computation under subparagraph (A) shall be made by substituting for the amount computed under paragraph (2) (A) or (B) whichever of the following amounts is the lesser: “(i) An amount which bears the same ratio to the decrease in inadmissible assets as the sum of the equity capital (as defined in section 437 (c)) and the daily borrowed capital (as defined in section 439 (b)), each determined as of the first day of the first taxable year ending after June 30, 1950, bears to the total assets as of the beginning of such day; “(ii) If paragraph (8) (B) is applicable, the amount computed under paragraph (8) (B) (ii). “(10) Exceptions and limitations for the purpose of paragraph (a).— For the purpose of paragraph (9)— “(A) The adjustment to the decrease in inadmissible assets required under subparagraph (B) of paragraph (2) shall not be greater than 25 per centum of the excess of the net capital reduction computed under the first sentence of paragraph (2) (and computed without regard to the percentage limitations in paragraph (4) (C) and (E)) over the net capital reduction computed under such sentence without regard to paragraph (4) (C) and (E). “(B) The amount determined under paragraph (9) shall not be greater than the excess of the increase in operating assets for the taxable year over the net capital addition (determined without regard to paragraph (9) and determined without regard to the limitation to 75 per centum provided in paragraph (3) (C) and paragraph (4) (C) and (E)). For the purpose of the preceding sentence, the increase in operating assets for the taxable year shall be determined in the same manner as the increase in inadmissible assets for the taxable year is determined under paragraph (5). For the purpose of such determination, the term ‘operating assets’ means— “(i) property used in the taxpayer’s trade or business within the meaning of section 117 (j) (1) except that such property need not be held more than six months, and “(ii) stock in trade or other property of a kind which would properly be includible in the inventory of the taxpayer if owned at the close of the taxable year, and property held by the taxpayer primarily for sale to customers in the ordinary course of the taxpayer’s trade or business, except any such assets which constitute inadmissible assets, stock, securities, or intangible property (such intangible property not being limited to the property described in section 441 (i)).—. “(C) The amount determined under paragraph (9) shall be subject to reduction to the extent that the Secretary determines that the increase in operating assets is a result, directly or indirectly, of an increase in indebtedness of the taxpayer (other than indebtedness which constitutes borrowed capital).”