DEDUCTION OF CERTAIN UNPAID EXPENSES AND INTEREST.

SEC. 202. DEDUCTION OF CERTAIN UNPAID EXPENSES AND INTEREST. (a) Amendment of Section 24 (c).— Paragraph (1) of section 24 (c) (relating to disallowance of certain deductions for expenses incurred and interest accrued) is hereby amended to read as follows: “(1) If within the period consisting of the taxable year of the taxpayer and two and one-half months after the close thereof (A) such expenses or interest are not paid, and (B) the amount thereof is not includible in the gross income of the person to whom the payment is to be made; and”. (b) Effective Date.— (1) Except as otherwise provided in paragraph (2), the amendment made by subsection (a) shall apply only with respect to taxable years beginning after December 31, 1950. (2) At the election of a taxpayer (hereinafter in this paragraph referred to as the “payor”) made within one year after the date of the enactment, of this Act, the amendment made by subsection (a) shall also apply with respect to such taxable years of the payor beginning after December 31, 1945, and before January 1, 1951, as are specified by the payor in making such election. Such election for any taxable year shall not be valid as to any amount unless, at or before the time when such election is filed— (A) the person (hereinafter in this paragraph referred to as the “payee”) to whom such amount was payable included such amount in gross income for his taxable year for which such amount was includible in gross income, or (B) the payee files a written consent to the assessment and collection of any deficiency and interest resulting from the payee’s failure to include such amount in gross income for such taxable year, or (C) the payor pays an amount equal to the deficiency and interest which would be payable by the payee pursuant to subparagraph (B) if he filed such consent. (Any amount paid under this subparagraph shall be assessed, notwithstanding any law or rule of law to the contrary, as an addition to the tax of the payor for the year for which the election is filed.) The periods of limitation provided in sections 275 and 276 of the Internal Revenue Code on the making of an assessment and the beginning of distraint or a proceeding in court for collection shall, with respect to any deficiency and interest thereon resulting from any consent filed pursuant to subparagraph (B), include one year immediately following the date such consent is filed, and such assessment and collection may be made notwithstanding any provision of law or any rule of law which otherwise would prevent such assessment and collection. If an election by a payor should be filed for a taxable year of the payor for which allowance of credit or refund of an overpayment 67 Stat. 618 is barred (at the time of such filing) by any law or rule of law, any consent filed by the payee in respect of any amount which represents expenses incurred or interest accrued by the payor for such year shall be void. If a consent requires the inclusion in the gross income of the payee for any taxable year of an amount which was erroneously included in the gross income of the payee for another taxable year and, on the date the consent is filed, correction of the effect of the error is prevented by the operation of any provision of the internal-revenue laws other than section 3761 of the Internal Revenue Code (relating to compromises), then the effect of the error shall be corrected in accordance with section 3801 of the Internal Revenue Code as if the consent were a determination under such section 3801 in which there is adopted a position maintained by the Secretary of the Treasury. The Secretary of the Treasury shall prescribe such regulations as may be necessary to carry out the provisions of this paragraph.