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TITLE 26-INTERNAL REVENUE CODE (A) the earnings and profits or deficit in earnings and profits, as the case may be, of the distributor or transferor corporation shall, tubJect to subparagraph (B), be deemed to have been received or incurred by the acquiring corporation as of the close of the date of the distribution or transfer; and (B) a deficit in earnings and profits of the distributor, transferor, or acquiring corpo- ration shall be used only to offset earnings and profits accumulated after the date of transfer. For this purpose, the earnings and profits for the taxable year of the acquiring corporation in which the distribution or transfer occurs shall be deemed to have been accumulated after such distribution or transfer in an amount which bears the same ratio to the undistributed earnings and profits of the acquiring corporation for such taxable year (computed without regard to any earnings and profits received from the distributor or transferor corpora- tion, as described in subparagraph (A) of this paragraph) as the number of days in the taxable year after the date of distribu- tion or transfer bears to the total number of days in the taxable year. (3) Capital loss carryover The capital loss carryover determined under section 1212, subject to the following conditions and limitations: (A) The taxable year of the acquiring cor- poration to which the capital loss carryover of the distributor or transferor corporation is first carried shall be the first taxable year ending after the date of distribution or transfer. (B) The capital loss carryover shall be a short-term capital loss in the taxable year determined under subparagraph (A) but shall be limited to an amount which bears the same ratio to the capital gain net income (determined without regard to a short-term capital loss attributable to cap- ital loss carryover), if any, of the acquiring corporation in such taxable year as the number of days in the taxable year after the date of distribution or transfer bears to the total number of days in the taxable year. (C) For purposes of determining the amount of such capital loss carryover to taxable years following the taxable year de- termined under subparagraph (A), the cap- ital gain net income in the taxable year de- termined under subparagraph (A) shall be considered to be an amount equal to the amount determined under subparagraph (B). (4) Method of accounting The acquiring corporation shall use the method of accounting used by the distributor or transferor corporation on the date of dis- tribution or transfer unless different methods were used by several distributor or transferor corporations or by a distributor or transferor corporation and the acquiring corporation. If different methods were used, the acquiring corporation shall use the method or combina- tion of methods of computing taxable income adopted pursuant to regulations prescribed by the Secretary. (5) Inventories In any case In which Inventories are re- ceived by the acquiring corporation, such in- ventories shall be taken by such corporation (in determining its income) on the same basis on which such inventories were taken by the distributor or transferor corporation, unless different methods were used by several dis- tributor or transferor corporations or by a distributor or transferor corporation and the acquiring corporation. If different methods were used, the acquiring corporation shall use the method or combination of methods of taking inventory adopted pursuant to regula- tions prescribed by the Secretary. (6) Method of computing depreciation allowance The acquiring corporation shall be treated as the distributor or transferor corporation for purposes of computing the depreciation allowance under subsections (b), (J), and k) of section 167 on property acquired in a distri- bution or transfer with respect to so much of the basis in the hands of the acquiring corpo- ration as does not exceed the adjusted basis in the hands of the distributor or transferor corporation. (7) Repealed. June 15, 1955, ch. 143, § 2(1), 69 Stat. 134] (8) Installment method If the acquiring corporation acquires in- stallment obligations (the income from which the distributor or transferor corporation has elected, under section 453, to report on the in- stallment basis) the acquiring corporation shall, for purposes of section 453, be treated as if it were the distributor or transferor cor- poration. (9) Amortization of bond discount or premium If the acquiring corporation assumes liabil- ity for bonds of the distributor or transferor corporation issued at a discount or premium, the acquiring corporation shall be treated as the distributor or transferor corporation after the date of distribution or transfer for pur- poses of determining the amount of amortiza- tion allowable or includible with respect to such discount or premium. (10) Treatment of certain mining development and exploration expenses of distributor of transfer- or corporation The acquiring corporation shall be entitled to deduct, if it were the distributor or trans- feror corporation, expenses deferred under section 616 (relating to certain development expenditures) if the distributor or transferor corporation has so elected. For the purpose of applying the limitation provided in section 617(h), if, for any taxable year, the distribu- tor or transferor corporation was allowed a deduction under section 617(a), the acquiring corporation shall be deemed to have been al- lowed such deduction. (11) Contributions to pension plans, employees' an- nuity plans, and stock bonus and profit-sharing plans The acquiring corporation shall be consid- ered to be the distributor or transferor corpo- ration after the date of distribution or trans- Page 2715