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TITLE 26-INTERNAL REVENUE CODE basis of any retirement-straight line property as of any time on or after the changeover date and before the taxpayer's 1956 adjustment date, in lieu of the ad- justments for depreciation provided in section 1016 (a)(2) and (3) of the Internal Revenue Code of 1954 and the corresponding provisions of prior revenue laws, the following adjustments shall be made: "(1) For prescribed reserve.-For the amount of the reserve prescribed by the Commissioner in connection with the changeover. "(2) For allowable depreciation.-For the depreci- ation allowable under the terms and conditions pre- scribed by the Commissioner in connection with the changeover. This subsection shall not apply in determining adjust- ed bhsis for purposes of section 437(c) of the Internal Revenue Code of 1939. This subsection shall apply only with respect to taxable years beginning on or after the changeover date and before the taxpayer's 1956 adjustment date. "(f) Equity invested capital, etc.-If an election is made under this section, then (not withstanding the terms and conditions prescribed by the Commissioner in connection with the changeover)-. "(1) Equity invested capital.-In determining equity invested capital under sections 458 and 718 of the In- ternal Revenue Code of 1939, accumulated earnings and profits as of the changeover date, and as of the beginning of each taxable year thereafter, shall be re- duced by the depreciation sustained before March 1, 1913, as computed under subsection (d)(1)(B); and "(2) Definition of equity capital.-In determining the adjusted basis of assets for the purpose of section 437(c) of the Internal Revenue Code of 1939 (and in addition to any other adjustments required by such Code), the basis shall be reduced by depreciation sus- tained before March 1, 1913 (as computed under sub- section (d)), together with any depreciation allowable under subsection (e)(2) for any period before the year for which the excess profits credit is being computed. "(g) Definitions.-Por purposes of this section- "(1) Depreciation.-The term 'depreciation' means exhaustion, wear and tear, and obsolescence. "(2) Changeover.-The term 'changeover' means a change from the retirement to the straight line method of computing the allowance of deductions for depreciation. "(3) Changeover date.-The term 'changeover date' means the first day of the first taxable year for which the changeover was effective. "(4) 1956 adjustment date.-The term '1956 adjust- ment date' means, in the case of any taxpayer, the first day of his first taxable year beginning after De- cember 31, 1955. "(5) Predecessor.-The term 'predecessor' means any person from whom property of a kind or class to which this section refers was acquired, if the basis of such property is determined by reference to its basis in the hands of such person. Where a series of trans- fers of property has occurred and where in each in- stance the basis of the property was determined by reference to its basis in the hands of the prior holder, the term includes each such prior holder. "(6) The term 'Secretary' means the Secretary of the Treasury or his delegate. "(7) The term 'Commissioner' means the Commis- sioner of Internal Revenue." CROSS REFERENCES Adjusted basis for determining gain or loss, see sec.. tion 1011 of this title. Distribution of proceeds of loan insured by United States, effect on earnings and profits, see section 312 of this title. Liquidations before Jan. 1, 1966, see section 225(h) of Pub. L. 88-272, set out as a note under section 333 of this title. Property acquired- Before March 1, 1913, subject to adjustment pro- vided in this section, see section 1053 of this title. By gift, adjustment of basis for period antedating gift, see section 1015 of this title. SCTIXON REFERRED TO IN OTHER SECTxONS This section is referred to in sections 75, 174, 177. 179, 312, 372, 816, 817, 1011, 1015, 1034, 1053, 1250, 6362 of this title. § 1017. Discharge of indebtedness Where any amount is excluded from gross Income under section 108 (relating to income from discharge of indebtedness) on account of the discharge of indebtedness the whole or a part of the amount so excluded from gross income shall be applied in reduction of the basis of any property held (whether before or after the time of the discharge) by the taxpay- er during any portion of the taxable year in which such discharge occurred. The amount to be so applied (not in excess of the amount so excluded from gross income, reduced by the amount of any deduction disallowed under sec- tion 108) and the particular properties to which the reduction shall be allocated, shall be deter- mined under regulations (prescribed by the Sec- retary) in effect at the time of the filing of the cr,nsent by the taxpayer referred to in section 108. The reduction shall be made as of the first day of the taxable year in which the discharge occurred, except in the case of property not held by the taxpayer on such first day, in which case it shall take effect as of the time the holding of the taxpayer began. (Aug. 16, 1954, ch. 736, 68A Stat. 301; Oct. 4, 1976, Pub. L. 94-455, title XIX, §§1906(b)(13)(A), 1951(c)(1), 90 Stat. 1834, 1840.) AMENDMErNTS 1976-Pub. L. 94-455, §§1906(b)(13)(A), 1951(c)(1), substituted "section 108" for "section 108(a)" in three places and struck out "or his delegate" following "Sec- retary". CROSS REERENCES Basis in connection with certain receivership and bankruptcy proceedings not subject to adjustment under this section, see section 372 of this title. Rules and regulations, see section 7805 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 108, 372 of this title. § 1018. Adjustment of capital structure before Sep- tember 22, 1938 Where a plan of reorganization of a corpora- tion, approved by the court in a proceeding under section 77B of the National Bankruptcy Act, as amended (48 Stat. 912), is consummated by adjustment of the capital or debt structure of such corporation without the transfer of its assets to another corporation, and a final judg- ment or decree in such proceeding has been en- tered before September 22, 1938, then the pro- visions of section 270 of the Bankruptcy Act, as amended (11 U.S.C. 670), shall not apply in re- spect of the property of such corporation. For purposes of this section, the term "reorganiza- tion" shall not be limited by the definition of such term in section 112(g) of the Internal Rev- enue Code of 1939. Page 641 § 1018