Clearly, if this provision had been retained in the legislation as finally enacted, petitioners' position would be correct. But the section went through a metamorphosis in the Senate, which accepted the language contained in a Treasury draft of proposed changes to the House bill and adopted the language which now appears in section 956 (a) (1) -- language which, in order to point up the contrast, we again set forth verbatim:

(a) General Rules. -- For purposes of this subpart --

(1) Amount of investment. -- The amount of earnings of a 1973 U.S. Tax Ct. LEXIS 57">*75 controlled foreign corporation invested in United States property at the close of any taxable year is the aggregate amount of such property held, directly or indirectly, by the controlled foreign corporation at the close of the taxable year, to the extent such amount would have constituted a dividend (determined after the application of section 955 (a)) ¹⁴ if it had been distributed.

60 T.C. 917">*925 Commenting on its draft bill, the Treasury stated that "the provision for taxing the increase in investment in certain U.S. property is, with technical changes, substantially the same as in section 13 of H.R. 10650." (Explanation of Amendments Recommended by Treasury Department to Section 13 of H.R. 10650, p. 2, reprinted in Congressional Hearings before Senate Finance Committee, 87th Cong., 2d Sess., part 11, p. 4418 (1962).) The Treasury's detailed explanation of the changes to the House bill says nothing about the earnings and profits language of the House bill or the dividend limitation provision of the draft bill. Id. at pp. 4419-4420. Equally silent as to a change in regard to the earnings and profits issue is the Senate Finance 1973 U.S. Tax Ct. LEXIS 57">*76 Committee report. See "Comparison of committee amendments with House provision," S. Rept. No. 1881, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 707, 785-786. The committee's explanation of section 956(a)(1) merely reiterates the language of the dividend limitation provision without comment. S. Rept. No. 1881, supra, 1962-3 C.B. at 954. The Conference Committee report also throws no light on the subject. Conf. Rept. No. 2508, 87th Cong., 2d Sess., 1962-3 C.B. 1157-1164.

Petitioners argue that neither the Treasury nor the Senate intended to change the meaning of the House bill so as to adopt the interpretation urged by respondent in this case. It is inconceivable, they say, that section 951(a)(1)(B) could have been intended to apply to pre-1963 accumulated earnings without a word of comment to that effect in the Treasury's explanation of its proposals or the Senate and Conference committee reports.

We are not persuaded by this argument. Certainly such an argumentum ex silentio is insufficient to overturn what we think is a reasonable construction of section 956(a)(1). Nor do we think, despite the silence of the committee reports, that Congress was unaware of the change made by the substitution 1973 U.S. Tax Ct. LEXIS 57">*77 of the dividend limitation provision of the Senate bill for the explicit language of H.R. 10650, exempting pre-1963 earnings and profits. To the contrary, the fact that the Treasury proposals and the Senate bill as reported by the Senate Finance Committee applied to investments of pre-1963 earnings in U.S. property was brought to the attention of the Senate Finance Committee and pointed out during the course of the Senate debate on the bill. See Hearings before Senate Finance Committee on the Revenue Act of 1962, p. 4765 (1962); 108 Cong. Rec. 18233 (1962). ¹⁵ While statements 60 T.C. 917">*926 made in congressional debates and hearings are not always reliable guides to legislative intent, they have on occasion been regarded as some indication that Congress was aware of possible consequences that would arise from the proposed legislation. See O'Hara v. Luckenbach Steamship Co., 269 U.S. 364">269 U.S. 364, 269 U.S. 364">367-368 (1926); Penn Mutual Co. v. Lederer, 252 U.S. 523">252 U.S. 523, 252 U.S. 523">534 (1920). Consequently, even if we were to conclude that the language of section 956(a)(1) is ambiguous (see p. 927 infra), we would reject the argument that Congress could not have intended the meaning which respondent ascribes to sections 951(a)(1)(B)1973 U.S. Tax Ct. LEXIS 57">*78 and 956(a)(1).

Petitioners seek solace from other provisions of the Revenue Act of 1962, which they claim evidence a legislative intent to exempt pre-1963 earnings and profits from the computation of amounts invested in U.S. property. First, they point to the effective date provision contained in section 12(c) of the Revenue Act of 1962 (see fn. 13 supra). That provision, however, does not purport to alter the meaning of the terms used in the statute but only specifies the first taxable year of the statute's operation. The requisite taxable event which activates section 951(a)(1)(B), and therefore section 956 (a) (1), is not an increase in the controlled 1973 U.S. Tax Ct. LEXIS 57">*79 foreign corporation's earnings but rather an increase in its investment in U.S. property.

Petitioners also attempt to support their contention by reference to certain related statutory provisions which are limited in application, by their own terms, to earnings and profits of the controlled foreign corporation accumulated after December 31, 1962. The principal sections involved are section 956(b)(2)(F), relating to certain earnings and profits arising out of post-1962 income derived from sources within the United States, and sections 1246 and 1248, which limit dividend treatment to that portion of the gain on the sale or exchange of stock of certain foreign corporations attributable to post-1962 accumulated earnings and profits and accord capital gain treatment to the balance, including such portion as might be represented by pre-1963 accumulated earnings and profits. But these sections are concerned with whether or not the foreign corporation, and not its shareholders, has been subject to U.S. tax on its income. Section 951 (a) (1) (B), on the other hand, has the stated objective of treating a controlled foreign corporation's increase in earnings invested in U.S. property as if 1973 U.S. Tax Ct. LEXIS 57">*80 it were a dividend paid to the corporation's shareholders. Earnings of the controlled foreign corporation repatriated to the United States are regarded as being the equivalent of a dividend paid to the U.S. shareholders. See H. Rept. No. 1447, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 462; S. Rept. No. 1881, supra, 1962-3 C.B. at 794. Unlike sections 956(b)(2)(F), 1246, and 1248, the focus of section 951(a)(1)(B) is not whether the foreign corporation has been 60 T.C. 917">*927 avoiding tax on its income, but whether the shareholder should be considered as having received something akin to a constructive dividend. See also pp. 929-930 infra. We do not think the different provisions have the same purpose and therefore do not perceive any necessary inconsistency between them.

Finally, petitioners urge that we exempt pre-1963 earnings and profits from the operation of section 951 (a)(1)(B) in order to effectuate what they contend to be the overall legislative purpose of subpart F, namely, to discourage the accumulation of funds abroad by U.S. taxpayers. As we have had occasion to point out previously, the search for a unified legislative purpose in subpart F proves to be elusive. See Estate of Leonard E. Whitlock, 59 T.C. 490">59 T.C. 490, 59 T.C. 490">501 (1972), 1973 U.S. Tax Ct. LEXIS 57">*81 on appeal (C.A. 10, May 25, 1973 (respondent) and June 4, 1973 (petitioner)). Concededly, respondent's application of section 951(a)(1) (B) may tend to have a counterproductive effect in that it may discourage the repatriation of funds accumulated abroad by controlled foreign corporations. But the same can be said of post-1962 earnings of controlled foreign corporations to the extent that they are not currently taxable to U.S. shareholders. Under all the circumstances, given the multiplicity of legislative purposes which underlay the enactment of subpart F, we cannot say that the statutory language is so lacking in clarity that we should undertake the task of rewriting it. Compare Hanover Bank v. Commissioner, 369 U.S. 672">369 U.S. 672, 369 U.S. 672">687 (1962). Clearly, such multiplicity and the legislative history, meager as it is, preclude us from finding that Congress has legislated eccentrically. See J. C. Penney Co. v. Commissioner, 312 F.2d 65, 68 (C.A. 2, 1962), affirming 37 T.C. 1013">37 T.C. 1013.

Accordingly, we sustain respondent's position as to the interpretation of sections 951(a)(1)(B) and 956(a)(1), thereby resolving the question which we did not reach in Estate of Leonard E. Whitlock, 59 T.C. 490">59 T.C. 505.

Petitioners next attack respondent's position in this case on constitutional grounds. They argue that subpart F is constitutionally deficient in its basic concept -- taxing shareholders on the undistributed earnings of their corporation -- and, furthermore, in its application to their particular situation, where all of the corporation's earnings were accumulated prior to the effective date of the statute.

Subpart F has withstood constitutional challenges on two previous occasions. In Garlock Inc., 58 T.C. 423">58 T.C. 423, 58 T.C. 423">438 (1972), on appeal (C.A. 2, Aug. 31, 1972), this Court upheld the constitutionality of section 951 (a)(1)(A) in taxing the U.S. shareholder of a controlled foreign corporation 60 T.C. 917">*928 on his pro rata share of the corporation's subpart F income. We later held, in Estate of Leonard E. Whitlock, 59 T.C. 490">59 T.C. 505-510, that there is no constitutional bar to the operation of section 951(a)(1)(B) in taxing a U.S. shareholder on his pro rata share of the corporation's increase in earnings invested in U.S. property for the taxable year, at least in the situation where such increase does not exceed the corporation's earnings and profits of that taxable 1973 U.S. Tax Ct. LEXIS 57">*83 year.

Petitioners' initial challenge to the overall constitutionality of subpart F must be rejected on the authority of Garlock and Whitlock. The question remaining is whether section 951(a)(1)(B) may be constitutionally applied in the particular circumstances of this case. Liberia, the controlled foreign corporation, had no current earnings and profits during 1963, the taxable year in issue. All of its earnings and profits were accumulated in years prior to 1963, which was the first year subject to the operation of subpart F. On these facts, petitioners argue that all of Liberia's earnings, having been realized in years prior to 1963, were integrated into Liberia's capital by the time subpart F became effective. Relying on Eisner v. Macomber, 252 U.S. 189">252 U.S. 189 (1920), a venerable but often criticized page in the lore of Federal income taxation, petitioners therefore conclude that Liberia had no income, within the meaning of the 16th amendment, which could be taxed to its shareholders under section 951(a)(1)(B).

We pause first to reiterate some of the observations we made in 59 T.C. 490">Estate of Leonard E. Whitlock, supra.We noted therein that the doctrine of 252 U.S. 189">Eisner v. Macomber, supra, does not 1973 U.S. Tax Ct. LEXIS 57">*84 prevent Congress from bypassing the corporate entity in determining the incidence of Federal income taxation. This principle has special application in the case of controlled foreign corporations, which Congress has found to be frequently abused by their U.S. shareholders as vehicles for the avoidance of tax. S. Rept. No. 1881, supra, 1962-3 C.B. at 784-785. In subpart F, Congress has singled out a particular class of taxpayers, U.S. shareholders, whose degree of control over their foreign corporation ^{161973 U.S. Tax Ct. LEXIS 57">*85} allows them to treat the corporation's undistributed earnings as they see fit. Compare Corliss v. Bowers, 281 U.S. 376">281 U.S. 376, 281 U.S. 376">378 (1930), where the Supreme Court said, in connection with the taxability of a grantor on the income of a revocable trust, "The income that is subject to a man's unfettered command and that he is free to enjoy at his own 60 T.C. 917">*929 option may be taxed to him as his income, whether he sees fit to enjoy it or not."

The stated objective of section 951(a)(1)(B) is "to prevent the repatriation of income to the United States in a manner which does not subject it to U.S. taxation." H. Rept. No. 1447, supra, 1962-3 C.B. at 462. "Generally, earnings brought back to the United States are taxed to the shareholders on the grounds that this is substantially the equivalent of a dividend being paid to them." S. Rept. No. 1881, supra, 1962-3 C.B. at 794.

We deal next with the assertion that the application of section 951 (a)(1)(B) involves a retroactive taxation of income which is beyond the power of Congress to legislate, because it operates herein, if at all, to tax earnings and profits of a controlled foreign corporation accumulated 1973 U.S. Tax Ct. LEXIS 57">*86 before the effective date of subpart F. But the facts are that the taxable event herein -- an increase in earnings invested in U.S. property -- occurred during a year subject to the operation of the statute and that Congress has power to tax income -- here the income of the corporation imputed to its shareholders -- by a new statute, although the measure of the income is generated by income of a past year prior to the effective date of the statute. See Brushaber v. Union Pac. R.R., 240 U.S. 1">240 U.S. 1, 240 U.S. 1">20 (1916), citing Stockdale v. Insurance Companies, 87 U.S. (20 Wall.) 323, 331 (1873). See also cases involving the purported retroactivity of taxing statutes, collected and discussed in the dissenting opinion of Mr. Justice Brandeis in Untermyer v. Anderson, 276 U.S. 440">276 U.S. 440, 276 U.S. 440">447-451 (1928). Compare also Lynch v. Hornby, 247 U.S. 339">247 U.S. 339 (1918), where the Supreme Court held that there was no constitutional barrier to the taxation of dividends paid out of earnings and profits accumulated prior to March 1, 1913.

In Whitlock, the taxable event was the investment of current earnings of a controlled foreign corporation. In this case, we take an additional step and hold that there is no constitutional 1973 U.S. Tax Ct. LEXIS 57">*87 barrier to the operation of section 951(a)(1)(B) in respect of pre-1963 earnings and profits of a controlled foreign corporation, even though they were accumulated prior to the effective date of subpart F. 252 U.S. 189">Eisner v. Macomber, supra, presents no more of a barrier to this conclusion here than it did in Whitlock.

In 252 U.S. 189">Eisner v. Macomber, supra, the purported taxable event was the issuance to a shareholder of a piece of paper, i.e., a share of stock representing a part of the same interest which he already held in the corporation. Such being the case, the Supreme Court considered that there was no severance of corporate assets and perceived the asserted tax as one imposed on "property because of ownership" (see 252 U.S. 189">252 U.S. at 217). Consequently, it was held that there was no income within the 60 T.C. 917">*930 meaning of the 16th amendment and that what was involved was a direct tax in violation of art. I, sec. 2, cl. 3, and art. I, sec. 9, cl. 4, of the Constitution. That this sameness of stock and proportionate interest was the key to decision is made pellucid by subsequent decisions of the Supreme Court wherein the receipt of a different interest was held to be a taxable event because it in effect represented 1973 U.S. Tax Ct. LEXIS 57">*88 a constructive separation of corporate assets. See, e.g., Helvering v. Griffiths, 318 U.S. 371">318 U.S. 371 (1943); Koshland v. Helvering, 298 U.S. 441">298 U.S. 441 (1936).

Because of the shareholder's control over the corporation, the corporate entity is bypassed for taxation purposes and such income is taxed directly to the shareholder. Sec. 951(a)(1)(A). In the case of section 951(a)(1)(B), Congress has decided that certain income realized by the corporation should not be taxed to the shareholder until something more occurs -- the repatriation of that income in the form of an increase in earnings invested in U.S. property. The taxable event in that situation is the investment in U.S. property, occurring in a year subject to the operation of the statute. That is the event which Congress has regarded as manifesting the shareholder's exercise of control over the previous income of the corporation.

Concededly, there has been no separation of corporate assets herein in the sense that the petitioners have directly received something out of Liberia's assets for their separate use and benefit. See Eisner v. Macomber, 252 U.S. 189">252 U.S. at 211. Indeed, an increase in investment of earnings in U.S. property such as occurred 1973 U.S. Tax Ct. LEXIS 57">*89 in this case might well be insufficient to justify taxation under the judicially created doctrine of constructive dividends.¹⁷ But such insufficiency does not support the use of 252 U.S. 189">Eisner v. Macomber, supra, to interpose a constitutional barrier to a statutory constructive dividend doctrine which in effect is what is involved herein, at least where the application of that doctrine is limited to controlled foreign corporations and U.S. shareholders whose degree of control over such corporations meets the requirements of section 957(a) and 957(b). ^{181973 U.S. Tax Ct. LEXIS 57">*90} See fn. 16 supra. In reaching this conclusion, we have accorded due weight to the plenary power to tax conferred upon Congress by art. I, sec. 8, cl. 1, of the Constitution and the presumption in favor of legislation enacted by that body. See Penn Mutual Indemnity Co., 32 T.C. 653">32 T.C. 653 (1959), affd. 277 F.2d 16 (C.A. 3, 1960).

We hold for respondent on the constitutional issue.

60 T.C. 917">*931 3. Taxable Year of the Corporation

Petitioners put forward one other contention which, they hope, will relieve them from the operation of section 951(a)(1)(B) in this case. That section provides that a U.S. shareholder of a controlled foreign corporation --

shall include in his gross income, for his taxable year in which or with which such taxable year of the corporation ends --

* * * *

his pro rata share * * * of the corporation's increases in earnings invested in United States property for such year * * *

[Emphasis added.]

Petitioners maintain that Liberia's "taxable year" for purposes of subpart F was the fiscal year ending August 31 and that, under the effective date provision (see fn. 13 supra), Liberia's first taxable year subject to the operation of subpart F would then be its fiscal year beginning September 1, 1963, and ending August 31, 1964. Hence petitioners contend that their first taxable year subject to the operation of subpart F would be 1964, a year not before the Court.

In order to determine 1973 U.S. Tax Ct. LEXIS 57">*91 Liberia's taxable year, we look to the definition of that term found in section 441. The definition of the term "taxable year" found in section 441(b) is expressly made applicable to subtitle A, which includes subpart F. We reject petitioners' argument that a foreign corporation which has no income subject to U.S. tax cannot have a taxable year. Compare secs. 551 through 558; Forrest City Production Credit Assn. v. United States, 300 F. Supp. 609">300 F. Supp. 609 (E.D. Ark. 1969), affirmed per curiam 426 F.2d 819 (C.A. 8, 1970). See also Rev. Proc. 63-7, fn. 22infra. Insofar as the taxable year issue in this case is concerned, Liberia is subject to the provisions of section 441 and the regulations thereunder.

Section 441 is set forth below in pertinent part:

SEC. 441. PERIOD FOR COMPUTATION OF TAXABLE INCOME

(b) Taxable Year. -- For purposes of this subtitle, the term "taxable year" means --

(1) the taxpayer's annual accounting period, if it is a calendar year or a fiscal year;

(2) the calendar year, if subsection (g) applies; * * *

* * * *

(c) Annual Accounting Period. -- For purposes of this subtitle, the term "annual accounting period" means the annual period on the basis of which the taxpayer regularly 1973 U.S. Tax Ct. LEXIS 57">*92 computes his income in keeping his books.

* * * *

(g) No Books Kept; No Accounting Period. -- * * * the taxpayer's taxable year shall be the calendar year if --

(1) the taxpayer keeps no books;

(2) the taxpayer does not have an annual accounting period * * *

A taxpayer's annual accounting period is determined by examining all the facts relative to such corporation's method of accounting. Great West Printing Co. v. Commissioner, 60 F.2d 749 (C.A. 8, 1932), affirming 22 B.T.A. 346">22 B.T.A. 346 (1931).

Petitioner testified that he directed his accountants to maintain the books and records of Liberia on the basis of a fiscal year ending August 31. The reason for adopting such a fiscal year, according to petitioner, was to have Liberia's accounts reflect a full first year of business. According to petitioner, the particular fiscal years of Indiana1973 U.S. Tax Ct. LEXIS 57">*93 and IBOA were adopted for the same reason. Petitioners insist that this testimony regarding Liberia's accounting period is credible, consistent, and uncontradicted and should therefore be accepted as conclusive. We are not persuaded by such testimony, however, because the preponderance of the evidence tends to indicate that Liberia used the calendar year as its annual accounting period.

The fact is that none of the documentary evidence (with the exception of the election hereinafter referred to, see p. 933-934 infra) indicate that Liberia had any accounting period other than a calendar year. This includes balance sheets, income and expense statements, ledger accounts, ^{191973 U.S. Tax Ct. LEXIS 57">*95} and various information returns filed with the Internal Revenue Service. ^{201973 U.S. Tax Ct. LEXIS 57">*96} Although petitioners attempt to explain away these indicia, their explanations fail to counteract the considerable doubt which the documentary evidence casts upon petitioner's testimony. Under such circumstances, we are not required to accept 60 T.C. 917">*933 petitioner's testimony as gospel. See, e.g., Fleischer v. Commissioner, 403 F.2d 403, 406 (C.A. 2, 1968), affirming a Memorandum Opinion of this Court; National Fireworks v. Commissioner, 243 F.2d 295, 2971973 U.S. Tax Ct. LEXIS 57">*94 (C.A. 1, 1957); Archer v. Commissioner, 227 F.2d 270, 273 (C.A. 5, 1955). If in fact Liberia actually used a fiscal year, it would seem that some independent evidence which would have so indicated could have been produced. ²¹ Cf. Wichita Terminal Elevator Co., 6 T.C. 1158">6 T.C. 1158, 6 T.C. 1158">1165 (1946), affd. 162 F.2d 513 (C.A. 10, 1947). Moreover, we find the evidence in the record, regarding the need in the mind of petitioner to have Liberia's loans to IBOA made due and payable and actually repaid before December 31, 1963 (see p. 919 supra), a strong indication that Liberia had a calendar year accounting period. If Liberia had used an annual accounting period ending August 31, the December 31, 1963, date would have had no importance in the context of this case. On the basis of the record before us, we hold that Liberia used the calendar year as its annual accounting period. Georges Simenon, 44 T.C. 820">44 T.C. 820, 44 T.C. 820">832 (1965).

In the alternative, petitioners argue that Liberia adopted the fiscal year ending August 31 as its taxable year in accordance with the provisions of Rev. Proc. 63-7, 1963-1 C.B. 485, 486 (Rule 3). ^{221973 U.S. Tax Ct. LEXIS 57">*97 1973 U.S. Tax Ct. LEXIS 57">*98} On 60 T.C. 917">*934 April 29, 1968, petitioner, as the sole shareholder and president of Liberia, filed with the district director of internal revenue at Chicago a statement entitled "Election of Sole Shareholder of Dougherty Overseas, Inc., a Liberian Corporation As To Annual Accounting Period Pursuant to Revenue Procedure 63-7," stating that he "elects a fiscal year ending August 31, beginning with the year 1962 for Dougherty Overseas [Liberia]." Respondent denied petitioner's "election" under Rev. Proc. 63-7 solely on the ground that it was not filed with petitioner's tax return for the year 1962 or, in respondent's opinion, within a reasonable time thereafter. See fn. 23 infra.

There is a fatal flaw in petitioners' position. We have found as a fact that Liberia maintained a calendar year accounting period throughout 1973 U.S. Tax Ct. LEXIS 57">*99 the entire period of its existence. That finding, as we have previously pointed out, is based upon the failure of the record before us to disclose that Liberia maintained its books and records on any basis other than the calendar year. Liberia and petitioner were separate entities and petitioner's "election" cannot be deemed an adoption of an August 31 fiscal year by Liberia. Max Freudmann, 10 T.C. 775">10 T.C. 775, 10 T.C. 775">791-794 (1948). Cf. Gill v. United States, 258 F.2d 553 (C.A. 5, 1958); Atlas Oil & Refining Corporation, 17 T.C. 733">17 T.C. 733 (1951); Irene Nunnery Theriot, 15 T.C. 912">15 T.C. 912 (1950), affd. 197 F.2d 13 (C.A. 5, 1952). Compare also Linen Thread Co., Ltd., 14 T.C. 725">14 T.C. 725 (1950). Under these circumstances, the provisions of Rev. Proc. 63-7, supra, simply never came into play and we need not explore the question whether Liberia could have validly adopted a change in its accounting period more than 2 years after it was liquidated. Nor need we deal with the issue of whether, if Liberia had adopted an August 31 fiscal year, petitioner's "election" would have been timely. ^{231973 U.S. Tax Ct. LEXIS 57">*100} Compare discussion in respect of the section 962 election, pp. 938-942 infra.

Our next task is to determine the amount of Liberia's increase in earnings invested in U.S. property for 1963. In connection with this determination, petitioners argue that IBOA's notes payable to Liberia did not constitute "United States property" as that term is defined in section 956(b) and the regulations promulgated thereunder.

Section 956(b)(1)(C) states that U.S. property includes "any property acquired after December 31, 1962 which is * * * an obligation 60 T.C. 917">*935 of a United States person." Section 1.956-2(d)(2), Income Tax Regs., further provides that the term "obligation," as used in section 956(b)(1)(C), includes --

any bond, 1973 U.S. Tax Ct. LEXIS 57">*101 note, debenture, certificate, bill receivable, account receivable, note receivable, open account, or other indebtedness, whether or not issued at a discount and whether or not bearing interest, except that such term shall not include --

* * * *

(ii) Any indebtedness * * * which --

(a) Is collected within one year from the time it is incurred, or

(b) Matures within one year from the time it is incurred but is not collected within such period solely by reason of the inability or unwillingness of the debtor to make payment within such period.

For purposes of (b) of this subdivision, a failure to collect an indebtedness within the one-year period will not be attributed to inability or unwillingness on the part of the debtor to make payment unless it is clearly established that the creditor has made reasonable efforts to collect such indebtedness within such period. * * *

Each of IBOA's notes payable to Liberia, given in return for Liberia's loans to IBOA, matured no later than December 31, 1963, that is, within 1 year from the time each was incurred (hereinafter referred to as the requisite period).

Petitioners contend that the notes fit within the exception stated in section 1.956-2(d)(2)(ii)(b) 1973 U.S. Tax Ct. LEXIS 57">*102 ²⁴ because they were not collected within the requisite period solely by reason of the inability of IBOA to make payment within such period, since Liberia made reasonable efforts to collect on the notes within the requisite period.

Respondent disagrees, asserting that the failure to collect the notes within such period was not solely by reason of IBOA's inability to make payment, since it has not been established that Liberia made reasonable efforts to collect on the notes within such period.

It is apparent from IBOA's 1973 U.S. Tax Ct. LEXIS 57">*103 balance sheet as of December 31, 1963, that it was in no position to repay Liberia's loans at that time without first selling the Lynn lease, and the record indicates that the same situation obtained during that part of 1964 subsequent to July 15, 1964, which latter date was 1 year from the time when Liberia made its last loan to IBOA. ²⁵

60 T.C. 917">*936 Once it was ascertained in July of 1963 that the Lynn lease was not sufficiently productive to enable repayment of those loans by the end of the year, serious efforts were made to obtain a buyer of the lease. ²⁶ These efforts bore fruit in 1964.

On occasion, a prudent creditor will forebear from demanding immediate repayment of a loan at its maturity when 1973 U.S. Tax Ct. LEXIS 57">*104 the debtor has suffered unexpected financial setbacks and full repayment is expected to be more practicable at a later time. See Bordo Products Co. v. United States, 201 Ct. Cl. 482">201 Ct. Cl. 482, 476 F.2d 1312 (1973). We think that petitioner was justified in treating Liberia's loans to IBOA in such a manner. Under the circumstances, we agree with petitioners that Liberia made reasonable efforts to collect IBOA's indebtedness to it within the requisite period. We conclude that IBOA's notes to Liberia fit within the "inability of the debtor" exception stated in section 1.956-2(d)(2)(ii)(b), are thereby excluded from the category of "United States property," and may be disregarded in determining Liberia's increase in earnings invested in U.S. property for 1963. ²⁷

In 1973 U.S. Tax Ct. LEXIS 57">*105 view of our conclusion, it is unnecessary for us to examine the question of whether the $ 5,800 payment by IBOA for the account of Liberia on October 15, 1963, should be applied against the $ 62,000 balance as of December 31, 1962, or to the loans by Liberia to IBOA during 1963. ²⁸ Moreover, the record herein clearly indicates that such payment was to be applied against the indebtedness of IBOA to Liberia, so that no basis exists, as petitioners contend, for taking it into account in computing Liberia's increase in earnings vis-a-vis loans to Indiana or Company. See pp. 937-938 infra.

Our conclusion in regard to the indebtedness of IBOA dispenses with the bulk of what respondent determined to be Liberia's increase in earnings invested in U.S. property for 1963. It does not dispose of the entire case, however, because respondent still contends that there was an increase in Liberia's investment in Indiana and Company for 1963. Petitioners do 1973 U.S. Tax Ct. LEXIS 57">*106 not dispute that the indebtedness of Indiana and Company to Liberia constituted U.S. property but contend that there was no increase for the year. They stress the fact that the aggregate total indebtedness of Indiana and Company to Liberia at the 60 T.C. 917">*937 close of 1962 ($ 278,214.79) exceeded such total at the close of 1963 ($ 126,960.45), due to Company's substantial repayments to Liberia during 1963.

If we look at the situation as petitioners do, we do seem to be faced with the conundrum of an alleged increase that looks suspiciously like a decrease. We think, however, that petitioners misconceive the situation, and that the source of their misconception lies in the definition of "United States property."

The formula for determining a controlled foreign corporation's increase in earnings invested in U.S. property for a particular year is found in section 956(a). The first step in applying the formula is to determine the aggregate amount of U.S. property held by Liberia at the close of the taxable year (1963) and the preceding taxable year (1962). On December 31, 1962, Indiana and Company were indebted to Liberia in the respective amounts of $ 74,495.22 and $ 203,719.57. By definition, 1973 U.S. Tax Ct. LEXIS 57">*107 however, the amount of Liberia's investment in U.S. property at that time was zero, since "United States property" means only property acquired after December 31, 1962. See sec. 956(b)(1); 60 T.C. 425">Clayton E. Greenfield, supra.Such being the case, repayments applicable to such indebtedness do not reduce the amount of U.S. property held by Liberia.

On December 31, 1963, Indiana owed Liberia $ 91,646.38. Of that amount $ 17,151.16 was incurred during 1963 and not repaid within 1 year. The rest was indebtedness incurred prior to 1963 and therefore is not counted. On December 31, 1963, Company owed Liberia $ 35,314.07. All of that amount was indebtedness incurred during 1963 but $ 1,263.31 was repaid within 1 year and is therefore excluded from the category of U.S. property under the "collection within one year" exception of section 1.956-2(d)(2)(ii)(a). The aggregate amount of U.S. property held by Liberia at the close of 1963 was thus $ 51,201.92 -- $ 17,151.16 indebtedness of Indiana and $ 34,050.76 indebtedness of Company.

The final step in the formula is subtracting the aggregate amount of U.S. property held by Liberia at the close of 1962 (zero) from such amount at the close of 1963 1973 U.S. Tax Ct. LEXIS 57">*108 ($ 51,201.92). Accordingly, Liberia's increase in earnings invested in U.S. property for 1963 was $ 51,201.92. With further reference to petitioners' contention, we note that Company's indebtedness to Liberia on December 31, 1962 ($ 203,719.57), was fully repaid on April 8, 1963, before any advances by Liberia to Company during 1963 were made. Under these circumstances, we find no basis for holding, as petitioners would have us do, that the repayments to Liberia by Company should be applied against the amount subsequently advanced and the "excess" of such repayments should 60 T.C. 917">*938 be applied against advances by Liberia to either Indiana or IBOA. ^{291973 U.S. Tax Ct. LEXIS 57">*109} Section 951(a)(1)(B) has the stated objective of treating a controlled foreign corporation's increased investment in U.S. property as tantamount to a dividend distributed to the U.S. shareholders of the corporation. See p. 926, supra. Liberia made additional loans to Indiana and Company during 1963. The fact that Company made repayments to Liberia during 1963 on account of indebtedness incurred before the effective date of the statute does not detract from the fact such additional loans were made.

The final issue is whether petitioner has made an effective election under section 962^{301973 U.S. Tax Ct. LEXIS 57">*110} in respect to his taxable year 1963. That section provides an election for an individual U.S. shareholder to be subject to tax at corporate rates instead of individual rates with respect to amounts included in his gross income under section 951(a). ³¹

Petitioners' income tax return for 1963, which was timely filed, contained no reference to Liberia or to any amount includable in their gross 1973 U.S. Tax Ct. LEXIS 57">*111 income under section 951(a). On April 15, 1968, petitioner first notified the respondent of his election, in the event any amount was includable in his gross income for 1963 under section 951(a), to be taxed on such amount at corporate rates, as provided in section 962. This election was made in response to the respondent's indication at that time of his intention to include in petitioners' gross income for 1963 an 60 T.C. 917">*939 amount under section 951(a)(1)(B) by reason of an increase in Liberia's earnings invested in U.S. property for such year.

Section 962(b) provides that an election under that section "shall be made by a United States shareholder at such time and in such manner as the Secretary or his delegate shall prescribe by regulations." Petitioner has obviously failed to make such an election within the time prescribed by either the temporary regulations ^{321973 U.S. Tax Ct. LEXIS 57">*112 1973 U.S. Tax Ct. LEXIS 57">*113} or final regulations. ^{331973 U.S. Tax Ct. LEXIS 57">*114 1973 U.S. Tax Ct. LEXIS 57">*115}

60 T.C. 917">*940 Petitioners contend, however, that the election made on April 15, 1968, should be regarded as timely because it was made as soon as it became apparent to them that any amount might be includable in their gross income for 1963 under section 951(a)(1)(B). To have made an election earlier, they argue, would make as much sense as holding an election for an officeholder before the office is ever created.

The problem of whether a taxpayer has made a timely and proper election under the Internal Revenue Code has been a constant source of difficulty and has produced a long line of decisions not always consistent in result or rationale. See Estate of George Stamos, 55 T.C. 468">55 T.C. 468 (1970); National Western Life Insurance Co., 54 T.C. 33">54 T.C. 33 (1970). The problem is further complicated herein by the fact that the statutory provision and the regulations authorized thereunder provide a specific method by which the election is to be delineated. Cf., e.g., Columbia Gas System, Inc. v. United States, 473 F.2d 1244 (C.A. 2, 1973); Posey v. United States, 449 F.2d 228 (C.A. 5, 1971); Peter Mamula, 41 T.C. 572">41 T.C. 572 (1964), 1973 U.S. Tax Ct. LEXIS 57">*116 revd. 346 F.2d 1016 (C.A. 9, 1965).

We distill from the decided cases that the critical question involved in determining the timeliness of a delayed election is whether "the original action (or the failure to act) on the part of the taxpayer did not amount to an election against, and was not inconsistent with, the position which the taxpayer ultimately did adopt." See National Western Life Insurance Co., 54 T.C. 33">54 T.C. 38. Certainly, nothing done by the petitioner prior to his election in April of 1968 amounted to a disclaimer of the benefits of section 962 or was inconsistent with his later attempt to elect the benefits of that section. Instead, petitioner believed in good faith throughout the period in question that no amount was includable in his gross income for 1963 under section 951(a). He notified the respondent of his election under section 962 as soon as it appeared to him that any amount might be so includable.

It is also significant to note that the instant case does not involve the kinds of difficulties inherent in other situations, where the granting of a right of late election permits the taxpayer in effect to play both ends against the middle as the result of hindsight. 1973 U.S. Tax Ct. LEXIS 57">*117 See Riley Co. v. Commissioner, 311 U.S. 55">311 U.S. 55, 311 U.S. 55">58-59 (1940); Denman Tire & Rubber Co. v. Commissioner, 192 F.2d 261, 264-265 (C.A. 6, 1951); Estate of George Stamos, 55 T.C. 468">55 T.C. 473, 477. Here, no adjustment which can affect the petitioners' tax liability for another year is involved; the only import of the election appears to be the rate of tax to which petitioners will be subject on the amount included in their income for 1963 under section 951(a)(1)(B). Cf. W. K. Buckley, Inc. v. Commissioner, 158 F.2d 158 (C.A. 2, 1946), reversing 5 T.C. 787">5 T.C. 787 (1945); Gentsch v. Goodyear Tire & Rubber Co., 151 F.2d 997 (C.A. 6, 1945); see Denman Tire & Rubber Co., 14 T.C. 706">14 T.C. 706, 14 T.C. 706">716 (1950), 60 T.C. 917">*941 affd. 192 F.2d 261 (C.A. 6, 1951). In Buckley and Goodyear, the taxpayer had taken a deduction for foreign taxes on the assumption that it had no tax liability for the years in question and had then sought to take a credit for such taxes when it was later determined, at a point of time subsequent to the due date of its return, that it did in fact have such liability. The Courts of Appeals in those cases allowed such credit even though the statute involved (section 131 of the Internal Revenue Code of 1939) 1973 U.S. Tax Ct. LEXIS 57">*118 required the taxpayer to signify his desire for such credit "in his return." ³⁴ They considered it "sufficient for the taxpayer to indicate its election when it appears that a tax is due and when, therefore, an election first has significance." See W. K. Buckley, Inc. v. Commissioner, 158 F. 2d at 161. We think the same rationale is applicable herein.

Respondent makes no claim that he was in any way hindered by the lack of disclosure on petitioners' return for 1963. Compare Silver Queen Motel, 55 T.C. 1101">55 T.C. 1101, 55 T.C. 1101">1106 (1971). He apparently obtained the necessary information -- more, in fact, than is required to be disclosed in a statement regarding the election (see sec. 1.962-2(b), Income Tax Regs.) -- as a result of the information return that petitioner filed under section 6038(a). ³⁵ Furthermore, respondent does not contend that recognition of petitioner's delayed election under section 962 in the circumstances of this case will result in petitioner's obtaining any unwarranted advantages 1973 U.S. Tax Ct. LEXIS 57">*119 by reason of the greater range of hindsight which a late election permits.

In the light of the foregoing, although the issue is not entirely free from doubt, we do not think that petitioner should have been expected to file a protective election with his 1963 return, to be applicable in the event that any amount was ultimately determined to be includable in his gross income for that year under section 951(a)(1)(B). Indeed, respondent's regulations under section 962 (see fn. 33 supra) do not indicate any such requirement. They speak only of amounts which are "included" rather than amounts "includable." Such being the case, and considering the stated purpose of section 962 (see fn. 32 supra), we think it in order to construe such regulations as permitting a timely election after the return is filed under the circumstances existing herein. Cf. John P. Reaver, 42 T.C. 72">42 T.C. 72, 42 T.C. 72">80-81 (1964). We do not believe that the transitional rules contained in section 1.962-4, Income Tax Regs. (see fn. 33 1973 U.S. Tax Ct. LEXIS 57">*120 supra), require a different conclusion; they are to be interpreted in light of the other provisions of the regulations. ³⁶ Thus, 60 T.C. 917">*942 neither the statute nor the regulations involved herein reflect the specificity which formed the basis for the decisions in Columbia Gas System, Inc. v. United States, supra;Posey v. United States, supra; and Camiel Thorrez, 31 T.C. 655">31 T.C. 655, 31 T.C. 655">667et seq. (1958), affd. 272 F.2d 945 (C.A. 6, 1959). Neither do we have a situation where there was in fact an inconsistent election such as was involved in 41 T.C. 572">Peter Mamula, supra.

Nor do we think it material that petitioner's election was signified by the filing of a separate document rather than by an amended return. In other situations, separate instruments have been considered sufficient even though the applicable statute or regulations specified that the particular election be made in conjunction with a return. W. K. Buckley, Inc. v. Commissioner, supra; fn. 34 supra; cf. Paul H. Travis, 47 T.C. 502">47 T.C. 502, 47 T.C. 502">513-514 (1967), affirmed in part and reversed in part on other grounds 406 F.2d 987 (C.A. 6, 1969). ³⁷

We 1973 U.S. Tax Ct. LEXIS 57">*121 hold that petitioner has made an effective election under section 962.

Decision will be entered under Rule 50.