26 U.S.C. § 512 : US Code - Section 512: Unrelated business taxable income

Search 26 U.S.C. § 512 : US Code - Section 512: Unrelated business taxable income

(a) Definition
For purposes of this title -
(1) General rule
Except as otherwise provided in this subsection, the term
"unrelated business taxable income" means the gross income
derived by any organization from any unrelated trade or business
(as defined in section 513) regularly carried on by it, less the
deductions allowed by this chapter which are directly connected
with the carrying on of such trade or business, both computed
with the modifications provided in subsection (b).
(2) Special rule for foreign organizations
In the case of an organization described in section 511 which
is a foreign organization, the unrelated business taxable income
shall be -
(A) its unrelated business taxable income which is derived
from sources within the United States and which is not
effectively connected with the conduct of a trade or business
within the United States, plus
(B) its unrelated business taxable income which is
effectively connected with the conduct of a trade or business
within the United States.
(3) Special rules applicable to organizations described in
paragraph (7), (9), (17), or (20) of section 501(c)
(A) General rule
In the case of an organization described in paragraph (7),
(9), (17), or (20) of section 501(c), the term "unrelated
business taxable income" means the gross income (excluding any
exempt function income), less the deductions allowed by this
chapter which are directly connected with the production of the
gross income (excluding exempt function income), both computed
with the modifications provided in paragraphs (6), (10), (11),
and (12) of subsection (b). For purposes of the preceding
sentence, the deductions provided by sections 243, 244, and 245
(relating to dividends received by corporations) shall be
treated as not directly connected with the production of gross
income.
(B) Exempt function income
For purposes of subparagraph (A), the term "exempt function
income" means the gross income from dues, fees, charges, or
similar amounts paid by members of the organization as
consideration for providing such members or their dependents or
guests goods, facilities, or services in furtherance of the
purposes constituting the basis for the exemption of the
organization to which such income is paid. Such term also means
all income (other than an amount equal to the gross income
derived from any unrelated trade or business regularly carried
on by such organization computed as if the organization were
subject to paragraph (1)), which is set aside -
(i) for a purpose specified in section 170(c)(4), or
(ii) in the case of an organization described in paragraph
(9), (17), or (20) of section 501(c), to provide for the
payment of life, sick, accident, or other benefits,
including reasonable costs of administration directly connected
with a purpose described in clause (i) or (ii). If during the
taxable year, an amount which is attributable to income so set
aside is used for a purpose other than that described in clause
(i) or (ii), such amount shall be included, under subparagraph
(A), in unrelated business taxable income for the taxable year.
(C) Applicability to certain corporations described in section
501(c)(2)
In the case of a corporation described in section 501(c)(2),
the income of which is payable to an organization described in
paragraph (7), (9), (17), or (20) of section 501(c),
subparagraph (A) shall apply as if such corporation were the
organization to which the income is payable. For purposes of
the preceding sentence, such corporation shall be treated as
having exempt function income for a taxable year only if it
files a consolidated return with such organization for such
year.
(D) Nonrecognition of gain
If property used directly in the performance of the exempt
function of an organization described in paragraph (7), (9),
(17), or (20) of section 501(c) is sold by such organization,
and within a period beginning 1 year before the date of such
sale, and ending 3 years after such date, other property is
purchased and used by such organization directly in the
performance of its exempt function, gain (if any) from such
sale shall be recognized only to the extent that such
organization's sales price of the old property exceeds the
organization's cost of purchasing the other property. For
purposes of this subparagraph, the destruction in whole or in
part, theft, seizure, requisition, or condemnation of property,
shall be treated as the sale of such property, and rules
similar to the rules provided by subsections (b), (c), (e), and
(j) of section 1034 (as in effect on the day before the date of
the enactment of the Taxpayer Relief Act of 1997) shall apply.
(E) Limitation on amount of setaside in the case of
organizations described in paragraph (9), (17), or (20) of
section 501(c)
(i) In general
In the case of any organization described in paragraph (9),
(17), or (20) of section 501(c), a set-aside for any purpose
specified in clause (ii) of subparagraph (B) may be taken
into account under subparagraph (B) only to the extent that
such set-aside does not result in an amount of assets set
aside for such purpose in excess of the account limit
determined under section 419A (without regard to subsection
(f)(6) thereof) for the taxable year (not taking into account
any reserve described in section 419A(c)(2)(A) for post-
retirement medical benefits).
(ii) Treatment of existing reserves for post-retirement
medical or life insurance benefits
(I) Clause (i) shall not apply to any income attributable
to an existing reserve for post-retirement medical or life
insurance benefits.
(II) For purposes of subclause (I), the term "reserve for
post-retirement medical or life insurance benefits" means
the greater of the amount of assets set aside for purposes
of post-retirement medical or life insurance benefits to be
provided to covered employees as of the close of the last
plan year ending before the date of the enactment of the
Tax Reform Act of 1984 or on July 18, 1984.
(III) All payments during plan years ending on or after
the date of the enactment of the Tax Reform Act of 1984 of
post-retirement medical benefits or life insurance benefits
shall be charged against the reserve referred to in
subclause (II). Except to the extent provided in
regulations prescribed by the Secretary, all plans of an
employer shall be treated as 1 plan for purposes of the
preceding sentence.
(iii) Treatment of tax exempt organizations
This subparagraph shall not apply to any organization if
substantially all of the contributions to such organization
are made by employers who were exempt from tax under this
chapter throughout the 5-taxable year period ending with the
taxable year in which the contributions are made.
(4) Special rule applicable to organizations described in section
501(c)(19)
In the case of an organization described in section 501(c)(19),
the term "unrelated business taxable income" does not include any
amount attributable to payments for life, sick, accident, or
health insurance with respect to members of such organizations or
their dependents which is set aside for the purpose of providing
for the payment of insurance benefits or for a purpose specified
in section 170(c)(4). If an amount set aside under the preceding
sentence is used during the taxable year for a purpose other than
a purpose described in the preceding sentence, such amount shall
be included, under paragraph (1), in unrelated business taxable
income for the taxable year.
(5) Definition of payments with respect to securities loans
(A) The term "payments with respect to securities loans"
includes all amounts received in respect of a security (as
defined in section 1236(c)) transferred by the owner to another
person in a transaction to which section 1058 applies (whether
or not title to the security remains in the name of the lender)
including -
(i) amounts in respect of dividends, interest, or other
distributions,
(ii) fees computed by reference to the period beginning
with the transfer of securities by the owner and ending with
the transfer of identical securities back to the transferor
by the transferee and the fair market value of the security
during such period,
(iii) income from collateral security for such loan, and
(iv) income from the investment of collateral security.
(B) Subparagraph (A) shall apply only with respect to
securities transferred pursuant to an agreement between the
transferor and the transferee which provides for -
(i) reasonable procedures to implement the obligation of
the transferee to furnish to the transferor, for each
business day during such period, collateral with a fair
market value not less than the fair market value of the
security at the close of business on the preceding business
day,
(ii) termination of the loan by the transferor upon notice
of not more than 5 business days, and
(iii) return to the transferor of securities identical to
the transferred securities upon termination of the loan.
(b) Modifications
The modifications referred to in subsection (a) are the
following:
(1) There shall be excluded all dividends, interest, payments
with respect to securities loans (as defined in subsection
(a)(5)), amounts received or accrued as consideration for
entering into agreements to make loans, and annuities, and all
deductions directly connected with such income.
(2) There shall be excluded all royalties (including overriding
royalties) whether measured by production or by gross or taxable
income from the property, and all deductions directly connected
with such income.
(3) In the case of rents -
(A) Except as provided in subparagraph (B), there shall be
excluded -
(i) all rents from real property (including property
described in section 1245(a)(3)(C)), and
(ii) all rents from personal property (including for
purposes of this paragraph as personal property any property
described in section 1245(a)(3)(B)) leased with such real
property, if the rents attributable to such personal property
are an incidental amount of the total rents received or
accrued under the lease, determined at the time the personal
property is placed in service.
(B) Subparagraph (A) shall not apply -
(i) if more than 50 percent of the total rent received or
accrued under the lease is attributable to personal property
described in subparagraph (A)(ii), or
(ii) if the determination of the amount of such rent
depends in whole or in part on the income or profits derived
by any person from the property leased (other than an amount
based on a fixed percentage or percentages of receipts or
sales).
(C) There shall be excluded all deductions directly connected
with rents excluded under subparagraph (A).
(4) Notwithstanding paragraph (1), (2), (3), or (5), in the
case of debt-financed property (as defined in section 514) there
shall be included, as an item of gross income derived from an
unrelated trade or business, the amount ascertained under section
514(a)(1), and there shall be allowed, as a deduction, the amount
ascertained under section 514(a)(2).
(5) There shall be excluded all gains or losses from the sale,
exchange, or other disposition of property other than -
(A) stock in trade or other property of a kind which would
properly be includible in inventory if on hand at the close of
the taxable year, or
(B) property held primarily for sale to customers in the
ordinary course of the trade or business.
There shall also be excluded all gains or losses recognized, in
connection with the organization's investment activities, from
the lapse or termination of options to buy or sell securities (as
defined in section 1236(c)) or real property and all gains or
losses from the forfeiture of good-faith deposits (that are
consistent with established business practice) for the purchase,
sale, or lease of real property in connection with the
organization's investment activities. This paragraph shall not
apply with respect to the cutting of timber which is considered,
on the application of section 631, as a sale or exchange of such
timber.
(6) The net operating loss deduction provided in section 172
shall be allowed, except that -
(A) the net operating loss for any taxable year, the amount
of the net operating loss carryback or carryover to any taxable
year, and the net operating loss deduction for any taxable year
shall be determined under section 172 without taking into
account any amount of income or deduction which is excluded
under this part in computing the unrelated business taxable
income; and
(B) the terms "preceding taxable year" and "preceding taxable
years" as used in section 172 shall not include any taxable
year for which the organization was not subject to the
provisions of this part.
(7) There shall be excluded all income derived from research
for (A) the United States, or any of its agencies or
instrumentalities, or (B) any State or political subdivision
thereof; and there shall be excluded all deductions directly
connected with such income.
(8) In the case of a college, university, or hospital, there
shall be excluded all income derived from research performed for
any person, and all deductions directly connected with such
income.
(9) In the case of an organization operated primarily for
purposes of carrying on fundamental research the results of which
are freely available to the general public, there shall be
excluded all income derived from research performed for any
person, and all deductions directly connected with such income.
(10) In the case of any organization described in section
511(a), the deduction allowed by section 170 (relating to
charitable etc. contributions and gifts) shall be allowed
(whether or not directly connected with the carrying on of the
trade or business), but shall not exceed 10 percent of the
unrelated business taxable income computed without the benefit of
this paragraph.
(11) In the case of any trust described in section 511(b), the
deduction allowed by section 170 (relating to charitable etc.
contributions and gifts) shall be allowed (whether or not
directly connected with the carrying on of the trade or
business), and for such purpose a distribution made by the trust
to a beneficiary described in section 170 shall be considered as
a gift or contribution. The deduction allowed by this paragraph
shall be allowed with the limitations prescribed in section
170(b)(1)(A) and (B) determined with reference to the unrelated
business taxable income computed without the benefit of this
paragraph (in lieu of with reference to adjusted gross income).
(12) Except for purposes of computing the net operating loss
under section 172 and paragraph (6), there shall be allowed a
specific deduction of $1,000. In the case of a diocese, province
of a religious order, or a convention or association of churches,
there shall also be allowed, with respect to each parish,
individual church, district, or other local unit, a specific
deduction equal to the lower of -
(A) $1,000, or
(B) the gross income derived from any unrelated trade or
business regularly carried on by such local unit.
(13) Special rules for certain amounts received from controlled
entities. -
(A) In general. - If an organization (in this paragraph
referred to as the "controlling organization") receives or
accrues (directly or indirectly) a specified payment from
another entity which it controls (in this paragraph referred to
as the "controlled entity"), notwithstanding paragraphs (1),
(2), and (3), the controlling organization shall include such
payment as an item of gross income derived from an unrelated
trade or business to the extent such payment reduces the net
unrelated income of the controlled entity (or increases any net
unrelated loss of the controlled entity). There shall be
allowed all deductions of the controlling organization directly
connected with amounts treated as derived from an unrelated
trade or business under the preceding sentence.
(B) Net unrelated income or loss. - For purposes of this
paragraph -
(i) Net unrelated income. - The term "net unrelated income"
means -
(I) in the case of a controlled entity which is not
exempt from tax under section 501(a), the portion of such
entity's taxable income which would be unrelated business
taxable income if such entity were exempt from tax under
section 501(a) and had the same exempt purposes as the
controlling organization, or
(II) in the case of a controlled entity which is exempt
from tax under section 501(a), the amount of the unrelated
business taxable income of the controlled entity.
(ii) Net unrelated loss. - The term "net unrelated loss"
means the net operating loss adjusted under rules similar to
the rules of clause (i).
(C) Specified payment. - For purposes of this paragraph, the
term "specified payment" means any interest, annuity, royalty,
or rent.
(D) Definition of control. - For purposes of this paragraph -

(i) Control. - The term "control" means -
(I) in the case of a corporation, ownership (by vote or
value) of more than 50 percent of the stock in such
corporation,
(II) in the case of a partnership, ownership of more than
50 percent of the profits interests or capital interests in
such partnership, or
(III) in any other case, ownership of more than 50
percent of the beneficial interests in the entity.
(ii) Constructive ownership. - Section 318 (relating to
constructive ownership of stock) shall apply for purposes of
determining ownership of stock in a corporation. Similar
principles shall apply for purposes of determining ownership
of interests in any other entity.
(E) Related persons. - The Secretary shall prescribe such
rules as may be necessary or appropriate to prevent avoidance
of the purposes of this paragraph through the use of related
persons.
[(14) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(23),
Nov. 5, 1990, 104 Stat. 1388-521.]
(15) Except as provided in paragraph (4), in the case of a
trade or business -
(A) which consists of providing services under license issued
by a Federal regulatory agency,
(B) which is carried on by a religious order or by an
educational organization described in section 170(b)(1)(A)(ii)
maintained by such religious order, and which was so carried on
before May 27, 1959, and
(C) less than 10 percent of the net income of which for each
taxable year is used for activities which are not related to
the purpose constituting the basis for the religious order's
exemption,
there shall be excluded all gross income derived from such trade
or business and all deductions directly connected with the
carrying on of such trade or business, so long as it is
established to the satisfaction of the Secretary that the rates
or other charges for such services are competitive with rates or
other charges charged for similar services by persons not exempt
from taxation.
(16)(A) Notwithstanding paragraph (5)(B), there shall be
excluded all gains or losses from the sale, exchange, or other
disposition of any real property described in subparagraph (B) if
-
(i) such property was acquired by the organization from -
(I) a financial institution described in section 581 or
591(a) which is in conservatorship or receivership, or
(II) the conservator or receiver of such an institution (or
any government agency or corporation succeeding to the rights
or interests of the conservator or receiver),
(ii) such property is designated by the organization within
the 9-month period beginning on the date of its acquisition as
property held for sale, except that not more than one-half (by
value determined as of such date) of property acquired in a
single transaction may be so designated,
(iii) such sale, exchange, or disposition occurs before the
later of -
(I) the date which is 30 months after the date of the
acquisition of such property, or
(II) the date specified by the Secretary in order to assure
an orderly disposition of property held by persons described
in subparagraph (A), and
(iv) while such property was held by the organization, the
aggregate expenditures on improvements and development
activities included in the basis of the property are (or were)
not in excess of 20 percent of the net selling price of such
property.
(B) Property is described in this subparagraph if it is real
property which -
(i) was held by the financial institution at the time it
entered into conservatorship or receivership, or
(ii) was foreclosure property (as defined in section
514(c)(9)(H)(v)) which secured indebtedness held by the
financial institution at such time.
For purposes of this subparagraph, real property includes an
interest in a mortgage.
(17) Treatment of certain amounts derived from foreign
corporations. -
(A) In general. - Notwithstanding paragraph (1), any amount
included in gross income under section 951(a)(1)(A) shall be
included as an item of gross income derived from an unrelated
trade or business to the extent the amount so included is
attributable to insurance income (as defined in section 953)
which, if derived directly by the organization, would be
treated as gross income from an unrelated trade or business.
There shall be allowed all deductions directly connected with
amounts included in gross income under the preceding sentence.
(B) Exception. -
(i) In general. - Subparagraph (A) shall not apply to
income attributable to a policy of insurance or reinsurance
with respect to which the person (directly or indirectly)
insured is -
(I) such organization,
(II) an affiliate of such organization which is exempt
from tax under section 501(a), or
(III) a director or officer of, or an individual who
(directly or indirectly) performs services for, such
organization or affiliate but only if the insurance covers
primarily risks associated with the performance of services
in connection with such organization or affiliate.
(ii) Affiliate. - For purposes of this subparagraph -
(I) In general. - The determination as to whether an
entity is an affiliate of an organization shall be made
under rules similar to the rules of section 168(h)(4)(B).
(II) Special rule. - Two or more organizations (and any
affiliates of such organizations) shall be treated as
affiliates if such organizations are colleges or
universities described in section 170(b)(1)(A)(ii) or
organizations described in section 170(b)(1)(A)(iii) and
participate in an insurance arrangement that provides for
any profits from such arrangement to be returned to the
policyholders in their capacity as such.
(C) Regulations. - The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this paragraph, including regulations for the
application of this paragraph in the case of income paid
through 1 or more entities or between 2 or more chains of
entities.
(18) Treatment of mutual or cooperative electric companies. -
In the case of a mutual or cooperative electric company described
in section 501(c)(12), there shall be excluded income which is
treated as member income under subparagraph (H) thereof.
(19) Treatment of gain or loss on sale or exchange of certain
brownfield sites. -
(A) In general. - Notwithstanding paragraph (5)(B), there
shall be excluded any gain or loss from the qualified sale,
exchange, or other disposition of any qualifying brownfield
property by an eligible taxpayer.
(B) Eligible taxpayer. - For purposes of this paragraph -
(i) In general. - The term "eligible taxpayer" means, with
respect to a property, any organization exempt from tax under
section 501(a) which -
(I) acquires from an unrelated person a qualifying
brownfield property, and
(II) pays or incurs eligible remediation expenditures
with respect to such property in an amount which exceeds
the greater of $550,000 or 12 percent of the fair market
value of the property at the time such property was
acquired by the eligible taxpayer, determined as if there
was not a presence of a hazardous substance, pollutant, or
contaminant on the property which is complicating the
expansion, redevelopment, or reuse of the property.
(ii) Exception. - Such term shall not include any
organization which is -
(I) potentially liable under section 107 of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 with respect to the qualifying
brownfield property,
(II) affiliated with any other person which is so
potentially liable through any direct or indirect familial
relationship or any contractual, corporate, or financial
relationship (other than a contractual, corporate, or
financial relationship which is created by the instruments
by which title to any qualifying brownfield property is
conveyed or financed or by a contract of sale of goods or
services), or
(III) the result of a reorganization of a business entity
which was so potentially liable.
(C) Qualifying brownfield property. - For purposes of this
paragraph -
(i) In general. - The term "qualifying brownfield property"
means any real property which is certified, before the
taxpayer incurs any eligible remediation expenditures (other
than to obtain a Phase I environmental site assessment), by
an appropriate State agency (within the meaning of section
198(c)(4)) in the State in which such property is located as
a brownfield site within the meaning of section 101(39) of
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (as in effect on the date of the
enactment of this paragraph).
(ii) Request for certification. - Any request by an
eligible taxpayer for a certification described in clause (i)
shall include a sworn statement by the eligible taxpayer and
supporting documentation of the presence of a hazardous
substance, pollutant, or contaminant on the property which is
complicating the expansion, redevelopment, or reuse of the
property given the property's reasonably anticipated future
land uses or capacity for uses of the property (including a
Phase I environmental site assessment and, if applicable,
evidence of the property's presence on a local, State, or
Federal list of brownfields or contaminated property) and
other environmental assessments prepared or obtained by the
taxpayer.
(D) Qualified sale, exchange, or other disposition. - For
purposes of this paragraph -
(i) In general. - A sale, exchange, or other disposition of
property shall be considered as qualified if -
(I) such property is transferred by the eligible taxpayer
to an unrelated person, and
(II) within 1 year of such transfer the eligible taxpayer
has received a certification from the Environmental
Protection Agency or an appropriate State agency (within
the meaning of section 198(c)(4)) in the State in which
such property is located that, as a result of the eligible
taxpayer's remediation actions, such property would not be
treated as a qualifying brownfield property in the hands of
the transferee.
For purposes of subclause (II), before issuing such
certification, the Environmental Protection Agency or
appropriate State agency shall respond to comments received
pursuant to clause (ii)(V) in the same form and manner as
required under section 117(b) of the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980 (as in effect on the date of the enactment of this
paragraph).
(ii) Request for certification. - Any request by an
eligible taxpayer for a certification described in clause (i)
shall be made not later than the date of the transfer and
shall include a sworn statement by the eligible taxpayer
certifying the following:
(I) Remedial actions which comply with all applicable or
relevant and appropriate requirements (consistent with
section 121(d) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980) have been
substantially completed, such that there are no hazardous
substances, pollutants, or contaminants which complicate
the expansion, redevelopment, or reuse of the property
given the property's reasonably anticipated future land
uses or capacity for uses of the property.
(II) The reasonably anticipated future land uses or
capacity for uses of the property are more economically
productive or environmentally beneficial than the uses of
the property in existence on the date of the certification
described in subparagraph (C)(i). For purposes of the
preceding sentence, use of property as a landfill or other
hazardous waste facility shall not be considered more
economically productive or environmentally beneficial.
(III) A remediation plan has been implemented to bring
the property into compliance with all applicable local,
State, and Federal environmental laws, regulations, and
standards and to ensure that the remediation protects human
health and the environment.
(IV) The remediation plan described in subclause (III),
including any physical improvements required to remediate
the property, is either complete or substantially complete,
and, if substantially complete, sufficient monitoring,
funding, institutional controls, and financial assurances
have been put in place to ensure the complete remediation
of the property in accordance with the remediation plan as
soon as is reasonably practicable after the sale, exchange,
or other disposition of such property.
(V) Public notice and the opportunity for comment on the
request for certification was completed before the date of
such request. Such notice and opportunity for comment shall
be in the same form and manner as required for public
participation required under section 117(a) of the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (as in effect on the date of the
enactment of this paragraph). For purposes of this
subclause, public notice shall include, at a minimum,
publication in a major local newspaper of general
circulation.
(iii) Attachment to tax returns. - A copy of each of the
requests for certification described in clause (ii) of
subparagraph (C) and this subparagraph shall be included in
the tax return of the eligible taxpayer (and, where
applicable, of the qualifying partnership) for the taxable
year during which the transfer occurs.
(iv) Substantial completion. - For purposes of this
subparagraph, a remedial action is substantially complete
when any necessary physical construction is complete, all
immediate threats have been eliminated, and all long-term
threats are under control.
(E) Eligible remediation expenditures. - For purposes of this
paragraph -
(i) In general. - The term "eligible remediation
expenditures" means, with respect to any qualifying
brownfield property, any amount paid or incurred by the
eligible taxpayer to an unrelated third person to obtain a
Phase I environmental site assessment of the property, and
any amount so paid or incurred after the date of the
certification described in subparagraph (C)(i) for goods and
services necessary to obtain a certification described in
subparagraph (D)(i) with respect to such property, including
expenditures -
(I) to manage, remove, control, contain, abate, or
otherwise remediate a hazardous substance, pollutant, or
contaminant on the property,
(II) to obtain a Phase II environmental site assessment
of the property, including any expenditure to monitor,
sample, study, assess, or otherwise evaluate the release,
threat of release, or presence of a hazardous substance,
pollutant, or contaminant on the property,
(III) to obtain environmental regulatory certifications
and approvals required to manage the remediation and
monitoring of the hazardous substance, pollutant, or
contaminant on the property, and
(IV) regardless of whether it is necessary to obtain a
certification described in subparagraph (D)(i)(II), to
obtain remediation cost-cap or stop-loss coverage, re-
opener or regulatory action coverage, or similar coverage
under environmental insurance policies, or financial
guarantees required to manage such remediation and
monitoring.
(ii) Exceptions. - Such term shall not include -
(I) any portion of the purchase price paid or incurred by
the eligible taxpayer to acquire the qualifying brownfield
property,
(II) environmental insurance costs paid or incurred to
obtain legal defense coverage, owner/operator liability
coverage, lender liability coverage, professional liability
coverage, or similar types of coverage,
(III) any amount paid or incurred to the extent such
amount is reimbursed, funded, or otherwise subsidized by
grants provided by the United States, a State, or a
political subdivision of a State for use in connection with
the property, proceeds of an issue of State or local
government obligations used to provide financing for the
property the interest of which is exempt from tax under
section 103, or subsidized financing provided (directly or
indirectly) under a Federal, State, or local program
provided in connection with the property, or
(IV) any expenditure paid or incurred before the date of
the enactment of this paragraph.
For purposes of subclause (III), the Secretary may issue
guidance regarding the treatment of government-provided funds
for purposes of determining eligible remediation
expenditures.
(F) Determination of gain or loss. - For purposes of this
paragraph, the determination of gain or loss shall not include
an amount treated as gain which is ordinary income with respect
to section 1245 or section 1250 property, including amounts
deducted as section 198 expenses which are subject to the
recapture rules of section 198(e), if the taxpayer had deducted
such amounts in the computation of its unrelated business
taxable income.
(G) Special rules for partnerships. -
(i) In general. - In the case of an eligible taxpayer which
is a partner of a qualifying partnership which acquires,
remediates, and sells, exchanges, or otherwise disposes of a
qualifying brownfield property, this paragraph shall apply to
the eligible taxpayer's distributive share of the qualifying
partnership's gain or loss from the sale, exchange, or other
disposition of such property.
(ii) Qualifying partnership. - The term "qualifying
partnership" means a partnership which -
(I) has a partnership agreement which satisfies the
requirements of section 514(c)(9)(B)(vi) at all times
beginning on the date of the first certification received
by the partnership under subparagraph (C)(i),
(II) satisfies the requirements of subparagraphs (B)(i),
(C), (D), and (E), if "qualified partnership" is
substituted for "eligible taxpayer" each place it appears
therein (except subparagraph (D)(iii)), and
(III) is not an organization which would be prevented
from constituting an eligible taxpayer by reason of
subparagraph (B)(ii).
(iii) Requirement that tax-exempt partner be a partner
since first certification. - This paragraph shall apply with
respect to any eligible taxpayer which is a partner of a
partnership which acquires, remediates, and sells, exchanges,
or otherwise disposes of a qualifying brownfield property
only if such eligible taxpayer was a partner of the
qualifying partnership at all times beginning on the date of
the first certification received by the partnership under
subparagraph (C)(i) and ending on the date of the sale,
exchange, or other disposition of the property by the
partnership.
(iv) Regulations. - The Secretary shall prescribe such
regulations as are necessary to prevent abuse of the
requirements of this subparagraph, including abuse through -
(I) the use of special allocations of gains or losses, or
(II) changes in ownership of partnership interests held
by eligible taxpayers.
(H) Special rules for multiple properties. -
(i) In general. - An eligible taxpayer or a qualifying
partnership of which the eligible taxpayer is a partner may
make a 1-time election to apply this paragraph to more than 1
qualifying brownfield property by averaging the eligible
remediation expenditures for all such properties acquired
during the election period. If the eligible taxpayer or
qualifying partnership makes such an election, the election
shall apply to all qualified sales, exchanges, or other
dispositions of qualifying brownfield properties the
acquisition and transfer of which occur during the period for
which the election remains in effect.
(ii) Election. - An election under clause (i) shall be made
with the eligible taxpayer's or qualifying partnership's
timely filed tax return (including extensions) for the first
taxable year for which the taxpayer or qualifying partnership
intends to have the election apply. An election under clause
(i) is effective for the period -
(I) beginning on the date which is the first day of the
taxable year of the return in which the election is
included or a later day in such taxable year selected by
the eligible taxpayer or qualifying partnership, and
(II) ending on the date which is the earliest of a date
of revocation selected by the eligible taxpayer or
qualifying partnership, the date which is 8 years after the
date described in subclause (I), or, in the case of an
election by a qualifying partnership of which the eligible
taxpayer is a partner, the date of the termination of the
qualifying partnership.
(iii) Revocation. - An eligible taxpayer or qualifying
partnership may revoke an election under clause (i)(II) (!1)
by filing a statement of revocation with a timely filed tax
return (including extensions). A revocation is effective as
of the first day of the taxable year of the return in which
the revocation is included or a later day in such taxable
year selected by the eligible taxpayer or qualifying
partnership. Once an eligible taxpayer or qualifying
partnership revokes the election, the eligible taxpayer or
qualifying partnership is ineligible to make another election
under clause (i) with respect to any qualifying brownfield
property subject to the revoked election.
(I) Recapture. - If an eligible taxpayer excludes gain or
loss from a sale, exchange, or other disposition of property to
which an election under subparagraph (H) applies, and such
property fails to satisfy the requirements of this paragraph,
the unrelated business taxable income of the eligible taxpayer
for the taxable year in which such failure occurs shall be
determined by including any previously excluded gain or loss
from such sale, exchange, or other disposition allocable to
such taxpayer, and interest shall be determined at the
overpayment rate established under section 6621 on any
resulting tax for the period beginning with the due date of the
return for the taxable year during which such sale, exchange,
or other disposition occurred, and ending on the date of
payment of the tax.
(J) Related persons. - For purposes of this paragraph, a
person shall be treated as related to another person if -
(i) such person bears a relationship to such other person
described in section 267(b) (determined without regard to
paragraph (9) thereof), or section 707(b)(1), determined by
substituting "25 percent" for "50 percent" each place it
appears therein, and
(ii) in the case such other person is a nonprofit
organization, if such person controls directly or indirectly
more than 25 percent of the governing body of such
organization.
(K) Termination. - Except for purposes of determining the
average eligible remediation expenditures for properties
acquired during the election period under subparagraph (H),
this paragraph shall not apply to any property acquired by the
eligible taxpayer or qualifying partnership after December 31,
2009.
(c) Special rules for partnerships
(1) In general
If a trade or business regularly carried on by a partnership of
which an organization is a member is an unrelated trade or
business with respect to such organization, such organization in
computing its unrelated business taxable income shall, subject to
the exceptions, additions, and limitations contained in
subsection (b), include its share (whether or not distributed) of
the gross income of the partnership from such unrelated trade or
business and its share of the partnership deductions directly
connected with such gross income.
(2) Special rule where partnership year is different from
organization's year
If the taxable year of the organization is different from that
of the partnership, the amounts to be included or deducted in
computing the unrelated business taxable income under paragraph
(1) shall be based upon the income and deductions of the
partnership for any taxable year of the partnership ending within
or with the taxable year of the organization.
(d) Treatment of dues of agricultural or horticultural
organizations
(1) In general
If -
(A) an agricultural or horticultural organization described
in section 501(c)(5) requires annual dues to be paid in order
to be a member of such organization, and
(B) the amount of such required annual dues does not exceed
$100,
in no event shall any portion of such dues be treated as derived
by such organization from an unrelated trade or business by
reason of any benefits or privileges to which members of such
organization are entitled.
(2) Indexation of $100 amount
In the case of any taxable year beginning in a calendar year
after 1995, the $100 amount in paragraph (1) shall be increased
by an amount equal to -
(A) $100, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
by substituting "calendar year 1994" for "calendar year 1992"
in subparagraph (B) thereof.
(3) Dues
For purposes of this subsection, the term "dues" means any
payment (whether or not designated as dues) which is required to
be made in order to be recognized by the organization as a member
of the organization.
(e) Special rules applicable to S corporations
(1) In general
If an organization described in section 1361(c)(2)(A)(vi) or
1361(c)(6) holds stock in an S corporation -
(A) such interest shall be treated as an interest in an
unrelated trade or business, and
(B) notwithstanding any other provision of this part -
(i) all items of income, loss, or deduction taken into
account under section 1366(a), and
(ii) any gain or loss on the disposition of the stock in
the S corporation,
shall be taken into account in computing the unrelated business
taxable income of such organization.
(2) Basis reduction
Except as provided in regulations, for purposes of paragraph
(1), the basis of any stock acquired by purchase (as defined in
section 1361(e)(1)(C)) shall be reduced by the amount of any
dividends received by the organization with respect to the stock.
(3) Exception for ESOPs
This subsection shall not apply to employer securities (within
the meaning of section 409(l)) held by an employee stock
ownership plan described in section 4975(e)(7).