I.R.C. § 514(a) Unrelated Debt-Financed Income And Deductions —
In computing under section 512 the unrelated business taxable income for any taxable year—
I.R.C. § 514(a)(1) Percentage Of Income Taken Into Account —
There shall be included with respect to each debt-financed property as an item of
gross income derived from an unrelated trade or business an amount which is the same
percentage (but not in excess of 100 percent) of the total gross income derived during
the taxable year from or on account of such property as (A) the average acquisition
indebtedness (as defined in subsection (c)(7)) for the taxable year with respect
to the property is of (B) the average amount (determined under regulations prescribed
by the Secretary) of the adjusted basis of such property during the period it is
held by the organization during such taxable year.
I.R.C. § 514(a)(2) Percentage Of Deductions Taken Into Account —
There shall be allowed as a deduction with respect to each debt-financed property
an amount determined by applying (except as provided in the last sentence of this
paragraph) the percentage derived under paragraph (1) to the sum determined under
paragraph
(3). The percentage derived under this paragraph shall not be applied with respect
to the deduction of any capital loss resulting from the carryback or carryover of
net capital losses under section 1212.
I.R.C. § 514(a)(3) Deductions Allowable —
The sum referred to in paragraph (2) is the sum of the deductions under this chapter
which are directly connected with the debt-financed property or the income therefrom,
except that if the debt-financed property is of a character which is subject to the
allowance for depreciation provided in section 167, the allowance shall be computed only by use of the straight-line method.
I.R.C. § 514(b) Definition Of Debt-Financed Property
I.R.C. § 514(b)(1) In General —
For purposes of this section, the term “debt-financed property” means
any property which is held to produce income and with respect to which there is
an acquisition indebtedness (as defined in subsection (c)) at any time during the
taxable year (or, if the property was disposed of during the taxable year, with respect
to which there was an acquisition indebtedness at any time during the 12-month period
ending with the date of such disposition), except that such term does not include—
I.R.C. § 514(b)(1)(A)
I.R.C. § 514(b)(1)(A)(i) —
any property substantially all the use of which is substantially related (aside
from the need of the organization for income or funds) to the exercise or performance
by such organization of its charitable, educational, or other purpose or function
constituting the basis for its exemption under section 501 (or, in the case of an organization described in section 511(a)(2)(B), to the exercise or performance of any purpose or function designated in section
501(c)(3)), or
I.R.C. § 514(b)(1)(A)(ii) —
any property to which clause (i)
does not apply, to the extent that its use is so substantially related;
I.R.C. § 514(b)(1)(B) —
except in the case of income excluded under section 512(b)(5), any property to the extent that the income from such property is taken into account
in computing the gross income of any unrelated trade or business;
I.R.C. § 514(b)(1)(C) —
any property to the extent that the income from such property is excluded by reason
of the provisions of paragraph (7), (8), or (9) of section 512(b) in computing the gross income of any unrelated trade or business;
I.R.C. § 514(b)(1)(D) —
any property to the extent that it is used in any trade or business described in
paragraph (1), (2), or (3) of section 513(a);
or
I.R.C. § 514(b)(1)(E) —
any property the gain or loss from the sale, exchange, or other disposition
of which would be excluded by reason of the provisions of section 512(b)(19) in computing the gross income of any unrelated trade or business.
For purposes of subparagraph (A), substantially all the use of a property shall be
considered to be substantially related to the exercise or performance by an organization
of its charitable, educational, or other purpose or function constituting the basis
for its exemption under section 501 if such property is real property subject to a lease to a medical clinic entered
into primarily for purposes which are substantially related
(aside from the need of such organization for income or funds or the use it makes
of the rents derived) to the exercise or performance by such organization of its
charitable, educational, or other purpose or function constituting the basis for
its exemption under section
501.
I.R.C. § 514(b)(2) Special Rule For Related Uses —
For purposes of applying paragraphs (1)(A), (C), and
(D), the use of any property by an exempt organization which is related to an organization
shall be treated as use by such organization.
I.R.C. § 514(b)(3) Special Rules When Land Is Acquired For Exempt Use Within 10 Years
I.R.C. § 514(b)(3)(A) Neighborhood Land —
If an organization acquires real property for the principal purpose of using the
land (commencing within 10 years of the time of acquisition) in the manner described
in paragraph (1)(A) and at the time of acquisition the property is in the neighborhood
of other property owned by the organization which is used in such manner, the real
property acquired for such future use shall not be treated as debt-financed property
so long as the organization does not abandon its intent to so use the land within
the 10-year period. The preceding sentence shall not apply for any period after
the expiration of the 10-year period, and shall apply after the first 5 years of
the 10-year period only if the organization establishes to the satisfaction of the
Secretary that it is reasonably certain that the land will be used in the described
manner before the expiration of the 10-year period.
I.R.C. § 514(b)(3)(B) Other Cases —
If the first sentence of subparagraph (A) is inapplicable only because—
I.R.C. § 514(b)(3)(B)(i) —
the acquired land is not in the neighborhood referred to in subparagraph (A), or
I.R.C. § 514(b)(3)(B)(ii) —
the organization (for the period after the first 5 years of the 10-year period)
is unable to establish to the satisfaction of the Secretary that it is reasonably
certain that the land will be used in the manner described in paragraph (1)(A)
before the expiration of the 10-year period,
but the land is converted to such use by the organization within the 10-year period,
the real property
(subject to the provisions of subparagraph (D)) shall not be treated as debt-financed
property for any period before such conversion. For purposes of this subparagraph,
land shall not be treated as used in the manner described in paragraph (1)(A) by
reason of the use made of any structure which was on the land when acquired by the
organization.
I.R.C. § 514(b)(3)(C) Limitations —
Subparagraphs (A) and (B)—
I.R.C. § 514(b)(3)(C)(i) —
shall apply with respect to any structure on the land when acquired by the organization,
or to the land occupied by the structure, only if (and so long as) the intended future
use of the land in the manner described in paragraph (1)(A) requires that the structure
be demolished or removed in order to use the land in such manner;
I.R.C. § 514(b)(3)(C)(ii) —
shall not apply to structures erected on the land after the acquisition of the land;
and
I.R.C. § 514(b)(3)(C)(iii) —
shall not apply to property subject to a lease which is a business lease (as defined
in this section immediately before the enactment of the Tax Reform Act of 1976).
I.R.C. § 514(b)(3)(D) Refund Of Taxes When Subparagraph (B) Applies —
If an organization for any taxable year has not used land in the manner to satisfy
the actual use condition of subparagraph
(B) before the time prescribed by law (including extensions thereof)
for filing the return for such taxable year, the tax for such year shall be computed
without regard to the application of subparagraph
(B), but if and when such use condition is satisfied, the provisions of subparagraph
(B) shall then be applied to such taxable year. If the actual use condition of subparagraph
(B) is satisfied for any taxable year after such time for filing the return, and
if credit or refund of any overpayment for the taxable year resulting from
the satisfaction of such use condition is prevented at the close of the taxable year
in which the use condition is satisfied, by the operation of any law or rule of law
(other than chapter 74, relating to closing agreements and compromises), credit or
refund of such overpayment may nevertheless be allowed or made if claim therefor
is filed before the expiration of 1 year after the close of the taxable year in which
the use condition is satisfied.
I.R.C. § 514(b)(3)(E) Special Rule For Churches —
In applying this paragraph to a church or convention or association of churches,
in lieu of the 10-year period referred to in subparagraphs (A) and (B) a 15-year
period shall be applied, and subparagraphs (A) and (B)(ii) shall apply whether or
not the acquired land meets the neighborhood test.
I.R.C. § 514(c) Acquisition Indebtedness
I.R.C. § 514(c)(1) General Rule —
For purposes of this section, the term “acquisition indebtedness” means,
with respect to any debt-financed property, the unpaid amount of—
I.R.C. § 514(c)(1)(A) —
the indebtedness incurred by the organization in acquiring or improving such property;
I.R.C. § 514(c)(1)(B) —
the indebtedness incurred before the acquisition or improvement of such property
if such indebtedness would not have been incurred but for such acquisition or improvement;
and
I.R.C. § 514(c)(1)(C) —
the indebtedness incurred after the acquisition or improvement of such property
if such indebtedness would not have been incurred but for such acquisition or improvement
and the incurrence of such indebtedness was reasonably foreseeable at the time of
such acquisition or improvement.
I.R.C. § 514(c)(2) Property Acquired Subject To Mortgage, Etc. —
For purposes of this subsection—
I.R.C. § 514(c)(2)(A) General Rule —
Where property (no matter how acquired) is acquired subject to a mortgage or other
similar lien, the amount of the indebtedness secured by such mortgage or lien shall
be considered as an indebtedness of the organization incurred in acquiring such property
even though the organization did not assume or agree to pay such indebtedness.
I.R.C. § 514(c)(2)(B) Exceptions —
Where property subject to a mortgage is acquired by an organization by bequest or
devise, the indebtedness secured by the mortgage shall not be treated as acquisition
indebtedness during a period of 10 years following the date of the acquisition. If
an organization acquires property by gift subject to a mortgage which was placed
on the property more than 5 years before the gift, which property was held by the
donor more than 5 years before the gift, the indebtedness secured by such mortgage
shall not be treated as acquisition indebtedness during a period of 10 years following
the date of such gift. This subparagraph shall not apply if the organization, in
order to acquire the equity in the property by bequest, devise, or gift, assumes
and agrees to pay the indebtedness secured by the mortgage, or if the organization
makes any payment for the equity in the property owned by the decedent or the donor.
I.R.C. § 514(c)(2)(C) Liens For Taxes Or Assessments —
Where State law provides that—
I.R.C. § 514(c)(2)(C)(i) —
a lien for taxes, or
I.R.C. § 514(c)(2)(C)(ii) —
a lien for assessments,
made by a State or a political subdivision thereof attaches to property prior to
the time when such taxes or assessments become due and payable, then such lien shall
be treated as similar to a mortgage (within the meaning of subparagraph (A))
but only after such taxes or assessments become due and payable and the organization
has had an opportunity to pay such taxes or assessments in accordance with State
law.
I.R.C. § 514(c)(3) Extension Of Obligations —
For purposes of this section, an extension, renewal, or refinancing of an obligation
evidencing a pre-existing indebtedness shall not be treated as the creation of a
new indebtedness.
I.R.C. § 514(c)(4) Indebtedness Incurred In Performing Exempt Purpose —
For purposes of this section, the term “acquisition indebtedness” does
not include indebtedness the incurrence of which is inherent in the performance
or exercise of the purpose or function constituting the basis of the organization's
exemption, such as the indebtedness incurred by a credit union described in section
501(c)(14) in accepting deposits from its members.
I.R.C. § 514(c)(5) Annuities —
For purposes of this section, the term “acquisition indebtedness” does
not include an obligation to pay an annuity which—
I.R.C. § 514(c)(5)(A) —
is the sole consideration (other than a mortgage to which paragraph (2)(B) applies)
issued in exchange for property if, at the time of the exchange, the value of the
annuity is less than 90 percent of the value of the property received in the exchange,
I.R.C. § 514(c)(5)(B) —
is payable over the life of one individual in being at the time the annuity is issued,
or over the lives of two individuals in being at such time, and
I.R.C. § 514(c)(5)(C) —
is payable under a contract which—
I.R.C. § 514(c)(5)(C)(i) —
does not guarantee a minimum amount of payments or specify a maximum amount of payments,
and
I.R.C. § 514(c)(5)(C)(ii) —
does not provide for any adjustment of the amount of the annuity payments by reference
to the income received from the transferred property or any other property.
I.R.C. § 514(c)(6) Certain Federal Financing
I.R.C. § 514(c)(6)(A) In General —
For purposes of this section, the term “acquisition indebtedness” does
not include—
I.R.C. § 514(c)(6)(A)(i) —
an obligation, to the extent that it is insured by the Federal Housing Administration,
to finance the purchase, rehabilitation, or construction of housing for low and
moderate income persons, or
I.R.C. § 514(c)(6)(A)(ii) —
indebtedness incurred by a small business investment company licensed after the date
of the enactment of the American Jobs Creation Act of 2004 under the Small Business
Investment Act of 1958 if such indebtedness is evidenced by a debenture—
I.R.C. § 514(c)(6)(A)(ii)(I) —
issued by such company under section 303(a) of such Act, and
I.R.C. § 514(c)(6)(A)(ii)(II) —
held or guaranteed by the Small Business
Administration.
I.R.C. § 514(c)(6)(B) Limitation —
Subparagraph (A)(ii) shall not apply with respect to any small business investment
company during any period that—
I.R.C. § 514(c)(6)(B)(i) —
any organization which is exempt from tax under this title (other than a governmental
unit) owns more than 25 percent of the capital or profits interest in such company,
or
I.R.C. § 514(c)(6)(B)(ii) —
organizations which are exempt from tax under this title (including governmental
units other than any agency or instrumentality of the United States) own, in the aggregate,
50 percent or more of the capital or profits interest in such company.
I.R.C. § 514(c)(7) Average Acquisition Indebtedness —
For purposes of this section, the term “average acquisition indebtedness”
for any taxable year with respect to a debt-financed property means the average
amount, determined under regulations prescribed by the Secretary of the acquisition
indebtedness during the period the property is held by the organization during the
taxable year, except that for the purpose of computing the percentage of any gain
or loss to be taken into account on a sale or other disposition of debt-financed
property, such term means the highest amount of the acquisition indebtedness with
respect to such property during the 12-month period ending with the date of the sale
or other disposition.
I.R.C. § 514(c)(8) Securities Subject To Loans —
For purposes of this section—
I.R.C. § 514(c)(8)(A) —
payments with respect to securities loans (as defined in section 512(a)(5))
shall be deemed to be derived from the securities loaned and not from collateral
security or the investment of collateral security from such loans,
I.R.C. § 514(c)(8)(B) —
any deductions which are directly connected with collateral security for such loan,
or with the investment of collateral security, shall be deemed to be deductions which
are directly connected with the securities loaned, and
I.R.C. § 514(c)(8)(C) —
an obligation to return collateral security shall not be treated as acquisition
indebtedness (as defined in paragraph (1)).
I.R.C. § 514(c)(9) Real Property Acquired By A Qualified Organization
I.R.C. § 514(c)(9)(A) In General —
Except as provided in subparagraph (B), the term “acquisition indebtedness”
does not, for purposes of this section, include indebtedness incurred by a qualified
organization in acquiring or improving any real property. For purposes of this paragraph,
an interest in a mortgage shall in no event be treated as real property.
I.R.C. § 514(c)(9)(B) Exceptions —
The provisions of subparagraph (A) shall not apply in any case in which—
I.R.C. § 514(c)(9)(B)(i) —
the price for the acquisition or improvement is not a fixed amount determined as
of the date of the acquisition or the completion of the improvement;
I.R.C. § 514(c)(9)(B)(ii) —
the amount of any indebtedness or any other amount payable with respect to such
indebtedness, or the time for making any payment of any such amount, is dependent,
in whole or in part, upon any revenue, income, or profits derived from such real
property;
I.R.C. § 514(c)(9)(B)(iv) —
the real property is acquired by a qualified trust from, or is at any time after
the acquisition leased by such trust to, any person who—
I.R.C. § 514(c)(9)(B)(iv)(I) —
bears a relationship which is described in subparagraph (C), (E), or (G) of section
4975(e)(2) to any plan with respect to which such trust was formed, or
I.R.C. § 514(c)(9)(B)(iv)(II) —
bears a relationship which is described in subparagraph (F) or (H) of section 4975(e)(2) to any person described in subclause (I);
I.R.C. § 514(c)(9)(B)(v) —
any person described in clause (iii)
or (iv) provides the qualified organization with financing in connection with the
acquisition or improvement; or
I.R.C. § 514(c)(9)(B)(vi) —
the real property is held by a partnership unless the partnership meets the requirements
of clauses (i) through
(v) and unless—
I.R.C. § 514(c)(9)(B)(vi)(I) —
all of the partners of the partnership are qualified organizations,
I.R.C. § 514(c)(9)(B)(vi)(II) —
each allocation to a partner of the partnership which is a qualified organization
is a qualified allocation
(within the meaning of section 168(h)(6)), or
I.R.C. § 514(c)(9)(B)(vi)(III) —
such partnership meets the requirements of subparagraph (E).
For purposes of subclause (I) of clause (vi), an organization shall not be treated
as a qualified organization if any income of such organization is unrelated business
taxable income.
I.R.C. § 514(c)(9)(C) Qualified Organization —
For purposes of this paragraph, the term “qualified organization” means—
I.R.C. § 514(c)(9)(C)(i) —
an organization described in section 170(b)(1)(A)(ii) and its affiliated support organizations described in section 509(a)(3);
I.R.C. § 514(c)(9)(C)(ii) —
any trust which constitutes a qualified trust under section 401;
I.R.C. § 514(c)(9)(C)(iii) —
an organization described in section 501(c)(25); or
I.R.C. § 514(c)(9)(C)(iv) —
a retirement income account described in section 403(b)(9).
I.R.C. § 514(c)(9)(D) Other Pass-Thru Entities; Tiered Entities —
Rules similar to the rules of subparagraph (B)(vi)
shall also apply in the case of any pass-thru entity other than a partnership and
in the case of tiered partnerships and other entities.
I.R.C. § 514(c)(9)(E) Certain Allocations Permitted
I.R.C. § 514(c)(9)(E)(i) In General —
A partnership meets the requirements of this subparagraph if—
I.R.C. § 514(c)(9)(E)(i)(I) —
the allocation of items to any partner which is a qualified organization cannot
result in such partner having a share of the overall partnership income for any taxable
year greater than such partner's share of the overall partnership loss for the taxable
year for which such partner's loss share will be the smallest, and
I.R.C. § 514(c)(9)(E)(i)(II) —
each allocation with respect to the partnership has substantial economic effect
within the meaning of section 704(b)(2).
For purposes of this clause, items allocated under
section 704(c) shall not be taken into account.
I.R.C. § 514(c)(9)(E)(ii) Special Rules
I.R.C. § 514(c)(9)(E)(ii)(I) Chargebacks —
Except as provided in regulations, a partnership may without violating the requirements
of this subparagraph provide for chargebacks with respect to disproportionate losses
previously allocated to qualified organizations and disproportionate income previously
allocated to other partners. Any chargeback referred to in the preceding sentence
shall not be at a ratio in excess of the ratio under which the loss or income (as
the case may be) was allocated.
I.R.C. § 514(c)(9)(E)(ii)(II) Preferred Rates Of Return, Etc. —
To the extent provided in regulations, a partnership may without violating the requirements
of this subparagraph provide for reasonable preferred returns or reasonable guaranteed
payments.
I.R.C. § 514(c)(9)(E)(iii) Regulations —
The Secretary shall prescribe such regulations as may be necessary to carry out
the purposes of this subparagraph, including regulations which may provide for exclusion
or segregation of items.
I.R.C. § 514(c)(9)(F) Special Rules For Organizations Described In Section 501(c)(25)
I.R.C. § 514(c)(9)(F)(i) In General —
In computing under section 512 the unrelated business taxable income of a disqualified holder of an interest in
an organization described in section 501(c)(25), there shall be taken into account—
I.R.C. § 514(c)(9)(F)(i)(I) —
as gross income derived from an unrelated trade or business, such holder's pro rata
share of the items of income described in clause (ii)(I) of such organization, and
I.R.C. § 514(c)(9)(F)(i)(II) —
as deductions allowable in computing unrelated business taxable income, such holder's
pro rata share of the items of deduction described in clause (ii)(II) of such organization.
Such amounts shall be taken into account for the taxable
year of the holder in which (or with which) the taxable year of such
organization ends.
I.R.C. § 514(c)(9)(F)(ii) Description Of Amounts —
For purposes of clause (i)—
I.R.C. § 514(c)(9)(F)(ii)(I) —
gross income is described in this clause to the extent such income would (but for
this paragraph) be treated under subsection (a) as derived from an unrelated trade
or business, and
I.R.C. § 514(c)(9)(F)(ii)(II) —
any deduction is described in this clause to the extent it would (but for this paragraph)
be allowable under subsection (a)(2) in computing unrelated business taxable income.
I.R.C. § 514(c)(9)(F)(iii) Disqualified Holder —
For purposes of this subparagraph, the term “disqualified holder” means
any shareholder (or beneficiary) which is not described in clause (i) or (ii) of
subparagraph (C).
I.R.C. § 514(c)(9)(G) Special Rules For Purposes Of The Exceptions —
Except as otherwise provided by regulations—
I.R.C. § 514(c)(9)(G)(i) Small Leases Disregarded —
For purposes of clauses (iii) and (iv) of subparagraph
(B), a lease to a person described in such clause (iii) or (iv) shall be disregarded
if no more than 25 percent of the leasable floor space in a building (or complex
of buildings) is covered by the lease and if the lease is on commercially reasonable
terms.
I.R.C. § 514(c)(9)(G)(ii) Commercially Reasonable Financing —
Clause (v) of subparagraph (B) shall not apply if the financing is on commercially
reasonable terms.
I.R.C. § 514(c)(9)(H) Qualifying Sales By Financial Institutions
I.R.C. § 514(c)(9)(H)(i) In General —
In the case of a qualifying sale by a financial institution, except as provided
in regulations, clauses (i) and (ii) of subparagraph
(B) shall not apply with respect to financing provided by such institution for such
sale.
I.R.C. § 514(c)(9)(H)(ii) Qualifying Sale —
For purposes of this clause, there is a qualifying sale by a financial institution
if—
I.R.C. § 514(c)(9)(H)(ii)(I) —
a qualified organization acquires property described in clause (iii) from a financial
institution and any gain recognized by the financial institution with respect to
the property is ordinary income,
I.R.C. § 514(c)(9)(H)(ii)(II) —
the stated principal amount of the financing provided by the financial institution
does not exceed the amount of the outstanding indebtedness (including accrued but
unpaid interest) of the financial institution with respect to the property described
in clause (iii) immediately before the acquisition referred to in clause (iii) or
(v), whichever is applicable, and
I.R.C. § 514(c)(9)(H)(ii)(III) —
the present value (determined as of the time of the sale and by using the applicable
Federal rate determined under section 1274(d))
of the maximum amount payable pursuant to the financing that is determined by reference
to the revenue, income, or profits derived from the property cannot exceed 30 percent
of the total purchase price of the property (including the contingent payments).
I.R.C. § 514(c)(9)(H)(iii) Property To Which Subparagraph Applies —
Property is described in this clause if such property is foreclosure property, or
is real property which—
I.R.C. § 514(c)(9)(H)(iii)(I) —
was acquired by the qualified organization from a financial institution which is
in conservatorship or receivership, or from the conservator or receiver of such an
institution, and
I.R.C. § 514(c)(9)(H)(iii)(II) —
was held by the financial institution at the time it entered into conservatorship
or receivership.
I.R.C. § 514(c)(9)(H)(iv) Financial Institution —
For purposes of this subparagraph, the term “financial institution” means—
I.R.C. § 514(c)(9)(H)(iv)(II) —
any other corporation which is a direct or indirect subsidiary of an institution
referred to in subclause
(I) but only if, by virtue of being affiliated with such institution, such other
corporation is subject to supervision and examination by a Federal or State agency
which regulates institutions referred to in subclause (I), and
I.R.C. § 514(c)(9)(H)(iv)(III) —
any person acting as a conservator or receiver of an entity referred to in subclause
(I) or (II) (or any government agency or corporation succeeding to the rights or
interest of such person).
I.R.C. § 514(c)(9)(H)(v) Foreclosure Property —
For purposes of this subparagraph, the term “foreclosure property” means
any real property acquired by the financial institution as the result of having
bid on such property at foreclosure, or by operation of an agreement or process of
law, after there was a default (or a default was imminent) on indebtedness which
such property secured.
I.R.C. § 514(d) Basis Of Debt-Financed Property Acquired In Corporate Liquidation —
For purposes of this subtitle, if the property was acquired in a complete or partial
liquidation of a corporation in exchange for its stock, the basis of the property
shall be the same as it would be in the hands of the transferor corporation, increased
by the amount of gain recognized to the transferor corporation upon such distribution
and by the amount of any gain to the organization which was included, on account
of such distribution, in unrelated business taxable income under subsection (a).
I.R.C. § 514(e) Allocation Rules —
Where debt-financed property is held for purposes described in subsection (b)(1)(A),
(B), (C), or (D) as well as for other purposes, proper allocation shall be made with
respect to basis, indebtedness, and income and deductions. The allocations required
by this section shall be made in accordance with regulations prescribed by the Secretary
to the extent proper to carry out the purposes of this section.
I.R.C. § 514(f) Personal Property Leased With Real Property —
For purposes of this section, the term “real property"
includes personal property of the lessor leased by it to a lessee of its real estate
if the lease of such personal property is made under, or in connection with, the
lease of such real estate.
I.R.C. § 514(g) Regulations —
The Secretary shall prescribe such regulations as may be necessary or appropriate
to carry out the purposes of this section, including regulations to prevent the circumvention
of any provision of this section through the use of segregated asset accounts.
(Aug. 16, 1954, ch. 736, 68A Stat. 172; July 14, 1960,
Pub. L. 86-667, Sec. 5, 74 Stat. 536; Dec. 30, 1969, Pub. L. 91-172, title I, Sec. 121(d)(1), (3)(A), (B), 83 Stat. 543, 548; Jan. 3, 1975, Pub. L. 93-625, Sec. 7(b)(2), 88 Stat. 2115; Oct. 4, 1976, Pub. L. 94-455, title XIII, Sec. 1308(a), title XIX, Sec. 1901(a)(72), 1906(b)(13)(A), 90 Stat. 1729, 1776, 1834; Aug. 15, 1978, Pub. L. 95-345, Sec. 2(c), 92 Stat. 482; Dec. 28, 1980, Pub. L. 96-605, title I, Sec. 110(a), 94 Stat. 3525; July 18, 1984, Pub. L. 98-369, div. A, title I, Sec. 174(b)(5)(B), title X, Sec. 1034(a), (b), 98 Stat. 707, 1039, 1040; Oct. 22, 1986, Pub. L. 99-514, title II, Sec. 201(d)(9), title XVI, Sec. 1603(b), title XVIII, Sec. 1878(e), 100 Stat. 2141, 2768, 2903; Dec. 22, 1987, Pub. L. 100-203, title X, Sec. 10214(a),
(b), 101 Stat. 1330-407; Nov. 10, 1988, Pub. L. 100-647, title I, Sec. 1016(a)(5)(A), (6), 1018(u)(13), title II, Sec. 2004(h), 102 Stat. 3574, 3575, 3590, 3603; Dec. 19, 1989, Pub. L. 101-239, title VII, Sec. 7811(l), 103 Stat. 2412; Oct. 22, 2004, Pub. L. 108-357, title II, VII, Sec. 247(a), 702(b), 118 Stat. 1418; Dec. 21, 2005, Pub. L. 109-135, title IV, Sec. 412, 119 Stat. 2577; Aug. 17, 2006, Pub. L. 109-280, title VIII, Sec. 866(a), 120 Stat. 780.)
BACKGROUND NOTES
AMENDMENTS
2006 - Subsec. (c)(9)(C). Pub. L. 109-280, Sec. 866(a), amended subpar. (C) by striking “or” at the end of clause (ii), by substituting
“; or” for the period at the end of clause (iii), and by adding clause
(iv).
2005 - Subsec. (b)(1)(E). Pub. L. 109-135, Sec. 412(ee)(2), amended subpar. (E) by substituting “section 512(b)(19)” for “section
512(b)(18)”.
2004 - Subsec. (b)(1). Pub. L. 108-357, Sec. 702(b), amended par. (1) by striking “or” at the end of subpar. (C); by substituting
“; or” for the period at the end of subpar. (D); and by adding subpar.
(E).
Subsec. (c)(6). Pub. L. 108-357, Sec. 247(a), amended par. (6). Prior to amendment it read as follows:
“(6) Certain Federal financing
“For purposes of this section, the term “acquisition indebtedness”
does not include an obligation, to the extent that it is insured by the Federal Housing
Administration, to finance the purchase, rehabilitation, or construction of housing
for low and moderate income persons.”
1993 - Subsec. (c)(9)(A). Pub. L. 103-66, Sec. 13144(b)(1), amended subpar. (A) by adding the sentence at the end.
Subsec. (c)(9)(B). Pub. L. 103-66, Sec. 13144(b)(2), amended subpar. (B) by striking the last sentence. Before being struck, it read
as follows:
“For purposes of this paragraph, an interest in a mortgage shall in no event
be treated as real property.”
Subsec. (c)(9)(G)-(H). Pub. L. 103-66, Sec. 13144(a), amended par. (9) by adding subpar. (G) and (H).
1989 - Subsec. (c)(9)(E),
(F). Pub. L. 101-239 redesignated the subpar. (E), relating to special rules for organizations described
in section 501(c)(25), as (F).
1988 - Subsec. (c)(9)(B). Pub. L. 100-647, Sec. 1016(a)(6), substituted ‘this paragraph’ for ‘clause (vi)’ in last sentence.
Pub. L. 100-647, Sec. 1018(u)(13)(A), amended directory language of Pub. L. 99-514, Sec. 1878(e)(1),
(3), to clarify that general amendment by section 1878(e)(3) included concluding provision
as well as cl. (vi) and that amendment by section 1878(e)(1) should have been to the
concluding provisions as amended by section 1878(e)(3).
Subsec. (c)(9)(E). Pub. L. 100-647, Sec. 1016(a)(5)(A), added subpar. (E) relating to special rules for organizations described in section
501(c)(25).
Subsec. (c)(9)(E)(i). Pub. L. 100-647, Sec. 2004(h)(2), in subsec. (c)(9)(E), relating to certain allocations permitted, redesignated subcls.
(II) and (III) as (I) and (II), respectively, and struck out former subcl. (I) which
read as follows: ‘the allocation of items to any partner other than a qualified
organization cannot result in such partner having a share of the overall partnership
loss for any taxable year greater than such partner's share of the overall partnership
income for the taxable year for which such partner's income share will be the smallest,'.
Subsec. (c)(9)(E)(iii). Pub. L. 100-647, Sec. 2004(h)(1), in subsec. (c)(9)(E) relating to certain allocations permitted, added cl. (iii).
1987 - Subsec. (c)(9)(B)(vi). Pub. L. 100-203, Sec. 10214(a), amended cl. (vi) generally. Prior to amendment, cl. (vi) read as follows:
‘the real property is held by a partnership (which does not fail to meet the
requirements of clauses (i) through (v)), and -
‘(I) any partner of the partnership is not a qualified organization, and
‘(II) the principal purpose of any allocation to any partner of the partnership
which is a qualified organization which is not a qualified allocation (within the
meaning of section 168(h)(6)) is the avoidance of income tax.’
Subsec. (c)(9)(E). Pub. L. 100-203, Sec. 10214(b), added subpar. (E).
1986 - Subsec. (c)(9)(B). Pub. L. 99-514, Sec. 1878(e)(1), as amended by Pub. L. 100-647, Sec. 1018(u)(13)(A), which directed amendment of penultimate sentence by substituting ‘is unrelated
business taxable income’ for
‘would be unrelated business taxable income (determined without regard to this
paragraph)’, was executed by making the substitution for ‘would be unrelated
business taxable income (determined without regard to this paragraph’, as the
probable intent of Congress.
Pub. L. 99-514, Sec. 1878(e)(3), as amended by Pub. L. 100-647, Sec. 1018(u)(13)(B), amended concluding provisions generally. Prior to amendment, concluding provisions
read as follows: ‘For purposes of clause (vi)(I), an organization shall not
be treated as a qualified organization if any income of such organization would be
unrelated business taxable income (determined without regard to this paragraph).’
Subsec. (c)(9)(B)(vi). Pub. L. 99-514, Sec. 1878(e)(3), as amended by Pub. L. 100-647, Sec. 1018(u)(13)(B), amended cl. (vi) generally. Prior to amendment, cl. (vi) read as follows: ‘the
real property is held by a partnership unless the partnership meets the requirements
of clauses
(i) through (v) and unless -
‘(I) all of the partners of the partnership are qualified organizations, or
‘(II) each allocation to a partner of the partnership which is a qualified organization
is a qualified allocation (within the meaning of section 168(j)(9)).’
Subsec. (c)(9)(B)(vi)(II). Pub. L. 99-514, Sec. 201(d)(9), substituted ‘section 168(h)(6)’ for ‘section 168(j)(9)’.
Subsec. (c)(9)(C)(i). Pub. L. 99-514, Sec. 1878(e)(2), substituted ‘section 509(a)(3)’ for ‘section 509(a)’.
Subsec. (c)(9)(C)(iii). Pub. L. 99-514, Sec. 1603(b), added cl. (iii).
1984 - Subsec. (c)(9). Pub. L. 98-369, Sec. 1034(a), amended par. (9) generally, substituting provisions relating to real property acquired
by a qualified organization for provisions relating to real property acquired by a
qualified trust, with ‘qualified organization’
expanded to include trusts constituting qualified trusts under section 401 of this
title as well as organizations described in section 170(b)(1)(A)(ii)
of this title and their affiliated support organizations described in section 509(a)
of this title.
Subsec. (c)(9)(B)(iii). Pub. L. 98-369, Sec. 174(b)(5)(B), inserted reference to section 707(b).
Subsec. (g). Pub. L. 98-369, Sec. 1034(b), added subsec. (g).
1980 - Subsec. (c)(9). Pub. L. 96-605 added par. (9).
1978 - Subsec. (c)(8). Pub. L. 95-345 added par. (8).
1976 - Subsecs. (a)(1), (b)(3)(A),
(B)(ii). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ‘or his delegate’ after ‘Secretary’.
Subsec. (b)(3)(C)(iii). Pub. L. 94-455, Sec. 1901(a)(72)(C), substituted ‘(as defined in this section immediately before the enactment
of the Tax Reform Act of 1976)’ for ‘as (defined in subsection (f))’
after ‘is a business lease’.
Subsec. (c)(1). Pub. L. 94-455, Sec. 1901(a)(72)(A), struck out exception following subpar. (C) that in any taxable year beginning before
January 1, 1972, any acquisition indebtedness incurred prior to June 28, 1966, would
not be taken into account except for business lease indebtedness of certain organizations.
Subsec. (c)(2)(C). Pub. L. 94-455, Sec. 1308(a), added subpar. (C).
Subsecs. (c)(7), (e). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ‘or his delegate’ after ‘Secretary’.
Subsec. (f). Pub. L. 94-455, Sec. 1901(a)(72(B), struck out subsec. (f) relating to definition of business lease, special rules
applicable to such leases, and exceptions to the definition and applicable rules,
and redesignated subsec. (h) as (f).
Subsec. (g). Pub. L. 94-455, Sec. 1901(a)(72)(B), struck out subsec. (g) relating to definition and special rules applicable to business
lease indebtedness.
Subsec. (h). Pub. L. 94-455, Sec. 1901(a)(72)(B), redesignated subsec. (h)
as (f).
1975 - Subsec. (b)(3)(D). Pub. L. 93-625 struck out last sentence providing for allowance and payment of interest on any overpayment
for a taxable year resulting from application of subpar. (B) after actual use condition
was satisfied at rate of 4 in lieu of 6 percent per annum.
1969 - Subsec. (a). Pub. L. 91-172, Sec. 121(d)(1), substituted ‘Unrelated debt-financed income’ for ‘Business leases’
in heading and substituted in text material covering unrelated debt-financed income
and deductions for material covering business lease rents and deductions.
Subsecs. (b) to (e). Pub. L. 91-172, Sec. 121(d)(1),
(3)(A), added subsecs. (b), (c), (d) and (e). Former subsecs. (b),
(c), and (d) redesignated (f), (g), and (h), respectively.
Subsec. (f). Pub. L. 91-172, Sec. 121(d)(3)(A), (B), redesignated subsec.
(b) as subsec. (f), and, in par. (1) of subsec. (f) as so redesignated, substituted
reference to subsec. (g) for reference to subsec. (c).
Subsecs. (g), (h). Pub. L. 91-172, Sec. 121(d)(3)(A), redesignated subsecs. (c) and (d) as (g) and (h), respectively.
1960 - Subsec. (c)(8). Pub. L. 86-667 added par. (8).
EFFECTIVE DATE OF 2006 AMENDMENTS
Amendments by Sec. 866(a) of Pub. L. 109-280 effective for taxable years beginning on or after the date of enactment of this Act
[Enacted:
Aug. 17, 2006].
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Sec. 412 of Pub. L. 109-135 effective on the date of the enactment of this Act [Enacted: Dec. 21, 2005].
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendment by Sec. 247(a) of Pub. L. 108-357 effective for indebtedness incurred after the date of the enactment of this Act by
a small business investment company licensed after the date of the enactment of
this Act [Enacted:
Oct. 22, 2004].
Amendments by Sec. 702(b) of Pub. L. 108-357 effective for to any
gain or loss on the sale, exchange, or other disposition of any property
acquired by the taxpayer after December 31, 2004. Sec. 702(c) of Pub. L. 108-357 provided the following savings clause: “Nothing in the amendments made by this
section shall
affect any duty, liability, or other requirement imposed under any other Federal
or State law. Notwithstanding section 128(b)
of the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, a certification provided by the Environmental Protection Agency or an
appropriate State agency (within the meaning of section 198(c)(4) of the Internal Revenue Code of 1986) shall not affect the liability of any person under section 107(a) of
such Act.”
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise provided, as if included in the provision of the Technical
and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 7817 of Pub. L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1016(a)(5)(B) of Pub. L. 100-647 provided that: ‘The amendment made by subparagraph
(A) (amending this section) shall apply with respect to interests in the organization
acquired after June 10, 1987, except that such amendment shall not apply to any such
interest acquired after June 10, 1987, pursuant to a binding written contract in effect
on June 10, 1987, and at all times thereafter before such acquisition.’
Amendment by sections 1016(a)(6) and 1018(u)(13)
of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
Amendment by section 2004(h) of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provisions of the
Revenue Act of 1987, Pub. L. 100-203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100-647, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10214(c) of Pub. L. 100-203 provided that: ‘The amendments made by this section
(amending this section) shall apply to -
‘(1) property acquired by the partnership after October 13, 1987, and
‘(2) partnership interests acquired after October 13, 1987, except that such
amendments shall not apply in the case of any property (or partnership interest) acquired
pursuant to a written binding contract in effect on October 13, 1987, and at all times
thereafter before such property (or interest) is acquired.’
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 201(d)(9) of Pub. L. 99-514 applicable to property placed in service after Dec. 31, 1986, in taxable years ending
after such date, with exceptions, see sections 203 and 204 of Pub. L. 99-514, set out as a note under section 168 of this title.
Amendment by section 201(d)(9) of Pub. L. 99-514 not applicable to any property placed in service before Jan. 1, 1994, if such property
placed in service as part of specified rehabilitations, and not applicable to certain
additional rehabilitations, see section 251(d)(2), (3) of Pub. L. 99-514, set out as a note under section 46 of this title.
Amendment by section 1603(b) of Pub. L. 99-514 applicable to taxable years beginning after Dec. 31, 1986, see section 1603(c) of
Pub. L. 99-514, set out as a note under section 501 of this title.
Amendment by section 1878(e) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the
Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 174(b)(5)(B) of Pub. L. 98-369 applicable to transactions after Dec. 31, 1983, in taxable years ending after that
date, see section 174(c)(2)(A) of Pub. L. 98-369, set out as a note under section 267 of this title.
Section 1034(c) of Pub. L. 98-369 provided that:
‘(1) In general. - The amendments made by this section (amending this section)
shall apply to indebtedness incurred after the date of the enactment of this Act (July
18, 1984).
‘(2) Exception for indebtedness on certain property acquired before january
1, 1985. -
‘(A) The amendment made by subsection
(a) (amending this section) shall not apply to any indebtedness incurred before January
1, 1985, by a partnership described in subparagraph
(B) if such indebtedness is incurred with respect to property acquired
(directly or indirectly) by such partnership before such date.
‘(B) A partnership is described in this subparagraph if -
‘(i) before October 21, 1983, the partnership was organized, a request for exemption
with respect to such partnership was filed with the Department of Labor, and a private
placement memorandum stating the maximum number of units in the partnership that would
be offered had been circulated,
‘(ii) the interest in the property to be acquired, directly or indirectly (including
through acquiring an interest in another partnership) by such partnership was described
in such private placement memorandum, and
‘(iii) the marketing of partnership interests in such partnership is completed
not later than 2 years after the later of the date of enactment of this Act (July
18, 1984)
or the date of publication in the Federal Register of such exemption by the Department
of Labor and the aggregate number of units in such partnership sold does not exceed
the amount described in clause (i).
‘(3) Exception for indebtedness on certain property acquired before january
1, 1986. -
‘(A) The amendment made by subsection
(a) (amending this section) shall not apply to any indebtedness incurred before January
1, 1986, by a partnership described in subparagraph
(B) if such indebtedness is incurred with respect to property acquired
(directly or indirectly) by such partnership before such date.
‘(B) A partnership is described in this paragraph if -
‘(i) before March 6, 1984, the partnership was organized and publicly announced,
the maximum amount of interests which would be sold in such partnership, and
‘(ii) the marketing of partnership interests in such partnership is completed
not later than the 90th day after the date of the enactment of this Act (July 18,
1984) and the aggregate amount of interests in such partnership sold does not exceed
the maximum amount described in clause (i).
For purposes of clause (i), the maximum amount taken into account shall be the greatest
of the amounts shown in the registration statement, prospectus, or partnership agreement.
‘(C) Binding contracts. - For purposes of this paragraph, property shall be
deemed to have been acquired before January 1, 1986, if such property is acquired
pursuant to a written contract which, on January 1, 1986, and at all times thereafter,
required the acquisition of such property and such property is placed in service not
later than 6 months after the date such contract was entered into.’
EFFECTIVE DATE OF 1980 AMENDMENT
Section 110(c) of Pub. L. 96-605 provided that: ‘The amendment made by subsection
(a) (amending this section) shall apply to taxable years beginning after December
31, 1980.’
EXTENSION OF 1980 AMENDMENT OF THIS SECTION TO OTHER PERSONS
Section 110(b) of Pub. L. 96-605 provided that: ‘The amendment made by subsection
(a) (amending this section) shall not be considered a precedent with respect to extending
such amendment (or similar rules) to any other person.’
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-345 applicable with respect to amounts received after Dec. 31, 1976, as payments with
respect to securities loans (as defined in section 512(a)(5)
of this title), and transfers of securities, under agreements described in section
1058 of this title, occurring after such date, see section 2(e) of Pub. L. 95-345, set out as a note under section 509 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1308(b) of Pub. L. 94-455 provided that: ‘The amendment made by this section
(amending this section) shall apply to taxable years ending after December 31, 1969.’
Amendment by section 1901(a)(72) of Pub. L. 94-455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 93-625 effective July 1, 1975, and applicable to amounts outstanding on such date or arising
thereafter, see section 7(e) of Pub. L. 93-625, set out as an Effective Date note under section 6621 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to taxable years beginning after Dec. 31, 1969, and to the manner of treatment
to be accorded indebtednesses secured by certain mortgages on properties bargain-purchased
before Oct. 9, 1969, see section 121(g)
of Pub. L. 91-172, set out as a note under section 511 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-667 applicable to taxable years beginning after Dec. 31, 1959, see section 6 of Pub. L. 86-667, set out as a note under section 501 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of
title XI (Sec. 1101-1147 and 1171-1177)
or title XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to any plan, such plan amendment shall not be required to be
made before the first plan year beginning on or after Jan. 1, 1989, see section 1140
of Pub. L. 99-514, as amended, set out as a note under section 401 of this title.
TRANSITION RULE FOR ACQUISITION INDEBTEDNESS WITH RESPECT TO CERTAIN LAND
Section 1607 of Pub. L. 99-514 provided that: ‘For purposes of applying section 514(c) of the Internal Revenue Code of 1986, with respect to a disposition during calendar year 1986 or calendar year
1987 of land acquired during calendar year 1984, the term ‘acquisition indebtedness’
does not include indebtedness incurred in connection with bonds issued after January
1, 1984, and before July 19, 1984, on behalf of an organization which is a community
college and which is described in section 511(a)(2)(B)
of such Code.'
