
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC514]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                   Subchapter F--Exempt Organizations
 
  PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS
 
Sec. 514. Unrelated debt-financed income


(a) Unrelated debt-financed income and deductions

    In computing under section 512 the unrelated business taxable income 
for any taxable year--

             (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.

           (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.

                      (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.

(b) Definition of debt-financed property

                           (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--
            (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 (ii) any property 
        to which clause (i) does not apply, to the extent that its use 
        is so substantially related;
            (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;
            (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; or
            (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).

    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.

                  (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.

       (3) Special rules when land is acquired for exempt use 
                               within 10 years

        (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.

        (B) Other cases

            If the first sentence of subparagraph (A) is inapplicable 
        only because--
                (i) the acquired land is not in the neighborhood 
            referred to in subparagraph (A), or
                (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 
            inparagraph (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.

        (C) Limitations

            Subparagraphs (A) and (B)--
                (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;
                (ii) shall not apply to structures erected on the land 
            after the acquisition of the land; and
                (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).

        (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.

        (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.

(c) Acquisition indebtedness

                          (1) General rule

        For purposes of this section, the term ``acquisition 
    indebtedness'' means, with respect to any debt-financed property, 
    the unpaid amount of--
            (A) the indebtedness incurred by the organization in 
        acquiring or improving such property;
            (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
            (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.

           (2) Property acquired subject to mortgage, etc.

        For purposes of this subsection--

        (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.

        (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.

        (C) Liens for taxes or assessments

            Where State law provides that--
                (i) a lien for taxes, or
                (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.

                    (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.

       (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.

                            (5) Annuities

        For purposes of this section, the term ``acquisition 
    indebtedness'' does not include an obligation to pay an annuity 
    which--
            (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,
            (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
            (C) is payable under a contract which--
                (i) does not guarantee a minimum amount of payments or 
            specify a maximum amount of payments, and
                (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.

                    (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.

                (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.

                   (8) Securities subject to loans

        For purposes of this section--
            (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,
            (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
            (C) an obligation to return collateral security shall not be 
        treated as acquisition indebtedness (as defined in paragraph 
        (1)).

       (9) Real property acquired by a qualified organization

        (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.

        (B) Exceptions

            The provisions of subparagraph (A) shall not apply in any 
        case in which--
                (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;
                (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;
                (iii) the real property is at any time after the 
            acquisition leased by the qualified organization to the 
            person selling such property to such organization or to any 
            person who bears a relationship described in section 267(b) 
            or 707(b) to such person;
                (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) 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
                    (II) bears a relationship which is described in 
                subparagraph (F) or (H) of section 4975(e)(2) to any 
                person described in subclause (I);

                (v) any person described in clause (iii) or (iv) 
            provides the qualified organization with financing in 
            connection with the acquisition or improvement; or
                (vi) 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,
                    (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
                    (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.

        (C) Qualified organization

            For purposes of this paragraph, the term ``qualified 
        organization'' means--
                (i) an organization described in section 
            170(b)(1)(A)(ii) and its affiliated support organizations 
            described in section 509(a)(3);
                (ii) any trust which constitutes a qualified trust under 
            section 401; or
                (iii) an organization described in section 501(c)(25).

        (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.

        (E) Certain allocations permitted

            (i) In general

                A partnership meets the requirements of this 
            subparagraph if--
                    (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
                    (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.
            (ii) Special rules

                (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.
                (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.
            (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.

        (F) Special rules for organizations described in section 
                501(c)(25)

            (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) 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
                    (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.
            (ii) Description of amounts

                For purposes of clause (i)--
                    (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
                    (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.
            (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).

        (G) Special rules for purposes of the exceptions

            Except as otherwise provided by regulations--
            (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.
            (ii) Commercially reasonable financing

                Clause (v) of subparagraph (B) shall not apply if the 
            financing is on commercially reasonable terms.

        (H) Qualifying sales by financial institutions

            (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.
            (ii) Qualifying sale

                For purposes of this clause, there is a qualifying sale 
            by a financial institution if--
                    (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,
                    (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
                    (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).
            (iii) Property to which subparagraph applies

                Property is described in this clause if such property is 
            foreclosure property, or is real property which--
                    (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
                    (II) was held by the financial institution at the 
                time it entered into conservatorship or receivership.
            (iv) Financial institution

                For purposes of this subparagraph, the term ``financial 
            institution'' means--
                    (I) any financial institution described in section 
                581 or 591(a),
                    (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
                    (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).
            (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.

(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).

(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.

(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.

(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; Pub. L. 86-667, Sec. 5, July 14, 
1960, 74 Stat. 536; Pub. L. 91-172, title I, Sec. 121(d)(1), (3)(A), 
(B), Dec. 30, 1969, 83 Stat. 543, 548; Pub. L. 93-625, Sec. 7(b)(2), 
Jan. 3, 1975, 88 Stat. 2115; Pub. L. 94-455, title XIII, Sec. 1308(a), 
title XIX, Secs. 1901(a)(72), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 
1729, 1776, 1834; Pub. L. 95-345, Sec. 2(c), Aug. 15, 1978, 92 Stat. 
482; Pub. L. 96-605, title I, Sec. 110(a), Dec. 28, 1980, 94 Stat. 3525; 
Pub. L. 98-369, div. A, title I, Sec. 174(b)(5)(B), title X, 
Sec. 1034(a), (b), July 18, 1984, 98 Stat. 707, 1039, 1040; Pub. L. 99-
514, title II, Sec. 201(d)(9), title XVI, Sec. 1603(b), title XVIII, 
Sec. 1878(e), Oct. 22, 1986, 100 Stat. 2141, 2768, 2903; Pub. L. 100-
203, title X, Sec. 10214(a), (b), Dec. 22, 1987, 101 Stat. 1330-407; 
Pub. L. 100-647, title I, Secs. 1016(a)(5)(A), (6), 1018(u)(13), title 
II, Sec. 2004(h), Nov. 10, 1988, 102 Stat. 3574, 3575, 3590, 3603; Pub. 
L. 101-239, title VII, Sec. 7811(l), Dec. 19, 1989, 103 Stat. 2412; Pub. 
L. 103-66, title XIII, Sec. 13144(a), (b), Aug. 10, 1993, 107 Stat. 441, 
442.)

                       References in Text

    The Tax Reform Act of 1976, referred to in subsec. (b)(3)(C)(iii), 
is Pub. L. 94-455, Oct. 4, 1976, 90 Stat. 1520, as amended, which was 
enacted Oct. 4, 1976. For complete classification of this Act to the 
Code, see Tables.


                               Amendments

    1993--Subsec. (c)(9)(A). Pub. L. 103-66, Sec. 13144(b)(1), inserted 
at end ``For purposes of this paragraph, an interest in a mortgage shall 
in no event be treated as real property.''
    Subsec. (c)(9)(B). Pub. L. 103-66, Sec. 13144(b)(2), struck out at 
end ``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), added 
subpars. (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 1993 Amendment

    Section 13144(c) of Pub. L. 103-66 provided that:
    ``(1) In general.--The amendments made by this section [amending 
this section] shall apply to acquisitions on or after January 1, 1994.
    ``(2) Small leases.--The provisions of section 514(c)(9)(G)(i) of 
the Internal Revenue Code of 1986 shall, in addition to any leases to 
which the provisions apply by reason of paragraph (1), apply to leases 
entered into on or after January 1, 1994.''


                    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 [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 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.''

                  Section Referred to in Other Sections

    This section is referred to in sections 50, 168, 512, 529, 4942 of 
this title.
