Complete Home & Office Legal Guide

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481. Adjustments required by changes in method of accounting. (a) General rule. -- In computing the taxpayer's taxable income for any taxable year (referred to in this section as the "year of the change") -- (1) if such computation is under a method of accounting different from the method under which the taxpayer's taxable income for the preceding taxable year was computed, then (2) there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted, except there shall not be taken into account any adjustment in respect of any taxable year to which this section does not apply unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer. (b) Limitation on tax where adjustments are substantial. -- (1) Three year allocation. -- If -- (A) the method of accounting from which the change is made was used by the taxpayer in computing his taxable income for the 2 taxable years preceding the year of the change, and (B) the increase in taxable income for the year of the change which results solely by reason of the adjustments required by subsection (a) (2) exceeds $3,000, then the tax under this chapter attributable to such increase in taxable income shall not be greater than the aggregate increase in the taxes under this chapter (or under the corresponding provisions of prior revenue laws) which would result if one-third of such increase in taxable income were included in taxable income for the year of the change and one-third of such increase were included for each of the 2 preceding taxable years. (2) Allocation under new method of accounting. -- If -- (A) the increase in taxable income for the year of the change which results solely by reason of the adjustments required by subsection (a)(2) exceeds $3,000, and (B) the taxpayer establishes his taxable income (under the new method of accounting) for one or more taxable years consecutively preceding the taxable year of the change for which the taxpayer in computing taxable income used the method of accounting from which the change is made, then the tax under this chapter attributable to such increase in taxable income shall not be greater than the net increase in the taxes under this chapter (or under the corresponding provisions of prior revenue laws) which would result if the adjustments required by subsection (a)(2) were allocated to the taxable year or years specified in subparagraph (B) to which they are properly allocable under the new method of accounting and the balance of the adjustments required by subsection (a)(2) was allocated to the taxable year of the change. (3) Special rules for computations under paragraphs (1) and (2). -- For purposes of this subsection -- (A) There shall be taken into account the increase or decrease in tax for any taxable year preceding the year of the change to which no adjustment is allocated under paragraph (2) or (2) but which is affected by a net operating loss (as defined in section 172) or by a capital loss carryback or carryover (as defined in section 1212), determined with reference to taxable years with respect to which adjustments under paragraph (1) or (2) are allocated. (B) The increase or decrease in the tax for any taxable year for which an assessment of any deficiency, or a credit or refund of any overpayment, is prevented by any law or rule of law, shall be determined by reference to the tax previously determined (within the meaning of section 1314(a)) for such year. (C) In applying section 7807(b)(1), the provisions of chapter 1 (other than subchapter E, relating to self-employment income) and chapter 2 of the Internal Revenue Code of 1939 shall be treated as the corresponding provisions of the Internal Revenue Code of 1939. (c) Adjustments under regulations. -- In the case of any change described in subsection (a), the taxpayer may, in such manner and subject to such conditions as the Secretary may by regulations prescribe, take the adjustments required by subsection (a)(2) into account in computing the tax imposed by this chapter for the taxable year or years permitted under such regulations. 482. Allocation of income and deductions among taxpayers. In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Secretary may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or businesses. In the case of any transfer (or license) or intangible property (within the meaning of section 936(h)(3)(B)), the income with respect to such transfer or license shall be commensurate with the income attributable to the intangible. 483. Interest on certain deferred payments. (a) Amount constituting interest. -- For purposes of this title, in the case of any payment -- (1) under any contract for the sale or exchange of any property, and (2) to which this section applies, there shall be treated as interest that portion of the total unstated interest under such contract which, as determined in a manner consistent with the method of computing interest under section 1272(a), is properly allocable to such payment. (b) Total unstated interest. -- For purposes of this section, the term "total unstated interest" means, with respect to a contract for the sale or exchange of property, an amount equal to the excess of -- (1) the sum of the payment to which this section applies which are due under the contract, over (2) the sum of the present values of such payments and the present values of any interest payments due under the contract. For purposes of the preceding sentence, the present value of a payment shall be determined under the ruled of section 1274(b)(2) using a discount rate equal to the applicable Federal rate determined under section 1274(d). (c) Payments to which subsection (a) applies. -- (1) In general. -- Except as provided in subsection (d), this section shall apply to any payment on account of the sale or exchange of property which constitutes part or all of the sales price and which is due more than 6 months after the date of such sale or exchange under a contract -- (A) under which some or all of the payments are due more than 1 year after the date of such sale or exchange, and (B) under which there is total unstated interest. (2) Treatment of other debt instruments. -- For purposes of this section, a debt instrument of the purchaser which is given in consideration for the sale or exchange of property shall not be treated as a payment, and any payment due under such debt instrument shall be treated as due under the contract for the sale or exchange. (3) Debt instrument defined. -- For purposes of this subsection, the term "debt instrument" has the meaning given such term by section 1275(a)(1). (d) Exceptions and limitations. -- (1) Coordination with original issue discount rules. -- This section shall not apply to any debt instrument for which an issue price is determined under section 1273(b) (other than paragraph (4) thereof) or section 1274. (2) Sales prices of $3,000 or less. -- This section shall not apply to any payment on account of the sale or exchange of property if it can be determined at the time of such sale or exchange that the sales price cannot exceed $3,000. (3) Carrying charges. -- In the case of the purchaser, the tax treatment of amounts paid on account of the sale or exchange of property shall be made without regard to this section if any such amounts are treated under section 163(b) as if they included interest. (4) Certain sales of patents. -- In the case of any transfer described in section 1235(a) (relating to sale or exchange of patents), this section shall not apply to any amount contingent on the productivity, use, or disposition of the property transferred. (e) Maximum rate of interest on certain transfers of land between related parties. -- (1) In general. -- In the case of any qualified sale, the discount rate used in determining the total unstated interest rate under subsection (b) shall not exceed 6 percent, compounded semiannually. (2) Qualified sale. -- For purposes of this subsection, the term "qualified sale" means any sale or exchange of land by an individual to a member of such individual's family (within the meaning of section 267(c)(4)). (3) $500,000 limitation. -- Paragraph (1) shall not apply to any qualified sale between individuals made during any calendar year to the extent that the sales price for such sale (when added to the aggregate sales price for prior qualified sales between such individuals during the calendar year) exceeds $500,000. (4) Nonresident alien individuals. -- Paragraph (1) shall not apply to any sale or exchange if any party to such sale or exchange is a nonresident alien individual. (f) Regulations. -- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section including regulations providing for the application of this section in the case of -- (1) any contract for the sale or exchange or property under which the liability for, or the amount or due date of, a payment cannot be determined at the time of the sale or exchange, or (2) any change in the liability for, or the amount or due date of, any payment (including interest) under a contract for the sale or exchange of property. (g) Cross references. -- (1) For treatment of assumptions, see section 1274(c)(4). (2) For special rules for certain transactions where stated principal amount does not exceed $2,800,000, see section 1274A. (3) For special rules in case of the borrower under certain loans for personal use, see section 1275(b). 501. Exemption from tax on corporations, certain trusts, etc. (a) Exemption from taxation. -- An organization described in subsection (c) or (d) or section 401(a) shall be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503. (b) Tax on unrelated business income and certain other activities. -- An organization exempt from taxation under subsection (a) shall be subject to tax to the extent provided in parts II, III, and VI of this subshcpter, but (notwithstanding parts II, III, and VI of this subchapter) shall be considered an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from income taxes. (c) List of exempt organizations. -- The following organizations are referred to in subsection (a): (1) Any corporation organized under Act of Congress which is an instrumentality of the United States but only if such corporation -- (A) is exempt from Federal income taxes -- (i) under such Act as amended and supplemented before July 18, 1984, or (ii) under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act, or (B) is described in subsection (l). (2) Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt under this section. (3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. (4) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations, of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net eranings of which are devoted exclusively to charitable, educational, or recreational purposes. (5) Labor, agricultural, or horticultural organizations. (6) Business leagues, chambers of commerce, real-estate boards, boards of trade, or progessional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual earnings of which inures to the benefit of any private shreholder or individual. (7) Clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder. (8) Fraternal beneficiary societies, orders, or associations -- (A) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and (B) providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents. (9) Voluntary employees' beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents or designated beneficiaries, if no part of the net earnings of such association inures (other than through such payments) to the benefit of any private shareholder or individual. (10) Domestic fraternal societies, orders, or associations, operating under the lodge system -- (A) the net earnings of which are devoted exclusively to religious, charitable, scientific, literary, educationsl, and fraternal purposes, and (B) which do not provide for the payment of life, sick, accident, or other benefits. (11) Teachers' retirement fund associations of a purely local character, if -- (A) no part of their net earnings inures (other than through payment of retirement benefits) to the benefit of any private shareholder or individual, and (B) the income consists solely of amounts received from public taxation, amounts received from assessments on the teaching salaries of members, and income in respect of investments. (12)(A) Benevolent life insurance associations of a purely local character, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations; but only if 85 percent or more of the income consists of amounts collected from members for the sole purpose of meeting losses and expenses. (B) In the case of a mutual or cooperative telephone company, subparagraph (A) shall be applied without taking into account any income received or accrued -- (i) from a nonmember telephone company for the performance of communication serviceswhich involve members of the mutual or cooperative telephone company, (ii) from qualified pole rentals, (iii) from the sale of display listings in a directory furnished to the members of the mutual or cooperative telephone company, or (iv) from the prepayment of a loan under section 306A, 306B, or 311 of the Rural Electrification Act of 1936 (as in effect on January 1, 1987). (C) In the case of a mutual or cooperative electric company, subparagraph (A) shall be applied without taking into account any income received or accrued -- (i) from qualified pole rentals, or (ii) from the prepayment of a loan under section 306A, 306B, or 311 of the Rural Electrification Act of 1036 (as in effect on January 1, 1987). (D) For purposes of this paragraph, the term "qualified pole rental" means any rental of a pole (or other structure used to support wires) if such pole (or other structure) -- (i) is used by the telephone or electric company to support one or more wires which are used by such company in providing telephone or electric services to its members, and (ii) is used pursuant to the rental to support one or more wires in addition to the wires described in clause (i)) for use in connection with the transmission by wire of electricity or of telephone or other communications. For purposes of the preceding sentence, the term "rental" includes any sale of the right to use the pole (or other structure). (13) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for the purpose of the disposal of bodies by burial or cremation which is not permitted by its charter to engage in any business not necessarily incident to that purpose and no part of the net earnings of which inures to the benefit of any private shareholder or individual. (14)(A) Credit unions without capital stock organized and operated for mutual purposes and without profit. (B) Corporations or associations without capital stock organized before September 1, 1957, and operated for mutual purposes and without profit for the purpose of providing reserve funds for, and insurance of shares or deposits in -- (i) domestic building and loan associations, (ii) cooperative banks without capital stock organized and operated for mutual purposes and without profit, (iii) mutual savings banks not having capital stock represented by shares, or (iv) mutual savings banks described in section 591(b)1 (C) Corporations or associations organized before September 1, 1957, and operated for mutual purposes and without profit for the purpose of probiding reserve funds for assocations or banks described in clause (i), (ii), or (iii) of subparagraph (B); but only if 85 percent or more of the income is attributable to providing such reserve funds and to investments. This subparagraph shall not apply to any corporation or association entitled to exemption under subparagraph (B). (15)(A) Insurance companies or associations other than life (including interinsurers and reciprocal underwriters) if the net written premiums (or, if greater, direct written premiums) for the taxable year do not exceed $350,000. (B) For purposes of subparagraph (A), in determining whether any company or association is described in subparagraph (A), such company or association shall be treated as receiving during the taxable year amounts described in subparagraph (A) which are received during such year by all other companies or associations which are member of the same controlled group as the insurance company or association for which the determination is being made. (C) For purposes of subparagraph (B), the term "controlled group" has the meaning given such term by section 831(b)(2)(B)(ii). (16) Corporations organized by an association subject to part IV of this subchapter or members thereof, for the purpose of financing the ordinary crop operations of such members or other producers, and operated in conjunction with such associations. Exemption shall not be denied any such corporation because it has capital stock, if the dividend rate of such stock is fixed at not to exceed the legal rate of interest in the State of incorporation or 8 percent per annum, whichever is greater, on the value of the consideration for which the stock was issued, and if substantially all such stock (other than nonvoting preferred stock, the owners of which are not entitled or permitted to participate, directly or indirectly, in the profits of the corporation, on dissolution or otherwise, beyond the eixed dividends) is owned by such association, or members thereof; nor shall exemption be denied any such corporation because there is accumulated and maintained by it a reserve required by State law or a resonable reserve for any necessary purpose. (17)(A) A trust or stusts forming part of a plan providing for the payment of supplemental unemployment compensation benefits, if -- (i) under the plan, it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the plan, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of supplemental unemployment compensation benefits. (ii) such benefits are payable to employees under a classification which is set forth in the plan and which is found by the Secretary not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of section 414(q)), and (iii) such benefits do not discriminate in favot of employees who are highly compensated employees (within the meaning of section 414(q)). A plan shall not be considered discriminatory within the meaning of this clause merely because the benfits received under the plan bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of the employees covered by the plan. (B) In determining whether a plan meets the requirements of subparagraph (A), any benefits provided under any other plan shall not be taken into consideration, except that a plan shall not be considered discriminatory -- (i) merely because the benefits under the plan which are first determined in a nondiscriminatory manner within the meaning of subparagraph (A) are then reduced by any sick, accident, or unemployment compensation benefits received under State or Federal law (or reduced by a portion of such benefits if determined in a nondiscriminatory manner), or (ii) merely because the plan provides only for employees who are not eligible to receive sick, accident, or unemployment compensation benefits under State or Federal law the same benefits (or a portion of such benefits if determined in a nondiscriminatory manner) which such employees would receive under such laws if such employees were eligible for such benefits, or (iii) merely because the plan provides only for employees who are not eligible under another plan (which meets the requirements of subparagraph (A)) of supplemental unemployment compensation benefits provided wholly by the employer the same benefits (or a portion of such benefits if determined in a nondiscriminatory manner) which such employees would receive under such other plan if such employees were eligible under such other plan, but only if the employees eligible under both plans would make a classification which would be nondiscriminatory within the meaning of subparagraph (A). (C) A plan shall be considered to meet the requirements of subparagraph (A) during the whole year of any year of the plan if on one day in each qurter if satisfies such requirements. (D) The term "supplemental unemployment compensation benefits" means only -- (i) benefits which are paid to an employee because of his involuntary separation from the employment of the employer (whether or not such separation is temporary) resulting directly from a reduction in force, the discontinuance of a plant or operation, or other similar conditions, and (ii) sick and accident benefits subordinate to the benefits described in clause (i). (E) Exemption shall not be denied under subsection (a) to any organization entitled to such exemption as an association described in paragraph (9) of this subsection merely because such organization provides for the payment of supplemental unemployment benefits (as defined in subparagraph (D)(i)). (18) A trust or trusts created before June 25, 1959, forming part of a plan providing for the payment of benefits under a pension plan funded only by contributions of employees, if 00 (A) under the plan, it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the plan, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of benefits under the plan, (B) such benefits are payable to employees under a classification which is set forth in the plan and which is found by the Secretary not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of section 414(q)), (C) such benefits do not discriminate in favor of employees who are highly compensated employees (within the mearning of section 414(q)). A plan shall not be considered discriminatory within the meaning of this subparagraph merely because the benefits received under the plan bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of the employees covered by the plan, and (D) in the case of a plan under which an employee may designate certain contributions as deductible -- (i) such contributions do not exceed the amount with respect to which a deduction is allowable under section 219(b)(3), (ii) requirements similar to the requirements of section 401(k)(3)(A)(ii) are met with respect to such elective contributions, (iii) such contributions are treated as elective deferrals for purposes of section 402(g) (other than paragraph (4) thereof), and (iv) the requirements of section 401(a)(30) are met. For purposes of subparagraph (D)(ii), rules similar to the rules of section 401(k)(8) shall apply. For purposes of section 4979, any excess contributions under clause (ii) shall be treated as an excess contribution under a cash or deferred arrangement. (19) A post or organization of past or present members of the Armed Forces of the United States, or an auxiliary unit or society of, or a trust or foundation for, any such post or organization -- (A) organized in the United States or any of its possessions, (B) at least 75 percent of the members of which are past or present members of the Armed Forces of the United States and substantially all of the other members of which are individuals who are cadets or are spouses, widows, or widowers of past or present members of the Armed Forces of the United States or of cadets, and (C) no part of the net earnings of which inures to the benefit of any private shareholder or individual. (20) an2 organization or trust created or organized in the United States, the exclusive function of which is to form part of a qualified group legal services plan or plans, within the meaning of section 120. An organization or trust which receivs contributions because of section 120(c)(5)(C) shall not be prevented from qualifying as an organization described in this paragraph merely because it provides legal services or indemnification against the cost of legal services unassociated with a qualified group legal services plan. (21) A trust or trusts established in writing, created or organized in the United States, and contributed to by any person (except an insurance company) if -- (A) the purpose of such trust or trusts is exclusively -- (i) to satisfy, in whole or in part, the liability of such person for, or with respect to, claims for compensation for disability or death due to pneumoconionsis under Black Lung Acts; (ii) to pay premiums for insurance exclusively covering such liability; and (iii) to pay administrative and other incidental expenses of such trust (including legal, accounting, actuarial, and trustee expenses) in connection with the operation of the trust and the processing of claims against such person under the Black Lung Acts; and (B) no part of the assets of the trust may be used for, or diverted to, any purpose other than -- (i) the purposes described in subparagraph (A), or (ii) investment (but only to the extent that the trustee determines that a portion of the assets is not currently needed for the purposes described in subparagraph (A)) in -- (I) public debt securities of the United States, (II) obligations of a State or local government which are not in default as to principal or interest, or (III) time or demand deposits in a bank (as defined in section 581) or an insured credit union (within the meaning of section 101(6) of the Federal Credit Union Act, 12 U.S.C. 1752(6)) located in the United States, or (iii) payment into the Black Lung Disability Trust Fund established under section 9501, or into the general fund of the United States Treasury (other than in satisfaction of any tax or other civil or criminal liability of the person who established or contributed to the trust). For purposes of this paragraph the term "Black Lung Acts" means part C of title IV of the Federal Mine Safety and Health Act of 1977, and any State law providing compensation for disability or death due to pneumoconionsis. (22) A trust created or organized in the United States and established in writing by the plan sponsors of multiemployer plans if -- (A) the purpose of such trust is exclusively -- (i) to pay any amount described in section 4223(c) or (h) of the Employee Retirement Income Security Act of 1974, and (ii) to pay reasonable and necessary administrative expenses in connection with the establishment and operation of the trust and the processing of claims against the trust, (B) no part of the assets of the trust may be used for, or diverted to, any purpose other than -- (i) the purposes described in subparagraph (A) or (ii) the investment in securities, obligations, or time or demand deposits described in clause (ii) or paragraph (21)(B), (C) such trust meets the requirements of paragraphs (2), (3), and (4) of section 4223(b), 4223(h), or, if applicable, section 4223(c) of the Employee Retirement Income Security Act of 1974, and (D) the trust instrument provides that, on dissolution of the trust, assets of the trust may not be paid other than to plans which have participated in the plan or, in the case of a trust established under section 4223(h) of such Act, to plans with respect to which employers have participated in the fund. (23) Any association organized before 1880 more than 75 percent of the members of which are present or past members of the ARmed Forces and a principal purpose of which is to provide insurance and other benefits to veterans or their dependents. (24) A trust described in section 4049 of the Employee Retirement Income Security Act of 1974 (as in effect on the date of the enactment of the Single-Employer Pension Plan Amendments Act of 1986). (25)(A) Any corporation or trust which -- (i) has no more than 35 shareholders or beneficiaries, (ii) has only 1 class of stock or beneficial interest, and (iii) is organized for the exclusive purposes of -- (I) acquiring real property and holding title to, and collecting income from, such property, and (II) remitting the entire amount of income from such property (less expenses) to 1 or more organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such trust. For purposes of clause (iii), the term "real property" shall include any interest as a tenant in common (or similar interest) and shall not include any indirect interest. (B) A corporation or trust shall be described in subparagraph (A) without regard to whether the corporation or trust is organized by 1 or more organizations described in subparagraph (C). (C) An organization is described in this subparagraph if such organization is -- (i) a qualified pension, profit sharing, or stock bonus plan that meets the requirements of section 401(a), (ii) a governmental plan (within the meaning of section 414(d)), (iii) the United States, any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing, or (iv) any organization described in paragraph (3). (D) A corporation or trust shall in no event be treated as described in subparagraph (A) unless such corporation or trust permites its shareholders or beneficiaries -- (i) to dismiss the corporation's or trust's investment adviser, following reasonable notice, upon a vote of the shareholders or beneficiaries holding a majority of interest in the corporation or trust, and (ii) to terminate their interest in the corporation or trust by either, or both, of the following alternatives, as determined by the corporation or trust: (I) by selling or exchanging their stock in the corporation or interest in the trust (subject to any Federal or State securities law) to any organization described in subparagraph (C) so long as the sale or exchange does not increase the number of shareholders or beneficiaries in such corporation or trust above 35, or (II) by having their stock or interest redeemed by the corporation or trust after the shareholder or beneficiary ha provided 90 days notice to such corporation or trust. (E)(i) For purposes of this title -- (I) a corporation which is a qulified subsidiary shall not be treated as a separate corporation, and (II) all assets, liabilities, and items of income, deduction, and credit of a qualified subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the corporation or trust described in subparagraph (A). (ii) For purposes of this subparagraph, the term "qualified susidiary" means any corporation if, at all times during the period such corporation was in existence, 100 percent of the stock of such corporation is held by the corporation or trust described in subparagraph (A). (iii) For purposes of this subtitle, if any corporation which was a qualified subsidiary ceases to meet the requirements of clause (ii), such corporation shall be treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) immediately before such cessation from the corporation or trust described in subparagraph (A) in exchange for its stock. (F) For purposes of subparagraph (A), the term "real property" includes any personal property which is leased under, or in connection with, a lease of real property, but only if the rent attributable to such personal property (determined under the rules of section 856(d)(1)) for the taxable year does not exceed 15 percent of the total rent for the taxable year attributable to both the real and personal property leased under, or in connection with, such lease. (d) Religious and apostolic organizations. -- The following organizations are referred to in subsection (a): Religious or apostolic associations or corporations, if such associations or corporations have a common treasury or community treasury, even if such associations or corporations engage in business for the common benefit of the members, but only if the members thereof include (at the time of filinng their returns) in their gross income their entire pro rata shares, whether distributed or not, of the taxable income of the association or corporation for such year. Any amount so included in the gross income of a member shall be treated as a dividend received. (e) Cooperative hospital service organizations. -- For purposes of this title, an organization shall be treated as an organization organized and operated exclusively for charitable purposes, if -- (1) such organization is organized and operated solely -- (A) to perform, on a centralizaed basis, one or more of the following services which, if performed on its own behalf by a hospital which is an organization described in subsection (c)(3) and exempt from taxation under subsection (a), would constitute activities in exercising or performing the purpose or function constituting the basis for its exemption: data processing, purchasing, (including the purchasing of insurance on a group basis), warehousing, billing and collection, food, clinical, industrial engineering, laboratory, printing, communications, record center, and personnel (including selection, testing, training, and education of personnel) services; and (B) to perform such services solely for two or more hospitals each of which is -- (i) an organization described in subsection (c)(3) which is exempt from taxation under subsection (a), (ii) a constituent part of an organization described in subsection (c)(3) which is exempt from taxation under subsection (a) and which, if organized and operated as a separate entity, would constitute an organization described in subsection (c)(3), or (iii) owned an operated by the Unites States, a State, the District of Columbia, or a possession of the United States, or a political subdivision or an agency or instrumentality of any of the foregoing; (2) such organization is organized and operated on a cooperative basis and allocates or pays, within 8 1/2 months after the close of its taxable year, all net earnings to patrons on the basis of services performed for them; and (3) if such organization has capital stock, all of such stock outstanding is owned by its patrons. For purposes of this title, any organization which, by reason of the preceding sentence, is an organization described in subsection (c)(3) and exempt from taxation under subsection (a), shall be treated as a hospital and as an organization referred to in section 170(b)(1)(A)(iii). (f) Cooperative service oragnizations of operating educational organizations. -- For purposes of this title, if an organization is -- (1) organized and operated solely to hold, commingle, and collectively invest and reinvest (including arranging for and supervising the performance by independent contractors of investment services related thereto) in stocks and securities, the moneys contributed thereto by each of the members of such organization, and to collect income therefrom and turn over the entire amount thereof, less expenses, to such members, (2) organized and controlled by one or more such members, and (3) comprised solely of members that are organizations described in clause (ii) or (iv) of section 170(b)(1)(A) -- (A) which are exempt from taxation under subsection (a), or (B) the income of which is excluded from taxation under section 115(a), then such organization shall be treated as an organization organized and operated exclusively for charitable purposes. (g) Definition of agricultural. -- For purposes of subsection (c)(5), the term "agricultural" includes the art or science of cultivating land, harvesting crops or aquatic resources, or raising livestock. (h) Expenditures by public charities to incluence legislation. -- (1) General rule. - In the case of an organization to which this subsection applies, exemption from taxation under subsection (a) shall be denied because a substantial part of the activities of such organization consists of carrying on propaganda, or otherwise attempting, to influence legislation, but only if such organization normally -- (A) makes lobbying expenditures in excess of the lobbying ceiling amount for such organization for each taxable year, or (B) makes grass roots expenditures in excess of the grass roots ceiling amount for such organization for each taxable year. (2) Definitions. -- For purposes of this subsection -- (A) Lobbying expenditures. -- The term "lobbying expenditures" means expenditures for the purpose of influencing legislation (as defined in section 4911(d)). (B) Lobbying ceiling amount. -- The lobbying ceiling amount for any organization for any taxable year is 150 percent of the lobbying nontaxable amount for such organization for such taxable year, determined under section 4911. (C) Grass roots expenditures. -- The term "grass roots expenditures" means expenditures for the purpose of influencing legislation (as defined in section 4911(d) without regard to paragraph (1)(B) thereof). (D) Grass roots ceiling amount. -- The grass roots ceiling amount for any organization for any taxable year is 150 percent of the grass roots nontaxable amount for such organization for such taxable year, determined under section 4911. (3) Organizations to which this subsection applies. -- This subsection shall apply to any organization which has elected (in such manner and at such time as the Secretary may prescribe) to have the provisions of this subsection apply to such organization and which, for the taxable year which includes the date the election is made, is described in subsection (c)(3) and -- (A) is described in paragraph (4), and (B) is not a disqualified organization under paragraph (5). (4) Organizations permitted to elect to have this subsection apply. -- An organization is described in this paragraph if it is described in -- (A) section 170(b)(1)(A)(ii) (relating to educational institutions), (B) section 170(b)(1)(A)(iii) (relating to hospitals and medical research organizations), (C) section 170(b)(1)(A)(iv) (relating to organizations supporting government schools), (D) section 170(b)(1)(A)(vi) (relating to organizations publicly supported by charitable contributions), (E) section 509(a)(2) (relating to organizations publicly supported by admissions, sales, etc.), or (F) section 509(a)(3) (relating to organizations supporting certain types of public charities) except that for purposes of this subparagraph, section 509(a)(3) shall be applied without regard to the last sentence of section 509(a). (5) Disqualified organizations. -- For purposes of paragraph (3) an organization is a disqualified organization if it is -- (A) described in section 170(b)(1)(A)(i) (relating to churches), (B) an integrated auxiliary of a church or of a convention or association of churches, or (C) a member of an affiliated group of organizations (within the meaning of section 4911(f) (2)) if one or more members of such group is described in subparagraph (A) or (B). (6) Years for which election is effective. -- An election by an organization under this subsection shall be effective for all taxable years of such organization which -- (A) end after the date the election is made, and (B) begin before the date the election is revoked by such organization (under regulations prescribed by the Secretary), (7) No effect on certain organizations. -- With respect to any organization for a taxable year for which -- (A) such organization is a disqualified organization (within the meaning of paragraph (5)), or (B) an election under this subsection is not in effect for such organization, nothing in this subsection or in section 4911 shall be construed to affect the interpretation of the phrase, "no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation," under subsection (c)(3). (8) Affiliated organizations. -- For rules regarding affiliated organizations, see section 4911(f). (i) Prohibition of discrimination by certain social clubs. -- Notwithstanding subsection (a), an organization which is described in subsection (c)(7) shall not be exempt from taxation under subsection (a) for any taxable year if, at any time during such taxable year, the charter, bylaws, or other governing instrument, of such organization or any written policy statement of such organization contains a provision which provides for discrimination against any person on the basis of race, color, or religion. The preceding sentence to the extent it relates to discrimination on the basis of religion shall not apply to -- (1) an auxiliary of a fraternal beneficiary society if such society -- (A) is described in subsection (c)(8) and exempt from tax under subsection (a), and (B) limits its membership to the members of a particular religion, or (2) a club which in good faith limits its membership to the members of a particular religion in order to further the teachings or principles of that religion, and not to exclude individuals of a particular race or color. (j) Special rules for certain amateur sports organizations. -- (1) In general. -- In the case of a qualified amateur sports organization -- (A) the requirement of subsection (c)(3) that no part of its activities involve the provision of athletic facilities or equipment shall not apply, and (B) such organization shall not fail to meet the requirements of subsection (c)(3) merely because its membership is local or regional in nature. (2) Qualified amateur sports organization defined. -- For purposes of this subsection, the term "qualified amateur sports organization" means any organization organized and operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports. (k) Treatment of certain organizations providing child care. -- For purposes of subsection (c)(3) of this section and sections 170(c)(2), 2055(a)(2), and 2522(a)(2), the term "educational purposes" includes the providing of care of children away from their homes if -- (1) substantially all of the care provided by the organization is for purposes of enabling individuals to be gainfully employed, and (2) the services provided by the organization are available to the general public. (1) Government corporations exempt under subsection (c)(1). -- For the purposes of subsection (c)(1), the following organizations are described in this subsection: (The Central Liquidity Facility established under title III of the Federal Credit Union Act (12 U.S.C. 1795 et seq.). (2) The Resolution Trust Corporation established under section 21A of the Federal Home Loan Bank Act. (3) The Resolution Funding Corporation established under section 21B of the Federal Home Loan Bank Act. (m) Certain organizations providing commercial-type insurance not exempt from tax. -- (1) Denial of tax exemption where providing commercial-type insurance not exempt from tax. -- An organization described in paragraph (3) or (4) of subsection (c) shall be exempt from tax under subsection (a) only if no substantial part of its activities consists of providing commercial-type insurance. (2) Other organizations taxed as insurance companies on insurance business. -- In the case of an organization described in paragraph (3) or (4) of subsection (c) which is exempt from tax uder subsection (a) after the application of paragraph (1) of this subsection -- (A) the activity of providing commercial-type insurance shall be treated as an unrelated trade or business (as defined in section 513), and (B) in lieu of the tax imposed by section 511 with respect to such activity, such organization shall be treated as an insurance company for purposes of applying subchapter L with respect to such activity. (3) Commercial-type insurance. -- For purposes of this subsection, the term "commercial-type insurance" shall not include -- (A) insurance provided at substantially below cost to a class of charitable recipients, (B) incidental health insurance provided by a health maintenance organization of a kind customarily provided by such organizations, (C) property or casualty insruance provded (directly or through an oragnization described in section 414(e)(3)(B)(ii)) by a church or convention or association of churches for such church or convention or association of churches, (D) providing retirement or welfare benefits (or both) by a church or a convention or association of churches (directly or through an organization described in section 414(e)(3)(AA) or 414(e)(3)(B)(ii)) for the employees (including employees described in section 414(e)(3)(B)) of such church or convention or association of churches or the beneficiaries of such employees, and (E) charitable gift annuities. (4) Insurance includes annuities. -- For purposes of this subsection, the issuance of annuity contracts shall be treated as providing insurance. (5) Charitable gift annuity. -- For purposes of paragraph (3)(E), the term "charitable gift annuity" means an annuity if -- (A) a portion of the amount paid in connection with the issuance of the annuity is allowable as a deduction under section 170 or 2055, and (B) the annuity is described in section 514(c)(5) (determined as if any amount paid in cash in connection with such issuance were property).