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Ante, p. 527.

Anfe, p. 502,

!

,

Ante, p. 527. Post,

p. 558.

Ante, p. 528.

Post,

p. 553.

68A Stat. 85 26 USC 302.

[83 STAT.

was not at the time of such execution a prohibited transaction (within the meaning of section 503(b) or the corresponding provisions of prior law); (D) the use of goods, services, or facilities which are shared by a private foundation and a disqualified person until taxable years beginning after December 31, 1979, if such use is pursuant to an arrangement in effect before October 9, 1969, and such arrangement was not a prohibited transaction (within YiQ, meaning of section 503(b) or the corresponding provisions of prior law) at the time it was made and would not be a prohibited transaction if such section continued to apply; and (E) the use of property in which a private foundation and a disqualified person have a joint or common interest, if the interests of both in such property were acquired before October 9, 1969. ^g^ SECTION 4 942.—In the case of organizations organized before May 27, 1969, section 4942 shall— (A) for all purposes other than the determination of the minimum investment return under section 4942(j)(3)(B) (ii), for taxable years beginning before January 1, 1972, apply without regard to section 4942(e) (relating to minimum investment return), and for taxable years beginning in 1972, 1973, and 1974, apply with an applicable percentage (as prescribed in section 4942(e)(3)) which does not exceed \y2 percent, 5 percent, and 51/^ percent, respectively; (B) not apply to an organization to the extent its income is required to be accumulated pursuant to the mandatory terms (as in effect on May 26, 1969, and at all times thereafter) of an instrument executed before May 27, 1969, with respect to the transfer of income producing property to such organization, except that section 4942 shall apply to such organization if the organization would have been denied exemption if section 504(a) had not been repealed by this Act, or would have had its deductions under section 642(c) limited if section 681(c) had uot been repealed by this Act. In applying the preceding sentence, in addition to the limitations contained m section 504(a) or 681(c) before its repeal, section 504(a)(1) or 681(c)(1) shall be treated as not applying to an organization to the extent its income is required to be accumulated pursuant to the mandatory terms (as in effect on January 1, 1951, and at all times thereafter) of an instrument executed before January 1, 1951, with respect to the transfer of income producing property to such organization before such date, if such transfer was irrevocable on such date; (C) apply to a grant to a private foundation described in section 4942(g)(1)(A) (ii) which is not described in section 4942(g)(1)(A)(i), pursuant to a written commitment which was binding on May 26, 1969, and at all times thereafter, as if such grant is a grant to an operating foundation (as defined in section 4942(]) (3)), if sudi grant is made for one or more of the purposes described in section 170(c)(2)(B) and is to be paid out to such private foundation on or before December 31, 1974; (D) apply, for purposes of section 4942(f), in such a manner as to treat any distribution made to a private foundation in redemption of stock held by such private foundation in a business enterprise as not essentially equivalent to a dividend under section 302(b)(1) if such redemption is described in paragraph (2)(B) of this subsection; and

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(E) not apply to an organization which is prohibited by its governing instrument or other instrument from distributing capital or corpus to the extent the requirements of section 4942 are inconsistent with such prohibition. ^"'®' p- 502. With respect to taxable years beginning after December 31, 1971, subparagraphs (B) and (E) shall apply only during the pendency of any judicial proceeding by the private foundation which is necessary to reform, or to excuse such foundation from compliance with, its governing instrument or any other instrument (as in effect on May 26, 1969) in order to comply with the provisions of section 4942, and in the case of subparagraph (B) for all periods after the termination of such judicial proceeding during which the governing instrument or any other instrument does not permit compliance with such provisions. (4) S E C T I O N 4943.—

(A) I n the case of a private foundation— (i) which was incorporated before January 1, 1951; (ii) substantially all of the assets of which on May 26, 1969, consist of more than 90 percent of the stock of an incorporated business enterprise which is licensed and regulated, the sales or contracts of which are regulated, and the professional representatives of which are licensed, by State regulatory agencies in at least 10 States; and (iii) which acquired such stock solely by gift, devise, or bequest, section 4943(c)(4)(A)(i) shall be applied with respect to the ^"f^, p. 507. holdings of such foundation in such incorporated business enterprise by substituting "51 percent" for "50 percent", and section 4943(c)(4)(D) shall not apply with respect to such holdings. For purposes of the preceding sentence, stock of such enterprise in a trust created before May 27, 1969, of which the foundation is the remainder beneficiary shall be deemed to be held by such foundation on May 26, 1969, if such foundation held (without regard to such trust) more than 20 percent of the stock of such enterprise on May 26, 1969. (B) Subparagraph (A) shall apply to a private foundation only if— (i) the foundation does not purchase any stock or other interest in the enterprise described in subparagraph (A) after May 26, 1969, and does not acquire any stock or other interest in any other business enterprise which constitutes excess business holdings under section 4943; and (ii) in the last 5 taxable years ending on or before December 31, 1970, the foundation expends substantially all of its adjusted net income (as defined in section 4942(f)) for the purpose or function for which it is organized and operated. (C) For purposes of section 4943(c)(6), the term "purchase" does not include an exchange which is described in paragraph (2)(B) of this subsection and which is pursuant to a plan for disposition of excess business holdings. (5) SECTION 4945.—Section 4945(d)(4) and (h) shall not apply to a grant which is described in paragraph (3)(C) of this subsection. (6) SECTION 508(e).—Section 508(e) shall not apply to require ^"'«» P- '^94. inclusion in governing instruments of any provisions inconsistent with this subsection.

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 536 Ante. p. 496.

68A Stat. 163.

Anee. pp.498,

PUBLIC LAW 91-172-DEC. 30, 1969

[83 STAT.

^'j'^ SECTiOiSr 509 (a).—III the case of any trust created under the terms of a will or a codicil to a will executed on or before March 30, 1924, by which the testator bequeathed all of the outstanding common stock of a corporation in trust, the income of which trust is to be used principally for the benefit of those from time to time employed by the corporation and their families, the trustees of which trust are elected or selected from among the employees of such corporation, and which trust does not own directly any stock in any other corporation, if the trust makes an irrevocable election under this paragraph within one year after the date of the enactment of this Act, such trust shall be treated as not being a private foundation for purposes of the Internal Revenue Code of 1954 but shall be treated for purposes of such Code as if it were not exempt from tax under section 501(a) for any taxable year beginning after the date of the enactment of this Act and before the date (if any) on which such trust has complied with the requirements of section 507 for termination of the status of an organization as a private foundation. (8) CERTAIN" REDEMPTIONS.—For purposes of applying section 302(b)(1) to the determination of the amount of gross investment incomc under sections 4940 and 4948(a), any distribution made to a private foundation in redemption of stock held by such private foundation in a business enterprise shall be treated as not essentially equivalent to a dividend, if such redemption is described in paragraph (2)(B) of this subsection. Subtitle B—Other Tax Exempt Organizations SEC. 121. TAX ON UNRELATED BUSINESS INCOME. (a) ORGANIZATIONS SUBJECT TO T A X. —

^68A Stat. 169; °26'us'c 511.

(1) CORPORATE RATES.—Section 511(a)(2)(A) (relating to certain organizations subject to tax on unrelated business income at corporate rates) is amended to read as follows: " (A) ORGANIZATIONS DESCRIBED I N SECTIONS 401(a) AND 501(c).—The taxes imposed by paragraph (1) shall apply in the case of any organization (other than a trust described in subsection (b) or an 9rganization described in section 501 (c)(1)) which is exempt, except as provided in this part or part II (relating to private foundations), from taxation under this subtitle by reason of section 501(a)." (2) INDIVIDUAL RATES.—Section 511(b)(2) (relating to charitable, etc., trusts subject to tax on unrelated business income) is amended to read as follows: "(2)

CHARITABLE, ETC., TRUSTS SUBJECT TO TAX.—The

tax

imposed by paragraph (1) shall apply in the case of any trust which is exempt, except as provided in this part or part II (relating to private foundations), from taxation under this subtitle by reason of section 501(a) and which, if it were not for such exemption, would be subject to subchapter J (sec. 641 and following, relating to estates, trusts, beneficiaries, and decedents)." (3) SECTION" 501(c)(2) CORPORATIONS.—Section 511 (relating

to tax on unrelated business income) is amended by striking out subsection (c) and inserting in lieu thereof the following new subsection: "(c)

SPECIAL RULE FOR SECTION 5 0 1 (C)(2)

CORPORATIONS.—If a

corporation described in section 501(c)(2) — "(1) pays any amount of its net income for a taxable year to an organization exempt from taxation under section 501(a) (or

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PUBLIC LAW 91-172-DEC. 30, 1969

which would pay such an amount but for the fact that the expenses of collecting its income exceed its income), and " (2) such corporation and such organization file a consolidated return for the taxable year, such corporation shall be treated, for purposes of the tax imposed by subsection (a), as being organized and operated for the same purposes as such organization, in addition to the purposes described in section 501(c)(2).'' ^ ^ (4) CONFORMING AMENDMENT.—Section 1504 (relating to definitions for purposes of consolidated returns) is amended by adding at the end thereof the following new subsection: "(e) INCLUDIBLE TAX-EXEMPT ORGANIZATIONS.—Despite the provisions of paragraph (1) of subsection (b), two or more organizations exempt from taxation under section 501, one or more of which is described in section 501(c)(2) and the others of which derive income from such 501(c)(2) organizations, shall be considered as includible corporations for the purpose of the application of subsection (a) to such organizations alone." (b)

537

'ruicy"-

DEFINITION OP UNRELATED BUSINESS TAXABLE INCOME.—

(1) IN GENERAL.—Section 512(a) (relating to definition of unrelated business taxable income) is amended to read as follows: " (a) DEFINITION.—For purposes of this title— " (1) GENERAL RULE.—Except as otherwise provided in this subsection, the term 'unrelated business taxable income' means the gross income derived by any organization from any unrelated trade or business (as defined in section 513) regularly carried on by it, less the deductions allowed by this chapter which are directly connected with the carrying on of such trade or business, both computed with the modifications provided in subsection (b). "(2) SPECIAL RULE FOR FOREIGN ORGANIZATIONS.—In the case of an organization described in section 511 which is a foreign organization, the unrelated business taxable income shall be— " (A) its unrelated business taxable income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, plus " (B) its unrelated business taxable income which is effectively connected with the conduct of a trade or business within the United States. "(3)

^°®'' P- •'^^^

'^"^^' ^' ''^^'

SPECIAL RULES APPLICABLE TO ORGANIZATIONS DESCRIBED I N

S E C T I O N 5 0 1 (C)(7) OR (9).

" (A) GENERAL RULE.—In the case of an organization described in section 501(c)(7) or (9), the term 'unrelated business taxable income' means the gross income (excluding any exempt function income), less the deductions allowed by this chapter which are directly connected with the production of the gross income (excluding exempt function income), both computed with the modifications provided in paragraphs (6), (10), (11), and (12) of subsection (b). " (B) EXEMPT FUNCTION INCOME.—For purposes of subparagraph (A), the term 'exempt function income' means the gross income from dues, fees, charges, or similar amounts paid by members of the organization as consideration for providing such members or their dependents or guests goods, facilities, or services in furtherance of the purposes constituting the basis for the exemption of the organization.to which such income is paid. Such term also means all income (other than an amount equal to the gross income derived from any unrelated trade or business regularly carried on by such

Po^t, p. 541.

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Post. p. 554. Post, p. 541.

PUBLIC LAW 91-172-DEC. 30, 1969

[83 STAT.

organization computed as if the organization were subject to paragraph (1)), which is set aside— «(i) fQj. a purpose specified in section 170(c)(4), or "(ii) in the case of an organization described in sec^JQjj 501(c)(9), to provide for the payment of life, sick, accident, or other benefits, including; reasonable costs of administration directly connected with a purpose described in clause (i) or (ii). If during the taxable year, an amount which is attributable to income so set aside is used for a purpose other than that described in clause (i) or (ii), such amount shall be included, under subparagraph (A), in unrelated business taxable income for the taxable year. " (C) APPLICABILITY TO CERTAIN CORPORATIONS DESCRIBED IN SECTION 5 0 1 (C)(2).—In the case of a corporation described

26 USC°*" ^1^'

^^ section 501(c)(2), the income of which is payable to an organization described in section 501(c)(7) or (9), subparagraph (A) shall apply as if such corporation were the organization to which the income is pa;7able. For purposes of the preceding sentence, such corporation shall be treated as having exempt function income for a taxable year only if it files a consolidated return with such organization for such year. " (D) NONRECOGNITION or GAIN.—If property used directly in the performance of the exempt function of an organization described in section 501(c)(7) or (9) is sold by such organization, and within a period beginning 1 year before the date of such sale, and ending 3 years after such date, other property is purchased and used by such organization directly in the performance of its exempt function, gain (if any) from such sale shall be recognized only to the extent that such organization's sales price of the old property exceeds the organization's cost of purchasing the other property. For purposes of this subparagraph, the destruction in whole or in part, theft, seizure, requisition, or condemnation of property, shall be treated as the sale of such property, and rules similar to the rules provided by subsections (b), (c), (e), and (j) of section 1034 shall apply." (2) MODIFICATIONS.— (A) RENTS AND DEBT-FINANCED PROPERTY,—Section 512

78ltSr*35!°^^'

(b)(3) (relating to modifications with respect to rents from real property) and section 512(b)(4) (relating to modifications with respect to business leases) are amended to read as follows: " (3) I n the case of rents— " (A) Except as provided in subparagraph (B), there shall be excluded— " (i) all rents from real property (including property described in section 1245(a)(3)(C)), and "(ii) all rents from personal property (including for purposes of this paragraph as personal property any property described in section 1 2 4 5 (a)(3)(B)) leased with such real property, if the rents attributable to such personal property are an incidental amount of the total rents received or accrued under the lease, determined at the time the personal property is placed in service. " (B) Subparagraph (A) shall not apply—

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PUBLIC LAW 91-172-DEC. 30, 1969

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" (i) if more than 50 percent of the total rent received or accrued under the lease is attributable to personal property described in subparagraph (A) (ii), or " (ii) if the determination of the amount of such rent depends in whole or in part on the income or profits derived by any person from the property leased (other than an amount based on a fixed percentage or percentages of receipts or sales). " (C) There shall be excluded all deductions directly connected with rents excluded under subparagraph (A). "(4) Notwithstanding paragraph (1), (2), (3), or (5), in the case of debt-financed property (as defined m section 514) there Post, p. 543. shall be included, as an item of gross income derived from an unrelated trade or business, the amount ascertained under section 514(a)(1), and there shall be allowed, as a deduction, the amount ascertained under section 514(a)(2)." (B) L I M I T ON SPECIFIC DEDUCTION.—Section 512(b) (12) esAstat. 171. (relating to allowance of specific deduction) is amended to read as follows: " (12) Except for purposes of computing the net operating loss under section 172 and paragraph (6), there shall be allowed a ^°«^ P- 619. specific deduction of $1,000. I n the case of a diocese, province of a religious order, or a convention or association of churches, there shall also be allowed, with respect to each parish, individual church, district, or other local unit, a specific deduction equal to the lower of— " (A) $1,000,or " (B) the gross income derived from any unrelated trade or business regularly carried on by such local unit." (C) SPECIAL RULES FOR CERTAIN ORGANIZATIONS.—Section

512(b) (relating to modifications in determining unrelated business taxable income) is further amended by adding at the end thereof the following: "(15) Notwithstanding paragraphs (1), (2), or (3), amounts of interest, annuities, royalties, and rents derived from any organization (in this paragraph called the 'controlled organization') of which the organization deriving such amounts (in this paragraph called the 'controlling organization') has control (as defined in section 368(c)) shall be included as an item of gross income (whether or not the activity from which such amounts are derived represents a trade or business or is regularly carried on) in an amount which bears the same ratio as— " (A)(i) in the case of a controlled organization which is not exempt from taxation under section 501(a), the excess of the amount of taxable income of the controlled organization over the amount of such organization's taxable income which if derived directly by the controlling organization would not be unrelated business taxable income, or "(ii) in the case of a controlled organization which is exempt from taxation under section 501(a), the amount of unrelated business taxable income of the controlled organization, bears to " (B) the taxable income of the controlled organization (determined in the case of a controlled organization to which subparagraph (A) (ii) applies as if it were not an organization exempt from taxation under section 501(a)), but not less than the amount determined in clause (i) or (ii), as the case may be, of subparagraph (A),

je^scT^aes^^

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26 USC r\'5l^"

PUBLIC LAW 91-172-DEC. 30, 1969

[83 STAT.

both amounts computed without regard to amounts paid directly or indirectly to the controlling organization. There shall be allowed all deductions directly connected with amounts included in gross income under the preceding sentence. "(16) Except as provided in paragraph (4), in the case of a church, or convention or association of churches, for taxable years beginning before January 1, 1976, there shall be excluded all gross income derived from a trade or business and all deductions directly connected with the carrying on of such trade or business if such trade or business was carried on by such organization or its predecessor before May 27, 1969. "(17) Except as provided in paragraph (4), in the case of a trade or business— " (A) which consists of providing services under license issued by a Federal regulatory agency, " (B) which is carried on by a religious order or by an educational institution (as defined in section 151(e)(4)) maintained b}'^ such religious order, and which was so carried on before May 27, 1959, and " (C) less than 10 percent of the net income of which for each taxable year is used for activities which are not related to the purpose constituting the basis for the religious order's exemption, there shall be excluded all gross income derived from such trade or business and all deductions directly connected with the carrying on of such trade or business, so long as it is established to the satisfaction of the Secretary or his delegate that the rates or other charges for such services are competitive with rates or other charges charged for similar services by persons not exempt from taxation." (D) TECHNICAL AMENDMENT.—Section 512(b) (relating to exceptions, additions, and limitations in determining unrelated business taxable income) is amended by striking out so much thereof as precedes paragraph (1) and inserting in lieu thereof the following: "(b) MODIFICATIONS.—The modifications referred to in subsection (a) are the following:" (3) RELATED AMENDMENT.—

68A Stat. 76;

( ^) Part IX of Subchapter B of chapter 1 (relating to items not deductible) is amended by adding at the end thereof the following new section: "SEC. 277. DEDUCTIONS INCURRED BY CERTAIN MEMBERSHIP ORGANIZATIONS IN TRANSACTIONS WITH MEMBERS. "(a) GENERAL RULE. — I n the case of a social club or other membership organization which is operated primarily to furnish services or goods to members and which is not exempt from taxation, deductions for the taxable year attributable to furnishing services, insurance, goods, or other items of value to members shall be allowed only to the C'.xtent of income derived during such year from members or transactions with members (including income derived during such year from institutes and trade shows which are primarily for the education of members). If for any taxable year such deductions exceed such income, the excess shall be treated as a deduction attributable to furnishing services, insurance, goods, or other items of value to members paid or incurred in the succeeding taxable year. "(b) EXCEPTIONS.—Subsection (a) shall not apply to any organization— "(1) which for the taxable year is subject to taxation under subchapter H or L,

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PUBLIC LAW 91-172-DEC. 30, 1969

"(2) which has made an election before October 9, 1969, under section 456(c) or which is affiliated with such an organization, or " (3) which for each day of any taxable year is a national securities exchange subject to regulation under the Securities Exchange Act of 1934 or a contract market subject to regulation under the Conmiodity Exchange Act." (B) The table of sections for part IX of subchapter B of chapter 1 is amended by adding at the end thereof the following: "Sec. 277. Deductions incurred by certain membership organizations in transactions with members." (4) LOCAL EMPLOYEE ASSOCIATION.—Section 513(a)(2) (relating to exception to definition of unrelated trade or business) is amended by striking out "employees; or" and inserting in lieu thereof the following: "employees, or, in the case of a local association of employees described in section 501(c)(4) organized before May 27, 1969, which is the selling by the organization of items of work-related clothes and equipment and items normallj^ sold through vending machines, through food dispensing facilities, or by snack bars, for the convenience of its members at their usual places of employment; or".

541

75 Stat. 222. 26 USC 456.

^s sta^. SM 42 Stat. 998 7 USC i.

68A Stat. 172.

(5) VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS AND CERTAIN FRATERNAL SOCIETIES.

(A) IN GENERAL.—Section 501(c) (relating to list of 26 USC soi. exempt organizations) is amended by striking out paragraphs (9) and (10) and inserting in lieu thereof the following: "(9) Voluntary employees' Deneficiary 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, educational, and fraternal purposes, and " (B) which do not provide for the payment of life, sick, accident, or other benefits." (B) CONFORMING AMENDMENTS.—Section 801(b)(2) (re- ^3 Stat. 112. lating to life insurance reserves) is amended— (i) by inserting "and" at the end of subparagraph (ii) by striking out subparagraph (B), and (iii) by redesignating subparagraph (C) as (B). Section 810 (relating to rules for certain reserves) is amended by striking out subsection (e). (6) CERTAIN FUNDED PENSION TRUSTS.— (A) EXEMPTION FROM TAXATION.—Section

501(c) (relating to list of exempt organizations) is amended by adding at the end thereof the following new paragraph: "(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— " (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

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PUBLIC LAW 91-172--DEC. 30, 1969

[83 STAT.

(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 or his delegate not to be discriminatory in favor of employees who are officers, shareholders, persons whose principal duties consist of supervising the work of other employees, or highly compensated employees, and " (C) such benefits do not discriminate in favor of employees who are officers, shareholders, persons whose principal duties consist of supervising the work of other employees, or highly compensated employees. 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." (B) CONFORMING AMENDMENTS.—

Ante, p. 527. Ante. p. 541.

ll%s^c^502^

Ante, pp. 538,

(i) Section 503(a)(1) (as amended by section lOl(j) (Y) of this Act) is amended by inserting after subparagraph (B) thereof the following new paragraph: n(^Q-^ ^ j ^ Organization described in section 501(c) (18) shall not be exempt from taxation under section 501(a) if it has engaged in a prohibited transaction after December 31, 1969." (ii) Section 503 (as so amended) is amended by striking out "(c) ( I T) " each place it appears therein and inserting in lieu thereof "(c) (17) or (18)". (7) SPECIAL RULES FOR FEEDER ORGANIZATIONS.—Section 502

(relating to feeder organizations) is amended to read as follows: "SEC. 502. FEEDER ORGANIZATIONS. "(a) GENERAL RULE.—An organization operated for the primary purpose of carrying on a trade or business for profit shall not be exempt from taxation under section 501 on the ground that all of its profits are payable to one or more organizations exempt from taxation under section 501. "(b) SPECIAL RULE. — For purposes of this section, the term "trade or business" shall not include— "(1) the deriving of rents which would be excluded under secI{QYI 512(b)(3), if section 512 applied to the organization, "(2) any trade or business in which substantially all the work in carrying on such trade or business is performed for the organization without compensation, or "(3) any trade or business which is the selling of merchandise, substantially all of which has been received by the organization as gifts or contributions." (c) ACTIVITIES INCLUDED AS UNRELATED TRADE OR BUSINESS,—

68A Stat. 172.

Section 513 (relating to unrelated trade or business) is amended by striking out subsection (c) and inserting in lieu thereof the following new subsection: "(c) ADVERTISING, ETC., ACTIVITIES.—For purposes of this section, the term 'trade or business' includes any activity which is carried on for the production of income from the sale of goods or the performance of services. For purposes of the preceding sentence, an activity does not lose identity as a trade or business merely because it is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may, or may notj be related to the exempt purposes of the organization. Where an activity carried on for

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profit constitutes an unrelated trade or business, no part of such trade or business shall be excluded from such classification merely because it does not result in profit." (d) UNRELATED DEBT-FINANCED INCOME.—

(1) IN GENERAL.—Section 514 (relating to business leases) is amended by striking out so much thereof as precedes subsection (b) and inserting in lieu thereof the following: "SEC. 514. UNRELATED DEBT-FINANCED INCOME. "(a)

26'^us'c*5i4^^'

L'NRELATED DEBT-FINANCED INCOME AND DEDUCTIONS.—In

computing under section 512 the unrelated business taxable income for 53"^"'*' ^^- ^^^' 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 or his delegate) 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 'debtfinanced 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),totheexerciseorperformanceof 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;

Post, pp. 638, 639, 642.

Post,

p. 649.

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68A Stat. 170. 26 USC 512.

Ante,

p. 541.

[83 STAT.

" (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) m 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 W I T H I N 10 Y E A R S.

" (A) NEIGHBORHOOD LAND.—If an organization acquires

real property for the principal purpose of usin^ 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 neignborhood 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 or his delegate that it is reasonably certain that the land will be used in the described manner before the expiration of the 10year 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 or his delegate that it is reasonably certain that the land will be used in the manner described in paragraph (1)(A) before the expiration of the 10-year period, but the land is converted to such use by the organization within the 10-year period, the real property (subject to the provisions of subparagraph (D)) shall not be treated as debtfinanced property for any period before such conversion. For

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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 subsection (f)). "(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 26 USC^*? m-* to closing agreements and compromises), credit or refund of 7123. 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. Interest on any overpayment for a taxable year resulting from the application of subparagraph (B) after the actual use condition is satisfied shall be allowed and paid at the rate of 4 percent per annum in lieu of 6 percent per annum. " (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. ((•)

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

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162 ," for he feared that if his companion used any of his odd expressions he might be recognized, since our hero had not had time to read the article in the paper through, and was not sure whether or not a description of himself, Mr. Damon and Mr. Sharp was given.

"Well, Ah suah wish I could collect thet reward," went on the girl. "Everybody is on th' lookout. Yo' all ain't see th' airship; have yo' all?"

"Where can we get a paper like this?" asked Tom, again, not wanting to answer such a leading question.

"Why, yo' all is suah welcome to that one," was the reply. "Ah guess Ah can affo'd to give it to yo' all, after th' generous way yo' all behaved to me. Take it, an' welcome. But are yo' all suah yo' are done eatin'? Yo' all left lots."

"Oh, we had enough," replied Tom hurriedly. His sole aim now was to get away—to consult with Mr. Sharp, and he needed the paper to learn further details of the astonishing news. He and his friends accused of looting the bank, and taking away seventy-five thousand dollars in the airship! It was incredible! A reward of five thousand dollars offered for their capture! They might be arrested any minute, yet they could not

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[83 STAT.

and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition or improvement, except that in the case of any taxable year beginning before January 1, 1972, any indebtedness incurred before June 28, 1966, shall not be taken into account. I n the case of an organization (other than a church or convention or association of churches) such indebtedness incurred before June 28, 1966, shall be taken into account if such indebtedness constitutes business lease indebtedness (as defined in subsection (g)). "(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. "(3) Exi-ENSioN 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)

80 Stat. 4. 26 USC 501.

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

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"(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 terai '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 or his delegate, 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. " (d) BASIS or DEBT-FINANCED PROPERTY ACQUIRED I N 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), o r (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 or his 4elegate to the extent proper to carry out the purposes of this section." (2) RELATED AMENDMENTS.— 76 (A) Section 48(a)(4) (relating to definition of section 38 26 Stat. 967. u s e 48. property) is amended by adding at the end thereof the following new sentence: "If the property is debt-financed property (as defined in section 514(c)), the basis or cost of such ^o®'- p- 543. property for purposes of computing qualified investment under section 46(c) shall include only that percentage of 76 Stat. 963. the basis or cost which is the same percentage as is used under section 514(b), for the year the property is placed in service, in computing the amount of gross income to be taken into account during such taxable year with respect to such property." (B) The second sentence of section 681(a) (relating to ^^^ Stat. 232. limitation on charitable deduction of taxable trusts) is amended by striking out the words "certain leases" and inserting in lieu thereof "certain property acquired with borrowed funds". (C) Section 1443(a) (relating to withholding of tax on ^"'^' P 528. payments to foreign tax-exempt organizations) is amended by striking out "rents" and inserting in lieu thereof "income".

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[83 STAT.

(3) T E C H N I C A L AND CONFORMING AMENDMENTS. —

irusc^si'/^'

68A Stat. 169; ^"'^' P- ^^^-

(A) Subsections (b), (c), and (d) of section 514 (relating to business leases) are relettered as subsections (f), (g), and (h), respectively. (B) New subsection (f)(1) (old subsection (b)(1), relating to general rule for definition of business lease) is amended by striking out "subsection (c) " and inserting in lieu thereof "subsection (g) ". (C) The table of sections for part III of subchapter F of chapter 1 (as redesignated by section 101(a) of this Act) is amended by striking out— "Sec. 514. Business leases." and inserting in lieu thereof the following: "Sec. 514. Unrelated debt-financed income." (e) RETURNS.—

68A Stat. 745.

Ante, p. 536.

(1) IN GENERAL.—Subpart B of part III of subchapter A of chapter 61 is amended by adding at the end thereof the following new section: "SEC. 6050. RETURNS RELATING TO CERTAIN TRANSFERS TO EXEMPT ORGANIZATIONS. " (a) GENERAL RULE.—On or before the 90th day after the transfer of income producing property, the transferor shall make a return in compliance with the provisions of subsection (b) if the transferee is known by the transferor to be an organization referred to in section ^n (a) Or (b) and the property (without regard to any lien) has a fair market value in excess of $50,000. "(b) FORM AND CONTENTS OF RETURNS.—The return required by subsection (a) shall be in such form and shall set forth, in respect of the transfer, such information as the Secretary or his delegate prescribes by regulations as necessary for carrying out the provisions of the income tax laws." (2) TECHNICAL AMENDMENT.—The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by adding at the end thereof the following: "Sec. 6050. Returns relating to certain transfers to exempt organizations." (f) RESTRICTION ON EXAMINATION OF CHURCHES.—Section 7605

(relating to time and place of examination) is amended by adding at the end thereof the following new subsection: " (c) RESTRICTION ON EXAMINATION OF CHURCHES.—No examina-

tion of the books of account of a church or convention or association of churches shall be made to determine whether such organization may be engaged in the carrying on of an unrelated trade or business or may be otherwise engaged in activities which may be subject to tax under part III of subchapter F of chapter 1 of this title (sec. 511 and following, relating to taxation of business income of exempt organizations) unless the Secretary or his delegate (such officer being no lower than a principal internal revenue officer for an internal revenue region) believes that such organization may be so engaged and so notifies the organization in advance of the examination. No examination of the religious activities of such an organization shall be made except to the extent necessary to determine whether such organization is a church or a convention or association of churches, and no examination of the books of account of such an organization shall be made other than to the extent necessary to determine the amount of tax imposed by this title."

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]

PUBLIC LAW 91-172-DEC. 30, 1969

(or) EFFECTIVE DATES.—The amendments made by this section Mother than by subsections (b)(3) and (e)) shall apply to taxable years Lffinning after December 31, 1969. The amendments made by subsection (b)(3) ^^^^^ apply *o taxable years beginning after December 31, 1970 The amendments made by subsection (e) shall apply with respect to transfers of property after December 31, 1969. Where an organization makes a bargain purchase of property before October 9, 1969, which is subject to a mortgage which was placed on the property more than 5 y^^ before the purchase, and the organization paid the seller total amount no greater than the amount of the seller's cost (including attorneys' fees) directly related to the transfer of such property to the organization (but in any event no more than 10 percent of the value of the seller's equity in the property), the indebtedness secured by such mortgage shall not be treated, notwithstanding the amendments made by subsection (d)(1), as acquisition indebtedness for purposes of section 514(c)(1) of the Internal Revenue Code of 1954 during a period of 10 years following the date of the transaction.

549

Ante, p. 545.

TITLE II—INDIVIDUAL DEDUCTIONS Subtitle A—Charitable Contributions SEC. 201. CHARITABLE CONTRIBUTIONS. (a) LIMITATIONS AND S P E C I A L RULES. —

(1) IN GENERAL.—Section 170 (relating to charitable, etc., contributions and gifts) is amended— (A) by redesignating subsections (h) and (i) as (i) and (j), respectively, and by redesignating subsection (d) as (h), and (B) by striking out subsections (a), (b), (c), (e), and (f) and inserting in lieu thereof the following: "(a) ALLOWANCE OF DEDUCTION.— "(1) GENERAL RULE.—There shall

be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary or his delegate. "(2) CORPORATIONS ON ACCRUAL BASIS.—In the case of a corporation reporting its taxable income on the accrual basis, if— " (A) the board of directors authorizes a charitable contribution during any taxable year, and " (B) payment of such contribution is made after the close of such taxable year and on or before the 15th day of the third month following the close of such taxable year, then the taxpayer may elect to treat such contribution as paid during such taxable year. The election may be made only at the time of the filing of the return for such taxable year, and shall be signified in such manner as the Secretary or his delegate shall by^^regulations prescribe. "(3)

FUTURE INTERESTS I N TANGIBLE PERSONAL PROPERTY.—

For purposes of this section, payment of a charitable contribution which consists of a future interest in tangible personal property shall be treated as made only when all intervening interests in, and rights to the actual possession or enjoyment of, the property have expired or are held by persons other than the taxpayer or those standing in a relationship to the taxpayer described in section

'^•100 0 - 7 0 - 3 7

^f'^^l^^^^^^^ 26 USC 170. "" "''^ '^"

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 550 68A Stat. 78. 26 USC 267.

PUBLIC LAW 91-172-DEC. 30, 1969

[33 ST^T

267(b). For purposes of the preceding sentence, a fixture AvhicTi j^g intended to be severed from the real property shall be treatpl! as tangible personal property. "(b)

PERCENTAGE LIMITATIONS.—

"(1) INDIVIDUALS.—In the case of an individual, the deduction provided in subsection (a) shall be limited as provided in the succeeding subparagraphs. " (A) GENERAL, RULE.—Any charitable contribution to " (i) a church or a convention or association of churches, "(ii) an educational organization which normahv maintains a regular faculty and curriculum and normallv has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are r e ^ l a r l y carried on, "(iii) an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conJunction with a hospital, and during the calendar year m which the contribution is made such organization is committed to spend such contributions for such research before January 1 of the fifth calendar year which begins after the date such contribution is made, "(iv) an organization which normally receives a substantial part of its support (exclusive of income received in 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(a)) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public, and which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of this subparagraph and which is an agency or instrumentality of a State or political subdivision thereof, or which is owned or operated by a State or political subdivision thereof or by an agency or instrumentality of one or more States or political subdivisions, " (v) a governmental unit referred to in subsection (c)(1), "(vi) an organization referred to in subsection (c)(2) which normally receives a substantial part of its support (exclusive of income received in 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(a)) from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public, "(vii) a private foundation described in subparagraph (.E),or

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"(viii) an organization described in section 509(a)(2) or (3), shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer's contribution base for the taxable year.

551

Ante,

p. 4 9 6.

" (B) OTHER CONTRIBUTIONS.—Any charitable contribution

other than a charitable contribution to which subparagraph (A) applies shall be allowed to the extent that the aggregate of such contributions does not exceed the lesser of— " (i) 20 percent of the taxpayer's contribution base for the taxable year, or " (ii) the excess of 50 percent of the taxpayer's contribution base for the taxable year over the amount of charitable contributions allowable under subparagraph (A) (determined without regard to subparagraph (D)). •'(C)

UNLIMITED DEDUCTION FOR CERTAIN INDIVIDUALS.—

Subject to the provisions of subsections (f)(6) and (g), the limitations in subparagraphs (A), (B), and (D), and the provisions of subsection (e)(1)(B), shall not apply, in the case of an individual for a taxable year beginning before January 1, 1975, if in such taxable year and in 8 of the 10 preceding taxable years, the amount of the chairitable contributions, plus the amount of income tax (determined without regard to chapter 2, relating to tax on self-employment income) paid ^^^ ^'^*- ^^^'• during such year in respect of such year or preceding taxable 26 USC i4oi. years, exceeds the transitional deduction percentage (determined under subsection (f)(6)) of the taxpayer's taxable income for such year, computed without regard to— " (i) this section, "(ii) section 151 (allowance of deductions for per- Post, pp. 675, 676. sonal exemption), and "(iii) any net operating loss carryback to the taxable Post, p. 619. year under section 172. In lieu of the amount of income tax paid during any such year, there may be substituted for that year the amount of mcome tax paid in respect of such year, provided that any amount so included in the year in respect of which payment was made shall not be included in any other year. " (D) SPECIAL LIMITATION WITH RESPECT TO CONTRIBUTIONS OF CERTAIN CAPITAL GAIN PROPERTY.—

" (i) I n the case of charitable contributions of capital gain property to which subsection (e)(1)(B) does not apply, the total amount of contributions of such property which may be taken into account under subsection (a) for any taxable year shall not exceed 30 percent of the taxpayer's contribution base for such year. For purposes of this subsection, contributions of capital gain property to which this paragraph applies shall be taken into account after all other charitable contributions. " (ii) I f charitable contributions described in subparagraph (A) of capital gain property to which clause (i) applies exceeds 30 percent of the taxpayer's contribution base for any taxable year, such excess shall be treated, in a manner consistent with the rules of subsection (d)(1), as a charitable contribution of capital gain property to which clause (i) applies in each of the 5 succeeding taxable years in order of time.

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[83 STAT

"(iii) A t the election of the taxpayer (made at such time and in such manner as the Secretary or his dele^at prescribes by regulations), subsection (e)(1) shall appi^ to all contributions of capital gain property (to whic{ subsection (e)(1)(B) does not otherwise apply) ^^y by the taxpayer during the taxable year. If such an eW tion is made, clauses (i) and (ii) shall not apply to con! tributions of capital gain property made during the taxable year, and, in applying subsection (d)(1) for such •w: r^ 5 i taxable year with respect to contributions of capital gain property made in any prior contribution year for which ' an election was not made under this clause, such contributions shall be reduced as if subsection (e)(1) ^^(j applied to such contributions in the year in which made "(iv) For purposes of this subparagraph, the term 'capital gain property' means, with respect to any contribution, any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain. For purposes of the preceding sentence, any property which is property used in the trade or business (as ^?^^?*f*-325. defined in section 1231(b)) shall be treated as a capital asset. " (E) CERTAIN PRIVATE FOUNDATIONS,—The private foundations referred to in subparagraph (A) (vii) and subsection (e)(1)(B) a r e " (i) a private operating foundation (as defined in secAnfa, p. 502. tion 4942(j)(3)), "(ii) any other private foundation (as defined in secAnte, p. 496. tion 509(a)) which, not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, makes qualifying distributions (as defined in section 4942(g), without regard to paragraph (3) thereof), which are treated, after the application of section 4942(g)(3), as distributions out of corpus (in accordance with section 4942(h)) in an amount equal to 100 percent of such contributions, and with respect to which the taxpayer obtains adequate records or other sufficient evidence from the foundation showing that the foundation made such qualifying distributions, and "(iii) a private foundation all of the contributions to which are pooled in a common fund and which would be described in section 509(a)(3) but for the right of any substantial contributor (hereafter in this clause called 'donor') or his spouse to designate annually the recipients, from among organizations described in paragraph (1) of section 509(a), of the income attributable to the donor's contribution to the fund and to direct (by deed or by will) the payment, to an organization described in such paragraph (1), of the corpus in the common fund attributable to the donor's contribution; but this clause shall apply
 * 'j '

only if all of the income of the common fund is required to be (and is) distributed to one or more organizations described in such paragraph (1) not later than the 15tn day of the third month after the close of the taxable year in which the income is realized by the fund and only ii

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all of the corpus attributable to any donor's contribution to the fund is required to be (and is) distributed to one or more of such organizations not later than one year After his death or after the death of his surviving spouse if she has the right to designate the recipients of such corpus. " (F) CONTRIBUTION BASE DEFINED.—For purposes of this section, the term 'contribution base' means adjusted gross income (computed without regard to unj net operating loss carryback to the taxable year under section 172). ^^A Stat. 63; "(2) CORPORATIONS.—In the case of a corporation, the total ^^26 USC V7'2. deductions under subsection (a) for any taxable year shall not exceed 5 percent of the taxpayer's taxable income computed withoutregardto— " (A) this section, " (B) part VIII (except section 248), ^e use 241-248. " (C) any net operating loss carryback to the taxable year under section 172, " (D) section 922 (special deduction for Western Hemi- 68A Stat. 291. sphere trade corporations), and " (E) any capital loss carryback to the taxable year under section 1212(a)(1). ^°«'» p- eas. "(c) CHARITABLE CONTRIBUTION DEFINED.—For purposes of this section, the term 'charitable contribution' means a contribution or gift to or for the use of— " (1) A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes. " (2) A corporation, trust, or community chest, fund, or foundation— " (A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States; " (B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals; " (C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and " (D) no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office. A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B). ''(3) A post or organization of war veterans, or an auxiliary unit or society of, or trust or foundation for, any such post or organization— " (A) organized in the United States or any of its possessions, and " (B) no part of the net earnings of which inures to the benefit of any private shareholder or individual.

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[33 STAT

"(4) I n the case of a contribution or ^ift by an individual domestic fraternal society, order, or association, operating under the lodge system, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to children or animals. "(5) A cemetery company ov^^ned and operated exclusively fop the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual. For purposes of this section, the term 'charitable contribution' also means an amount treated under subsection (h) as paid for the use of an organization described in paragraph (2), (3), or (4). "(d)

CARRYOVERS OF EXCESS CONTRIBUTIONS.— "(1) INDIVIDUALS.—

" (A) IN GENERAL.—In the case of an individual, if the amount of charitable contributions described in subsection (b)(1)(A) payment of which is made within a taxable year (hereinafter in this paragraph referred to as the 'contribution year') exceeds 50 percent (30 percent, in the case of a contribution year beginning before January 1, 1970) of the taxpayer's contribution base for such year, such excess shall be treated as a charitable contribution described in subsection (b)(1)(A) paid in each of the 5 succeeding taxable years in order of time, but, with respect to any such succeeding taxable year, only to the extent of the lesser of the two following amounts: " (i) the amount by which 50 percent of the taxpayer's contribution base for such succeeding taxable year exceeds the sum of the charitable contributions described in subsection (b)(1)(A) payment of which is made by the taxpayer within such succeeding taxable year (determined without regard to this subparagraph) and the charitable contributions described in subsection (b)(1) (A) payment of which was made in taxable years before the contribution year which are treated under this subparagraph as having been paid in such succeeding taxable year; or "(ii) in the case of the first succeeding taxable year, the amount of such excess, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess not treated under this subparagraph as a charitable contribution described in subsection (b)(1) (A) paid in any taxable year intervening between the contribution year and such succeeding taxable year. "(B)

26 USC f?*!.'

SPECIAL RULE FOR NET OPERATING LOSS CARRYOVERS.—

I n applying subparagraph (A), the excess determined under subparagraph (A) for the contribution year shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172 ' (b)(2)) and increases the net operating loss deduction for a taxable year succeeding the contribution year. "(2)

CORPORATIONS.—

" (A) IN GENERAL.—Any contribution made by a corporation in a taxable year (hereinafter in this paragraph referred

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text:
Page:United States Statutes at Large Volume 83.djvu/583

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PUBLIC LAW 91-172-DEC. 30, 1969

555

to as the 'contribution year') in excess of the amount deductible for such year under subsection (b)(2) shall be deductible for each of the 5 succeeding taxable years in order of time, but only to the extent of the lesser of the two following amounts: (i) the excess of the maximum amount deductible for such succeeding taxable year under subsection (b)(2) over the sum of the contributions made in such year plus the aggregate of the excess contributions which were made in taxable years before the contribution year and which are deductible under this subparagraph for such succeeding taxable year; or (ii) in the case of the first succeeding taxable year, the amount of such excess contribution, and in the case of the second, third, fourth, or fifth succeeding taxable year, the portion of such excess contribution not deductible under this subparagraph for any taxable year intervening between the contribution year and such succeeding taxable year. " (B) SPECIAL RULE FOR NET OPERATING LOSS CARRYOVERS.—

For purposes of subparagraph (A), the excess of— " (i) the contributions made by a corporation in a taxable year to which this section applies, over "(ii) the amount deductible m such year under the limitation in subsection (b)(2), shall be reduced to the extent that such excess reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases a net operating loss carryover under section 172 to a succeeding taxable year.

76 Stat. 889.

"(e) CERTAIN CONTRIBUTIONS or ORDINARY INCOME AND CAPITAL GAIN PROPERTY.— "(1) GENERAL RULE.—The amount of any charitable contribu-

tion of property otherwise taken into account under this section shall be reduced by the sum of— " (A) the amount of gain which would not have been longterm capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution), and " (B) in the case of a charitable contribution— " (i) of tangible personal property, if the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501 (or, in the case of a governmental unit, to any purpose or function . described m subsection (c)), or "(ii) to or for the use of a private foundation (as defined in section 509(a)), other than a private founda^"<«' P- '*96tion described in subsection (b)(1)(E), 50 percent (621/^ percent, in the case of a corporation) of the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution). For purposes of applying this paragraph (other than in the case of gain to which section 617(d)(1), 1245 (a), 1250 (a), 1251 (c), or |>° f.^^-p^'sVi. 1252(a) applies), property which is property used in the trade 552. see, 572. or business (as defined in section 1231(b)) shall be treated as a ^^^ ^*^'- 2"capital asset. "(2) ALLOCATION OF BASIS.—For purposes of paragraph (1),

in the case of a charitable contribution of less than the taxpayer's entire interest in the property contributed, the taxpayer's adjusted

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Page:United States Statutes at Large Volume 83.djvu/584

 556

PUBLIC LAW 91-172-DEC. 30, 1969

[33 3^^

basis in such property shall be allocated between the interest con tributed and any interest not contributed in accordance with reoi' lations prescribed by the Secretary or his delegate. ^" "(f) DISALLOWANCE OF DEDUCTION I N CERTAIN CASES AND SPECUT RULES.—

Ante, pp. 494,

"(1) IN GENERAL.—No deduction shall be allowed under this section for a contribution to or for the use of an organization or (pyst described in section 508(d) or 4948(c)(4) subject to the i T'; conditions specified in such sections. /:

"(2) M:

' = ' ' ' Post. p. 562. Post, p. 558,

^8A Stat. 2^26.

CONTRIBUTIONS OF PROPERTY PLACED I N TRUST.— " (A) REMAINDER INTEREST.—In the case of property trans-

ferred in trust, no deduction shall be allowed under this section for the value of a contribution of a remainder interest unless the trust is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)). " (B) INCOME INTERESTS, ETC.—No deduction shall be allowed under this section for the value of any interest in property (other than a remainder interest) transferred in trust unless the interest is in the form of a guaranteed annuity or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly) and the grantor is treated as the owner of such interest for purposes of applying section 671. If the donor ceases to be treated as the owner of such an interest for purposes of applying section 671, at the time the donor ceases to be so treated, the donor shall for purposes of this chapter be considered as having received an amount of income equal to the amount of any deduction he received under this section for the contribution reduced by the discounted value of all amounts of income earned by the trust and taxable to him before the time at which he ceases to be treated as the owner of the interest. Such amounts of income shall be discounted to the date of the contribution. The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this subparagraph. " (C) DENIAL OF DEDUCTION I N CASE OF PAYMENTS BY CERTAIN TRUSTS.—In any case in which a deduction is allowed

under this section for the value of an interest in property described in subparagraph (B), transferred in trust, no deduction shall be allowed under this section to the grantor or any other person for the amount of any contribution made by the trust with respect to such interest. " (D) EXCEPTION.—This paragraph shall not apply in a case in which the value of all interests in property transferred in trust are deductible under subsection (a). "(3) DENIAL OF DEDUCTION I N CASE OF CERTAIN CONTRIBUTIONS OF PARTIAL INTERESTS I N PROPERTY.

,V '

, »'•

" (A) IN GENERAL.—Inthecaseof a contribution (notmade b j a transfer in trust) of an interest in property which consists of less than the taxpayer's entire interest in such propJf ^ deduction shall be allowed under this section only to the extent that the value of the interest contributed would W allowable as a deduction under this section if such interest had been transferred in trust. For purposes of this subparagraph, a contribution by a taxpayer of the right to use proP' erty shall be treated as a contribution of less than the taxpayer's entire interest in such property.

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Page:United States Statutes at Large Volume 83.djvu/585

 83 STAT. ]

PUBLIC LAW 9M72~DEC. 30, 1969

557

" (B) EXCEPTIONS.—Subparagraph (A) shall not apply to a contribution of— " (i) a remainder interest in a personal residence or farm, or "(ii) an undivided portion of the taxpayer's entire interest in property. '(4)

VALUATION OF REMAINDER INTEREST IN REAL PROPERTY.—

For purposes of this section, in determining the value of a remainder interest in real property, depreciation (computed on the straight line method) and depletion of such property shall be taken into account, and such value shall be discounted at a rate of 6 percent per annum, except that the Secretary or his delegate may prescribe a different rate. "(5) KEDUCTION FOR CERTAIN INTEREST.—If, in connection with any charitable contribution, a liability is assumed by the recipient or by any other person, or if a charitable contribution is of property which is subject to a liability, then, to the extent necessary to avoid the duplication of amounts, the amount taken into account for purposes of this section as the amount of the charitable contribution— " (A) shall be reduced for interest (i) which has been paid (or is to be paid) by the taxpayer, (ii) which is attributable to the liability, and (iii) which is attributable to any period after the making of the contribution, and " (B) in the case of a bond, shall be further reduced for interest (i) which has been paid (or is to be paid) by the taxpayer on indebtedness incurred or continued to purchase or carry such bond, and (ii) which is attributable to any period before the making of the contribution. The reduction pursuant to subparagraph (B) shall not exceed the interest (including interest equivalent) on the bond which is attributable to any period before the making of the contribution and which is not (under the taxpayer's method of accounting) includible in the gross income of the taxpayer for any taxable year. For purposes of this paragraph, the term 'bond' means any bond, debenture, note, or certificate or other evidence of indebtedness. " (6) PARTIAL REDUCTION OF UNLIMITED DEDUCTION.—

" (A) IN GENERAL.—If the limitations in subsections (b)(1) (A) and (B) do not apply because of the application of subsection (b)(1)(C), the amount otherwise allowable as a deduction under subsection (a) shall be reduced by the amount by which the taxpayer's taxable income computed without regard to this subparagraph is less than the transitional income percentage (determined under subparagraph (C)) of the taxpayer's adjusted gross income. However, in no case shall a taxpayer's deduction under this section be reduced below the amount allowable as a deduction under this section without the applicability of subsection (b)(1)(C). " (B) TRANSITIONAL DEDUCTION PERCENTAGE.—For purposes of applying subsection (b)(1)(C), the term 'transitional deduction percentage'means— " (i) in the case of a taxable year beginning before 1970, 90 percent, and "(ii) in the case of a taxable year beginning in— 1970 197lII_I_I__IIIII_II 1972lI_I"I_I"I_Z_I_I 1973TarmstroBot (talk)"I"__I~ 1974~2~ II Z ~ II _ I

80 percent 74 percent 68 percent 62 percent 56 percent.

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,

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Page:Tom Swift and His Airship.djvu/173

Rh go on without buying some provisions. What were they to do?

Once outside the restaurant, Mr. Damon and Tom walked swiftly on. They came to a corner where there was a street lamp, and there the young inventor paused to scan the paper again. It was the copy of a journal published in the nearby county seat, and contained quite a full account of the affair.

The story was told of how the bank had been broken into, the vault rifled and the money taken. The first clue, it said, was given by a youth named Andy Foger, who had seen a former acquaintance hanging around the bank with burglar tools. Tom recognized the description of himself as the "former acquaintence," but he could not understand the rest.

"Burglar tools? I wonder how Andy could say that?" he asked Mr. Damon.

"Wait until we get back, and we'll ask John Sharp," suggested his companion. "This is very strange. I am going to sue some one for spreading false reports about me! Bless my ledgers, why I have money on deposit in that bank! To think that I would rob it!"

"Poor dad!" murmured Tom. "This must be hard for him. But what about ordering food? Maybe if we buy any they will trail us, find the

title: Page:Tom Swift and His Airship.djvu/173


text:
Page:United States Statutes at Large Volume 83.djvu/586

 558

PUBLIC LAW 91-172-DEC. 30, 1969

[83 STAT.

" (C) TRANSITIONAL INCOME PERCENTAGE.—For purposes of applying subparagraph (A), the term 'transitional income percentage' means, in the case of a taxable year beginning in-_ 1970 1971 1972

197d 1974

'

'

(2)

II use tyo

38 percent 44 percent."

CONFORMING AMENDMENTS.—

( ^) Section iTO(g) (relating to application of unlimited charitable deduction^ is amended by striking out "subsection (b)(5) " each place it appears and inserting in lieu thereof "subsection (d)(1) ", and by striking subparagraph (B) of paragraph (2). (B) Section 545(b)(2) (relating to adjustments to personal holding company taxable income) and section 556 Q^-^ ^2) (relating to adjustments to foreign personal holdino' company taxable income) are each amended— (i) by striking out "section 170(b)(1)(A) and (B)'' in the first sentence and inserting in lieu thereof "section 170(b)(1)(A), (B), and (D) "; (ii) by striking out "section 170(b)(2) and (5)" in the first sentence and inserting in lieu thereof "section 170(b)(2) and (d)(1) "; (iii) by striking out "'adjusted gross income'" in the second sentence and inserting in lieu thereof " 'contribution b a s e ' "; and (iv) by striking out "the first sentence of section 170 (b)(2) and (5) " in the second sentence and inserting in lieu thereof "section 170(b)(2) and (d)(1)". (C) Section 809(e)(3) (relating to modifications of deductionsfor life insurance companies) is amended— (i) by striking out "the first sentence o f in subparagraph (A); and (ii) by striking out "section 170(b)(3)" in subparagraph (B) and inserting in lieu thereof "section 170 (d)(2)(B)".

72 Stat. 1631. 68A Stat. 197.

7^ ^'^'' ^21-

(b)

68A Stat. 216.

20 percent 26 percent 32 perceS

CHARITABLE CONTRIBUTIONS BY ESTATES AND TRUSTS.—Sub-

section (c) of section 642 (relating to deduction for amounts paid or permanently set aside for a charitable purpose) is amended to read as follows: "(c) DEDUCTION FOR AMOUNTS PAID OR PERMANENTLY SET ASIDE FOR A CHARITABLE PURPOSE.— "(1) GENERAL RULE.—In the case of an estate or trust (other

Ante, p. 549. -

then a trust meeting the specifications of subpart B), there shall be allowed as a deduction in computing its taxable income (in heu ^f ^l^^ dcduction allowed by section 170(a), relating to deduction for charitable, etc., contributions and gifts) any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in section 170(c) (determined without regard to section 1 7 0 (c)(2)(A)). If a charitable contribution is paw after the close of such taxable year and on or before the last day of the year following the close of such taxable year, then the trustee or administrator may elect to treat such contribution as paid during such taxable year. The election shall be made at such time and in such manner as the Secretary or his delegate prescribes by regulations.

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Page:United States Statutes at Large Volume 83.djvu/587

 83 STAT. ]

PUBLIC LAW 91-172-DEC. 30, 1%9

559

«(2) AMOUNTS PERMANENTLY SET ASIDE.—In the case of an estate, and in the case of a trust (other than a trust meeting the specifications of subpart B) required by the terms of its governing instrument to set aside amounts which was— " (A) created on or before October 9, 1969, if— " (i) an irrevocable remainder interest is transferred to or for the use of an organization described in section 170(c),or Anfe, p. 553. "(ii) the grantor is at all times after October 9, 1969, under a mental disability to change the terms of the trust; or " (B) established by a will executed on or before October 9, 1969, if— " (i) the testator dies before October 9, 1972, without having republished the will after October 9, 1969, by codicil or otherwise, "(ii) the testator at no time after October 9, 1969, had the right to change the portions of the will which pertain to the trust, or " (iii) the will is not republished by codicil or otherwise before October 9, 1972, and the testator is on such date and at all times thereafter under a mental disability to republish the will by codicil or otherwise, there shall also be allowed as a deduction in computing its taxable income any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c), or is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit. I n the case of a trust, the preceding sentence shall apply only to gross income earned with respect to amounts transferred to the trust before October 9, 1969, or transferred under a will to which subparagraph (B) applies. "(3) POOLED INCOME FUNDS.—In the case of a pooled income fund (as defined in paragraph (5)), there shall also be allowed as a deduction in computing its taxable income any amount of the gross income attributable to gain from the sale of a capital asset held for more than 6 months, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, permanently set aside for a purpose specified in section 170(c). "(4) ADJUSTMENTS.—To the extent that the amount otherwise allowable as a deduction under this subsection consists of gain from the sale or exchange of capital assets held for more than 6 months, proper adjustment shall be made for any deduction allowable to the estate or trust under section 1202 (relating to deduction 26^s*c\'202°' for excess of capital gains over capital losses). In the case of a trust, the deduction allowed by this subsection shall be subject to section 681 (relating to unrelated business income). 52^"'^' ^^* ^'*^' "(5)

DEFINITION OF POOLED INCX)ME FUND.—For purposes of

paragraph (3), a pooled income fund is a trust— " (A) to which each donor transfers property, contributing an irrevocable remainder interest in such property to or for the use of an organization described in section 170(b)(1)(A) (other than in clauses (vii) or (viii)), and retaining an income interest for the life of one or more beneficiaries (living at the time of such transfer),

,,. „

.

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Page:United States Statutes at Large Volume 83.djvu/588

 560

PUBLIC LAW 91-172-DEC. 30, 1969

[83 STAT.

" (B) in which the property transferred by each donor is commingled with property transferred by other donors who have made or make similar transfers, " (C) which cannot have investments in securities which are exempt from the taxes imposed by this subtitle, " (D) which includes only amounts received from transfers which meet the requirements of this paragraph, • ^ >•' '" (E) which is maintained by the organization to which H;MM J:* the remainder interest is contributed and of which no donor , f* or beneficiary of an income interest is a trustee, and " (F) from which each beneficiary of an income interest receives income, for each year for which he is entitled to receive the income interest referred to in subparagraph (A) determined by the rate of return earned by the trust for such year. For purposes of determining the amount of any charitable contribution allowable by reason of a transfer of property to a pooled fund, the value of the income interest shall be determined on the basis of the highest rate of return earned by the fund for any of the 3 taxable years immediately preceding the taxable year of the fund in which the transfer is made. I n the case of funds in existence less than 3 taxable years preceding the taxable year of the fund in which a transfer is made, the rate of return shall be deemed to be 6 percent per annum, except that the Secretary or his delegate may prescribe a different rate of return. "(6) TAXABLE PRPVATE FOUNDATIONS.—In the case of a private foundation which is not exempt from taxation under section 501 (a) for the taxable year, the provisions of this subsection shall Re'e'a?* ^'*^' ^^^ ^PP^J ^^^ ^hc provisions of section 170 shall apply." 68A Stat. 227, (c) TWO-YEAR CHARITABLE TRUSTS.—Section 673(b) (relating to trusts where the income is payable to a charitable beneficiary for at least a two-year period) is repealed.

68A Stat. 3 9 1. 26 USC 2055.

(d) DISALLOWANCE OF ESTATE AND G I F T TAX DEDUCTIONS IN CERTAIN CASES.— (1) ESTATES OF CITIZENS OR RESIDENTS.—Subsection (e) of sec-

tion 2055 (relating to disallowance of charitable deductions in certain cases) is amended to read as follows: "(e)

Ante, pp. 494,

• 4

' j^:

Post, Ante,

p. 562. p. 558.

DISALLOWANCE OF DEDUCTIONS I N CERTAIN CASES.—

"(1) No deduction shall be allowed under this section for a transfer to or for the use of an organization or trust described i^ section 508(d) Or 4948(c)(4) subject to the conditions specified in such sections. "(2) Where an interest in property (other than a remainder interest in a personal residence or farm or an undivided portion of the decedent's entire interest in property) passes or has passed from the decedent to a person, or for a use, described in subsection (a), and an interest (other than an interest which is extinguished upon the decedent's death) in the same property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to a person, or for a use, not described in subsection (a), no deduction shall be allowed under this section for the interest which passes or has passed to the person, or for the use, described in subsection (a) unless—.. " (A) in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)), or

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Page:United States Statutes at Large Volume 83.djvu/589

 83

STAT. ]

PUBLIC LAW 91-172-DEC. 30, 1969

561

(B) in the case of any other interest, such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly)." (2) ESTATES OF NONRESIDENTS NOT CITIZENS.—Subparagraph

(E) of section 2106(a)(2) (relating to disallowance of deductions in certain cases) is amended to read as follows: "(E)

DISALLOWANCE OF DEDUCTIONS I N CERTAIN CASES.—

The provisions of section 2055(e) shall be- applied in the determination of the amount allowable as a deduction under this paragraph." (3) G I F T TAX.—Subsection (c) of section 2522 (relating to disallowance of charitable deductions in certain cases) is amended to read as follows: "(c)

68A Stat. 398. 26 USC 2106.

'^"'^' ^- ^^°

DISALLOWANCE OF DEDUCTIONS I N CERTAIN CASES.—

" (1) No deduction shall be allowed under this section for a gift to of for the use of an organization or trust described in section 508(d) or 4948 (c)(4) subject to the conditions specified in such sections. "(2) Where a donor transfers an interest in property (other than a remainder interest in a personal residence or farm or an undivided portion of the donor's entire interest in property) to a person, or for a use, described in subsection (a) or (b) and an interest in the same property is retained by the donor, or is transferred or has been transferred (for less than an adequate and full consideration in money or money's worth) from the donor to a person, or for a use, not described in subsection (a) or (b), no deduction shall be allowed under this section for the interest which is, or has been transferred to the person, or for the use, described in subsection (a) or (b), unless— " (A) in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)), or " (B) in the case of any other interest, such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly)."

Ante, pp. 494, 518.

Post, p. 562. Ante, p. 558.

(4) P O L I T I C A L ACTIVITIES.—

(A) Section 2055(a) (relating to transfers for public, charitable, and religious uses) is amended— (i) by striking out "and" before "no substantial part " in paragraph (2), and by inserting before the semicolon at the end of such paragraph ", and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office"; and (ii) by striking out "and" before "no substantial part" in paragraph (3), and by inserting before the semicolon at the end of such paragraph ", and such trustee or trustees, or such fraternal society, order, or association, does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office". (B) Section 2106(a)(2) (relating to transfers for public, charitable, and religious uses) is amended—

SSA Stat. 390

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Page:United States Statutes at Large Volume 83.djvu/590

 562

PUBLIC LAW 91-172-DEC. 30, 1%9

' '

,, ' !

2rufc'25l.2°'

68A Stat. 220 26 USC 6 6 1.

(e)

[33 STAT.

(i) by striking out "and" before "no substantial part" in subparagraph (A) ( i i), and by inserting before the semicolon at the end of such subparagraph ", and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office"and ' (ii) by striking out "and" before "no substantial part" in subparagraph (A) (iii), and by inserting before the semicolon at the end of such subparagraph ", and such trustee or trustees, or such fraternal society, order or association, does not participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of any candidate for public office". (C) Section 2522(a) (relating to charitable and similar gifts of citizens or residents) is amended by striking out "and" before "no substantial part " in paragraph (2), andbv inserting before the semicolon at the end of such paragraph ", and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office". (D) Section 2522(b) (relating to charitable and similar gifts of nonresidents) is amended— (i) by striking out "and" before "no substantial part" in paragraph (2), and by inserting before the semicolon at the end of such paragraph ", and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office"; and (ii) by inserting after "legislation" in paragraph (3) ", and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office", CHARITABLE REMAINDER TRUSTS.—

(1) Subpart C of part I of subchapter J of chapter 1 (relating to estates and trusts which may accumulate income or which distribute corpus) is amended by adding at the end thereof the following new section: "SEC. 664. CHARITABLE REMAINDER TRUSTS. " (a) GENERAL RULE.—Notwithstanding any other provision of this subchapter, the provisions of this section shall, in accordance with regulations prescribed by the Secretary or his delegate, apply in the case of a charitable remainder annuity trust and a charitable remainder unitrust. " (b) CHARACTER OF DISTRIBUTIONS.—Amounts distributed by a charitable remainder annuity trust or by a charitable remainder unitrust shall be considered as having the following characteristics in the hands of a beneficiary to whom is paid the annuity described m subsection (d)(1)(A) or the payment described in subsection (d) (2)(A): ' " " ' "(1) First, as amounts of income (other than ^ams, ana amounts treated as gains, from the sale or other disposition of capital assets) includible in gross income to the extent of such income of the trust for the year and such undistributed income of the trust for prior years;

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