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U.S. Code as of:
01/19/04
Section 501. Exemption from tax on corporations, certain trusts, etc.
(a) Exemption from taxation
An organization described in subsection (c) or (d) or section
401(a) shall be exempt from taxation under this subtitle unless
such exemption is denied under section 502 or 503.
(b) Tax on unrelated business income and certain other activities
An organization exempt from taxation under subsection (a) shall
be subject to tax to the extent provided in parts II, III, and VI
of this subchapter, but (notwithstanding parts II, III, and VI of
this subchapter) shall be considered an organization exempt from
income taxes for the purpose of any law which refers to
organizations exempt from income taxes.
(c) List of exempt organizations
The following organizations are referred to in subsection (a):
(1) Any corporation organized under Act of Congress which is an
instrumentality of the United States but only if such corporation
-
(A) is exempt from Federal income taxes -
(i) under such Act as amended and supplemented before July
18, 1984, or
(ii) under this title without regard to any provision of
law which is not contained in this title and which is not
contained in a revenue Act, or
(B) is described in subsection (l).
(2) Corporations organized for the exclusive purpose of holding
title to property, collecting income therefrom, and turning over
the entire amount thereof, less expenses, to an organization
which itself is exempt under this section. Rules similar to the
rules of subparagraph (G) of paragraph (25) shall apply for
purposes of this paragraph.
(3) Corporations, and any community chest, fund, or foundation,
organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary, or educational
purposes, or to foster national or international amateur sports
competition (but only if no part of its activities involve the
provision of athletic facilities or equipment), or for the
prevention of cruelty to children or animals, no part of the net
earnings of which inures to the benefit of any private
shareholder or individual, no substantial part of the activities
of which is carrying on propaganda, or otherwise attempting, to
influence legislation (except as otherwise provided in subsection
(h)), and which does not participate in, or intervene in
(including the publishing or distributing of statements), any
political campaign on behalf of (or in opposition to) any
candidate for public office.
(4)(A) Civic leagues or organizations not organized for profit
but operated exclusively for the promotion of social welfare, or
local associations of employees, the membership of which is
limited to the employees of a designated person or persons in a
particular municipality, and the net earnings of which are
devoted exclusively to charitable, educational, or recreational
purposes.
(B) Subparagraph (A) shall not apply to an entity unless no
part of the net earnings of such entity inures to the benefit of
any private shareholder or individual.
(5) Labor, agricultural, or horticultural organizations.
(6) Business leagues, chambers of commerce, real-estate boards,
boards of trade, or professional football leagues (whether or not
administering a pension fund for football players), not organized
for profit and no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
(7) Clubs organized for pleasure, recreation, and other
nonprofitable purposes, substantially all of the activities of
which are for such purposes and no part of the net earnings of
which inures to the benefit of any private shareholder.
(8) Fraternal beneficiary societies, orders, or associations -
(A) operating under the lodge system or for the exclusive
benefit of the members of a fraternity itself operating under
the lodge system, and
(B) providing for the payment of life, sick, accident, or
other benefits to the members of such society, order, or
association or their dependents.
(9) Voluntary employees' beneficiary associations providing for
the payment of life, sick, accident, or other benefits to the
members of such association or their dependents or designated
beneficiaries, if no part of the net earnings of such association
inures (other than through such payments) to the benefit of any
private shareholder or individual.
(10) Domestic fraternal societies, orders, or associations,
operating under the lodge system -
(A) the net earnings of which are devoted exclusively to
religious, charitable, scientific, literary, educational, and
fraternal purposes, and
(B) which do not provide for the payment of life, sick,
accident, or other benefits.
(11) Teachers' retirement fund associations of a purely local
character, if -
(A) no part of their net earnings inures (other than through
payment of retirement benefits) to the benefit of any private
shareholder or individual, and
(B) the income consists solely of amounts received from
public taxation, amounts received from assessments on the
teaching salaries of members, and income in respect of
investments.
(12)(A) Benevolent life insurance associations of a purely
local character, mutual ditch or irrigation companies, mutual or
cooperative telephone companies, or like organizations; but only
if 85 percent or more of the income consists of amounts collected
from members for the sole purpose of meeting losses and expenses.
(B) In the case of a mutual or cooperative telephone company,
subparagraph (A) shall be applied without taking into account any
income received or accrued -
(i) from a nonmember telephone company for the performance of
communication services which involve members of the mutual or
cooperative telephone company,
(ii) from qualified pole rentals,
(iii) from the sale of display listings in a directory
furnished to the members of the mutual or cooperative telephone
company, or
(iv) from the prepayment of a loan under section 306A, 306B,
or 311 (!1) of the Rural Electrification Act of 1936 (as in
effect on January 1, 1987).
(C) In the case of a mutual or cooperative electric company,
subparagraph (A) shall be applied without taking into account any
income received or accrued -
(i) from qualified pole rentals, or
(ii) from the prepayment of a loan under section 306A, 306B,
or 311 (!1) of the Rural Electrification Act of 1936 (as in
effect on January 1, 1987).
(D) For purposes of this paragraph, the term "qualified pole
rental" means any rental of a pole (or other structure used to
support wires) if such pole (or other structure) -
(i) is used by the telephone or electric company to support
one or more wires which are used by such company in providing
telephone or electric services to its members, and
(ii) is used pursuant to the rental to support one or more
wires (in addition to the wires described in clause (i)) for
use in connection with the transmission by wire of electricity
or of telephone or other communications.
For purposes of the preceding sentence, the term "rental"
includes any sale of the right to use the pole (or other
structure).
(13) Cemetery companies owned and operated exclusively for the
benefit of their members or which are not operated for profit;
and any corporation chartered solely for the purpose of the
disposal of bodies by burial or cremation which is not permitted
by its charter to engage in any business not necessarily incident
to that purpose and no part of the net earnings of which inures
to the benefit of any private shareholder or individual.
(14)(A) Credit unions without capital stock organized and
operated for mutual purposes and without profit.
(B) Corporations or associations without capital stock
organized before September 1, 1957, and operated for mutual
purposes and without profit for the purpose of providing reserve
funds for, and insurance of shares or deposits in -
(i) domestic building and loan associations,
(ii) cooperative banks without capital stock organized and
operated for mutual purposes and without profit,
(iii) mutual savings banks not having capital stock
represented by shares, or
(iv) mutual savings banks described in section 591(b) (!2)
(C) Corporations or associations organized before September 1,
1957, and operated for mutual purposes and without profit for the
purpose of providing reserve funds for associations or banks
described in clause (i), (ii), or (iii) of subparagraph (B); but
only if 85 percent or more of the income is attributable to
providing such reserve funds and to investments. This
subparagraph shall not apply to any corporation or association
entitled to exemption under subparagraph (B).
(15)(A) Insurance companies or associations other than life
(including interinsurers and reciprocal underwriters) if the net
written premiums (or, if greater, direct written premiums) for
the taxable year do not exceed $350,000.
(B) For purposes of subparagraph (A), in determining whether
any company or association is described in subparagraph (A), such
company or association shall be treated as receiving during the
taxable year amounts described in subparagraph (A) which are
received during such year by all other companies or associations
which are members of the same controlled group as the insurance
company or association for which the determination is being made.
(C) For purposes of subparagraph (B), the term "controlled
group" has the meaning given such term by section
831(b)(2)(B)(ii).
(16) Corporations organized by an association subject to part
IV of this subchapter or members thereof, for the purpose of
financing the ordinary crop operations of such members or other
producers, and operated in conjunction with such association.
Exemption shall not be denied any such corporation because it has
capital stock, if the dividend rate of such stock is fixed at not
to exceed the legal rate of interest in the State of
incorporation or 8 percent per annum, whichever is greater, on
the value of the consideration for which the stock was issued,
and if substantially all such stock (other than nonvoting
preferred stock, the owners of which are not entitled or
permitted to participate, directly or indirectly, in the profits
of the corporation, on dissolution or otherwise, beyond the fixed
dividends) is owned by such association, or members thereof; nor
shall exemption be denied any such corporation because there is
accumulated and maintained by it a reserve required by State law
or a reasonable reserve for any necessary purpose.
(17)(A) A trust or trusts forming part of a plan providing for
the payment of supplemental unemployment compensation benefits,
if -
(i) under the plan, it is impossible, at any time prior to
the satisfaction of all liabilities, with respect to employees
under the plan, for any part of the corpus or income to be
(within the taxable year or thereafter) used for, or diverted
to, any purpose other than the providing of supplemental
unemployment compensation benefits,
(ii) such benefits are payable to employees under a
classification which is set forth in the plan and which is
found by the Secretary not to be discriminatory in favor of
employees who are highly compensated employees (within the
meaning of section 414(q)), and
(iii) such benefits do not discriminate in favor of employees
who are highly compensated employees (within the meaning of
section 414(q)). A plan shall not be considered discriminatory
within the meaning of this clause merely because the 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) In determining whether a plan meets the requirements of
subparagraph (A), any benefits provided under any other plan
shall not be taken into consideration, except that a plan shall
not be considered discriminatory -
(i) merely because the benefits under the plan which are
first determined in a nondiscriminatory manner within the
meaning of subparagraph (A) are then reduced by any sick,
accident, or unemployment compensation benefits received under
State or Federal law (or reduced by a portion of such benefits
if determined in a nondiscriminatory manner), or
(ii) merely because the plan provides only for employees who
are not eligible to receive sick, accident, or unemployment
compensation benefits under State or Federal law the same
benefits (or a portion of such benefits if determined in a
nondiscriminatory manner) which such employees would receive
under such laws if such employees were eligible for such
benefits, or
(iii) merely because the plan provides only for employees who
are not eligible under another plan (which meets the
requirements of subparagraph (A)) of supplemental unemployment
compensation benefits provided wholly by the employer the same
benefits (or a portion of such benefits if determined in a
nondiscriminatory manner) which such employees would receive
under such other plan if such employees were eligible under
such other plan, but only if the employees eligible under both
plans would make a classification which would be
nondiscriminatory within the meaning of subparagraph (A).
(C) A plan shall be considered to meet the requirements of
subparagraph (A) during the whole of any year of the plan if on
one day in each quarter it satisfies such requirements.
(D) The term "supplemental unemployment compensation benefits"
means only -
(i) benefits which are paid to an employee because of his
involuntary separation from the employment of the employer
(whether or not such separation is temporary) resulting
directly from a reduction in force, the discontinuance of a
plant or operation, or other similar conditions, and
(ii) sick and accident benefits subordinate to the benefits
described in clause (i).
(E) Exemption shall not be denied under subsection (a) to any
organization entitled to such exemption as an association
described in paragraph (9) of this subsection merely because such
organization provides for the payment of supplemental
unemployment benefits (as defined in subparagraph (D)(i)).
(18) A trust or trusts created before June 25, 1959, forming
part of a plan providing for the payment of benefits under a
pension plan funded only by contributions of employees, if -
(A) under the plan, it is impossible, at any time prior to
the satisfaction of all liabilities with respect to employees
under the plan, for any part of the corpus or income to be
(within the taxable year or thereafter) used for, or diverted
to, any purpose other than the providing of benefits under the
plan,
(B) such benefits are payable to employees under a
classification which is set forth in the plan and which is
found by the Secretary not to be discriminatory in favor of
employees who are highly compensated employees (within the
meaning of section 414(q)),
(C) such benefits do not discriminate in favor of employees
who are highly compensated employees (within the meaning of
section 414(q)). A plan shall not be considered discriminatory
within the meaning of this subparagraph merely because the
benefits received under the plan bear a uniform relationship to
the total compensation, or the basic or regular rate of
compensation, of the employees covered by the plan, and
(D) in the case of a plan under which an employee may
designate certain contributions as deductible -
(i) such contributions do not exceed the amount with
respect to which a deduction is allowable under section
219(b)(3),
(ii) requirements similar to the requirements of section
401(k)(3)(A)(ii) are met with respect to such elective
contributions,
(iii) such contributions are treated as elective deferrals
for purposes of section 402(g), and
(iv) the requirements of section 401(a)(30) are met.
For purposes of subparagraph (D)(ii), rules similar to the rules
of section 401(k)(8) shall apply. For purposes of section 4979,
any excess contribution under clause (ii) shall be treated as an
excess contribution under a cash or deferred arrangement.
(19) A post or organization of past or present members of the
Armed Forces of the United States, or an auxiliary unit or
society of, or a trust or foundation for, any such post or
organization -
(A) organized in the United States or any of its possessions,
(B) at least 75 percent of the members of which are past or
present members of the Armed Forces of the United States and
substantially all of the other members of which are individuals
who are cadets or are spouses, widows,,(!3) widowers,
ancestors, or lineal descendants of past or present members of
the Armed Forces of the United States or of cadets, and
(C) no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
(20) an (!4) organization or trust created or organized in the
United States, the exclusive function of which is to form part of
a qualified group legal services plan or plans, within the
meaning of section 120. An organization or trust which receives
contributions because of section 120(c)(5)(C) shall not be
prevented from qualifying as an organization described in this
paragraph merely because it provides legal services or
indemnification against the cost of legal services unassociated
with a qualified group legal services plan.
(21)(A) A trust or trusts established in writing, created or
organized in the United States, and contributed to by any person
(except an insurance company) if -
(i) the purpose of such trust or trusts is exclusively -
(I) to satisfy, in whole or in part, the liability of such
person for, or with respect to, claims for compensation for
disability or death due to pneumoconiosis under Black Lung
Acts,
(II) to pay premiums for insurance exclusively covering
such liability,
(III) to pay administrative and other incidental expenses
of such trust in connection with the operation of the trust
and the processing of claims against such person under Black
Lung Acts, and
(IV) to pay accident or health benefits for retired miners
and their spouses and dependents (including administrative
and other incidental expenses of such trust in connection
therewith) or premiums for insurance exclusively covering
such benefits; and
(ii) no part of the assets of the trust may be used for, or
diverted to, any purpose other than -
(I) the purposes described in clause (i),
(II) investment (but only to the extent that the trustee
determines that a portion of the assets is not currently
needed for the purposes described in clause (i)) in qualified
investments, or
(III) payment into the Black Lung Disability Trust Fund
established under section 9501, or into the general fund of
the United States Treasury (other than in satisfaction of any
tax or other civil or criminal liability of the person who
established or contributed to the trust).
(B) No deduction shall be allowed under this chapter for any
payment described in subparagraph (A)(i)(IV) from such trust.
(C) Payments described in subparagraph (A)(i)(IV) may be made
from such trust during a taxable year only to the extent that the
aggregate amount of such payments during such taxable year does
not exceed the lesser of -
(i) the excess (if any) (as of the close of the preceding
taxable year) of -
(I) the fair market value of the assets of the trust, over
(II) 110 percent of the present value of the liability
described in subparagraph (A)(i)(I) of such person, or
(ii) the excess (if any) of -
(I) the sum of a similar excess determined as of the close
of the last taxable year ending before the date of the
enactment of this subparagraph plus earnings thereon as of
the close of the taxable year preceding the taxable year
involved, over
(II) the aggregate payments described in subparagraph
(A)(i)(IV) made from the trust during all taxable years
beginning after the date of the enactment of this
subparagraph.
The determinations under the preceding sentence shall be made by
an independent actuary using actuarial methods and assumptions
(not inconsistent with the regulations prescribed under section
192(c)(1)(A)) each of which is reasonable and which are
reasonable in the aggregate.
(D) For purposes of this paragraph:
(i) The term "Black Lung Acts" means part C of title IV of
the Federal Mine Safety and Health Act of 1977, and any State
law providing compensation for disability or death due to that
pneumoconiosis.
(ii) The term "qualified investments" means -
(I) public debt securities of the United States,
(II) obligations of a State or local government which are
not in default as to principal or interest, and
(III) time or demand deposits in a bank (as defined in
section 581) or an insured credit union (within the meaning
of section 101(7) of the Federal Credit Union Act, 12 U.S.C.
1752(7)) located in the United States.
(iii) The term "miner" has the same meaning as such term has
when used in section 402(d) of the Black Lung Benefits Act (30
U.S.C. 902(d)).
(iv) The term "incidental expenses" includes legal,
accounting, actuarial, and trustee expenses.
(22) A trust created or organized in the United States and
established in writing by the plan sponsors of multiemployer
plans if -
(A) the purpose of such trust is exclusively -
(i) to pay any amount described in section 4223(c) or (h)
of the Employee Retirement Income Security Act of 1974, and
(ii) to pay reasonable and necessary administrative
expenses in connection with the establishment and operation
of the trust and the processing of claims against the trust,
(B) no part of the assets of the trust may be used for, or
diverted to, any purpose other than -
(i) the purposes described in subparagraph (A), or
(ii) the investment in securities, obligations, or time or
demand deposits described in clause (ii) of paragraph
(21)(B),
(C) such trust meets the requirements of paragraphs (2), (3),
and (4) of section 4223(b), 4223(h), or, if applicable, section
4223(c) of the Employee Retirement Income Security Act of 1974,
and
(D) the trust instrument provides that, on dissolution of the
trust, assets of the trust may not be paid other than to plans
which have participated in the plan or, in the case of a trust
established under section 4223(h) of such Act, to plans with
respect to which employers have participated in the fund.
(23) Any association organized before 1880 more than 75 percent
of the members of which are present or past members of the Armed
Forces and a principal purpose of which is to provide insurance
and other benefits to veterans or their dependents.
(24) A trust described in section 4049 of the Employee
Retirement Income Security Act of 1974 (as in effect on the date
of the enactment of the Single-Employer Pension Plan Amendments
Act of 1986).
(25)(A) Any corporation or trust which -
(i) has no more than 35 shareholders or beneficiaries,
(ii) has only 1 class of stock or beneficial interest, and
(iii) is organized for the exclusive purposes of -
(I) acquiring real property and holding title to, and
collecting income from, such property, and
(II) remitting the entire amount of income from such
property (less expenses) to 1 or more organizations described
in subparagraph (C) which are shareholders of such
corporation or beneficiaries of such trust.
For purposes of clause (iii), the term "real property" shall not
include any interest as a tenant in common (or similar interest)
and shall not include any indirect interest.
(B) A corporation or trust shall be described in subparagraph
(A) without regard to whether the corporation or trust is
organized by 1 or more organizations described in subparagraph
(C).
(C) An organization is described in this subparagraph if such
organization is -
(i) a qualified pension, profit sharing, or stock bonus plan
that meets the requirements of section 401(a),
(ii) a governmental plan (within the meaning of section
414(d)),
(iii) the United States, any State or political subdivision
thereof, or any agency or instrumentality of any of the
foregoing, or
(iv) any organization described in paragraph (3).
(D) A corporation or trust shall in no event be treated as
described in subparagraph (A) unless such corporation or trust
permits its shareholders or beneficiaries -
(i) to dismiss the corporation's or trust's investment
adviser, following reasonable notice, upon a vote of the
shareholders or beneficiaries holding a majority of interest in
the corporation or trust, and
(ii) to terminate their interest in the corporation or trust
by either, or both, of the following alternatives, as
determined by the corporation or trust:
(I) by selling or exchanging their stock in the corporation
or interest in the trust (subject to any Federal or State
securities law) to any organization described in subparagraph
(C) so long as the sale or exchange does not increase the
number of shareholders or beneficiaries in such corporation
or trust above 35, or
(II) by having their stock or interest redeemed by the
corporation or trust after the shareholder or beneficiary has
provided 90 days notice to such corporation or trust.
(E)(i) For purposes of this title -
(I) a corporation which is a qualified subsidiary shall not
be treated as a separate corporation, and
(II) all assets, liabilities, and items of income, deduction,
and credit of a qualified subsidiary shall be treated as
assets, liabilities, and such items (as the case may be) of the
corporation or trust described in subparagraph (A).
(ii) For purposes of this subparagraph, the term "qualified
subsidiary" means any corporation if, at all times during the
period such corporation was in existence, 100 percent of the
stock of such corporation is held by the corporation or trust
described in subparagraph (A).
(iii) For purposes of this subtitle, if any corporation which
was a qualified subsidiary ceases to meet the requirements of
clause (ii), such corporation shall be treated as a new
corporation acquiring all of its assets (and assuming all of its
liabilities) immediately before such cessation from the
corporation or trust described in subparagraph (A) in exchange
for its stock.
(F) For purposes of subparagraph (A), the term "real property"
includes any personal property which is leased under, or in
connection with, a lease of real property, but only if the rent
attributable to such personal property (determined under the
rules of section 856(d)(1)) for the taxable year does not exceed
15 percent of the total rent for the taxable year attributable to
both the real and personal property leased under, or in
connection with, such lease.
(G)(i) An organization shall not be treated as failing to be
described in this paragraph merely by reason of the receipt of
any otherwise disqualifying income which is incidentally derived
from the holding of real property.
(ii) Clause (i) shall not apply if the amount of gross income
described in such clause exceeds 10 percent of the organization's
gross income for the taxable year unless the organization
establishes to the satisfaction of the Secretary that the receipt
of gross income described in clause (i) in excess of such
limitation was inadvertent and reasonable steps are being taken
to correct the circumstances giving rise to such income.
(26) Any membership organization if -
(A) such organization is established by a State exclusively
to provide coverage for medical care (as defined in section
213(d)) on a not-for-profit basis to individuals described in
subparagraph (B) through -
(i) insurance issued by the organization, or
(ii) a health maintenance organization under an arrangement
with the organization,
(B) the only individuals receiving such coverage through the
organization are individuals -
(i) who are residents of such State, and
(ii) who, by reason of the existence or history of a
medical condition -
(I) are unable to acquire medical care coverage for such
condition through insurance or from a health maintenance
organization, or
(II) are able to acquire such coverage only at a rate
which is substantially in excess of the rate for such
coverage through the membership organization,
(C) the composition of the membership in such organization is
specified by such State, and
(D) no part of the net earnings of the organization inures to
the benefit of any private shareholder or individual.
A spouse and any qualifying child (as defined in section 24(c))
of an individual described in subparagraph (B) (without regard to
this sentence) shall be treated as described in subparagraph (B).
(27)(A) Any membership organization if -
(i) such organization is established before June 1, 1996, by
a State exclusively to reimburse its members for losses arising
under workmen's compensation acts,
(ii) such State requires that the membership of such
organization consist of -
(I) all persons who issue insurance covering workmen's
compensation losses in such State, and
(II) all persons and governmental entities who self-insure
against such losses, and
(iii) such organization operates as a non-profit organization
by -
(I) returning surplus income to its members or workmen's
compensation policyholders on a periodic basis, and
(II) reducing initial premiums in anticipation of
investment income.
(B) Any organization (including a mutual insurance company) if
-
(i) such organization is created by State law and is
organized and operated under State law exclusively to -
(I) provide workmen's compensation insurance which is
required by State law or with respect to which State law
provides significant disincentives if such insurance is not
purchased by an employer, and
(II) provide related coverage which is incidental to
workmen's compensation insurance,
(ii) such organization must provide workmen's compensation
insurance to any employer in the State (for employees in the
State or temporarily assigned out-of-State) which seeks such
insurance and meets other reasonable requirements relating
thereto,
(iii)(I) the State makes a financial commitment with respect
to such organization either by extending the full faith and
credit of the State to the initial debt of such organization or
by providing the initial operating capital of such
organization, and (II) in the case of periods after the date of
enactment of this subparagraph, the assets of such organization
revert to the State upon dissolution or State law does not
permit the dissolution of such organization, and
(iv) the majority of the board of directors or oversight body
of such organization are appointed by the chief executive
officer or other executive branch official of the State, by the
State legislature, or by both.
(28) The National Railroad Retirement Investment Trust
established under section 15(j) of the Railroad Retirement Act of
1974.
(d) Religious and apostolic organizations
The following organizations are referred to in subsection (a):
Religious or apostolic associations or corporations, if such
associations or corporations have a common treasury or community
treasury, even if such associations or corporations engage in
business for the common benefit of the members, but only if the
members thereof include (at the time of filing their returns) in
their gross income their entire pro rata shares, whether
distributed or not, of the taxable income of the association or
corporation for such year. Any amount so included in the gross
income of a member shall be treated as a dividend received.
(e) Cooperative hospital service organizations
For purposes of this title, an organization shall be treated as
an organization organized and operated exclusively for charitable
purposes, if -
(1) such organization is organized and operated solely -
(A) to perform, on a centralized basis, one or more of the
following services which, if performed on its own behalf by a
hospital which is an organization described in subsection
(c)(3) and exempt from taxation under subsection (a), would
constitute activities in exercising or performing the purpose
or function constituting the basis for its exemption: data
processing, purchasing (including the purchasing of insurance
on a group basis), warehousing, billing and collection
(including the purchase of patron accounts receivable on a
recourse basis), food, clinical, industrial engineering,
laboratory, printing, communications, record center, and
personnel (including selection, testing, training, and
education of personnel) services; and
(B) to perform such services solely for two or more hospitals
each of which is -
(i) an organization described in subsection (c)(3) which is
exempt from taxation under subsection (a),
(ii) a constituent part of an organization described in
subsection (c)(3) which is exempt from taxation under
subsection (a) and which, if organized and operated as a
separate entity, would constitute an organization described
in subsection (c)(3), or
(iii) owned and operated by the United States, a State, the
District of Columbia, or a possession of the United States,
or a political subdivision or an agency or instrumentality of
any of the foregoing;
(2) such organization is organized and operated on a
cooperative basis and allocates or pays, within 8 1/2 months
after the close of its taxable year, all net earnings to patrons
on the basis of services performed for them; and
(3) if such organization has capital stock, all of such stock
outstanding is owned by its patrons.
For purposes of this title, any organization which, by reason of
the preceding sentence, is an organization described in subsection
(c)(3) and exempt from taxation under subsection (a), shall be
treated as a hospital and as an organization referred to in section
170(b)(1)(A)(iii).
(f) Cooperative service organizations of operating educational
organizations
For purposes of this title, if an organization is -
(1) organized and operated solely to hold, commingle, and
collectively invest and reinvest (including arranging for and
supervising the performance by independent contractors of
investment services related thereto) in stocks and securities,
the moneys contributed thereto by each of the members of such
organization, and to collect income therefrom and turn over the
entire amount thereof, less expenses, to such members,
(2) organized and controlled by one or more such members, and
(3) comprised solely of members that are organizations
described in clause (ii) or (iv) of section 170(b)(1)(A) -
(A) which are exempt from taxation under subsection (a), or
(B) the income of which is excluded from taxation under
section 115(a),
then such organization shall be treated as an organization
organized and operated exclusively for charitable purposes.
(g) Definition of agricultural
For purposes of subsection (c)(5), the term "agricultural"
includes the art or science of cultivating land, harvesting crops
or aquatic resources, or raising livestock.
(h) Expenditures by public charities to influence legislation
(1) General rule
In the case of an organization to which this subsection
applies, exemption from taxation under subsection (a) shall be
denied because a substantial part of the activities of such
organization consists of carrying on propaganda, or otherwise
attempting, to influence legislation, but only if such
organization normally -
(A) makes lobbying expenditures in excess of the lobbying
ceiling amount for such organization for each taxable year, or
(B) makes grass roots expenditures in excess of the grass
roots ceiling amount for such organization for each taxable
year.
(2) Definitions
For purposes of this subsection -
(A) Lobbying expenditures
The term "lobbying expenditures" means expenditures for the
purpose of influencing legislation (as defined in section
4911(d)).
(B) Lobbying ceiling amount
The lobbying ceiling amount for any organization for any
taxable year is 150 percent of the lobbying nontaxable amount
for such organization for such taxable year, determined under
section 4911.
(C) Grass roots expenditures
The term "grass roots expenditures" means expenditures for
the purpose of influencing legislation (as defined in section
4911(d) without regard to paragraph (1)(B) thereof).
(D) Grass roots ceiling amount
The grass roots ceiling amount for any organization for any
taxable year is 150 percent of the grass roots nontaxable
amount for such organization for such taxable year, determined
under section 4911.
(3) Organizations to which this subsection applies
This subsection shall apply to any organization which has
elected (in such manner and at such time as the Secretary may
prescribe) to have the provisions of this subsection apply to
such organization and which, for the taxable year which includes
the date the election is made, is described in subsection (c)(3)
and -
(A) is described in paragraph (4), and
(B) is not a disqualified organization under paragraph (5).
(4) Organizations permitted to elect to have this subsection
apply
An organization is described in this paragraph if it is
described in -
(A) section 170(b)(1)(A)(ii) (relating to educational
institutions),
(B) section 170(b)(1)(A)(iii) (relating to hospitals and
medical research organizations),
(C) section 170(b)(1)(A)(iv) (relating to organizations
supporting government schools),
(D) section 170(b)(1)(A)(vi) (relating to organizations
publicly supported by charitable contributions),
(E) section 509(a)(2) (relating to organizations publicly
supported by admissions, sales, etc.), or
(F) section 509(a)(3) (relating to organizations supporting
certain types of public charities) except that for purposes of
this subparagraph, section 509(a)(3) shall be applied without
regard to the last sentence of section 509(a).
(5) Disqualified organizations
For purposes of paragraph (3) an organization is a disqualified
organization if it is -
(A) described in section 170(b)(1)(A)(i) (relating to
churches),
(B) an integrated auxiliary of a church or of a convention or
association of churches, or
(C) a member of an affiliated group of organizations (within
the meaning of section 4911(f)(2)) if one or more members of
such group is described in subparagraph (A) or (B).
(6) Years for which election is effective
An election by an organization under this subsection shall be
effective for all taxable years of such organization which -
(A) end after the date the election is made, and
(B) begin before the date the election is revoked by such
organization (under regulations prescribed by the Secretary).
(7) No effect on certain organizations
With respect to any organization for a taxable year for which -
(A) such organization is a disqualified organization (within
the meaning of paragraph (5)), or
(B) an election under this subsection is not in effect for
such organization,
nothing in this subsection or in section 4911 shall be construed
to affect the interpretation of the phrase, "no substantial part
of the activities of which is carrying on propaganda, or
otherwise attempting, to influence legislation," under subsection
(c)(3).
(8) Affiliated organizations
For rules regarding affiliated organizations, see section
4911(f).
(i) Prohibition of discrimination by certain social clubs
Notwithstanding subsection (a), an organization which is
described in subsection (c)(7) shall not be exempt from taxation
under subsection (a) for any taxable year if, at any time during
such taxable year, the charter, bylaws, or other governing
instrument, of such organization or any written policy statement of
such organization contains a provision which provides for
discrimination against any person on the basis of race, color, or
religion. The preceding sentence to the extent it relates to
discrimination on the basis of religion shall not apply to -
(1) an auxiliary of a fraternal beneficiary society if such
society -
(A) is described in subsection (c)(8) and exempt from tax
under subsection (a), and
(B) limits its membership to the members of a particular
religion, or
(2) a club which in good faith limits its membership to the
members of a particular religion in order to further the
teachings or principles of that religion, and not to exclude
individuals of a particular race or color.
(j) Special rules for certain amateur sports organizations
(1) In general
In the case of a qualified amateur sports organization -
(A) the requirement of subsection (c)(3) that no part of its
activities involve the provision of athletic facilities or
equipment shall not apply, and
(B) such organization shall not fail to meet the requirements
of subsection (c)(3) merely because its membership is local or
regional in nature.
(2) Qualified amateur sports organization defined
For purposes of this subsection, the term "qualified amateur
sports organization" means any organization organized and
operated exclusively to foster national or international amateur
sports competition if such organization is also organized and
operated primarily to conduct national or international
competition in sports or to support and develop amateur athletes
for national or international competition in sports.
(k) Treatment of certain organizations providing child care
For purposes of subsection (c)(3) of this section and sections
170(c)(2), 2055(a)(2), and 2522(a)(2), the term "educational
purposes" includes the providing of care of children away from
their homes if -
(1) substantially all of the care provided by the organization
is for purposes of enabling individuals to be gainfully employed,
and
(2) the services provided by the organization are available to
the general public.
(l) Government corporations exempt under subsection (c)(1)
For purposes of subsection (c)(1), the following organizations
are described in this subsection:
(1) The Central Liquidity Facility established under title III
of the Federal Credit Union Act (12 U.S.C. 1795 et seq.).
(2) The Resolution Trust Corporation established under section
21A of the Federal Home Loan Bank Act.
(3) The Resolution Funding Corporation established under
section 21B of the Federal Home Loan Bank Act.
(m) Certain organizations providing commercial-type insurance not
exempt from tax
(1) Denial of tax exemption where providing commercial-type
insurance is substantial part of activities
An organization described in paragraph (3) or (4) of subsection
(c) shall be exempt from tax under subsection (a) only if no
substantial part of its activities consists of providing
commercial-type insurance.
(2) Other organizations taxed as insurance companies on insurance
business
In the case of an organization described in paragraph (3) or
(4) of subsection (c) which is exempt from tax under subsection
(a) after the application of paragraph (1) of this subsection -
(A) the activity of providing commercial-type insurance shall
be treated as an unrelated trade or business (as defined in
section 513), and
(B) in lieu of the tax imposed by section 511 with respect to
such activity, such organization shall be treated as an
insurance company for purposes of applying subchapter L with
respect to such activity.
(3) Commercial-type insurance
For purposes of this subsection, the term "commercial-type
insurance" shall not include -
(A) insurance provided at substantially below cost to a class
of charitable recipients,
(B) incidental health insurance provided by a health
maintenance organization of a kind customarily provided by such
organizations,
(C) property or casualty insurance provided (directly or
through an organization described in section 414(e)(3)(B)(ii))
by a church or convention or association of churches for such
church or convention or association of churches,
(D) providing retirement or welfare benefits (or both) by a
church or a convention or association of churches (directly or
through an organization described in section 414(e)(3)(A) or
414(e)(3)(B)(ii)) for the employees (including employees
described in section 414(e)(3)(B)) of such church or convention
or association of churches or the beneficiaries of such
employees, and
(E) charitable gift annuities.
(4) Insurance includes annuities
For purposes of this subsection, the issuance of annuity
contracts shall be treated as providing insurance.
(5) Charitable gift annuity
For purposes of paragraph (3)(E), the term "charitable gift
annuity" means an annuity if -
(A) a portion of the amount paid in connection with the
issuance of the annuity is allowable as a deduction under
section 170 or 2055, and
(B) the annuity is described in section 514(c)(5) (determined
as if any amount paid in cash in connection with such issuance
were property).
(n) Charitable risk pools
(1) In general
For purposes of this title -
(A) a qualified charitable risk pool shall be treated as an
organization organized and operated exclusively for charitable
purposes, and
(B) subsection (m) shall not apply to a qualified charitable
risk pool.
(2) Qualified charitable risk pool
For purposes of this subsection, the term "qualified charitable
risk pool" means any organization -
(A) which is organized and operated solely to pool insurable
risks of its members (other than risks related to medical
malpractice) and to provide information to its members with
respect to loss control and risk management,
(B) which is comprised solely of members that are
organizations described in subsection (c)(3) and exempt from
tax under subsection (a), and
(C) which meets the organizational requirements of paragraph
(3).
(3) Organizational requirements
An organization (hereinafter in this subsection referred to as
the "risk pool") meets the organizational requirements of this
paragraph if -
(A) such risk pool is organized as a nonprofit organization
under State law provisions authorizing risk pooling
arrangements for charitable organizations,
(B) such risk pool is exempt from any income tax imposed by
the State (or will be so exempt after such pool qualifies as an
organization exempt from tax under this title),
(C) such risk pool has obtained at least $1,000,000 in
startup capital from nonmember charitable organizations,
(D) such risk pool is controlled by a board of directors
elected by its members, and
(E) the organizational documents of such risk pool require
that -
(i) each member of such pool shall at all times be an
organization described in subsection (c)(3) and exempt from
tax under subsection (a),
(ii) any member which receives a final determination that
it no longer qualifies as an organization described in
subsection (c)(3) shall immediately notify the pool of such
determination and the effective date of such determination,
and
(iii) each policy of insurance issued by the risk pool
shall provide that such policy will not cover the insured
with respect to events occurring after the date such final
determination was issued to the insured.
An organization shall not cease to qualify as a qualified
charitable risk pool solely by reason of the failure of any of
its members to continue to be an organization described in
subsection (c)(3) if, within a reasonable period of time after
such pool is notified as required under subparagraph (E)(ii),
such pool takes such action as may be reasonably necessary to
remove such member from such pool.
(4) Other definitions
For purposes of this subsection -
(A) Startup capital
The term "startup capital" means any capital contributed to,
and any program-related investments (within the meaning of
section 4944(c)) made in, the risk pool before such pool
commences operations.
(B) Nonmember charitable organization
The term "nonmember charitable organization" means any
organization which is described in subsection (c)(3) and exempt
from tax under subsection (a) and which is not a member of the
risk pool and does not benefit (directly or indirectly) from
the insurance coverage provided by the pool to its members.
(o) Treatment of hospitals participating in provider-sponsored
organizations
An organization shall not fail to be treated as organized and
operated exclusively for a charitable purpose for purposes of
subsection (c)(3) solely because a hospital which is owned and
operated by such organization participates in a provider-sponsored
organization (as defined in section 1855(d) of the Social Security
Act), whether or not the provider-sponsored organization is exempt
from tax. For purposes of subsection (c)(3), any person with a
material financial interest in such a provider-sponsored
organization shall be treated as a private shareholder or
individual with respect to the hospital.
(p) Suspension of tax-exempt status of terrorist organizations
(1) In general
The exemption from tax under subsection (a) with respect to any
organization described in paragraph (2), and the eligibility of
any organization described in paragraph (2) to apply for
recognition of exemption under subsection (a), shall be suspended
during the period described in paragraph (3).
(2) Terrorist organizations
An organization is described in this paragraph if such
organization is designated or otherwise individually identified -
(A) under section 212(a)(3)(B)(vi)(II) or 219 of the
Immigration and Nationality Act as a terrorist organization or
foreign terrorist organization,
(B) in or pursuant to an Executive order which is related to
terrorism and issued under the authority of the International
Emergency Economic Powers Act or section 5 of the United
Nations Participation Act of 1945 for the purpose of imposing
on such organization an economic or other sanction, or
(C) in or pursuant to an Executive order issued under the
authority of any Federal law if -
(i) the organization is designated or otherwise
individually identified in or pursuant to such Executive
order as supporting or engaging in terrorist activity (as
defined in section 212(a)(3)(B) of the Immigration and
Nationality Act) or supporting terrorism (as defined in
section 140(d)(2) of the Foreign Relations Authorization Act,
Fiscal Years 1988 and 1989); and
(ii) such Executive order refers to this subsection.
(3) Period of suspension
With respect to any organization described in paragraph (2),
the period of suspension -
(A) begins on the later of -
(i) the date of the first publication of a designation or
identification described in paragraph (2) with respect to
such organization, or
(ii) the date of the enactment of this subsection, and
(B) ends on the first date that all designations and
identifications described in paragraph (2) with respect to such
organization are rescinded pursuant to the law or Executive
order under which such designation or identification was made.
(4) Denial of deduction
No deduction shall be allowed under any provision of this
title, including sections 170, 545(b)(2), 556(b)(2), 642(c),
2055, 2106(a)(2), and 2522, with respect to any contribution to
an organization described in paragraph (2) during the period
described in paragraph (3).
(5) Denial of administrative or judicial challenge of suspension
or denial of deduction
Notwithstanding section 7428 or any other provision of law, no
organization or other person may challenge a suspension under
paragraph (1), a designation or identification described in
paragraph (2), the period of suspension described in paragraph
(3), or a denial of a deduction under paragraph (4) in any
administrative or judicial proceeding relating to the Federal tax
liability of such organization or other person.
(6) Erroneous designation
(A) In general
If -
(i) the tax exemption of any organization described in
paragraph (2) is suspended under paragraph (1),
(ii) each designation and identification described in
paragraph (2) which has been made with respect to such
organization is determined to be erroneous pursuant to the
law or Executive order under which such designation or
identification was made, and
(iii) the erroneous designations and identifications result
in an overpayment of income tax for any taxable year by such
organization,
credit or refund (with interest) with respect to such
overpayment shall be made.
(B) Waiver of limitations
If the credit or refund of any overpayment of tax described
in subparagraph (A)(iii) is prevented at any time by the
operation of any law or rule of law (including res judicata),
such credit or refund may nevertheless be allowed or made if
the claim therefor is filed before the close of the 1-year
period beginning on the date of the last determination
described in subparagraph (A)(ii).
(7) Notice of suspensions
If the tax exemption of any organization is suspended under
this subsection, the Internal Revenue Service shall update the
listings of tax-exempt organizations and shall publish
appropriate notice to taxpayers of such suspension and of the
fact that contributions to such organization are not deductible
during the period of such suspension.
(q) Cross reference
For nonexemption of Communist-controlled organizations, see
section 11(b) of the Internal Security Act of 1950 (64 Stat.
997; 50 U.S.C. 790(b)).
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