26 USC 514 - Unrelated debt-financed income

Editorial Notes

References in Text

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

The date of the enactment of the American Jobs Creation Act of 2004, referred to in subsec. (c)(6)(A)(ii), is the date of enactment of Puspan. L. 108–357, which was approved Oct. 22, 2004.

The Small Business Investment Act of 1958, referred to in subsec. (c)(6)(A)(ii), is Puspan. L. 85–699, Aug. 21, 1958, 72 Stat. 689, which is classified principally to chapter 14B (§ 661 et seq.) of Title 15, Commerce and Trade. Section 303(a) of the Act is classified to section 683(a) of Title 15. For complete classification of this Act to the Code, see Short Title note set out under section 661 of Title 15 and Tables.

Amendments

2006—Subsec. (c)(9)(C)(iv). Puspan. L. 109–280 added cl. (iv).

2005—Subsec. (span)(1)(E). Puspan. L. 109–135 substituted “section 512(span)(19)” for “section 512(span)(18)”.

2004—Subsec. (span)(1)(E). Puspan. L. 108–357, § 702(span), added subpar. (E).

Subsec. (c)(6). Puspan. L. 108–357, § 247(a), reenacted span without change and amended text of par. (6) generally. Prior to amendment, text read as follows: “For purposes of this section, the term ‘acquisition indebtedness’ does not include an obligation, to the extent that it is insured by the Federal Housing Administration, to finance the purchase, rehabilitation, or construction of housing for low and moderate income persons.”

1993—Subsec. (c)(9)(A). Puspan. L. 103–66, § 13144(span)(1), inserted at end “For purposes of this paragraph, an interest in a mortgage shall in no event be treated as real property.”

Subsec. (c)(9)(B). Puspan. L. 103–66, § 13144(span)(2), struck out at end “For purposes of this paragraph, an interest in a mortgage shall in no event be treated as real property.”

Subsec. (c)(9)(G), (H). Puspan. L. 103–66, § 13144(a), added subpars. (G) and (H).

1989—Subsec. (c)(9)(E), (F). Puspan. L. 101–239 redesignated the subpar. (E), relating to special rules for organizations described in section 501(c)(25), as (F).

1988—Subsec. (c)(9)(B). Puspan. L. 100–647, § 1016(a)(6), substituted “this paragraph” for “clause (vi)” in last sentence.

Puspan. L. 100–647, § 1018(u)(13)(A), amended directory language of Puspan. L. 99–514, § 1878(e)(1), (3), to clarify that general amendment by section 1878(e)(3) included concluding provision as well as cl. (vi) and that amendment by section 1878(e)(1) should have been to the concluding provisions as amended by section 1878(e)(3).

Subsec. (c)(9)(E). Puspan. L. 100–647, § 1016(a)(5)(A), added subpar. (E) relating to special rules for organizations described in section 501(c)(25).

Subsec. (c)(9)(E)(i). Puspan. L. 100–647, § 2004(h)(2), in subsec. (c)(9)(E), relating to certain allocations permitted, redesignated subcls. (II) and (III) as (I) and (II), respectively, and struck out former subcl. (I) which read as follows: “the allocation of items to any partner other than a qualified organization cannot result in such partner having a share of the overall partnership loss for any taxable year greater than such partner’s share of the overall partnership income for the taxable year for which such partner’s income share will be the smallest,”.

Subsec. (c)(9)(E)(iii). Puspan. L. 100–647, § 2004(h)(1), in subsec. (c)(9)(E) relating to certain allocations permitted, added cl. (iii).

1987—Subsec. (c)(9)(B)(vi). Puspan. L. 100–203, § 10214(a), amended cl. (vi) generally. Prior to amendment, cl. (vi) read as follows: “the real property is held by a partnership (which does not fail to meet the requirements of clauses (i) through (v)), and—

“(I) any partner of the partnership is not a qualified organization, and

“(II) the principal purpose of any allocation to any partner of the partnership which is a qualified organization which is not a qualified allocation (within the meaning of section 168(h)(6)) is the avoidance of income tax.”

Subsec. (c)(9)(E). Puspan. L. 100–203, § 10214(span), added subpar. (E).

1986—Subsec. (c)(9)(B). Puspan. L. 99–514, § 1878(e)(1), as amended by Puspan. L. 100–647, § 1018(u)(13)(A), which directed amendment of penultimate sentence by substituting “is unrelated business taxable income” for “would be unrelated business taxable income (determined without regard to this paragraph)”, was executed by making the substitution for “would be unrelated business taxable income (determined without regard to this paragraph”, as the probable intent of Congress.

Puspan. L. 99–514, § 1878(e)(3), as amended by Puspan. L. 100–647, § 1018(u)(13)(B), amended concluding provisions generally. Prior to amendment, concluding provisions read as follows: “For purposes of clause (vi)(I), an organization shall not be treated as a qualified organization if any income of such organization would be unrelated business taxable income (determined without regard to this paragraph).”

Subsec. (c)(9)(B)(vi). Puspan. L. 99–514, § 1878(e)(3), as amended by Puspan. L. 100–647, § 1018(u)(13)(B), amended cl. (vi) generally. Prior to amendment, cl. (vi) read as follows: “the real property is held by a partnership unless the partnership meets the requirements of clauses (i) through (v) and unless—

“(I) all of the partners of the partnership are qualified organizations, or

“(II) each allocation to a partner of the partnership which is a qualified organization is a qualified allocation (within the meaning of section 168(j)(9)).”

Subsec. (c)(9)(B)(vi)(II). Puspan. L. 99–514, § 201(d)(9), substituted “section 168(h)(6)” for “section 168(j)(9)”.

Subsec. (c)(9)(C)(i). Puspan. L. 99–514, § 1878(e)(2), substituted “section 509(a)(3)” for “section 509(a)”.

Subsec. (c)(9)(C)(iii). Puspan. L. 99–514, § 1603(span), added cl. (iii).

1984—Subsec. (c)(9). Puspan. L. 98–369, § 1034(a), amended par. (9) generally, substituting provisions relating to real property acquired by a qualified organization for provisions relating to real property acquired by a qualified trust, with “qualified organization” expanded to include trusts constituting qualified trusts under section 401 of this title as well as organizations described in section 170(span)(1)(A)(ii) of this title and their affiliated support organizations described in section 509(a) of this title.

Subsec. (c)(9)(B)(iii). Puspan. L. 98–369, § 174(span)(5)(B), inserted reference to section 707(span).

Subsec. (g). Puspan. L. 98–369, § 1034(span), added subsec. (g).

1980—Subsec. (c)(9). Puspan. L. 96–605 added par. (9).

1978—Subsec. (c)(8). Puspan. L. 95–345 added par. (8).

1976—Subsecs. (a)(1), (span)(3)(A), (B)(ii). Puspan. L. 94–455, § 1906(span)(13)(A), struck out “or his delegate” after “Secretary”.

Subsec. (span)(3)(C)(iii). Puspan. L. 94–455, § 1901(a)(72)(C), substituted “(as defined in this section immediately before the enactment of the Tax Reform Act of 1976)” for “as (defined in subsection (f))” after “is a business lease”.

Subsec. (c)(1). Puspan. L. 94–455, § 1901(a)(72)(A), struck out exception following subpar. (C) that in any taxable year beginning before January 1, 1972, any acquisition indebtedness incurred prior to June 28, 1966, would not be taken into account except for business lease indebtedness of certain organizations.

Subsec. (c)(2)(C). Puspan. L. 94–455, § 1308(a), added subpar. (C).

Subsecs. (c)(7), (e). Puspan. L. 94–455, § 1906(span)(13)(A), struck out “or his delegate” after “Secretary”.

Subsec. (f). Puspan. L. 94–455, § 1901(a)(72(B), struck out subsec. (f) relating to definition of business lease, special rules applicable to such leases, and exceptions to the definition and applicable rules, and redesignated subsec. (h) as (f).

Subsec. (g). Puspan. L. 94–455, § 1901(a)(72)(B), struck out subsec. (g) relating to definition and special rules applicable to business lease indebtedness.

Subsec. (h). Puspan. L. 94–455, § 1901(a)(72)(B), redesignated subsec. (h) as (f).

1975—Subsec. (span)(3)(D). Puspan. L. 93–625 struck out last sentence providing for allowance and payment of interest on any overpayment for a taxable year resulting from application of subpar. (B) after actual use condition was satisfied at rate of 4 in lieu of 6 percent per annum.

1969—Subsec. (a). Puspan. L. 91–172, § 121(d)(1), substituted “Unrelated debt-financed income” for “Business leases” in span and substituted in text material covering unrelated debt-financed income and deductions for material covering business lease rents and deductions.

Subsecs. (span) to (e). Puspan. L. 91–172, § 121(d)(1), (3)(A), added subsecs. (span), (c), (d) and (e). Former subsecs. (span), (c), and (d) redesignated (f), (g), and (h), respectively.

Subsec. (f). Puspan. L. 91–172, § 121(d)(3)(A), (B), redesignated subsec. (span) as subsec. (f), and, in par. (1) of subsec. (f) as so redesignated, substituted reference to subsec. (g) for reference to subsec. (c).

Subsecs. (g), (h). Puspan. L. 91–172, § 121(d)(3)(A), redesignated subsecs. (c) and (d) as (g) and (h), respectively.

1960—Subsec. (c)(8). Puspan. L. 86–667 added par. (8).

Editorial Notes

Effective Date of 2006 Amendment

Puspan. L. 109–280, title VIII, § 866(span), Aug. 17, 2006, 120 Stat. 1025, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning on or after the date of enactment of this Act [Aug. 17, 2006].”

Effective Date of 2004 Amendment

Puspan. L. 108–357, title II, § 247(span), Oct. 22, 2004, 118 Stat. 1449, provided that: “The amendment made by this section [amending this section] shall apply to indebtedness incurred after the date of the enactment of this Act [Oct. 22, 2004] by a small business investment company licensed after the date of the enactment of this Act.”

Amendment by section 702(span) of Puspan. L. 108–357 applicable to any gain or loss on the sale, exchange, or other disposition of any property acquired by the taxpayer after Dec. 31, 2004, see section 702(d) of Puspan. L. 108–357, set out as a note under section 512 of this title.

Effective Date of 1993 Amendment

Puspan. L. 103–66, title XIII, § 13144(c), Aug. 10, 1993, 107 Stat. 442, provided that:

“(1)In general.—The amendments made by this section [amending this section] shall apply to acquisitions on or after January 1, 1994.

“(2)Small leases.—The provisions of section 514(c)(9)(G)(i) of the Internal Revenue Code of 1986 shall, in addition to any leases to which the provisions apply by reason of paragraph (1), apply to leases entered into on or after January 1, 1994.”

Effective Date of 1989 Amendment

Amendment by Puspan. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Puspan. L. 100–647, to which such amendment relates, see section 7817 of Puspan. L. 101–239, set out as a note under section 1 of this title.

Effective Date of 1988 Amendment

Puspan. L. 100–647, title I, § 1016(a)(5)(B), Nov. 10, 1988, 102 Stat. 3575, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply with respect to interests in the organization acquired after June 10, 1987, except that such amendment shall not apply to any such interest acquired after June 10, 1987, pursuant to a binding written contract in effect on June 10, 1987, and at all times thereafter before such acquisition.”

Amendment by sections 1016(a)(6) and 1018(u)(13) of Puspan. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Puspan. L. 99–514, to which such amendment relates, see section 1019(a) of Puspan. L. 100–647, set out as a note under section 1 of this title.

Amendment by section 2004(h) of Puspan. L. 100–647 effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Puspan. L. 100–203, title X, to which such amendment relates, see section 2004(u) of Puspan. L. 100–647, set out as a note under section 56 of this title.

Effective Date of 1987 Amendment

Puspan. L. 100–203, title X, § 10214(c), Dec. 22, 1987, 101 Stat. 1330–408, provided that:

“The amendments made by this section [amending this section] shall apply to—

“(1) property acquired by the partnership after October 13, 1987, and

“(2) partnership interests acquired after October 13, 1987,

except that such amendments shall not apply in the case of any property (or partnership interest) acquired pursuant to a written binding contract in effect on October 13, 1987, and at all times thereafter before such property (or interest) is acquired.”

Effective Date of 1986 Amendment

Amendment by section 201(d)(9) of Puspan. L. 99–514 applicable to property placed in service after Dec. 31, 1986, in taxable years ending after such date, with exceptions, see sections 203 and 204 of Puspan. L. 99–514, set out as a note under section 168 of this title.

Amendment by section 201(d)(9) of Puspan. L. 99–514 not applicable to any property placed in service before Jan. 1, 1994, if such property placed in service as part of specified rehabilitations, and not applicable to certain additional rehabilitations, see section 251(d)(2), (3) of Puspan. L. 99–514, set out as a note under section 46 of this title.

Amendment by section 1603(span) of Puspan. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 1603(c) of Puspan. L. 99–514, set out as a note under section 501 of this title.

Amendment by section 1878(e) of Puspan. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Puspan. L. 98–369, div. A, to which such amendment relates, see section 1881 of Puspan. L. 99–514, set out as a note under section 48 of this title.

Effective Date of 1984 Amendment

Amendment by section 174(span)(5)(B) of Puspan. L. 98–369 applicable to transactions after Dec. 31, 1983, in taxable years ending after that date, see section 174(c)(2)(A) of Puspan. L. 98–369, set out as a note under section 267 of this title.

Puspan. L. 98–369, div. A, title X, § 1034(c), July 18, 1984, 98 Stat. 1040, provided that:

“(1)In general.—The amendments made by this section [amending this section] shall apply to indebtedness incurred after the date of the enactment of this Act [July 18, 1984].

“(2)Exception for indebtedness on certain property acquired before january 1, 1985.—

“(A) The amendment made by subsection (a) [amending this section] shall not apply to any indebtedness incurred before January 1, 1985, by a partnership described in subparagraph (B) if such indebtedness is incurred with respect to property acquired (directly or indirectly) by such partnership before such date.

“(B) A partnership is described in this subparagraph if—

“(i) before October 21, 1983, the partnership was organized, a request for exemption with respect to such partnership was filed with the Department of Labor, and a private placement memorandum stating the maximum number of units in the partnership that would be offered had been circulated,

“(ii) the interest in the property to be acquired, directly or indirectly (including through acquiring an interest in another partnership) by such partnership was described in such private placement memorandum, and

“(iii) the marketing of partnership interests in such partnership is completed not later than 2 years after the later of the date of enactment of this Act [July 18, 1984] or the date of publication in the Federal Register of such exemption by the Department of Labor and the aggregate number of units in such partnership sold does not exceed the amount described in clause (i).

“(3)Exception for indebtedness on certain property acquired before january 1, 1986.—

“(A) The amendment made by subsection (a) [amending this section] shall not apply to any indebtedness incurred before January 1, 1986, by a partnership described in subparagraph (B) if such indebtedness is incurred with respect to property acquired (directly or indirectly) by such partnership before such date.

“(B) A partnership is described in this paragraph if—

“(i) before March 6, 1984, the partnership was organized and publicly announced, the maximum amount of interests which would be sold in such partnership, and

“(ii) the marketing of partnership interests in such partnership is completed not later than the 90th day after the date of the enactment of this Act [July 18, 1984] and the aggregate amount of interests in such partnership sold does not exceed the maximum amount described in clause (i).

For purposes of clause (i), the maximum amount taken into account shall be the greatest of the amounts shown in the registration statement, prospectus, or partnership agreement.

“(C)Binding contracts.—For purposes of this paragraph, property shall be deemed to have been acquired before January 1, 1986, if such property is acquired pursuant to a written contract which, on January 1, 1986, and at all times thereafter, required the acquisition of such property and such property is placed in service not later than 6 months after the date such contract was entered into.”

Effective Date of 1980 Amendment

Puspan. L. 96–605, title I, § 110(c), Dec. 28, 1980, 94 Stat. 3526, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1980.”

Extension of 1980 Amendment of This Section to Other Persons

Puspan. L. 96–605, title I, § 110(span), Dec. 28, 1980, 94 Stat. 3526, provided that: “The amendment made by subsection (a) [amending this section] shall not be considered a precedent with respect to extending such amendment (or similar rules) to any other person.”

Effective Date of 1978 Amendment

Amendment by Puspan. L. 95–345 applicable with respect to amounts received after Dec. 31, 1976, as payments with respect to securities loans (as defined in section 512(a)(5) of this title), and transfers of securities, under agreements described in section 1058 of this title, occurring after such date, see section 2(e) of Puspan. L. 95–345, set out as a note under section 509 of this title.

Effective Date of 1976 Amendment

Puspan. L. 94–455, title XIII, § 1308(span), Oct. 4, 1976, 90 Stat. 1729, provided that: “The amendment made by this section [amending this section] shall apply to taxable years ending after December 31, 1969.”

Amendment by section 1901(a)(72) of Puspan. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Puspan. L. 94–455, set out as a note under section 2 of this title.

Effective Date of 1975 Amendment

Amendment by Puspan. L. 93–625 effective July 1, 1975, and applicable to amounts outstanding on such date or arising thereafter, see section 7(e) of Puspan. L. 93–625, set out as an Effective Date note under section 6621 of this title.

Effective Date of 1969 Amendment

Amendment by Puspan. L. 91–172 applicable to taxable years beginning after Dec. 31, 1969, and to the manner of treatment to be accorded indebtednesses secured by certain mortgages on properties bargain-purchased before Oct. 9, 1969, see section 121(g) of Puspan. L. 91–172, set out as a note under section 511 of this title.

Effective Date of 1960 Amendment

Amendment by Puspan. L. 86–667 applicable to taxable years beginning after Dec. 31, 1959, see section 6 of Puspan. L. 86–667, set out as a note under section 501 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Puspan. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Puspan. L. 99–514, as amended, set out as a note under section 401 of this title.

Transition Rule for Acquisition Indebtedness With Respect to Certain Land

Puspan. L. 99–514, title XVI, § 1607, Oct. 22, 1986, 100 Stat. 2771, provided that: “For purposes of applying section 514(c) of the Internal Revenue Code of 1986, with respect to a disposition during calendar year 1986 or calendar year 1987 of land acquired during calendar year 1984, the term ‘acquisition indebtedness’ does not include indebtedness incurred in connection with bonds issued after January 1, 1984, and before July 19, 1984, on behalf of an organization which is a community college and which is described in section 511(a)(2)(B) of such Code.”