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Consistent with this analysis, section 1.502-1(d)(2), Income
Tax Regs., provides in relevant part:
For purposes of section 502, and this section, for
taxable years beginning after December 31, 1969, the
term “trade or business” does not include--
(i) the deriving of rents described in section
512(b)(3)(A),
* * * * * * *
For purposes of the exception described in subdivision
(i) of this subparagraph, if the rents derived by an
organization would not be excluded from unrelated
business income pursuant to section 512(b)(3) and the
regulations thereunder, the deriving of such rents
shall be considered a “trade or business”. [Emphasis
added.]
Petitioner contends that because the just-quoted sentence
containing the emphasized matter applies by its terms only “For
purposes of the exception described in subdivision (i) of this
subparagraph”, it has no applicability in construing the meaning
of “trade or business” in section 502(a). We disagree. The
exception described in subdivision (i) of this regulation
applies, according to the regulation’s initial words, “For
purposes of section 502, and this section”. Inasmuch as this
exception applies for purposes of section 502 comprehensively,
the emphasized language supra, which delimits the exception, also
applies for purposes of section 502 comprehensively.
Accordingly, under the regulation, if rents are not excluded from
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