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UBTI pursuant to section 512(b)(3), the deriving of such rents is
a “trade or business” for all purposes under section 502.
Petitioner does not expressly contend that the subject
regulation is invalid but contends that it is inconsistent with
legislative history. We disagree.
Before amendment in 1969, both sections 502 (in defining
“trade or business” for purposes of the feeder organization
rules) and 512(b)(3) (in defining UBTI) broadly excluded rents
from real property and personal property leased with the real
property.8 In 1969, Congress acted to curtail perceived abuses
involving exempt organizations’ engaging in commercial activity.
See Staff of Joint Comm. on Taxation, General Explanation of the
Tax Reform Act of 1969, at 62-63 (J. Comm. Print 1970). To that
end, Congress amended section 512(b)(3) to narrow the exclusion
8 Before sec. 502 was amended in 1969, it read in its
entirety:
An organization operated for the primary purpose
of carrying on a trade or business for profit shall not
be exempt under section 501 on the ground that all of
its profits are payable to one or more organizations
exempt under section 501 from taxation. For purposes
of this section, the term “trade or business” shall not
include the rental by an organization of its real
property (including personal property leased with the
real property).
Similarly, before amendment in 1969, sec. 512(b)(3) excluded
from the definition of “trade or business”, for purposes of
defining UBTI, “all rents from real property (including personal
property leased with the real property).”
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