CRSO - Page 17




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          financed property, would be subject to UBTI pursuant to section             
          512(b)(4).  Petitioner suggests, however, that the operation of             
          section 512(b)(4) is irrelevant for purposes of establishing                
          eligibility for the section 502(b)(1) exclusion.  We disagree.              
               Section 512(b)(4) provides that “Notwithstanding” the                  
          various exclusions from UBTI contained in section 512(b)(1), (2),           
          (3), and (5), unrelated debt-financed income is included in UBTI.           
          Section 512(b)(4) thereby “nullifies these exclusions for income            
          derived from ‘debt-financed property’”.  Bartels Trust v. United            
          States, 209 F.3d 147, 149 (2d Cir. 2000).  Consequently, “if                
          section 512 applied to the organization”, as section 502(b)(1)              
          provides, then section 512(b)(4) would preclude petitioner’s                
          exclusion of its rents from UBTI under section 512(b)(3).  Hence,           
          petitioner does not satisfy the requirements of the section                 
          502(b)(1) exclusion.                                                        
          Conclusion                                                                  
               Petitioner’s rental activity constitutes a “trade or                   
          business” within the meaning of section 502(a); the exclusion               
          under section 502(b)(1) does not apply.  Consequently, petitioner           
          is not operated exclusively for charitable or other exempt                  
          purposes and so is not entitled to exemption under section                  
          501(c)(3).                                                                  










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