100 STAT. 2128
PUBLIC LAW 99-514—OCT. 22, 1986
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volves such entity (or a related entity) or there is the equivalent of such an option, "(HI) such lease has a lease term in excess of 20 years, or "(IV) such lease occurs after a sale (or other transfer) of the property by, or lease of the property from, such entity (or a related entity) and such property has been used by such entity (or a related entity) before such sale (or other transfer) or lease, "(iii) 35-PERCENT THRESHOLD TEST.—Clause (i) shall apply to any property only if the portion of such property leased to tax-exempt entities in disqualified leases is more than 35 percent of the property. "(iv) TREATMENT OF IMPROVEMENTS.—For purposes of this subparagraph, improvements to a property (other than land) shall not be treated as a separate property.
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"(v) LEASEBACKS DURING IST 3 MONTHS OF USE NOT
TAKEN INTO ACCOUNT.—Subclause (IV) of clause (ii) shall not apply to any property which is leased within 3 months after the date such property is first used by the tax-exempt entity (or a related entity). "(C) EXCEPTION FOR SHORT-TERM LEASES.—
"(i) IN GENERAL.—Property shall not be treated as tax-exempt use property merely by reason of a shortterm lease. "(ii) SHORT-TERM LEASE.—For purposes of clause (i),
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the term 'short-term lease' means any lease the term of which is— "(I) less than 3 years, and "(II) less than the greater of 1 year or 30 percent of the property's present class life. In the case of nonresidential real property and property with no present class life, subclause (II) shall not apply. "(D) EXCEPTION WHERE PROPERTY USED IN UNRELATED
TRADE OR BUSINESS.—The term 'tax-exempt use property' ioif shall not include any portion of a property if such portion is predominantly used by the tax-exempt entity (directly or through a partnership of which such entity is a partner) in an unrelated trade or business the income of which is subject to tax under section 511. For purposes of subparagraph (B)(iii), any portion of a property so used shall not be
- IJ Seated as leased to a tax-exempt entity in a disqualified
4 . lease. "(E) NONRESIDENTIAL REAL PROPERTY DEFINED.—For purposes of this paragraph, the term 'nonresidential real propt-i erty' includes residential rental property. "(2) TAX-EXEMPT ENTITY.—
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"(A) IN GENERAL.—For purposes of this subsection, the term 'tax-exempt entity' means— "(i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing, "(ii) an organization (other than a cooperative described in section 521) which is exempt from tax imposed by this chapter, and "(iii) any foreign person or entity.
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