Ill STAT. 938 PUBLIC LAW 105-34—AUG. 5, 1997 Subtitle E—Provisions Relating to Tax- Exempt Entities SEC. 1041. EXPANSION OF LOOK-THRU RULE FOR INTEREST, ANNU- ITIES, ROYALTIES, AND RENTS DERIVED BY SUBSIDI- ARIES OF TAX-EXEMPT ORGANIZATIONS. (a) IN GENERAL. — Paragraph (13) of section 512(b) is amended to read as follows: "(13) SPECIAL RULES FOR CERTAIN AMOUNTS RECEIVED FROM CONTROLLED ENTITIES.— "(A) IN GENERAL. —If an organization (in this paragraph referred to as the 'controlling organization') receives (directly or indirectly) a specified payment from another entity which it controls (in this paragraph referred to as the 'controlled entity), notwithstanding paragraphs (1), (2), and (3), the controlling organization shall include such payment as an item of gross income derived from an unrelated trade or business to the extent such payment reduces the net unrelated income of the controlled entity (or increases £my net unrelated loss of the controlled entity). There shall be allowed all deductions of the controlling organization directly connected with amounts treated as derived from an unrelated trade or business under the preceding sentence. "(B) NET UNRELATED INCOME OR LOSS. — For purposes of this paragraph— "(i) NET UNRELATED INCOME.— The term 'net unrelated income' means— "(I) in the case of a controlled entity which is not exempt from tax under section 501(a), the portion of such entity's taxable income which would be unrelated business taxable income if such entity were exempt from tax under section 501(a) and had the same exempt purposes (as defined in section 513A(a)(5)(A)) as the controlling organization, or "(II) in the case of a controlled entity which is exempt from tax under section 501(a), the amount of the unrelated business taxable income of the controlled entity. "(ii) NET UNRELATED LOSS.—The term 'net unrelated loss' means the net operating loss adjusted under rules similar to the rules of clause (i). "(C) SPECIFIED PAYMENT.—For purposes of this paragraph, the term 'specified payment' means any interest, annuity, royalty, or rent. "(D) DEFINITION OF CONTROL.—For purposes of this paragraph— "(i) CONTROL.— The term 'control' means— "(I) in the case of a corporation, ownership (by vote or value) of more than 50 percent of the stock in such corporation, "(II) in the case of a partnership, ownership of more than 50 percent of the profits interests or capital interests in such partnership, or
�
