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INTERNAL REVENUE CODE OF 1954
SEC. 502. FEEDER ORGANIZATIONS.
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). SEC. 503. REQUIREMENTS FOR EXEMPTION. (a) D E N I A L OP EXEMPTION TO ORGANIZATIONS ENGAGED IN P R O HIBITED TRANSACTIONS.— (1) GENERAL RULE.—An organization described in section 501
. (c)(3) which is subject to the provisions of this section shall not be exempt from taxation under section 501(a) if it has engaged in a prohibited transaction after July 1, 1950; and an organization described in section 401(a) which is subject to the provisions of this section shall not be exempt from taxation under section 501(a) if it has engaged in a prohibited transaction after March 1, 1954. (2) TAXABLE YEARS AFFECTED.—An organization described in section 501(c)(3) or section 401(a) shall be denied exemption from taxation under section 501(a) by reason of paragraph (1) only for taxable years after the taxable year during which it is notified by the Secretary or his delegate that it has engaged in a prohibited transaction, unless such organization entered into such prohibited transaction with the purpose of diverting corpus or income of the organization from its exempt purposes, and such transaction involved a substantial part of the corpus or income of such organization. (b) ORGANIZATIONS TO W H I C H SECTION APPLIES.—This section shall apply to any organization described in section 501(c)(3) or section 401 (a) except— (1) a religious organization (other than a trust); (2) an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on; (3) an organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501(a)) from the United States or any State or political subdivision thereof or from direct or indirect contributions from the general public; (4) an organization which is operated, supervised, controlled, or principally supported by a religious organization (other than a trust) which is itself not subject to the provisions of this section; and (5) an organization the principal purposes or functions of which are the providing of medical or hospital care or medical education or medical research or agricultural research. (c) PROHIBITED TRANSACTIONS.—For purposes of this section, the term "prohibited transaction" means any transaction in which an organization subject to the provisions of this section— § 502
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