26 USC r\'5l^"
PUBLIC LAW 91-172-DEC. 30, 1969
both amounts computed without regard to amounts paid directly or indirectly to the controlling organization. There shall be allowed all deductions directly connected with amounts included in gross income under the preceding sentence. "(16) Except as provided in paragraph (4), in the case of a church, or convention or association of churches, for taxable years beginning before January 1, 1976, there shall be excluded all gross income derived from a trade or business and all deductions directly connected with the carrying on of such trade or business if such trade or business was carried on by such organization or its predecessor before May 27, 1969. "(17) Except as provided in paragraph (4), in the case of a trade or business— " (A) which consists of providing services under license issued by a Federal regulatory agency, " (B) which is carried on by a religious order or by an educational institution (as defined in section 151(e)(4)) maintained b}'^ such religious order, and which was so carried on before May 27, 1959, and " (C) less than 10 percent of the net income of which for each taxable year is used for activities which are not related to the purpose constituting the basis for the religious order's exemption, there shall be excluded all gross income derived from such trade or business and all deductions directly connected with the carrying on of such trade or business, so long as it is established to the satisfaction of the Secretary or his delegate that the rates or other charges for such services are competitive with rates or other charges charged for similar services by persons not exempt from taxation." (D) TECHNICAL AMENDMENT.—Section 512(b) (relating to exceptions, additions, and limitations in determining unrelated business taxable income) is amended by striking out so much thereof as precedes paragraph (1) and inserting in lieu thereof the following: "(b) MODIFICATIONS.—The modifications referred to in subsection (a) are the following:" (3) RELATED AMENDMENT.—
68A Stat. 76;
( ^) Part IX of Subchapter B of chapter 1 (relating to items not deductible) is amended by adding at the end thereof the following new section: "SEC. 277. DEDUCTIONS INCURRED BY CERTAIN MEMBERSHIP ORGANIZATIONS IN TRANSACTIONS WITH MEMBERS. "(a) GENERAL RULE. — I n the case of a social club or other membership organization which is operated primarily to furnish services or goods to members and which is not exempt from taxation, deductions for the taxable year attributable to furnishing services, insurance, goods, or other items of value to members shall be allowed only to the C'.xtent of income derived during such year from members or transactions with members (including income derived during such year from institutes and trade shows which are primarily for the education of members). If for any taxable year such deductions exceed such income, the excess shall be treated as a deduction attributable to furnishing services, insurance, goods, or other items of value to members paid or incurred in the succeeding taxable year. "(b) EXCEPTIONS.—Subsection (a) shall not apply to any organization— "(1) which for the taxable year is subject to taxation under subchapter H or L,