1.501(c)(2)-1. Corporations organized
to hold title to property for exempt organizations
(a) A corporation described in section 501(c)(2)
and otherwise exempt from tax under section 501(a) is taxable
upon its unrelated business taxable income. For taxable years
beginning before January 1, 1970, see §1.511-2(c)(4). Since
a corporation described in section 501(c)(2) cannot be exempt
under section 501(a) if it engages in any business other than
that of holding title to property and collecting income therefrom,
it cannot have unrelated business taxable income as defined
in section 512 other than income which is treated as unrelated
business taxable income solely because of the applicability
of section 512(a)(3)(C); or debt financed income which is treated
as unrelated business taxable income solely because of section
514; or certain interest, annuities, royalties, or rents which
are treated as unrelated business taxable income solely because
of section 512(b)(3)(B)(ii) or (13). Similarly, exempt status
under section 501(c)(2) shall not be affected where certain
rents from personal property leased with real property are treated
as unrelated business taxable income under section 512(b)(3)(A)(ii)
solely because such rents attributable to such personal property
are more than incidental when compared to the total rents received
or accrued under the lease, or under section 512(b)(3)(B)(i)
solely because such rents attributable to such personal property
exceed 50 percent of the total rents received or accrued under
the lease.
(b) A corporation described
in section 501(c)(2) cannot accumulate income and retain its
exemption, but it must turn over the entire amount of such income,
less expenses, to an organization which is itself exempt from
tax under section 501(a). [Reg. §1.501(c)(2)-1.]
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