23731. Every organization or trust exempt under this chapter,
except as provided in this article, is subject to the tax imposed
upon its unrelated business taxable income, as defined in Section
23732, as follows:
(a) Corporations (other than banks and financial corporations),
associations, and business trusts are subject to the tax imposed
under Section 23501.
(b) Trusts are subject to the tax imposed by subdivision (e) of
Section 17041.
This section applies to taxable years beginning after December 31,
1970.
23732. Section 512 of the Internal Revenue Code, relating to
unrelated business taxable income, shall apply, except as otherwise
provided.
(a) Section 512(a)(2) of the Internal Revenue Code, relating to
special rule for foreign organizations, shall not be applicable.
(b) Section 512(a)(3) of the Internal Revenue Code, relating to
special rules applicable to organizations described in paragraph (7),
(9), (17), or (20) of Section 501(c), shall be modified as follows:
(1) The reference to Section 501(c)(7) of the Internal Revenue
Code shall be modified to refer to Section 23701g.
(2) The reference to Section 501(c)(9) of the Internal Revenue
Code shall be modified to refer to Section 23701i.
(3) The reference to Section 501(c)(17) of the Internal Revenue
Code shall be modified to refer to Section 23701n.
(4) The reference to Section 501(c)(20) of the Internal Revenue
Code shall be modified to refer to Section 23701q.
(c) Section 512(d) of the Internal Revenue Code, relating to
treatment of dues of agricultural or horticultural organizations,
shall be modified by substituting "Section 23701a" for "Section 501
(c)(5)" of the Internal Revenue Code.
(d) Section 512(b)(13)(E) of the Internal Revenue Code is modified
as follows:
(1) The phrase "tax imposed under Part 10 (commencing with Section
17001) or this part" shall be substituted for "tax imposed by this
chapter" in Section 512(b)(13)(E)(ii) of the Internal Revenue Code.
(2) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this subparagraph" in Section 512(b)(13)
(iii)(I) of the Internal Revenue Code.
(3) The amendments made by the act adding this subdivision shall
apply to payments received or accrued on or after January 1, 2010.
23734. (a) Section 513 of the Internal Revenue Code, relating to
unrelated trade or business, shall apply, except as otherwise
provided.
(b) Section 513(g) of the Internal Revenue Code, relating to
certain pole rentals, shall not apply.
23735. (a) Section 514 of the Internal Revenue Code, relating to
unrelated debt-financed income, shall apply, except as otherwise
provided.
(b) Section 10214 of Public Law 100-203, relating to the treatment
of certain partnership allocations, shall apply to taxable years
beginning on or after January 1, 1990, for property acquired by the
partnership after October 13, 1987, and partnership interests
acquired after October 13, 1987.
(c) An interest in a participation agreement, as defined in
subdivision (i) of Section 69980 of the Education Code, shall not be
treated as debt.
23736. Sections 23736.1 to 23736.4, inclusive, shall apply to any
organization described in Section 23701d or Section 23701n except--
(a) A religious organization (other than a trust);
(b) 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;
(c) 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 23701d) from the United States or any state or
political subdivision thereof or from direct or indirect
contributions from the general public;
(d) 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 article;
and
(e) An organization the principal purposes or functions of which
are the providing of medical or hospital care or medical education or
medical research.
23736.1. (a) For the purposes of this article, the term "prohibited
transaction" means any transaction in which an organization subject
to this article--
(1) Lends any part of its income or corpus, without the receipt of
adequate security and a reasonable rate of interest, to;
(2) Pays any compensation, in excess of a reasonable allowance for
salaries or other compensation for personal services actually
rendered, to;
(3) Makes any part of its services available on a preferential
basis to;
(4) Makes any substantial purchase of securities or any other
property, for more than adequate consideration in money or money's
worth, from;
(5) Sells any substantial part of its securities or other
property, for less than an adequate consideration in money or money's
worth, to; or
(6) Engages in any other transaction that results in a substantial
diversion of its income or corpus to; the creator of the
organization (if a trust); a person who has made a substantial
contribution to the organization; a member of the family (as defined
in Section 267(c)(4) of the Internal Revenue Code) of an individual
who is the creator of that trust or who has made a substantial
contribution to that organization; or a corporation controlled by
that creator or person through the ownership, directly or indirectly,
of 50 percent or more of the total combined voting power of all
classes of stock entitled to vote or 50 percent or more of the total
value of shares of all classes of stock of the corporation.
(b) For purposes of subdivision (a), a bond, debenture, note, or
certificate or other evidence of indebtedness (hereinafter in this
section referred to as "obligation") acquired by a trust described in
Section 23701n shall not be treated as a loan made without the
receipt of adequate security if--
(1) The obligation is acquired--
(A) On the market, either (i) at the price of the obligation
prevailing on a national securities exchange that is registered with
the Securities and Exchange Commission, or (ii) if the obligation is
not traded on a national securities exchange, at a price not less
favorable to the trust than the offering price for the obligation as
established by current bid and asked prices quoted by persons
independent of the issuer;
(B) From an underwriter, at a price (i) not in excess of the
public offering price for the obligation as set forth in a prospectus
or offering circular filed with the Securities and Exchange
Commission, and (ii) at which a substantial portion of the same issue
is acquired by persons independent of the issuer; or
(C) Directly from the issuer, at a price not less favorable to the
trust than the price paid currently for a substantial portion of the
same issue by persons independent of the issuer;
(2) Immediately following acquisition of that obligation--
(A) Not more than 25 percent of the aggregate amount of
obligations issued in that issue and outstanding at the time of
acquisition is held by the trust, and
(B) At least 50 percent of the aggregate amount referred to in
subparagraph (A) is held by persons independent of the issuer; and
(3) Immediately following acquisition of the obligation, not more
than 25 percent of the assets of the trust is invested in obligations
of persons described in subdivision (a).
(4) (A) In the case of a trust described in Section 23701n, or in
the case of a corporation described in Section 23701h, all of the
stock of which was acquired before January 1, 1961, by a trust
described in Section 23701n, any indebtedness incurred by that trust
or that corporation before January 1, 1961, in connection with real
property that is leased before January 1, 1961, and any indebtedness
incurred by that trust or that corporation on or after that date
necessary to carry out the terms of that lease, shall not be
considered as an indebtedness with respect to that trust or that
corporation for purposes of this section.
(B) In the application of paragraph (1) of subdivision (a), if a
trust described in Section 23701n forming part of a supplemental
unemployment compensation benefit plan lends any money to another
trust described in Section 23701n forming part of the same plan, that
loan shall not be treated as an indebtedness of the borrowing trust,
except to the extent that the loaning trust--
(i) Incurs any indebtedness in order to make that loan,
(ii) Incurred indebtedness before the making of that loan which
would not have been incurred but for the making of that loan, or
(iii) Incurred indebtedness after the making of that loan which
would not have been incurred but for the making of that loan and that
was reasonably foreseeable at the time of making that loan.
(c) Subdivision (a) shall not apply to a loan made by a trust
described in Section 23701n to the employer (or to a renewal of that
loan or, if the loan is repayable upon demand, to a continuation of
that loan) if the loan bears a reasonable rate of interest, and if
(in the case of a making or renewal)--
(1) The employer is prohibited (at the time of that making or
renewal) by any law of the United States or regulation thereunder
from directly or indirectly pledging, as security for the loan, a
particular class or classes of his or her assets the value of which
(at that time) represents more than one-half of the value of all his
or her assets;
(2) The making or renewal, as the case may be, is approved in
writing as an investment that is consistent with the exempt purposes
of the trust by a trustee who is independent of the employer, and no
other independent trustee had previously refused to give that written
approval; and
(3) Immediately following the making or renewal, as the case may
be, the aggregate amount loaned by the trust to the employer, without
the receipt of adequate security, does not exceed 25 percent of the
value of all the assets of the trust.
(4) For purposes of paragraph (2) the term "trustee" means, with
respect to any trust for which there is more than one trustee who is
independent of the employer, a majority of those independent
trustees. For purposes of paragraph (3), the determination as to
whether any amount loaned by the trust to the employer is loaned
without the receipt of adequate security shall be made without regard
to subdivision (b).
23736.2. An organization described in Section 23701d which is
subject to the provisions of this article, except those specified in
Sections 23736, shall not be exempt from taxation under Article 1 of
this chapter if it has engaged in a prohibited transaction after
January 1, 1951; and an organization described in Section 23701n
which is subject to the provisions of this article shall not be
exempt from taxation under Article 1 of this chapter if it has
engaged in a prohibited transaction after December 31, 1960.
23736.3. An organization described in Section 23701n or Section
23701d, except as specified in Section 23736, shall be denied
exemption under Section 23736.2 only for taxable years subsequent to
the taxable years during which it is notified by the Franchise Tax
Board 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.
23736.4. Any organization denied exemption under Section 23701d or
Section 23701n by reason of the provisions of Section 23736.2 with
respect to any taxable year following the taxable year in which
notice of denial of exemption was received, may, under regulations
prescribed by the Franchise Tax Board, file claim for exemption, and
if the Franchise Tax Board pursuant to such regulations, is satisfied
that such organizations will not knowingly again engage in a
prohibited transaction, such organization shall be exempt with
respect to taxable years subsequent to the year in which such claim
is filed.
23737. In the case of any organization described in Section 23701d
to which this article is applicable, exemption under Article 1
(commencing with Section 23701) shall be denied for the taxable year
if the amounts accumulated out of income during the taxable year or
any prior taxable year and not actually paid out by the end of the
taxable year--
(a) Are unreasonable in amount or duration in order to carry out
the charitable, educational, or other purpose or function
constituting the basis for such organization's exemption under
Section 23701d; or
(b) Are used to a substantial degree for purposes or functions
other than those constituting the basis for such organization's
exemption under Section 23701d, or
(c) Are invested in such a manner as to jeopardize the carrying
out of the charitable, educational, or other purpose or function
constituting the basis for such organization's exemption under
Section 23701d.
23740. Section 4911 of the Internal Revenue Code, relating to tax
on excess expenditures to influence legislation, shall apply, except
as otherwise provided.
(a) Section 4911(a)(1) of the Internal Revenue Code shall not
apply.
(b) Section 4911(f)(4)(A) of the Internal Revenue Code shall
include efforts to influence legislation with respect to acts, bills,
resolutions, or similar items by the State Legislature.
23741. Notwithstanding any other provision in this part, in the
case of a church exempt from taxes imposed under this part pursuant
to Article 1 (commencing with Section 23701) of Chapter 4, any rental
income received, directly or indirectly, from another church exempt
from taxes imposed under this part pursuant to Article 1 (commencing
with Section 23701) of Chapter 4 for rental of exempt function church
property is exempt from any tax imposed by this part.
23731. Every organization or trust exempt under this chapter,
except as provided in this article, is subject to the tax imposed
upon its unrelated business taxable income, as defined in Section
23732, as follows:
(a) Corporations (other than banks and financial corporations),
associations, and business trusts are subject to the tax imposed
under Section 23501.
(b) Trusts are subject to the tax imposed by subdivision (e) of
Section 17041.
This section applies to taxable years beginning after December 31,
1970.
23732. Section 512 of the Internal Revenue Code, relating to
unrelated business taxable income, shall apply, except as otherwise
provided.
(a) Section 512(a)(2) of the Internal Revenue Code, relating to
special rule for foreign organizations, shall not be applicable.
(b) Section 512(a)(3) of the Internal Revenue Code, relating to
special rules applicable to organizations described in paragraph (7),
(9), (17), or (20) of Section 501(c), shall be modified as follows:
(1) The reference to Section 501(c)(7) of the Internal Revenue
Code shall be modified to refer to Section 23701g.
(2) The reference to Section 501(c)(9) of the Internal Revenue
Code shall be modified to refer to Section 23701i.
(3) The reference to Section 501(c)(17) of the Internal Revenue
Code shall be modified to refer to Section 23701n.
(4) The reference to Section 501(c)(20) of the Internal Revenue
Code shall be modified to refer to Section 23701q.
(c) Section 512(d) of the Internal Revenue Code, relating to
treatment of dues of agricultural or horticultural organizations,
shall be modified by substituting "Section 23701a" for "Section 501
(c)(5)" of the Internal Revenue Code.
(d) Section 512(b)(13)(E) of the Internal Revenue Code is modified
as follows:
(1) The phrase "tax imposed under Part 10 (commencing with Section
17001) or this part" shall be substituted for "tax imposed by this
chapter" in Section 512(b)(13)(E)(ii) of the Internal Revenue Code.
(2) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this subparagraph" in Section 512(b)(13)
(iii)(I) of the Internal Revenue Code.
(3) The amendments made by the act adding this subdivision shall
apply to payments received or accrued on or after January 1, 2010.
23734. (a) Section 513 of the Internal Revenue Code, relating to
unrelated trade or business, shall apply, except as otherwise
provided.
(b) Section 513(g) of the Internal Revenue Code, relating to
certain pole rentals, shall not apply.
23735. (a) Section 514 of the Internal Revenue Code, relating to
unrelated debt-financed income, shall apply, except as otherwise
provided.
(b) Section 10214 of Public Law 100-203, relating to the treatment
of certain partnership allocations, shall apply to taxable years
beginning on or after January 1, 1990, for property acquired by the
partnership after October 13, 1987, and partnership interests
acquired after October 13, 1987.
(c) An interest in a participation agreement, as defined in
subdivision (i) of Section 69980 of the Education Code, shall not be
treated as debt.
23736. Sections 23736.1 to 23736.4, inclusive, shall apply to any
organization described in Section 23701d or Section 23701n except--
(a) A religious organization (other than a trust);
(b) 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;
(c) 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 23701d) from the United States or any state or
political subdivision thereof or from direct or indirect
contributions from the general public;
(d) 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 article;
and
(e) An organization the principal purposes or functions of which
are the providing of medical or hospital care or medical education or
medical research.
23736.1. (a) For the purposes of this article, the term "prohibited
transaction" means any transaction in which an organization subject
to this article--
(1) Lends any part of its income or corpus, without the receipt of
adequate security and a reasonable rate of interest, to;
(2) Pays any compensation, in excess of a reasonable allowance for
salaries or other compensation for personal services actually
rendered, to;
(3) Makes any part of its services available on a preferential
basis to;
(4) Makes any substantial purchase of securities or any other
property, for more than adequate consideration in money or money's
worth, from;
(5) Sells any substantial part of its securities or other
property, for less than an adequate consideration in money or money's
worth, to; or
(6) Engages in any other transaction that results in a substantial
diversion of its income or corpus to; the creator of the
organization (if a trust); a person who has made a substantial
contribution to the organization; a member of the family (as defined
in Section 267(c)(4) of the Internal Revenue Code) of an individual
who is the creator of that trust or who has made a substantial
contribution to that organization; or a corporation controlled by
that creator or person through the ownership, directly or indirectly,
of 50 percent or more of the total combined voting power of all
classes of stock entitled to vote or 50 percent or more of the total
value of shares of all classes of stock of the corporation.
(b) For purposes of subdivision (a), a bond, debenture, note, or
certificate or other evidence of indebtedness (hereinafter in this
section referred to as "obligation") acquired by a trust described in
Section 23701n shall not be treated as a loan made without the
receipt of adequate security if--
(1) The obligation is acquired--
(A) On the market, either (i) at the price of the obligation
prevailing on a national securities exchange that is registered with
the Securities and Exchange Commission, or (ii) if the obligation is
not traded on a national securities exchange, at a price not less
favorable to the trust than the offering price for the obligation as
established by current bid and asked prices quoted by persons
independent of the issuer;
(B) From an underwriter, at a price (i) not in excess of the
public offering price for the obligation as set forth in a prospectus
or offering circular filed with the Securities and Exchange
Commission, and (ii) at which a substantial portion of the same issue
is acquired by persons independent of the issuer; or
(C) Directly from the issuer, at a price not less favorable to the
trust than the price paid currently for a substantial portion of the
same issue by persons independent of the issuer;
(2) Immediately following acquisition of that obligation--
(A) Not more than 25 percent of the aggregate amount of
obligations issued in that issue and outstanding at the time of
acquisition is held by the trust, and
(B) At least 50 percent of the aggregate amount referred to in
subparagraph (A) is held by persons independent of the issuer; and
(3) Immediately following acquisition of the obligation, not more
than 25 percent of the assets of the trust is invested in obligations
of persons described in subdivision (a).
(4) (A) In the case of a trust described in Section 23701n, or in
the case of a corporation described in Section 23701h, all of the
stock of which was acquired before January 1, 1961, by a trust
described in Section 23701n, any indebtedness incurred by that trust
or that corporation before January 1, 1961, in connection with real
property that is leased before January 1, 1961, and any indebtedness
incurred by that trust or that corporation on or after that date
necessary to carry out the terms of that lease, shall not be
considered as an indebtedness with respect to that trust or that
corporation for purposes of this section.
(B) In the application of paragraph (1) of subdivision (a), if a
trust described in Section 23701n forming part of a supplemental
unemployment compensation benefit plan lends any money to another
trust described in Section 23701n forming part of the same plan, that
loan shall not be treated as an indebtedness of the borrowing trust,
except to the extent that the loaning trust--
(i) Incurs any indebtedness in order to make that loan,
(ii) Incurred indebtedness before the making of that loan which
would not have been incurred but for the making of that loan, or
(iii) Incurred indebtedness after the making of that loan which
would not have been incurred but for the making of that loan and that
was reasonably foreseeable at the time of making that loan.
(c) Subdivision (a) shall not apply to a loan made by a trust
described in Section 23701n to the employer (or to a renewal of that
loan or, if the loan is repayable upon demand, to a continuation of
that loan) if the loan bears a reasonable rate of interest, and if
(in the case of a making or renewal)--
(1) The employer is prohibited (at the time of that making or
renewal) by any law of the United States or regulation thereunder
from directly or indirectly pledging, as security for the loan, a
particular class or classes of his or her assets the value of which
(at that time) represents more than one-half of the value of all his
or her assets;
(2) The making or renewal, as the case may be, is approved in
writing as an investment that is consistent with the exempt purposes
of the trust by a trustee who is independent of the employer, and no
other independent trustee had previously refused to give that written
approval; and
(3) Immediately following the making or renewal, as the case may
be, the aggregate amount loaned by the trust to the employer, without
the receipt of adequate security, does not exceed 25 percent of the
value of all the assets of the trust.
(4) For purposes of paragraph (2) the term "trustee" means, with
respect to any trust for which there is more than one trustee who is
independent of the employer, a majority of those independent
trustees. For purposes of paragraph (3), the determination as to
whether any amount loaned by the trust to the employer is loaned
without the receipt of adequate security shall be made without regard
to subdivision (b).
23736.2. An organization described in Section 23701d which is
subject to the provisions of this article, except those specified in
Sections 23736, shall not be exempt from taxation under Article 1 of
this chapter if it has engaged in a prohibited transaction after
January 1, 1951; and an organization described in Section 23701n
which is subject to the provisions of this article shall not be
exempt from taxation under Article 1 of this chapter if it has
engaged in a prohibited transaction after December 31, 1960.
23736.3. An organization described in Section 23701n or Section
23701d, except as specified in Section 23736, shall be denied
exemption under Section 23736.2 only for taxable years subsequent to
the taxable years during which it is notified by the Franchise Tax
Board 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.
23736.4. Any organization denied exemption under Section 23701d or
Section 23701n by reason of the provisions of Section 23736.2 with
respect to any taxable year following the taxable year in which
notice of denial of exemption was received, may, under regulations
prescribed by the Franchise Tax Board, file claim for exemption, and
if the Franchise Tax Board pursuant to such regulations, is satisfied
that such organizations will not knowingly again engage in a
prohibited transaction, such organization shall be exempt with
respect to taxable years subsequent to the year in which such claim
is filed.
23737. In the case of any organization described in Section 23701d
to which this article is applicable, exemption under Article 1
(commencing with Section 23701) shall be denied for the taxable year
if the amounts accumulated out of income during the taxable year or
any prior taxable year and not actually paid out by the end of the
taxable year--
(a) Are unreasonable in amount or duration in order to carry out
the charitable, educational, or other purpose or function
constituting the basis for such organization's exemption under
Section 23701d; or
(b) Are used to a substantial degree for purposes or functions
other than those constituting the basis for such organization's
exemption under Section 23701d, or
(c) Are invested in such a manner as to jeopardize the carrying
out of the charitable, educational, or other purpose or function
constituting the basis for such organization's exemption under
Section 23701d.
23740. Section 4911 of the Internal Revenue Code, relating to tax
on excess expenditures to influence legislation, shall apply, except
as otherwise provided.
(a) Section 4911(a)(1) of the Internal Revenue Code shall not
apply.
(b) Section 4911(f)(4)(A) of the Internal Revenue Code shall
include efforts to influence legislation with respect to acts, bills,
resolutions, or similar items by the State Legislature.
23741. Notwithstanding any other provision in this part, in the
case of a church exempt from taxes imposed under this part pursuant
to Article 1 (commencing with Section 23701) of Chapter 4, any rental
income received, directly or indirectly, from another church exempt
from taxes imposed under this part pursuant to Article 1 (commencing
with Section 23701) of Chapter 4 for rental of exempt function church
property is exempt from any tax imposed by this part.
23731. Every organization or trust exempt under this chapter,
except as provided in this article, is subject to the tax imposed
upon its unrelated business taxable income, as defined in Section
23732, as follows:
(a) Corporations (other than banks and financial corporations),
associations, and business trusts are subject to the tax imposed
under Section 23501.
(b) Trusts are subject to the tax imposed by subdivision (e) of
Section 17041.
This section applies to taxable years beginning after December 31,
1970.
23732. Section 512 of the Internal Revenue Code, relating to
unrelated business taxable income, shall apply, except as otherwise
provided.
(a) Section 512(a)(2) of the Internal Revenue Code, relating to
special rule for foreign organizations, shall not be applicable.
(b) Section 512(a)(3) of the Internal Revenue Code, relating to
special rules applicable to organizations described in paragraph (7),
(9), (17), or (20) of Section 501(c), shall be modified as follows:
(1) The reference to Section 501(c)(7) of the Internal Revenue
Code shall be modified to refer to Section 23701g.
(2) The reference to Section 501(c)(9) of the Internal Revenue
Code shall be modified to refer to Section 23701i.
(3) The reference to Section 501(c)(17) of the Internal Revenue
Code shall be modified to refer to Section 23701n.
(4) The reference to Section 501(c)(20) of the Internal Revenue
Code shall be modified to refer to Section 23701q.
(c) Section 512(d) of the Internal Revenue Code, relating to
treatment of dues of agricultural or horticultural organizations,
shall be modified by substituting "Section 23701a" for "Section 501
(c)(5)" of the Internal Revenue Code.
(d) Section 512(b)(13)(E) of the Internal Revenue Code is modified
as follows:
(1) The phrase "tax imposed under Part 10 (commencing with Section
17001) or this part" shall be substituted for "tax imposed by this
chapter" in Section 512(b)(13)(E)(ii) of the Internal Revenue Code.
(2) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this subparagraph" in Section 512(b)(13)
(iii)(I) of the Internal Revenue Code.
(3) The amendments made by the act adding this subdivision shall
apply to payments received or accrued on or after January 1, 2010.
23734. (a) Section 513 of the Internal Revenue Code, relating to
unrelated trade or business, shall apply, except as otherwise
provided.
(b) Section 513(g) of the Internal Revenue Code, relating to
certain pole rentals, shall not apply.
23735. (a) Section 514 of the Internal Revenue Code, relating to
unrelated debt-financed income, shall apply, except as otherwise
provided.
(b) Section 10214 of Public Law 100-203, relating to the treatment
of certain partnership allocations, shall apply to taxable years
beginning on or after January 1, 1990, for property acquired by the
partnership after October 13, 1987, and partnership interests
acquired after October 13, 1987.
(c) An interest in a participation agreement, as defined in
subdivision (i) of Section 69980 of the Education Code, shall not be
treated as debt.
23736. Sections 23736.1 to 23736.4, inclusive, shall apply to any
organization described in Section 23701d or Section 23701n except--
(a) A religious organization (other than a trust);
(b) 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;
(c) 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 23701d) from the United States or any state or
political subdivision thereof or from direct or indirect
contributions from the general public;
(d) 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 article;
and
(e) An organization the principal purposes or functions of which
are the providing of medical or hospital care or medical education or
medical research.
23736.1. (a) For the purposes of this article, the term "prohibited
transaction" means any transaction in which an organization subject
to this article--
(1) Lends any part of its income or corpus, without the receipt of
adequate security and a reasonable rate of interest, to;
(2) Pays any compensation, in excess of a reasonable allowance for
salaries or other compensation for personal services actually
rendered, to;
(3) Makes any part of its services available on a preferential
basis to;
(4) Makes any substantial purchase of securities or any other
property, for more than adequate consideration in money or money's
worth, from;
(5) Sells any substantial part of its securities or other
property, for less than an adequate consideration in money or money's
worth, to; or
(6) Engages in any other transaction that results in a substantial
diversion of its income or corpus to; the creator of the
organization (if a trust); a person who has made a substantial
contribution to the organization; a member of the family (as defined
in Section 267(c)(4) of the Internal Revenue Code) of an individual
who is the creator of that trust or who has made a substantial
contribution to that organization; or a corporation controlled by
that creator or person through the ownership, directly or indirectly,
of 50 percent or more of the total combined voting power of all
classes of stock entitled to vote or 50 percent or more of the total
value of shares of all classes of stock of the corporation.
(b) For purposes of subdivision (a), a bond, debenture, note, or
certificate or other evidence of indebtedness (hereinafter in this
section referred to as "obligation") acquired by a trust described in
Section 23701n shall not be treated as a loan made without the
receipt of adequate security if--
(1) The obligation is acquired--
(A) On the market, either (i) at the price of the obligation
prevailing on a national securities exchange that is registered with
the Securities and Exchange Commission, or (ii) if the obligation is
not traded on a national securities exchange, at a price not less
favorable to the trust than the offering price for the obligation as
established by current bid and asked prices quoted by persons
independent of the issuer;
(B) From an underwriter, at a price (i) not in excess of the
public offering price for the obligation as set forth in a prospectus
or offering circular filed with the Securities and Exchange
Commission, and (ii) at which a substantial portion of the same issue
is acquired by persons independent of the issuer; or
(C) Directly from the issuer, at a price not less favorable to the
trust than the price paid currently for a substantial portion of the
same issue by persons independent of the issuer;
(2) Immediately following acquisition of that obligation--
(A) Not more than 25 percent of the aggregate amount of
obligations issued in that issue and outstanding at the time of
acquisition is held by the trust, and
(B) At least 50 percent of the aggregate amount referred to in
subparagraph (A) is held by persons independent of the issuer; and
(3) Immediately following acquisition of the obligation, not more
than 25 percent of the assets of the trust is invested in obligations
of persons described in subdivision (a).
(4) (A) In the case of a trust described in Section 23701n, or in
the case of a corporation described in Section 23701h, all of the
stock of which was acquired before January 1, 1961, by a trust
described in Section 23701n, any indebtedness incurred by that trust
or that corporation before January 1, 1961, in connection with real
property that is leased before January 1, 1961, and any indebtedness
incurred by that trust or that corporation on or after that date
necessary to carry out the terms of that lease, shall not be
considered as an indebtedness with respect to that trust or that
corporation for purposes of this section.
(B) In the application of paragraph (1) of subdivision (a), if a
trust described in Section 23701n forming part of a supplemental
unemployment compensation benefit plan lends any money to another
trust described in Section 23701n forming part of the same plan, that
loan shall not be treated as an indebtedness of the borrowing trust,
except to the extent that the loaning trust--
(i) Incurs any indebtedness in order to make that loan,
(ii) Incurred indebtedness before the making of that loan which
would not have been incurred but for the making of that loan, or
(iii) Incurred indebtedness after the making of that loan which
would not have been incurred but for the making of that loan and that
was reasonably foreseeable at the time of making that loan.
(c) Subdivision (a) shall not apply to a loan made by a trust
described in Section 23701n to the employer (or to a renewal of that
loan or, if the loan is repayable upon demand, to a continuation of
that loan) if the loan bears a reasonable rate of interest, and if
(in the case of a making or renewal)--
(1) The employer is prohibited (at the time of that making or
renewal) by any law of the United States or regulation thereunder
from directly or indirectly pledging, as security for the loan, a
particular class or classes of his or her assets the value of which
(at that time) represents more than one-half of the value of all his
or her assets;
(2) The making or renewal, as the case may be, is approved in
writing as an investment that is consistent with the exempt purposes
of the trust by a trustee who is independent of the employer, and no
other independent trustee had previously refused to give that written
approval; and
(3) Immediately following the making or renewal, as the case may
be, the aggregate amount loaned by the trust to the employer, without
the receipt of adequate security, does not exceed 25 percent of the
value of all the assets of the trust.
(4) For purposes of paragraph (2) the term "trustee" means, with
respect to any trust for which there is more than one trustee who is
independent of the employer, a majority of those independent
trustees. For purposes of paragraph (3), the determination as to
whether any amount loaned by the trust to the employer is loaned
without the receipt of adequate security shall be made without regard
to subdivision (b).
23736.2. An organization described in Section 23701d which is
subject to the provisions of this article, except those specified in
Sections 23736, shall not be exempt from taxation under Article 1 of
this chapter if it has engaged in a prohibited transaction after
January 1, 1951; and an organization described in Section 23701n
which is subject to the provisions of this article shall not be
exempt from taxation under Article 1 of this chapter if it has
engaged in a prohibited transaction after December 31, 1960.
23736.3. An organization described in Section 23701n or Section
23701d, except as specified in Section 23736, shall be denied
exemption under Section 23736.2 only for taxable years subsequent to
the taxable years during which it is notified by the Franchise Tax
Board 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.
23736.4. Any organization denied exemption under Section 23701d or
Section 23701n by reason of the provisions of Section 23736.2 with
respect to any taxable year following the taxable year in which
notice of denial of exemption was received, may, under regulations
prescribed by the Franchise Tax Board, file claim for exemption, and
if the Franchise Tax Board pursuant to such regulations, is satisfied
that such organizations will not knowingly again engage in a
prohibited transaction, such organization shall be exempt with
respect to taxable years subsequent to the year in which such claim
is filed.
23737. In the case of any organization described in Section 23701d
to which this article is applicable, exemption under Article 1
(commencing with Section 23701) shall be denied for the taxable year
if the amounts accumulated out of income during the taxable year or
any prior taxable year and not actually paid out by the end of the
taxable year--
(a) Are unreasonable in amount or duration in order to carry out
the charitable, educational, or other purpose or function
constituting the basis for such organization's exemption under
Section 23701d; or
(b) Are used to a substantial degree for purposes or functions
other than those constituting the basis for such organization's
exemption under Section 23701d, or
(c) Are invested in such a manner as to jeopardize the carrying
out of the charitable, educational, or other purpose or function
constituting the basis for such organization's exemption under
Section 23701d.
23740. Section 4911 of the Internal Revenue Code, relating to tax
on excess expenditures to influence legislation, shall apply, except
as otherwise provided.
(a) Section 4911(a)(1) of the Internal Revenue Code shall not
apply.
(b) Section 4911(f)(4)(A) of the Internal Revenue Code shall
include efforts to influence legislation with respect to acts, bills,
resolutions, or similar items by the State Legislature.
23741. Notwithstanding any other provision in this part, in the
case of a church exempt from taxes imposed under this part pursuant
to Article 1 (commencing with Section 23701) of Chapter 4, any rental
income received, directly or indirectly, from another church exempt
from taxes imposed under this part pursuant to Article 1 (commencing
with Section 23701) of Chapter 4 for rental of exempt function church
property is exempt from any tax imposed by this part.
