26 U.S.C. § 502 — Feeder organizations
submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 135 words · no verdicts yet
An organization mainly set up to run a for-profit trade or business doesn't get tax-exempt status just because it hands over all its profits to a tax-exempt organization. But certain limited activities — like renting out property, work done for free, or selling donated goods — don't count as a taxable 'trade or business' for this rule.
(a) General rule. If an organization's primary purpose is running a trade or business* for profit, it does not become tax-exempt under section 501 merely because it pays all of its profits to one or more organizations that are tax-exempt under section 501.
(b) Special rule. For purposes of this section, "trade or business" does not include: (1) rental income that would be excluded under section 512(b)(3) if section 512 applied to the organization; (2) any trade or business where substantially all the work carrying it on is done for the organization without pay; or (3) any trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions.
An organization operated for the primary purpose of carrying on a trade or business* for profit shall not be exempt from taxation under section 501 on the ground that all of its profits are payable to one or more organizations exempt from taxation under section 501.
For purposes of this section, the term “trade or business” shall not include—
the deriving of rents which would be excluded under section 512(b)(3), if section 512 applied to the organization,
any trade or business in which substantially all the work in carrying on such trade or business is performed for the organization without compensation, or
any trade or business which is the selling of merchandise, substantially all of which has been received by the organization as gifts or contributions.
Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 166; Pub. L. 91–172, title I, § 121(b)(7), Dec. 30, 1969, 83 Stat. 542.)
- 1954Enacted · Act of Aug. 16, 1954, ch. 736
- 1969Amended · Pub. L. 91-172 · 83 Stat. 542
A history note hasn’t been published yet. The record shows enactment by ch. 736 on 1954-08-16.
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