Page:United States Statutes at Large Volume 100 Part 3.djvu/321

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2129

"(B) EXCEPTIONS FOR CERTAIN PROPERTY SUBJECT TO UNITED STATES TAX AND USED BY FOREIGN PERSON OR ENTITY.— "(i) INCOME FROM PROPERTY SUBJECT TO UNITED STATES

TAX.—Clause (iii) of subparagraph (A) shall not apply with respect to any property if more than 50 percent of the gross income for the taxable year derived by the foreign person or entity from the use of such property is— "(I) subject to tax under this chapter, or "(II) included under section 951 in the gross income of a United States shareholder for the taxable year with or within which ends the taxable year of the controlled foreign corporation in which such income was derived. For purposes of the preceding sentence, any exclusion or exemption shall not apply for purposes of determining the amount of the gross income so derived, but shall apply for purposes of determining the portion of such gross income subject to tax under this chapter. "(ii) MOVIES AND SOUND RECORDINGS.—Clause (iii) of

subparagraph (A) shall not apply with respect to any qualified film (as defined in section 48(k)(l)(B)) or any sound recording (as defined in section 48(r)(5)). "(C) FOREIGN PERSON OR ENTITY.—For purposes of this paragraph, the term 'foreign person or entity' means— "(i) any foreign government, any international organization, or any agency or instrumentality of any of the foregoing, and "(ii) any person who is not a United States person. Such term does not include any foreign partnership or other foreign pass-thru entity. "(D)

TREATMENT OF CERTAIN TAXABLE INSTRUMENTAL-

ITIES.—For purposes of this subsection, a corporation shall not be treated as an instrumentality of the United States or of any State or political subdivision thereof if— "(i) all of the activities of such corporation are subject to tax under this chapter, and "(ii) a majority of the board of directors of such corporation is not selected by the United States or any State or political subdivision thereof. "(E) CERTAIN PREVIOUSLY TAX-EXEMPT ORGANIZATIONS.—

"(i) IN GENERAL.—For purposes of this subsection, an organization shall be treated as an organization described in subparagraph (A)(ii) with respect to any property (other than property held by such organization) if such organization was an organization (other than a cooperative described in section 521) exempt from tax imposed by this chapter at any time during the 5-year period ending on the date such property was first used by such organization. The preceding sentence and subparagraph (D)(ii) shall not apply to the Federal Home Loan Mortgage Corporation. "(ii) ELECTION NOT TO HAVE CLAUSE (I) APPLY.—

"(I) IN GENERAL.—In the case of an organization formerly exempt from tax under section 501(a) as an organization described in section 501(c)(12),

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