Page:United States Statutes at Large Volume 100 Part 3.djvu/325

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2133

Any such election shall be irrevocable and shall bind all tax-exempt entities holding interests in such taxexempt controlled entity. For purposes of subclause (II), there shall only be taken into account dividends which are properly allocable to income of the tax-exempt controlled entity which was not subject to tax under this chapter. "(iii) TAX-EXEMPT CONTROLLED ENTITY.—

"(I) IN GENERAL.—The term 'tax-exempt controlled entity' means any corporation (which is not a tax-exempt entity determined without regard to this subparagraph and paragraph (2)(E)) if 50 percent or more (in value) of the stock in such corporation is held by 1 or more tax-exempt entities (other than a foreign person or entity). "(II) ONLY 5-PERCENT SHAREHOLDERS TAKEN INTO ACCOUNT IN CASE OF PUBLICLY TRADED STOCK.—For

purposes of subclause (I), in the case of a corporation the stock of which is publicly traded on an established securities market, stock held by a taxexempt entity shall not be taken into account unless such entity holds at least 5 percent (in value) of the stock in such corporation. For purposes of this subclause, related entities (within the meaning of paragraph (4)) shall be treated as 1 entity. "(Ill) SECTION 3 1 8 TO APPLY.—For purposes of this clause, a tax-exempt entity shall be treated as holding stock which it holds through application of section 318 (determined without regard to the 50percent limitation contained in subsection (a)(2)(C) thereof). "(G) REGULATIONS.—For purposes of determining whether there is a qualified allocation under subparagraph (B), the regulations prescribed under paragraph (8) for purposes of this paragraph— "(i) shall set forth the proper treatment for partnership guaranteed payments, and "(ii) may provide for the exclusion or segregation of items. "(7) LEASE.—For purposes of this subsection, the term 'lease' includes any grant of a right to use property. "(8) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. "(i) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) CLASS LIFE.—

"(A) IN GENERAL.—Except as provided in this section, the term 'class life' means the class life (if any) which would be applicable with respect to any property as of January 1, 1986, under subsection (m) of section 167 (determined without regard to paragraph (4) thereof and as if the taxpayer had made an election under such subsection). "(B) SECRETARIAL AUTHORITY.—The Secretary, through an office established in the Treasury—

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