Page:United States Statutes at Large Volume 100 Part 3.djvu/979

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2787

used shall not be treated as leased to a tax-exempt entity in a disqualified lease." (2) TREATMENT OF CERTAIN PREVIOUSLY TAX-EXEMPT ORGANIZATIONS.—

(A) Clause (i) of section 168(j)(4)(E) (relating to treatment of certain previously tax-exempt organizations) is amended— (i) by striking out "any property of which such organization is the lessee" and inserting in lieu thereof "any property (other than property held by such organization)', and (ii) by striking out "first leased to" and inserting in lieu thereof "first used by". (B) Subclause (I) of section 168(j)(4)(E)(ii) is amended by striking out "of which such organization is the lessee'. (C) Subclause (II) of section 168(j)(4)(E)(ii) is amended by striking out "is placed in service under the lease" and inserting in lieu thereof "is first used by the organization". (D) Subparagraph (E) of section 168(j)(4) is amended by adding at the end thereof the following new clause: "(iv) FIRST USED.—For purposes of this subparagraph, property shall be treated as first used by the organization— "(I) when the property is first placed in service under a lease to such organization, or "(II) in the case of property leased to (or held by) .i . a partnership (or other pass-thru entity) in which the organization is a member, the later of when such property is first used by such partnership or pass-thru entity or when such organization is first V5 w ^ a member of such partnership or pass-thru entity." (E)(i) Paragraph (9) of section 168(j) is amended by redesignating subparagraph (E) as subparagraph (F) and by inserting after subparagraph (D) the following new subparagraph: "(E) TREATMENT OF CERTAIN TAXABLE ENTITIES.—

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"(i) IN GENERAL.—For purposes of this paragraph, except as otherwise provided in this subparagraph, any tax-exempt controlled entity shall be treated as a taxexempt entity. "(ii) ELECTION.—If a tax-exempt controlled entity makes an election under this clause— "(I) such entity shall not be treated as a taxexempt entity for purposes of this paragraph, and "(II) any gain recognized by a tax-exempt entity on any disposition of an interest in such entity (and any dividend or interest received or accrued by a tax-exempt entity from such tax-exempt controlled entity) shall be treated as unrelated business taxable income for purposes of section 511. 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.

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