Page:United States Statutes at Large Volume 68A.djvu/210

 170

INTERNAL REVENUE CODE OF 1954

(sec. 641 and following, relating to estates, trusts, beneficiaries, and decedents). (c) EFFECTIVE D A T E. — The tax imposed by this section shall ^PPly> ill the case of a trust described in section 401(a), only for taxable years beginning after June 30, 1954. SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.

(a) DEFINITION.—The term "unrelated business taxable income" means the gross income derived by any organization from any unrelated trade or business (as defined in section 513) regularly carried on by it, less the deductions allowed by this chapter which are directly connected with the carrying on of such trade or business, both computed with the exceptions, additions, and limitations provided in subsection (b). In the case of an organization described in section 511 which is a foreign organization, the unrelated business taxable income shall be its unrelated business taxable income derived from sources within the United States determined under subchapter N (sec. 861 and following, relating to tax based on income from sources within or without the United States). (b) EXCEPTIONS, ADDITIONS, AND LIMITATIONS.—The exceptions,

additions, and limitations applicable in determining unrelated business taxable income are the following: (1) There shall be excluded all dividends, interest, and annuities, and all deductions directly connected with such income. (2) There shall be excluded all royalties (including overriding royalties) whether measured by production or by gross or taxable income from the property, and all deductions directly connected with such income. (3) There shall be excluded all rents from real property (including personal property leased with the real property), and all deductions directly connected with such rents. (4) Notwithstanding paragraph (3), in the case of a business lease (as defined in section 514) there shall be included, as an item of gross income derived from an unrelated trade or business, the amount ascertained under section 514(a)(1), and there shall be allowed, as a deduction, the amount ascertained under section 514 (a)(2). (5) There shall be excluded all gains or losses from the sale, exchange, or other disposition of property other than— (A) stock in trade or other property of a kind which would properly be includible in inventory if on hand at the close of the taxable year, or (B) property held primarily for sale to customers in the ordinary course of the trade or business. This paragraph shall not apply with respect to the cutting of timber which is considered, on the application of section 631, as a sale or exchange of such timber. (6) The net operating loss deduction provided in section 172 shall be allowed, except that — (A) the net operating loss for any taxable year, the amount of the net operating loss carryback or carryover to any taxable year, and the net operating loss deduction for any taxable year shall be determined under section 172 without taking into account § 511(b)(2)

�