Nonrecognition of Gain on Exempt Function Property

§ 512. Unrelated business taxable income(a) DefinitionFor purposes of this title—(1) General ruleExcept as otherwise provided in this subsection, 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 modifications provided in subsection (b). (2) Special rule for foreign organizationsIn the case of an organization described in section 511 which is a foreign organization, the unrelated business taxable income shall be—(A) its unrelated business taxable income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, plus (B) its unrelated business taxable income which is effectively connected with the conduct of a trade or business within the United States. (3) Special rules applicable to organizations described in paragraph (7), (9), or (17) of section 501(c)(A) General ruleIn the case of an organization described in paragraph (7), (9), or (17) of section 501(c), the term “unrelated business taxable income” means the gross income (excluding any exempt function income), less the deductions allowed by this chapter which are directly connected with the production of the gross income (excluding exempt function income), both computed with the modifications provided in paragraphs (6), (10), (11), and (12) of subsection (b). For purposes of the preceding sentence, the deductions provided by sections 243 and 245 (relating to dividends received by corporations) shall be treated as not directly connected with the production of gross income. (B) Exempt function incomeFor purposes of subparagraph (A), the term “exempt function income” means the gross income from dues, fees, charges, or similar amounts paid by members of the organization as consideration for providing such members or their dependents or guests goods, facilities, or services in furtherance of the purposes constituting the basis for the exemption of the organization to which such income is paid. Such term also means all income (other than an amount equal to the gross income derived from any unrelated trade or business regularly carried on by such organization computed as if the organization were subject to paragraph (1)), which is set aside—(i) for a purpose specified in section 170(c)(4), or (ii) in the case of an organization described in paragraph (9) or (17) of section 501(c), to provide for the payment of life, sick, accident, or other benefits,