Code Section 512
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 512 | 12/31/2011 | The American Taxpayer Relief Act of 2012 | Modification of tax treatment of certain payments to controlling exempt organizations | -40 |
| 512 | 12/31/2009 | The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | Modification of tax treatment of certain payments to controlling exempt organizations | -40 |
Modification of tax treatment of certain payments to controlling exempt organizations
Explanation of Provision
The provision extends the special rule for two years to payments received or accrued before January 1, 2014. Accordingly, under the provision, payments of rent, royalties, annuities, or interest income by a controlled organization to a controlling organization pursuant to a binding written contract in effect on August 17, 2006 (or renewal of such a contract on substantially similar terms), may be includible in the unrelated business taxable income of the controlling organization only to the extent the payment exceeds the amount of the payment determined under the principles of section 482 (i.e., at arm’s length). Any such excess is subject to a 20-percent penalty on the larger of such excess determined without regard to any amendment or supplement to a return of tax, or such excess determined with regard to all such amendments and supplements.
Modification of tax treatment of certain payments to controlling exempt organizations
Explanation of Provision
The provision extends the special rule to payments received or accrued before January 1, 2012. Accordingly, under the provision, payments of rent, royalties, annuities, or interest income by a controlled organization to a controlling organization pursuant to a binding written contract in effect on August 17, 2006 (or renewal of such a contract on substantially similar terms), may be includible in the unrelated business taxable income of the controlling organization only to the extent the payment exceeds the amount of the payment determined under the principles of section 482 (i.e., at arm’s length). Any such excess is subject to a 20-percent penalty on the larger of such excess determined without regard to any amendment or supplement to a return of tax, or such excess determined with regard to all such amendments and supplements.
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