[Code of Federal Regulations] [Title 26, Volume 7] [Revised as of April 1, 2004] From the U.S. Government Printing Office via GPO Access [CITE: 26CFR1.501(a)-1] [Page 5-10] TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY (CONTINUED) PART 1_INCOME TAXES--Table of Contents Sec. 1.501(a)-1 Exemption from taxation. Normal Taxes and Surtaxes EXEMPT ORGANIZATIONS General Rule Sec. 1.501(a)-1 Exemption from taxation. 1.501(c)(2)-1 Corporations organized to hold title to property for exempt organizations. 1.501(c)(3)-1 Organizations organized and operated for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals. 1.501(c)(4)-1 Civic organizations and local associations of employees. 1.501(c)(5)-1 Labor, agricultural, and horticultural organizations. 1.501(c)(6)-1 Business leagues, chambers of commerce, real estate boards, and boards of trade. 1.501(c)(7)-1 Social clubs. 1.501(c)(8)-1 Fraternal beneficiary societies. 1.501(c)(9)-1 Voluntary employees' beneficiary associations, in general. 1.501(c)(9)-2 Membership in a voluntary employees' beneficiary association; employees; voluntary association of employees. 1.501(c)(9)-3 Voluntary employees' beneficiary associations; life, sick, accident, or other benefits. 1.501(c)(9)-4 Voluntary employees' beneficiary associations; inurement. 1.501(c)(9)-5 Voluntary employees' beneficiary associations; recordkeeping requirements. 1.501(c)(9)-6 Voluntary employees' beneficiary associations; benefits includible in gross income. 1.501(c)(9)-7 Voluntary employees' beneficiary associations; section 3(4) of ERISA. 1.501(c)(9)-8 Voluntary employees' beneficiary associations; effective date. 1.501(c)(10)-1 Certain fraternal beneficiary societies. 1.501(c)(12)-1 Local benevolent life insurance associations, mutual irrigation and telephone companies, and like organizations. 1.501(c)(13)-1 Cemetery companies and crematoria. 1.501(c)(14)-1 Credit unions and mutual insurance funds. 1.501(c)(15)-1 Mutual insurance companies or associations. 1.501(c)(16)-1 Corporations organized to finance crop operations. 1.501(c)(17)-1 Supplemental unemployment benefit trusts. 1.501(c)(17)-2 General rules. 1.501(c)(17)-3 Relation to other sections of the Code. 1.501(c)(18)-1 Certain funded pension trusts. 1.501(c)(19)-1 War veterans organizations. 1.501(c)(21)-1 Black lung trusts--certain terms. 1.501(c)(21)-2 Same--trust instrument. 1.501(d)-1 Religious and apostolic associations or corporations. 1.501(e)-1 Cooperative hospital service organizations. 1.501(h)-1 Application of the expenditure test to expenditures to influence legislation; introduction. 1.501(h)-2 Electing the expenditure test. 1.501(h)-3 Lobbying or grass roots expenditures normally in excess of ceiling amount. 1.501(k)-1 Communist-controlled organizations. 1.502-1 Feeder organizations. 1.503(a)-1 Denial of exemption to certain organizations engaged in prohibited transactions. 1.503(b)-1 Prohibited transactions. 1.503(c)-1 Future status of organizations denied exemption. 1.503(d)-1 Cross references. 1.503(e)-1 Special rules. 1.503(e)-2 Requirements. 1.503(e)-3 Effective dates. 1.503(e)-4 Disallowance of charitable deductions for certain gifts made before January 1, 1970. 1.503(f)-1 Loans by employers who are prohibited from pledging assets. 1.504-1 Attempts to influence legislation; certain organizations formerly described in section 501(c)(3) denied exemption. 1.504-2 Certain transfers made to avoid section 504(a). 1.505(c)-1T Questions and answers relating to the notification requirement for recognition of exemption under paragraphs (9), (17) and (20) of Section 501(c) (temporary). Private Foundations 1.507-1 General rule. 1.507-2 Special rules; transfer to, or operation as, public charity. 1.507-3 Special rules; transferee foundations. 1.507-4 Imposition of tax. 1.507-5 Aggregate tax benefit; in general. 1.507-6 Substantial contributor defined. 1.507-7 Value of assets. 1.507-8 Liability in case of transfers. 1.507-9 Abatement of taxes. 1.508-1 Notices. 1.508-2 Disallowance of certain charitable, etc., deductions. [[Page 6]] 1.508-3 Governing instruments. 1.508-4 Effective date. 1.509(a)-1 Definition of private foundation. 1.509(a)-2 Exclusion for certain organizations described in section 170(b)(1)(A). 1.509(a)-3 Broadly, publicly supported organizations. 1.509(a)-4 Supporting organizations. 1.509(a)-5 Special rules of attribution. 1.509(a)-6 Classification under section 509(a). 1.509(a)-7 Reliance by grantors and contributors to section 509(a) (1), (2), and (3) organizations. 1.509(b)-1 Continuation of private foundation status. 1.509(c)-1 Status of organization after termination of private foundation status. 1.509(d)-1 Definition of support. 1.509(e)-1 Definition of gross investment income. Taxation of Business Income of Certain Exempt Organizations 1.511-1 Imposition and rates of tax. 1.511-2 Organizations subject to tax. 1.511-3 Provisions generally applicable to the tax on unrelated business income. 1.511-4 Minimum tax for tax preferences. 1.512(a)-1 Definition. 1.512(a)-2 Definition applicable to taxable years beginning before December 13, 1967. 1.512(a)-3 [Reserved] 1.512(a)-4 Special rules applicable to war veterans organizations. 1.512(a)-5T Questions and answers relating to the unrelated business taxable income of organizations described in paragraphs (9), (17) or (20) of Section 501(c) (temporary). 1.512(b)-1 Modifications. 1.512(c)-1 Special rules applicable to partnerships; in general. 1.513-1 Definition of unrelated trade or business. 1.513-2 Definition of unrelated trade or business applicable to taxable years beginning before December 13, 1967. 1.513-3 Qualified convention and trade show activity. 1.513-4 Certain sponsorship not unrelated trade or business. 1.513-5 Certain bingo games not unrelated trade or business. 1.513-6 Certain hospital services not unrelated trade or business. 1.513-7 Travel and tour activities of tax exempt organizations. 1.514(a)-1 Unrelated debt-financed income and deductions. 1.514(a)-2 Business lease rents and deductions for taxable years beginning before January 1, 1970. 1.514(b)-1 Definition of debt-financed property. 1.514(c)-1 Acquisition indebtedness. 1.514(c)-2 Permitted allocations under section 514(c)(9)(E). 1.514(d)-1 Basis of debt-financed property acquired in corporate liquidation. 1.514(e)-1 Allocation rules. 1.514(f)-1 Definition of business lease. 1.514(g)-1 Business lease indebtedness. Farmers' Cooperatives 1.521-1 Farmers' cooperative marketing and purchasing associations; requirements for exemption under section 521. 1.522-1 Tax treatment of farmers' cooperative marketing and purchasing associations exempt under section 521. 1.522-2 Manner of taxation of cooperative associations subject to section 522. 1.522-3 Patronage dividends, rebates, or refunds; treatment as to cooperative associations entitled to tax treatment under section 522. 1.522-4 Taxable years affected. 1.527-1 Political organizations; generally. 1.527-2 Definitions. 1.527-3 Exempt function income. 1.527-4 Special rules for computation of political organization taxable income. 1.527-5 Activities resulting in gross income to an individual or political organization. 1.527-6 Inclusion of certain amounts in the gross income of an exempt organization which is not a political organization. 1.527-7 Newsletter funds. 1.527-8 Effective date; filing requirements; and miscellaneous provisions. 1.527-9 Special rule for principal campaign committees. Homeowners Associations 1.528-1 Homeowners associations. 1.528-2 Organized and operated to provide for the acquisition, construction, management, maintenance and care of association property. 1.528-3 Association property. 1.528-4 Substantiality test. 1.528-5 Source of income test. 1.528-6 Expenditure test. 1.528-7 Inurement. 1.528-8 Election to be treated as a homeowners association. 1.528-9 Exempt function income. 1.528-10 Special rules for computation of homeowners association taxable income and tax. CORPORATIONS USED TO AVOID INCOME TAX ON SHAREHOLDERS Corporations Improperly Accumulating Surplus 1.531-1 Imposition of tax. 1.532-1 Corporations subject to accumulated earnings tax. 1.533-1 Evidence of purpose to avoid income tax. [[Page 7]] 1.533-2 Statement required. 1.534-1 Burden of proof as to unreasonable accumulations generally. 1.534-2 Burden of proof as to unreasonable accumulations in cases before the Tax Court. 1.534-3 Jeopardy assessments in Tax Court cases. 1.535-1 Definition. 1.535-2 Adjustments to taxable income. 1.535-3 Accumulated earnings credit. 1.536-1 Short taxable years. 1.537-1 Reasonable needs of the business. 1.537-2 Grounds for accumulation of earnings and profits. 1.537-3 Business of the corporation. Personal Holding Companies 1.541-1 Imposition of tax. 1.542-1 General rule. 1.542-2 Gross income requirement. 1.542-3 Stock ownership requirement. 1.542-4 Corporations filing consolidated returns. 1.543-1 Personal holding company income. 1.543-2 Limitation on gross income and personal holding company income in transactions involving stocks, securities, and commodities. 1.544-1 Constructive ownership. 1.544-2 Constructive ownership by reason of indirect ownership. 1.544-3 Constructive ownership by reason of family and partnership ownership. 1.544-4 Options. 1.544-5 Convertible securities. 1.544-6 Constructive ownership as actual ownership. 1.544-7 Option rule in lieu of family and partnership rule. 1.545-1 Definition. 1.545-2 Adjustments to taxable income. 1.545-3 Special adjustment to taxable income. 1.547-1 General rule. 1.547-2 Requirements for deficiency dividends. 1.547-3 Claim for credit or refund. 1.547-4 Effect on dividends paid deduction. 1.547-5 Deduction denied in case of fraud or wilful failure to file timely return. 1.547-6 Suspension of statute of limitations and stay of collection. 1.547-7 Effective date. Foreign Personal Holding Companies 1.551-1 General rule. 1.551-2 Amount included in gross income. 1.551-3 Deduction for obligations of the United States and its instrumentalities. 1.551-4 Information in return. 1.551-5 Effect on capital account of foreign personal holding company and basis of stock in hands of shareholders. 1.552-1 Definition of foreign personal holding company. 1.552-2 Gross income requirement. 1.552-3 Stock ownership requirement. 1.552-4 Certain excluded banks. 1.552-5 United States shareholder of excluded bank. 1.553-1 Foreign personal holding company income. 1.554-1 Stock ownership. 1.555-1 General rule. 1.555-2 Additions to gross income. 1.556-1 Definition. 1.556-2 Adjustments to taxable income. 1.556-2T Adjustments to taxable income (temporary). 1.556-3 Illustration of computation of undistributed foreign personal holding company income. Deduction For Dividends Paid 1.561-1 Deduction for dividends paid. 1.561-2 When dividends are considered paid. 1.562-1 Dividends for which the dividends paid deduction is allowable. 1.562-2 Preferential dividends. 1.562-3 Distributions by a member of an affiliated group. 1.563-1 Accumulated earnings tax. 1.563-2 Personal holding company tax. 1.563-3 Dividends considered as paid on last day of taxable year. 1.564-1 Dividend carryover. 1.565-1 General rule. 1.565-1T General rule (temporary). 1.565-2 Limitations. 1.565-3 Effect of consent. 1.565-4 Consent dividends and other distributions. 1.565-5 Nonresident aliens and foreign corporations. 1.565-6 Definitions. BANKING INSTITUTIONS Rules of General Application to Banking Institutions 1.581-1 Banks. 1.581-2 Mutual savings banks, building and loan associations, and cooperative banks. 1.581-3 Definition of bank prior to September 28, 1962. 1.582-1 Bad debts, losses, and gains with respect to securities held by financial institutions. 1.584-1 Common trust funds. 1.584-2 Income of participants in common trust fund. 1.584-3 Computation of common trust fund income. 1.584-4 Admission and withdrawal of participants in the common trust fund. 1.584-5 Returns of banks with respect to common trust funds. 1.584-6 Net operating loss deduction. 1.585-1 Reserve for losses on loans of banks. 1.585-2 Addition to reserve. 1.585-3 Special rules. [[Page 8]] 1.585-4 Reorganizations and asset acquisitions. 1.585-5 Denial of bad debt reserves for large banks. 1.585-6 Recapture method of changing from the reserve method of section 585. 1.585-7 Elective cut-off method of changing from the reserve method of section 585. 1.585-8 Rules for making and revoking elections under Sec. Sec. 1.585-6 and 1.585-7. 1.586-1 Reserve for losses on loans of small business investment companies, etc. 1.586-2 Addition to reserve. Mutual Savings Banks, Etc. 1.591-1 Deduction for dividends paid on deposits. 1.592-1 Repayment of certain loans by mutual savings banks, building and loan associations, and cooperative banks. 1.593-1 Additions to reserve for bad debts. 1.593-2 Additions to reserve for bad debts where surplus, reserves, and undivided profits equal or exceed 12 percent of deposits or withdrawable accounts. 1.593-3 Taxable years affected. 1.593-4 Organizations to which section 593 applies. 1.593-5 Addition to reserves for bad debts. 1.593-6 Pre-1970 addition to reserve for losses on qualifying real property loans. 1.593-6A Post-1969 addition to reserve for losses on qualifying real property loans. 1.593-7 Establishment and treatment of reserves for bad debts. 1.593-8 Allocation of pre-1952 surplus to opening balance of reserve for losses on qualifying real property loans. 1.593-10 Certain distributions to shareholders by a domestic building and loan association. 1.593-11 Qualifying real property loan and nonqualifying loan defined. 1.594-1 Mutual savings banks conducting life insurance business. 1.595-1 Treatment of foreclosed property by certain creditors. 1.596-1 Limitation on dividends received deduction. 1.597-1 Definitions. 1.597-2 Taxation of Federal financial assistance. 1.597-3 Other rules. 1.597-4 Bridge Banks and Agency Control. 1.597-5 Taxable Transfers. 1.597-6 Limitation on collection of income tax. 1.597-7 Effective date. 1.597-8 Transitional rules for Federal financial assistance. Bank Affiliates 1.601-1 Special deduction for bank affiliates. NATURAL RESOURCES Deductions 1.611-0 Regulatory authority. 1.611-1 Allowance of deduction for depletion. 1.611-2 Rules applicable to mines, oil and gas wells, and other natural deposits. 1.611-3 Rules applicable to timber. 1.611-4 Depletion as a factor in computing earnings and profits for dividend purposes. 1.611-5 Depreciation of improvements. 1.612-1 Basis for allowance of cost depletion. 1.612-2 Allowable capital additions in case of mines. 1.612-3 Depletion; treatment of bonus and advanced royalty. 1.612-4 Charges to capital and to expense in case of oil and gas wells. 1.612-5 Charges to capital and to expense in case of geothermal wells. 1.613-1 Percentage depletion; general rule. 1.613-2 Percentage depletion rates. 1.613-3 Gross income from the property. 1.613-4 Gross income from the property in the case of minerals other than oil and gas. 1.613-5 Taxable income from the property. 1.613-6 Statement to be attached to return when depletion is claimed on percentage basis. 1.613-7 Application of percentage depletion rates provided in section 613(b) to certain taxable years ending in 1954. 1.613A-0 Limitations on percentage depletion in the case of oil and gas wells; table of contents. 1.613A-1 Post-1974 limitations on percentage depletion in case of oil and gas wells; general rule. 1.613A-2 Exemption for certain domestic gas wells. 1.613A-3 Exemption for independent producers and royalty owners. 1.613A-4 Limitations on application of Sec. 1.613A-3 exemption. 1.613A-5 Election under section 613A(c)(4). 1.613A-6 Recordkeeping requirements. 1.613A-7 Definitions. 1.614-0 Introduction. 1.614-1 Definition of property. 1.614-2 Election to aggregate separate operating mineral interests under section 614(b) prior to its amendment by Revenue Act of 1964. 1.614-3 Rules relating to separate operating mineral interests in the case of mines. 1.614-4 Treatment under the Internal Revenue Code of 1939 with respect to separate operating mineral interests for taxable years beginning before January 1, 1964, in the case of oil and gas wells. 1.614-5 Special rules as to aggregating nonoperating mineral interests. [[Page 9]] 1.614-6 Rules applicable to basis, holding period, and abandonment losses where mineral interests have been aggregated or combined. 1.614-7 Extension of time for performing certain acts. 1.614-8 Elections with respect to separate operating mineral interests for taxable years beginning after December 31, 1963, in the case of oil and gas wells. 1.615-1 Pre-1970 exploration expenditures. 1.615-2 Deduction of pre-1970 exploration expenditures in the year paid or incurred. 1.615-3 Election to defer pre-1970 exploration expenditures. 1.615-4 Limitation of amount deductible. 1.615-5 Time for making election with respect to returns due on or before May 2, 1960. 1.615-6 Election to deduct under section 615. 1.615-7 Effect of transfer of mineral property. 1.615-8 Termination of section 615. 1.615-9 Notification under Tax Reform Act of 1969. 1.616-1 Development expenditures. 1.616-2 Election to defer. 1.616-3 Time for making election with respect to returns due on or before May 2, 1960. 1.617-1 Exploration expenditures. 1.617-2 Limitation on amount deductible. 1.617-3 Recapture of exploration expenditures. 1.617-4 Treatment of gain from disposition of certain mining property. Exclusions From Gross Income 1.621-1 Payments to encourage exploration, development, and mining for defense purposes. Sales And Exchanges 1.631-1 Election to consider cutting as sale or exchange. 1.631-2 Gain or loss upon the disposal of timber under cutting contract. 1.631-3 Gain or loss upon the disposal of coal or domestic iron ore with a retained economic interest. 1.632-1 Tax on sale of oil or gas properties. Mineral Production Payments 1.636-1 Treatment of production payments as loans. 1.636-2 Production payments retained in leasing transactions. 1.636-3 Definitions. 1.636-4 Effective dates of section 636. Continental Shelf Areas 1.638-1 Continental Shelf areas. 1.638-2 Effective date. Authority: 26 U.S.C. 7805, unless otherwise noted. Sections 1.504-1 and 1.504-2 also issued under 26 U.S.C. 504(b). Sec. 1.514(c)-2 also issued under 26 U.S.C. 514(c)(9)(E)(iii). Sec. 1.527-9 also issued under 26 U.S.C. 527(h)(2)(B)(i). Sec. 1.585-5 through 1.585-8 also issued under 26 U.S.C. 585(b)(3). Sec. 1.597-1 through 1.597-7 also issued under 26 U.S.C. 597 and 1502. Sec. 1.597-8 also issued under 26 U.S.C. 597. Source: T.D. 6500, 25 FR 11737, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, unless otherwise noted. EXEMPT ORGANIZATIONS General Rule (a) In general; proof of exemption. (1) Section 501(a) provides an exemption from income taxes for organizations which are described in section 501 (c) or (d) and section 401(a), unless such organization is a feeder organization (see section 502), or unless it engages in a transaction described in section 503. However, the exemption does not extend to unrelated business taxable income of such an organization (see part III (Section 511 and following), subchapter F, chapter 1 of the Code). (2) An organization, other than an employees' trust described in section 401(a), is not exempt from tax merely because it is not organized and operated for profit. In order to establish its exemption, it is necessary that every such organization claiming exemption file an application form as set forth below with the district director for the internal revenue district in which is located the principal place of business or principal office of the organization. Subject only to the Commissioner's inherent power to revoke rulings because of a change in the law or regulations or for other good cause, an organization that has been determined by the Commissioner or the district director to be exempt under section 501(a) or the corresponding provision of prior law may rely upon such determination so long as there are no substantial changes in the organization's character, purposes, or methods of operation. An organization which has been determined to be exempt under the provisions of the Internal Revenue Code of 1939 or prior [[Page 10]] law is not required to secure a new determination of exemption merely because of the enactment of the Internal Revenue Code of 1954 unless affected by substantive changes in law made by such Code. (3) An organization claiming exemption under section 501(a) and described in any paragraph of section 501(c) (other than section 501(c)(1) shall file the form of application prescribed by the Commissioner and shall include thereon such information as required by such form and the instructions issued with respect thereto. For rules relating to the obtaining of a determination of exempt status by an employees' trust described in section 401(a), see the regulations under section 401. (b) Additional proof by particular classes of organizations. (1) Organizations mentioned below shall submit with and as a part of their applications the following information: (i) Mutual insurance companies shall submit copies of the policies or certificates of membership issued by them. (ii) In the case of title holding companies described in section 501(c)(2), if the organization for which title is held has not been specifically notified in writing by the Internal Revenue Service that it is held to be exempt under section 501(a), the title holding company shall submit the information indicated herein as necessary for a determination of the status of the organization for which title is held. (iii) An organization described in section 501(c)(3) shall submit with, and as a part of, an application filed after July 26, 1959, a detailed statement of its proposed activities. (2) In addition to the information specifically called for by this section, the Commissioner may require any additional information deemed necessary for a proper determination of whether a particular organization is exempt under section 501(a), and when deemed advisable in the interest of an efficient administration of the internal revenue laws, he may in the cases of particular types of organizations prescribe the form in which the proof of exemption shall be furnished. (3) An organization claiming to be specifically exempted by section 6033(a) from filing annual returns shall submit with and as a part of its application a statement of all the facts on which it bases its claim. (c) Private shareholder or individual defined. The words private shareholder or individual in section 501 refer to persons having a personal and private interest in the activities of the organization. (d) Requirement of annual returns. For the annual return requirements of organizations exempt under section 501(a), see section 6033 and Sec. 1.6033-1. (e) Certain Puerto Rican pension, etc., trusts. Effective for taxable years beginning after December 31, 1973, section 1022(i)(1) of the Employee Retirement Income Security Act of 1974 (ERISA) (88 Stat. 942) provides that trusts under certain Puerto Rican pension, etc., plans (as defined under P.R. Laws Ann. tit. 13, section 3165, and the articles thereunder), all of the participants of which are residents of the Commonwealth of Puerto Rico, are to be treated only for purposes of section 501(a) as trusts described in section 401(a). The practical effect of section 1022(i)(1) is to exempt these trusts from U.S. income tax on income from their U.S. investments. For purposes of section 1022(i)(1), the term residents of the Commonwealth of Puerto Rico means bona fide residents of Puerto Rico, and persons who perform labor or services primarily within the Commonwealth of Puerto Rico, regardless of residence for other purposes, and the term participants is restricted to current employees who are not excluded under the eligibility provisions of the plan. [T.D. 6500, 25 FR 11737, Nov. 26, 1960, as amended by T.D. 7428, 41 FR 34619, Aug. 16, 1976; T.D. 7859, 47 FR 54298, Dec. 2, 1982]