[House Report 115-857]
[From the U.S. Government Publishing Office]


115th Congress    }                                  {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                  {        115-857

======================================================================



 
             WATER AND AGRICULTURE TAX REFORM ACT OF 2018
                                _______
                                

 July 23, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 519]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 519) to amend the Internal Revenue Code of 1986 to 
facilitate water leasing and water transfers to promote 
conservation and efficiency, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
 I. SUMMARY AND BACKGROUND............................................2
        A. Purpose and Summary...................................     2
        B. Background and Need for Legislation...................     3
        C. Legislative History...................................     3
II. EXPLANATION OF THE BILL...........................................3
        A. Modify Tax Exemption Requirements for Mutual Ditch or 
            Irrigation Companies.................................     3
III.VOTES OF THE COMMITTEE............................................5

IV. BUDGET EFFECTS OF THE BILL........................................5
        A. Committee Estimate of Budgetary Effects...............     5
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................     6
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................     6
 V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE........7
        A. Committee Oversight Findings and Recommendations......     7
        B. Statement of General Performance Goals and Objectives.     7
        C. Information Relating to Unfunded Mandates.............     7
        D. Applicability of House Rule XXI 5(b)..................     8
        E. Tax Complexity Analysis...............................     8
        F. Congressional Earmarks, Limited Tax Benefits, and 
            Limited Tariff Benefits..............................     8
        G. Duplication of Federal Programs.......................     8
        H. Disclosure of Directed Rule Makings...................     8
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED.............9
        A. Changes in Existing Law Proposed by the Bill, as 
            Reported.............................................     9
VII.   ADDITIONAL VIEWS...............................................38
   

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Water and Agriculture Tax Reform Act 
of 2018''.

SEC. 2. FACILITATE WATER LEASING AND WATER TRANSFERS TO PROMOTE 
                    CONSERVATION AND EFFICIENCY.

  (a) In General.--Paragraph (12) of section 501(c) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
subparagraph:
                  ``(J) Treatment of mutual ditch irrigation 
                companies.--
                          ``(i) In general.--In the case of a mutual 
                        ditch or irrigation company or of a like 
                        organization to a mutual ditch or irrigation 
                        company, subparagraph (A) shall be applied 
                        without taking into account any income received 
                        or accrued--
                                  ``(I) from the sale, lease, or 
                                exchange of fee or other interests in 
                                real and personal property, including 
                                interests in water,
                                  ``(II) from the sale or exchange of 
                                stock in a mutual ditch or irrigation 
                                company (or in a like organization to a 
                                mutual ditch or irrigation company) or 
                                contract rights for the delivery or use 
                                of water, or
                                  ``(III) from the investment of 
                                proceeds from sales, leases, or 
                                exchanges under subclauses (I) and 
                                (II),
                        except that any income received under subclause 
                        (I), (II), or (III) which is distributed or 
                        expended for expenses (other than for 
                        operations, maintenance, and capital 
                        improvements) of the mutual ditch or irrigation 
                        company or of the like organization to a mutual 
                        ditch or irrigation company (as the case may 
                        be) shall be treated as nonmember income in the 
                        year in which it is distributed or expended. 
                        For purposes of the preceding sentence, 
                        expenses (other than for operations, 
                        maintenance, and capital improvements) include 
                        expenses for the construction of conveyances 
                        designed to deliver water outside of the system 
                        of the mutual ditch or irrigation company or of 
                        the like organization.
                          ``(ii) Treatment of organizational 
                        governance.--In the case of a mutual ditch or 
                        irrigation company or of a like organization to 
                        a mutual ditch or irrigation company, where 
                        State law provides that such a company or 
                        organization may be organized in a manner that 
                        permits voting on a basis which is pro rata to 
                        share ownership on corporate governance 
                        matters, subparagraph (A) shall be applied 
                        without taking into account whether its member 
                        shareholders have one vote on corporate 
                        governance matters per share held in the 
                        corporation. Nothing in this clause shall be 
                        construed to create any inference about the 
                        requirements of this subsection for companies 
                        or organizations not included in this 
                        clause.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2018.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 519, as reported by the Committee on Ways 
and Means, provides that income received or accrued by a mutual 
ditch or irrigation company from non-member sources will not be 
taken into account in determining whether the entity meets the 
qualifications for tax-exempt status. Such income generally 
must be used to fund normal operations, maintenance, and 
capital improvements of the mutual ditch or irrigation company 
(this does not include income used to fund the construction of 
conveyances designed to deliver water outside of the 
organization's system) or it will be treated as non-member 
income of the company (for purposes of determining its tax-
exempt status) in the year in which it is distributed or 
expended.
    Additionally, the bill provides that a mutual ditch or 
irrigation company's corporate governance issues may be decided 
on a pro rata basis based on share ownership in the 
organization, rather than on a one-member, one-vote basis, 
where the applicable state law provides for such a voting 
arrangement.

                 B. Background and Need for Legislation

    The Committee believes it is important to continually 
improve tax laws. This bill provides mutual ditch or irrigation 
companies with more flexibility with respect to funding their 
operations, maintenance, and improvements to their water 
infrastructure, especially in drought-stricken areas, and 
allows mutual ditch or irrigation companies to be governed in 
such a manner as is permitted under State law. The bill 
provides that, for the income from non-member sources to 
receive preferential treatment, it generally must be used for 
operations and maintenance, thus ensuring that these funds will 
be reinvested in the mutual ditch or irrigation companies' 
water infrastructure. This will facilitate in more efficient 
water allocation and support rural economies.

                         C. Legislative History


Background

    H.R. 519 was introduced on January 17, 2017, and was 
referred to the Committee on Ways and Means.

Committee Action

    The Committee on Ways and Means marked up H.R. 519, the 
``Water and Agriculture Tax Reform Act of 2018,'' on June 21, 
2018, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee Hearings

    Reforms to the rules for mutual ditch or irrigation 
companies were discussed at a Subcommittee on Tax Policy Member 
Day Hearing on Tax Legislation on May 12, 2016.

                      II. EXPLANATION OF THE BILL


  A. Modify Tax Exemption Requirements for Mutual Ditch or Irrigation 
     Companies (Sec. 2 of the Bill and Sec. 501(c)(12) of the Code)


                              PRESENT LAW

    Section 501(c)(12) describes certain mutual or cooperative 
organizations that are exempt from Federal income tax under 
section 501(a), namely: (1) benevolent life insurance 
associations of a purely local character; (2) mutual ditch or 
irrigation companies; (3) mutual or cooperative telephone 
companies; and (4) like organizations to any of the foregoing 
types of organizations.\1\ In 1967, the Internal Revenue 
Service (the ``Service'') interpreted the reference to ``like 
organizations'' to include mutual or cooperative electric 
companies and water companies, and such mutual or cooperative 
electric companies and water companies have been treated as 
within section 501(c)(12).\2\
---------------------------------------------------------------------------
    \1\Sec. 501(c)(12)(A).
    \2\Rev. Rul. 67-265, 1967-2 C.B. 205.
---------------------------------------------------------------------------
    In general, 85 percent or more of the income of these 
entities must consist of amounts collected from members for the 
sole purpose of meeting losses and expenses of the 
organization.\3\ The 85-percent test is applied on a year-by-
year basis. If an organization fails to satisfy the test for a 
year, it does not qualify for exemption for that particular 
year; it may, however, continue to qualify for exemption for 
any year for which the 85-percent test is satisfied. The Code 
provides certain exceptions to the 85-percent-of-income 
requirement for mutual or cooperative telephone and electric 
companies.\4\
---------------------------------------------------------------------------
    \3\Sec. 501(c)(12)(A); Treas. Reg. sec. 1.501(c)(12)-1(a).
    \4\Secs. 501(c)(12)(B)-(H).
---------------------------------------------------------------------------
    The Service generally requires that mutual or cooperative 
organizations described in section 501(c)(12) be democratically 
controlled, meaning that election of officers is conducted on a 
one-member, one-vote basis, with all meetings having a quorum 
of members in attendance or voting by proxy.\5\
---------------------------------------------------------------------------
    \5\Internal Revenue Manual sec. 7.25.12.5 (citing Puget Sound 
Plywood, Inc. v. Commissioner, 44 T.C. 305 (1966), acq. 1966-2 C.B. 6).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee wishes to facilitate the efficient allocation 
of limited water resources and believes that this goal can be 
furthered by permitting, in appropriate cases, mutual ditch or 
irrigation companies that are exempt from tax under section 
501(c)(12) to supplement their member income with additional 
income from non-member sources without losing tax-exempt status 
for the year. The Committee also believes it is important to 
ensure that such companies have sufficient capital to improve 
the infrastructure for the conveyance of water within their 
districts. The Committee therefore believes it is appropriate 
to disregard certain types of nonmember income received by a 
mutual ditch or irrigation company for purposes of applying the 
85-percent-of-member-income test.

                        EXPLANATION OF PROVISION

    First, in the case of a mutual ditch or irrigation company 
(or a like organization to a mutual ditch or irrigation 
company), the 85-percent-of-income requirement is applied 
without taking into account income received or accrued: (1) 
from the sale, lease, or exchange of fee or other interests in 
real property, including interests in water; (2) from the sale 
or exchange of stock in a mutual ditch or irrigation company 
(or in a like organization to a mutual ditch or irrigation 
company) or contract rights for the delivery or use of water; 
or (3) from the investment of proceeds from sales, leases, or 
exchanges under (1) or (2) above.
    Notwithstanding the foregoing, any income described in (1), 
(2), or (3) above that is distributed or expended for expenses 
(other than for operations, maintenance, and capital 
improvements) of the mutual ditch or irrigation company (or of 
the like organization to a mutual ditch or irrigation company, 
as the case may be) shall be treated as non-member income in 
the year in which it is distributed or expended. For this 
purpose, ``expenses (other than for operations, maintenance, 
and capital improvements)'' include expenses for the 
construction of conveyances designed to deliver water outside 
of the system of the mutual ditch or irrigation company or of 
the like organization.
    Second, in the case of a mutual ditch or irrigation company 
(or a like organization to a mutual ditch or irrigation 
company), where State law provides that such an organization 
may be organized in a manner that permits voting on a basis 
that is pro rata to share ownership on corporate governance 
matters, the organization's eligibility for tax exemption is 
determined without taking into account whether each of its 
member shareholders has one vote on corporate governance 
matters per share held in the organization. Nothing in this 
rule shall be construed to create any inference about the 
requirements of section 501(c)(12) for organizations other than 
mutual ditch or irrigation companies.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2018.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 519, the ``Water and Agriculture Tax 
Reform Act of 2018,'' on June 21, 2018.
    The bill, H.R. 519, as amended, was ordered favorably 
reported to the House of Representatives by a voice vote (with 
a quorum being present).

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 519, as 
reported.
    The following presents the estimated Federal fiscal year 
budget receipts of the bill, H.R. 519, as reported:

                                                  FISCAL YEARS
                                              [Millions of dollars]
----------------------------------------------------------------------------------------------------------------
    2018       2019    2020    2021    2022    2023    2024    2025    2026    2027    2028    2018-23   2018-28
----------------------------------------------------------------------------------------------------------------
     - - -       -3       -3      -4      -4      -4      -4      -4      -4      -4      -4       -18       -39
----------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

    Pursuant to clause 8 of rule XIII of the Rules of the House 
of Representatives, the following statement is made by the 
Joint Committee on Taxation with respect to the provisions of 
the bill amending the Internal Revenue Code of 1986: The gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provision involves no new tax expenditure.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 28, 2018.
Hon. Kevin Brady,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 519, the Water and 
Agriculture Tax Reform Act of 2018.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Cecilia 
Pastrone.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 519--Water and Agriculture Tax Reform Act of 2018

    H.R. 519 would amend the Internal Revenue Code by modifying 
the tax exemption requirements for mutual ditch and irrigation 
companies. The bill excludes certain types of income when 
determining whether those companies qualify for a federal 
income tax exemption in a given year, potentially qualifying 
more of those companies for the exemption. Under current law, 
to qualify for the tax exemption, at least 85 percent of the 
company's income must be collected to meet losses and expenses. 
The bill generally excludes certain types of income--such as 
from the sale or lease of property, the sale of stock in a 
mutual ditch or irrigation company, and the investment of 
proceeds from those transactions--when determining if the 85-
percent-of-income requirement is met. Thus, mutual ditch and 
irrigation companies can earn income on the sale of property 
and stock without affecting their tax-exempt status. The bill 
also broadens the corporate governance structures under which 
mutual ditch and irrigation companies are eligible for the 
federal tax exemption.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 519 would reduce revenues by $39 
million over the 2018-2028 period.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
revenues or direct spending. The net changes in revenues and 
direct spending that are subject to those pay-as-you-go 
procedures are shown in the following table. Only on-budget 
changes to revenues and direct spending are subject to pay-as-
you-go procedures.
    CBO and JCT estimate that enacting the bill would not 
increase net direct spending or on-budget deficits by more than 
$5 billion in any of the four 10-year periods beginning in 
2028.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Cecilia 
Pastrone. The estimate was approved by Joshua Shakin, Unit 
Chief, Revenue Estimating.

            CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 519, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON JUNE 21, 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     By Fiscal Year, in Millions of Dollars
                                                      --------------------------------------------------------------------------------------------------
                                                        2018   2019   2020   2021   2022   2023   2024   2025   2026   2027   2028  2018-2023  2018-2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          NET INCREASE IN THE ON-BUDGET DEFICIT
 
Statutory Pay-As-You-Go Effects......................      0      3      3      4      4      4      4      4      4      4      4        18         39
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to total because of rounding.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated into 
the description portions of this report.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code of 1986 and has widespread applicability 
to individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Internal Revenue 
Code of 1986 and that have ``widespread applicability'' to 
individuals or small businesses, within the meaning of the 
rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program, (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139, or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to section 6104 of 
title 31, United States Code.

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee advises that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED


      A. Changes in Existing Law Proposed by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law proposed 
by the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986




           *       *       *       *       *       *       *
Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *


PART I--GENERAL RULE

           *       *       *       *       *       *       *



SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a) Exemption from taxation.--An organization described in 
subsection (c) or (d) or section 401(a) shall be exempt from 
taxation under this subtitle unless such exemption is denied 
under section 502 or 503.
  (b) Tax on unrelated business income and certain other 
activities.--An organization exempt from taxation under 
subsection (a) shall be subject to tax to the extent provided 
in parts II, III, and VI of this subchapter, but 
(notwithstanding parts II, III, and VI of this subchapter) 
shall be considered an organization exempt from income taxes 
for the purpose of any law which refers to organizations exempt 
from income taxes.
  (c) List of exempt organizations.--The following 
organizations are referred to in subsection (a):
          (1) Any corporation organized under Act of Congress 
        which is an instrumentality of the United States but 
        only if such corporation--
                  (A) is exempt from Federal income taxes--
                          (i) under such Act as amended and 
                        supplemented before July` 18, 1984, or
                          (ii) under this title without regard 
                        to any provision of law which is not 
                        contained in this title and which is 
                        not contained in a revenue Act, or
                  (B) is described in subsection (l).
          (2) Corporations organized for the exclusive purpose 
        of holding title to property, collecting income 
        therefrom, and turning over the entire amount thereof, 
        less expenses, to an organization which itself is 
        exempt under this section. Rules similar to the rules 
        of subparagraph (G) of paragraph (25) shall apply for 
        purposes of this paragraph.
          (3) Corporations, and any community chest, fund, or 
        foundation, organized and operated exclusively for 
        religious, charitable, scientific, testing for public 
        safety, literary, or educational purposes, or to foster 
        national or international amateur sports competition 
        (but only if no part of its activities involve the 
        provision of athletic facilities or equipment), or for 
        the prevention of cruelty to children or animals, no 
        part of the net earnings of which inures to the benefit 
        of any private shareholder or individual, no 
        substantial part of the activities of which is carrying 
        on propaganda, or otherwise attempting, to influence 
        legislation (except as otherwise provided in subsection 
        (h)), and which does not participate in, or intervene 
        in (including the publishing or distributing of 
        statements), any political campaign on behalf of (or in 
        opposition to) any candidate for public office.
          (4)(A) Civic leagues or organizations not organized 
        for profit but operated exclusively for the promotion 
        of social welfare, or local associations of employees, 
        the membership of which is limited to the employees of 
        a designated person or persons in a particular 
        municipality, and the net earnings of which are devoted 
        exclusively to charitable, educational, or recreational 
        purposes.
                  (B) Subparagraph (A) shall not apply to an 
                entity unless no part of the net earnings of 
                such entity inures to the benefit of any 
                private shareholder or individual.
          (5) Labor, agricultural, or horticultural 
        organizations.
          (6) Business leagues, chambers of commerce, real-
        estate boards, boards of trade, or professional 
        football leagues (whether or not administering a 
        pension fund for football players), not organized for 
        profit and no part of the net earnings of which inures 
        to the benefit of any private shareholder or 
        individual.
          (7) Clubs organized for pleasure, recreation, and 
        other nonprofitable purposes, substantially all of the 
        activities of which are for such purposes and no part 
        of the net earnings of which inures to the benefit of 
        any private shareholder.
          (8) Fraternal beneficiary societies, orders, or 
        associations--
                  (A) operating under the lodge system or for 
                the exclusive benefit of the members of a 
                fraternity itself operating under the lodge 
                system, and
                  (B) providing for the payment of life, sick, 
                accident, or other benefits to the members of 
                such society, order, or association or their 
                dependents.
          (9) Voluntary employees' beneficiary associations 
        providing for the payment of life, sick, accident, or 
        other benefits to the members of such association or 
        their dependents or designated beneficiaries, if no 
        part of the net earnings of such association inures 
        (other than through such payments) to the benefit of 
        any private shareholder or individual. For purposes of 
        providing for the payment of sick and accident benefits 
        to members of such an association and their dependents, 
        the term ``dependent'' shall include any individual who 
        is a child (as defined in section 152(f)(1)) of a 
        member who as of the end of the calendar year has not 
        attained age 27.
          (10) Domestic fraternal societies, orders, or 
        associations, operating under the lodge system--
                  (A) the net earnings of which are devoted 
                exclusively to religious, charitable, 
                scientific, literary, educational, and 
                fraternal purposes, and
                  (B) which do not provide for the payment of 
                life, sick, accident, or other benefits.
          (11) Teachers' retirement fund associations of a 
        purely local character, if--
                  (A) no part of their net earnings inures 
                (other than through payment of retirement 
                benefits) to the benefit of any private 
                shareholder or individual, and
                  (B) the income consists solely of amounts 
                received from public taxation, amounts received 
                from assessments on the teaching salaries of 
                members, and income in respect of investments.
          (12)(A) Benevolent life insurance associations of a 
        purely local character, mutual ditch or irrigation 
        companies, mutual or cooperative telephone companies, 
        or like organizations; but only if 85 percent or more 
        of the income consists of amounts collected from 
        members for the sole purpose of meeting losses and 
        expenses.
                  (B) In the case of a mutual or cooperative 
                telephone company, subparagraph (A) shall be 
                applied without taking into account any income 
                received or accrued--
                          (i) from a nonmember telephone 
                        company for the performance of 
                        communication services which involve 
                        members of the mutual or cooperative 
                        telephone company,
                          (ii) from qualified pole rentals,
                          (iii) from the sale of display 
                        listings in a directory furnished to 
                        the members of the mutual or 
                        cooperative telephone company, or
                          (iv) from the prepayment of a loan 
                        under section 306A, 306B, or 311 of the 
                        Rural Electrification Act of 1936 (as 
                        in effect on January 1, 1987).
                  (C) In the case of a mutual or cooperative 
                electric company, subparagraph (A) shall be 
                applied without taking into account any income 
                received or accrued--
                          (i) from qualified pole rentals, or
                          (ii) from any provision or sale of 
                        electric energy transmission services 
                        or ancillary services if such services 
                        are provided on a nondiscriminatory 
                        open access basis under an open access 
                        transmission tariff approved or 
                        accepted by FERC or under an 
                        independent transmission provider 
                        agreement approved or accepted by FERC 
                        (other than income received or accrued 
                        directly or indirectly from a member),
                          (iii) from the provision or sale of 
                        electric energy distribution services 
                        or ancillary services if such services 
                        are provided on a nondiscriminatory 
                        open access basis to distribute 
                        electric energy not owned by the mutual 
                        or electric cooperative company--
                                  (I) to end-users who are 
                                served by distribution 
                                facilities not owned by such 
                                company or any of its members 
                                (other than income received or 
                                accrued directly or indirectly 
                                from a member), or
                                  (II) generated by a 
                                generation facility not owned 
                                or leased by such company or 
                                any of its members and which is 
                                directly connected to 
                                distribution facilities owned 
                                by such company or any of its 
                                members (other than income 
                                received or accrued directly or 
                                indirectly from a member),
                          (iv) from any nuclear decommissioning 
                        transaction, or
                          (v) from any asset exchange or 
                        conversion transaction.
                  (D) For purposes of this paragraph, the term 
                ``qualified pole rental'' means any rental of a 
                pole (or other structure used to support wires) 
                if such pole (or other structure)--
                          (i) is used by the telephone or 
                        electric company to support one or more 
                        wires which are used by such company in 
                        providing telephone or electric 
                        services to its members, and
                          (ii) is used pursuant to the rental 
                        to support one or more wires (in 
                        addition to the wires described in 
                        clause (i)) for use in connection with 
                        the transmission by wire of electricity 
                        or of telephone or other 
                        communications.
                For purposes of the preceding sentence, the 
                term ``rental'' includes any sale of the right 
                to use the pole (or other structure).
                  (E) For purposes of subparagraph (C)(ii), the 
                term ``FERC'' means--
                          (i) the Federal Energy Regulatory 
                        Commission, or
                          (ii) in the case of any utility with 
                        respect to which all of the electricity 
                        generated, transmitted, or distributed 
                        by such utility is generated, 
                        transmitted, distributed, and consumed 
                        in the same State, the State agency of 
                        such State with the authority to 
                        regulate electric utilities.
                  (F) For purposes of subparagraph (C)(iv), the 
                term ``nuclear decommissioning transaction'' 
                means--
                          (i) any transfer into a trust, fund, 
                        or instrument established to pay any 
                        nuclear decommissioning costs if the 
                        transfer is in connection with the 
                        transfer of the mutual or cooperative 
                        electric company's interest in a 
                        nuclear power plant or nuclear power 
                        plant unit,
                          (ii) any distribution from any trust, 
                        fund, or instrument established to pay 
                        any nuclear decommissioning costs, or
                          (iii) any earnings from any trust, 
                        fund, or instrument established to pay 
                        any nuclear decommissioning costs.
                  (G) For purposes of subparagraph (C)(v), the 
                term ``asset exchange or conversion 
                transaction'' means any voluntary exchange or 
                involuntary conversion of any property related 
                to generating, transmitting, distributing, or 
                selling electric energy by a mutual or 
                cooperative electric company, the gain from 
                which qualifies for deferred recognition under 
                section 1031 or 1033, but only if the 
                replacement property acquired by such company 
                pursuant to such section constitutes property 
                which is used, or to be used, for--
                          (i) generating, transmitting, 
                        distributing, or selling electric 
                        energy, or
                          (ii) producing, transmitting, 
                        distributing, or selling natural gas.
                  (H)(i) In the case of a mutual or cooperative 
                electric company described in this paragraph or 
                an organization described in section 
                1381(a)(2)(C), income received or accrued from 
                a load loss transaction shall be treated as an 
                amount collected from members for the sole 
                purpose of meeting losses and expenses.
                          (ii) For purposes of clause (i), the 
                        term ``load loss transaction'' means 
                        any wholesale or retail sale of 
                        electric energy (other than to members) 
                        to the extent that the aggregate sales 
                        during the recovery period do not 
                        exceed the load loss mitigation sales 
                        limit for such period.
                          (iii) For purposes of clause (ii), 
                        the load loss mitigation sales limit 
                        for the recovery period is the sum of 
                        the annual load losses for each year of 
                        such period.
                          (iv) For purposes of clause (iii), a 
                        mutual or cooperative electric 
                        company's annual load loss for each 
                        year of the recovery period is the 
                        amount (if any) by which--
                                  (I) the megawatt hours of 
                                electric energy sold during 
                                such year to members of such 
                                electric company are less than
                                  (II) the megawatt hours of 
                                electric energy sold during the 
                                base year to such members.
                          (v) For purposes of clause (iv)(II), 
                        the term ``base year'' means--
                                  (I) the calendar year 
                                preceding the start-up year, or
                                  (II) at the election of the 
                                mutual or cooperative electric 
                                company, the second or third 
                                calendar years preceding the 
                                start-up year.
                          (vi) For purposes of this 
                        subparagraph, the recovery period is 
                        the 7-year period beginning with the 
                        start-up year.
                          (vii) For purposes of this 
                        subparagraph, the start-up year is the 
                        first year that the mutual or 
                        cooperative electric company offers 
                        nondiscriminatory open access or the 
                        calendar year which includes the date 
                        of the enactment of this subparagraph, 
                        if later, at the election of such 
                        company.
                          (viii) A company shall not fail to be 
                        treated as a mutual or cooperative 
                        electric company for purposes of this 
                        paragraph or as a corporation operating 
                        on a cooperative basis for purposes of 
                        section 1381(a)(2)(C) by reason of the 
                        treatment under clause (i).
                          (ix) For purposes of subparagraph 
                        (A), in the case of a mutual or 
                        cooperative electric company, income 
                        received, or accrued, indirectly from a 
                        member shall be treated as an amount 
                        collected from members for the sole 
                        purpose of meeting losses and expenses.
                  (I) In the case of a mutual or cooperative 
                electric company described in this paragraph or 
                an organization described in section 
                1381(a)(2), income received or accrued in 
                connection with an election under section 
                45J(e)(1) shall be treated as an amount 
                collected from members for the sole purpose of 
                meeting losses and expenses.
                  (J) Treatment of mutual ditch irrigation 
                companies.--
                          (i) In general.--In the case of a 
                        mutual ditch or irrigation company or 
                        of a like organization to a mutual 
                        ditch or irrigation company, 
                        subparagraph (A) shall be applied 
                        without taking into account any income 
                        received or accrued--
                                  (I) from the sale, lease, or 
                                exchange of fee or other 
                                interests in real and personal 
                                property, including interests 
                                in water,
                                  (II) from the sale or 
                                exchange of stock in a mutual 
                                ditch or irrigation company (or 
                                in a like organization to a 
                                mutual ditch or irrigation 
                                company) or contract rights for 
                                the delivery or use of water, 
                                or
                                  (III) from the investment of 
                                proceeds from sales, leases, or 
                                exchanges under subclauses (I) 
                                and (II),
                        except that any income received under 
                        subclause (I), (II), or (III) which is 
                        distributed or expended for expenses 
                        (other than for operations, 
                        maintenance, and capital improvements) 
                        of the mutual ditch or irrigation 
                        company or of the like organization to 
                        a mutual ditch or irrigation company 
                        (as the case may be) shall be treated 
                        as nonmember income in the year in 
                        which it is distributed or expended. 
                        For purposes of the preceding sentence, 
                        expenses (other than for operations, 
                        maintenance, and capital improvements) 
                        include expenses for the construction 
                        of conveyances designed to deliver 
                        water outside of the system of the 
                        mutual ditch or irrigation company or 
                        of the like organization.
                          (ii) Treatment of organizational 
                        governance.--In the case of a mutual 
                        ditch or irrigation company or of a 
                        like organization to a mutual ditch or 
                        irrigation company, where State law 
                        provides that such a company or 
                        organization may be organized in a 
                        manner that permits voting on a basis 
                        which is pro rata to share ownership on 
                        corporate governance matters, 
                        subparagraph (A) shall be applied 
                        without taking into account whether its 
                        member shareholders have one vote on 
                        corporate governance matters per share 
                        held in the corporation. Nothing in 
                        this clause shall be construed to 
                        create any inference about the 
                        requirements of this subsection for 
                        companies or organizations not included 
                        in this clause.
          (13) Cemetery companies owned and operated 
        exclusively for the benefit of their members or which 
        are not operated for profit; and any corporation 
        chartered solely for the purpose of the disposal of 
        bodies by burial or cremation which is not permitted by 
        its charter to engage in any business not necessarily 
        incident to that purpose and no part of the net 
        earnings of which inures to the benefit of any private 
        shareholder or individual.
          (14)(A) Credit unions without capital stock organized 
        and operated for mutual purposes and without profit.
                  (B) Corporations or associations without 
                capital stock organized before September 1, 
                1957, and operated for mutual purposes and 
                without profit for the purpose of providing 
                reserve funds for, and insurance of shares or 
                deposits in--
                          (i) domestic building and loan 
                        associations,
                          (ii) cooperative banks without 
                        capital stock organized and operated 
                        for mutual purposes and without profit,
                          (iii) mutual savings banks not having 
                        capital stock represented by shares, or
                          (iv) mutual savings banks described 
                        in section 591(b). (C) Corporations or 
                        associations organized before September 
                        1, 1957, and operated for mutual 
                        purposes and without profit for the 
                        purpose of providing reserve funds for 
                        associations or banks described in 
                        clause (i), (ii), or (iii) of 
                        subparagraph (B); but only if 85 
                        percent or more of the income is 
                        attributable to providing such reserve 
                        funds and to investments. This 
                        subparagraph shall not apply to any 
                        corporation or association entitled to 
                        exemption under subparagraph (B).
          (15)(A) Insurance companies (as defined in section 
        816(a)) other than life (including interinsurers and 
        reciprocal underwriters) if--
                          (i)(I) the gross receipts for the 
                        taxable year do not exceed $600,000, 
                        and
                                  (II) more than 50 percent of 
                                such gross receipts consist of 
                                premiums, or
                          (ii) in the case of a mutual 
                        insurance company--
                                  (I) the gross receipts of 
                                which for the taxable year do 
                                not exceed $150,000, and
                                  (II) more than 35 percent of 
                                such gross receipts consist of 
                                premiums.
        Clause (ii) shall not apply to a company if any 
        employee of the company, or a member of the employee's 
        family (as defined in section 2032A(e)(2)), is an 
        employee of another company exempt from taxation by 
        reason of this paragraph (or would be so exempt but for 
        this sentence).
                  (B) For purposes of subparagraph (A), in 
                determining whether any company or association 
                is described in subparagraph (A), such company 
                or association shall be treated as receiving 
                during the taxable year amounts described in 
                subparagraph (A) which are received during such 
                year by all other companies or associations 
                which are members of the same controlled group 
                as the insurance company or association for 
                which the determination is being made.
                  (C) For purposes of subparagraph (B), the 
                term ``controlled group'' has the meaning given 
                such term by section 831(b)(2)(B)(ii), except 
                that in applying section 831(b)(2)(B)(ii) for 
                purposes of this subparagraph, subparagraphs 
                (B) and (C) of section 1563(b)(2) shall be 
                disregarded.
          (16) Corporations organized by an association subject 
        to part IV of this subchapter or members thereof, for 
        the purpose of financing the ordinary crop operations 
        of such members or other producers, and operated in 
        conjunction with such association. Exemption shall not 
        be denied any such corporation because it has capital 
        stock, if the dividend rate of such stock is fixed at 
        not to exceed the legal rate of interest in the State 
        of incorporation or 8 percent per annum, whichever is 
        greater, on the value of the consideration for which 
        the stock was issued, and if substantially all such 
        stock (other than nonvoting preferred stock, the owners 
        of which are not entitled or permitted to participate, 
        directly or indirectly, in the profits of the 
        corporation, on dissolution or otherwise, beyond the 
        fixed dividends) is owned by such association, or 
        members thereof; nor shall exemption be denied any such 
        corporation because there is accumulated and maintained 
        by it a reserve required by State law or a reasonable 
        reserve for any necessary purpose.
          (17)(A) A trust or trusts forming part of a plan 
        providing for the payment of supplemental unemployment 
        compensation benefits, if--
                          (i) under the plan, it is impossible, 
                        at any time prior to the satisfaction 
                        of all liabilities, with respect to 
                        employees under the plan, for any part 
                        of the corpus or income to be (within 
                        the taxable year or thereafter) used 
                        for, or diverted to, any purpose other 
                        than the providing of supplemental 
                        unemployment compensation benefits,
                          (ii) such benefits are payable to 
                        employees under a classification which 
                        is set forth in the plan and which is 
                        found by the Secretary not to be 
                        discriminatory in favor of employees 
                        who are highly compensated employees 
                        (within the meaning of section 414(q)), 
                        and
                          (iii) such benefits do not 
                        discriminate in favor of employees who 
                        are highly compensated employees 
                        (within the meaning of section 414(q)). 
                        A plan shall not be considered 
                        discriminatory within the meaning of 
                        this clause merely because the benefits 
                        received under the plan bear a uniform 
                        relationship to the total compensation, 
                        or the basic or regular rate of 
                        compensation, of the employees covered 
                        by the plan.
                  (B) In determining whether a plan meets the 
                requirements of subparagraph (A), any benefits 
                provided under any other plan shall not be 
                taken into consideration, except that a plan 
                shall not be considered discriminatory--
                          (i) merely because the benefits under 
                        the plan which are first determined in 
                        a nondiscriminatory manner within the 
                        meaning of subparagraph (A) are then 
                        reduced by any sick, accident, or 
                        unemployment compensation benefits 
                        received under State or Federal law (or 
                        reduced by a portion of such benefits 
                        if determined in a nondiscriminatory 
                        manner), or
                          (ii) merely because the plan provides 
                        only for employees who are not eligible 
                        to receive sick, accident, or 
                        unemployment compensation benefits 
                        under State or Federal law the same 
                        benefits (or a portion of such benefits 
                        if determined in a nondiscriminatory 
                        manner) which such employees would 
                        receive under such laws if such 
                        employees were eligible for such 
                        benefits, or
                          (iii) merely because the plan 
                        provides only for employees who are not 
                        eligible under another plan (which 
                        meets the requirements of subparagraph 
                        (A)) of supplemental unemployment 
                        compensation benefits provided wholly 
                        by the employer the same benefits (or a 
                        portion of such benefits if determined 
                        in a nondiscriminatory manner) which 
                        such employees would receive under such 
                        other plan if such employees were 
                        eligible under such other plan, but 
                        only if the employees eligible under 
                        both plans would make a classification 
                        which would be nondiscriminatory within 
                        the meaning of subparagraph (A).
                  (C) A plan shall be considered to meet the 
                requirements of subparagraph (A) during the 
                whole of any year of the plan if on one day in 
                each quarter it satisfies such requirements.
                  (D) The term ``supplemental unemployment 
                compensation benefits'' means only--
                          (i) benefits which are paid to an 
                        employee because of his involuntary 
                        separation from the employment of the 
                        employer (whether or not such 
                        separation is temporary) resulting 
                        directly from a reduction in force, the 
                        discontinuance of a plant or operation, 
                        or other similar conditions, and
                          (ii) sick and accident benefits 
                        subordinate to the benefits described 
                        in clause (i).
                  (E) Exemption shall not be denied under 
                subsection (a) to any organization entitled to 
                such exemption as an association described in 
                paragraph (9) of this subsection merely because 
                such organization provides for the payment of 
                supplemental unemployment benefits (as defined 
                in subparagraph (D)(i)).
          (18) A trust or trusts created before June 25, 1959, 
        forming part of a plan providing for the payment of 
        benefits under a pension plan funded only by 
        contributions of employees, if--
                  (A) under the plan, it is impossible, at any 
                time prior to the satisfaction of all 
                liabilities with respect to employees under the 
                plan, for any part of the corpus or income to 
                be (within the taxable year or thereafter) used 
                for, or diverted to, any purpose other than the 
                providing of benefits under the plan,
                  (B) such benefits are payable to employees 
                under a classification which is set forth in 
                the plan and which is found by the Secretary 
                not to be discriminatory in favor of employees 
                who are highly compensated employees (within 
                the meaning of section 414(q)),
                  (C) such benefits do not discriminate in 
                favor of employees who are highly compensated 
                employees (within the meaning of section 
                414(q)). A plan shall not be considered 
                discriminatory within the meaning of this 
                subparagraph merely because the benefits 
                received under the plan bear a uniform 
                relationship to the total compensation, or the 
                basic or regular rate of compensation, of the 
                employees covered by the plan, and
                  (D) in the case of a plan under which an 
                employee may designate certain contributions as 
                deductible--
                          (i) such contributions do not exceed 
                        the amount with respect to which a 
                        deduction is allowable under section 
                        219(b)(3),
                          (ii) requirements similar to the 
                        requirements of section 
                        401(k)(3)(A)(ii) are met with respect 
                        to such elective contributions,
                          (iii) such contributions are treated 
                        as elective deferrals for purposes of 
                        section 402(g), and
                          (iv) the requirements of section 
                        401(a)(30) are met.
        For purposes of subparagraph (D)(ii), rules similar to 
        the rules of section 401(k)(8) shall apply. For 
        purposes of section 4979, any excess contribution under 
        clause (ii) shall be treated as an excess contribution 
        under a cash or deferred arrangement.
          (19) A post or organization of past or present 
        members of the Armed Forces of the United States, or an 
        auxiliary unit or society of, or a trust or foundation 
        for, any such post or organization--
                  (A) organized in the United States or any of 
                its possessions,
                  (B) at least 75 percent of the members of 
                which are past or present members of the Armed 
                Forces of the United States and substantially 
                all of the other members of which are 
                individuals who are cadets or are spouses, 
                widows, widowers, ancestors, or lineal 
                descendants of past or present members of the 
                Armed Forces of the United States or of cadets, 
                and
                  (C) no part of the net earnings of which 
                inures to the benefit of any private 
                shareholder or individual.
          (21)(A) A trust or trusts established in writing, 
        created or organized in the United States, and 
        contributed to by any person (except an insurance 
        company) if--
                          (i) the purpose of such trust or 
                        trusts is exclusively--
                                  (I) to satisfy, in whole or 
                                in part, the liability of such 
                                person for, or with respect to, 
                                claims for compensation for 
                                disability or death due to 
                                pneumoconiosis under Black Lung 
                                Acts,
                                  (II) to pay premiums for 
                                insurance exclusively covering 
                                such liability,
                                  (III) to pay administrative 
                                and other incidental expenses 
                                of such trust in connection 
                                with the operation of the trust 
                                and the processing of claims 
                                against such person under Black 
                                Lung Acts, and
                                  (IV) to pay accident or 
                                health benefits for retired 
                                miners and their spouses and 
                                dependents (including 
                                administrative and other 
                                incidental expenses of such 
                                trust in connection therewith) 
                                or premiums for insurance 
                                exclusively covering such 
                                benefits; and
                          (ii) no part of the assets of the 
                        trust may be used for, or diverted to, 
                        any purpose other than--
                                  (I) the purposes described in 
                                clause (i),
                                  (II) investment (but only to 
                                the extent that the trustee 
                                determines that a portion of 
                                the assets is not currently 
                                needed for the purposes 
                                described in clause (i)) in 
                                qualified investments, or
                                  (III) payment into the Black 
                                Lung Disability Trust Fund 
                                established under section 9501, 
                                or into the general fund of the 
                                United States Treasury (other 
                                than in satisfaction of any tax 
                                or other civil or criminal 
                                liability of the person who 
                                established or contributed to 
                                the trust).
                  (B) No deduction shall be allowed under this 
                chapter for any payment described in 
                subparagraph (A)(i)(IV) from such trust.
                  (C) Payments described in subparagraph 
                (A)(i)(IV) may be made from such trust during a 
                taxable year only to the extent that the 
                aggregate amount of such payments during such 
                taxable year does not exceed the excess (if 
                any), as of the close of the preceding taxable 
                year, of--
                          (i) the fair market value of the 
                        assets of the trust, over
                          (ii) 110 percent of the present value 
                        of the liability described in 
                        subparagraph (A)(i)(I) of such person.
                The determinations under the preceding sentence 
                shall be made by an independent actuary using 
                actuarial methods and assumptions (not 
                inconsistent with the regulations prescribed 
                under section 192(c)(1)(A)) each of which is 
                reasonable and which are reasonable in the 
                aggregate.
                  (D) For purposes of this paragraph:
                          (i) The term ``Black Lung Acts'' 
                        means part C of title IV of the Federal 
                        Mine Safety and Health Act of 1977, and 
                        any State law providing compensation 
                        for disability or death due to that 
                        pneumoconiosis.
                          (ii) The term ``qualified 
                        investments'' means--
                                  (I) public debt securities of 
                                the United States,
                                  (II) obligations of a State 
                                or local government which are 
                                not in default as to principal 
                                or interest, and
                                  (III) time or demand deposits 
                                in a bank (as defined in 
                                section 581) or an insured 
                                credit union (within the 
                                meaning of section 101(7) of 
                                the Federal Credit Union Act, 
                                12 U.S.C. 1752(7)) located in 
                                the United States.
                          (iii) The term ``miner'' has the same 
                        meaning as such term has when used in 
                        section 402(d) of the Black Lung 
                        Benefits Act (30 U.S.C. 902(d)).
                          (iv) The term ``incidental expenses'' 
                        includes legal, accounting, actuarial, 
                        and trustee expenses.
          (22) A trust created or organized in the United 
        States and established in writing by the plan sponsors 
        of multiemployer plans if--
                  (A) the purpose of such trust is 
                exclusively--
                          (i) to pay any amount described in 
                        section 4223(c) or (h) of the Employee 
                        Retirement Income Security Act of 1974, 
                        and
                          (ii) to pay reasonable and necessary 
                        administrative expenses in connection 
                        with the establishment and operation of 
                        the trust and the processing of claims 
                        against the trust,
                  (B) no part of the assets of the trust may be 
                used for, or diverted to, any purpose other 
                than--
                          (i) the purposes described in 
                        subparagraph (A), or
                          (ii) the investment in securities, 
                        obligations, or time or demand deposits 
                        described in clause (ii) of paragraph 
                        (21)(D),
                  (C) such trust meets the requirements of 
                paragraphs (2), (3), and (4) of section 
                4223(b), 4223(h), or, if applicable, section 
                4223(c) of the Employee Retirement Income 
                Security Act of 1974, and
                  (D) the trust instrument provides that, on 
                dissolution of the trust, assets of the trust 
                may not be paid other than to plans which have 
                participated in the plan or, in the case of a 
                trust established under section 4223(h) of such 
                Act, to plans with respect to which employers 
                have participated in the fund.
          (23) Any association organized before 1880 more than 
        75 percent of the members of which are present or past 
        members of the Armed Forces and a principal purpose of 
        which is to provide insurance and other benefits to 
        veterans or their dependents.
          (24) A trust described in section 4049 of the 
        Employee Retirement Income Security Act of 1974 (as in 
        effect on the date of the enactment of the Single-
        Employer Pension Plan Amendments Act of 1986).
          (25)(A) Any corporation or trust which--
                          (i) has no more than 35 shareholders 
                        or beneficiaries,
                          (ii) has only 1 class of stock or 
                        beneficial interest, and
                          (iii) is organized for the exclusive 
                        purposes of--
                                  (I) acquiring real property 
                                and holding title to, and 
                                collecting income from, such 
                                property, and
                                  (II) remitting the entire 
                                amount of income from such 
                                property (less expenses) to 1 
                                or more organizations described 
                                in subparagraph (C) which are 
                                shareholders of such 
                                corporation or beneficiaries of 
                                such trust.
        For purposes of clause (iii), the term ``real 
        property'' shall not include any interest as a tenant 
        in common (or similar interest) and shall not include 
        any indirect interest.
                  (B) A corporation or trust shall be described 
                in subparagraph (A) without regard to whether 
                the corporation or trust is organized by 1 or 
                more organizations described in subparagraph 
                (C).
                  (C) An organization is described in this 
                subparagraph if such organization is--
                          (i) a qualified pension, profit 
                        sharing, or stock bonus plan that meets 
                        the requirements of section 401(a),
                          (ii) a governmental plan (within the 
                        meaning of section 414(d)),
                          (iii) the United States, any State or 
                        political subdivision thereof, or any 
                        agency or instrumentality of any of the 
                        foregoing, or
                          (iv) any organization described in 
                        paragraph (3).
                  (D) A corporation or trust shall in no event 
                be treated as described in subparagraph (A) 
                unless such corporation or trust permits its 
                shareholders or beneficiaries--
                          (i) to dismiss the corporation's or 
                        trust's investment adviser, following 
                        reasonable notice, upon a vote of the 
                        shareholders or beneficiaries holding a 
                        majority of interest in the corporation 
                        or trust, and
                          (ii) to terminate their interest in 
                        the corporation or trust by either, or 
                        both, of the following alternatives, as 
                        determined by the corporation or trust:
                                  (I) by selling or exchanging 
                                their stock in the corporation 
                                or interest in the trust 
                                (subject to any Federal or 
                                State securities law) to any 
                                organization described in 
                                subparagraph (C) so long as the 
                                sale or exchange does not 
                                increase the number of 
                                shareholders or beneficiaries 
                                in such corporation or trust 
                                above 35, or
                                  (II) by having their stock or 
                                interest redeemed by the 
                                corporation or trust after the 
                                shareholder or beneficiary has 
                                provided 90 days notice to such 
                                corporation or trust.
                  (E)(i) For purposes of this title--
                                  (I) a corporation which is a 
                                qualified subsidiary shall not 
                                be treated as a separate 
                                corporation, and
                                  (II) all assets, liabilities, 
                                and items of income, deduction, 
                                and credit of a qualified 
                                subsidiary shall be treated as 
                                assets, liabilities, and such 
                                items (as the case may be) of 
                                the corporation or trust 
                                described in subparagraph (A).
                          (ii) For purposes of this 
                        subparagraph, the term ``qualified 
                        subsidiary'' means any corporation if, 
                        at all times during the period such 
                        corporation was in existence, 100 
                        percent of the stock of such 
                        corporation is held by the corporation 
                        or trust described in subparagraph (A).
                          (iii) For purposes of this subtitle, 
                        if any corporation which was a 
                        qualified subsidiary ceases to meet the 
                        requirements of clause (ii), such 
                        corporation shall be treated as a new 
                        corporation acquiring all of its assets 
                        (and assuming all of its liabilities) 
                        immediately before such cessation from 
                        the corporation or trust described in 
                        subparagraph (A) in exchange for its 
                        stock.
                  (F) For purposes of subparagraph (A), the 
                term ``real property'' includes any personal 
                property which is leased under, or in 
                connection with, a lease of real property, but 
                only if the rent attributable to such personal 
                property (determined under the rules of section 
                856(d)(1)) for the taxable year does not exceed 
                15 percent of the total rent for the taxable 
                year attributable to both the real and personal 
                property leased under, or in connection with, 
                such lease.
                  (G)(i) An organization shall not be treated 
                as failing to be described in this paragraph 
                merely by reason of the receipt of any 
                otherwise disqualifying income which is 
                incidentally derived from the holding of real 
                property.
                          (ii) Clause (i) shall not apply if 
                        the amount of gross income described in 
                        such clause exceeds 10 percent of the 
                        organization's gross income for the 
                        taxable year unless the organization 
                        establishes to the satisfaction of the 
                        Secretary that the receipt of gross 
                        income described in clause (i) in 
                        excess of such limitation was 
                        inadvertent and reasonable steps are 
                        being taken to correct the 
                        circumstances giving rise to such 
                        income.
          (26) Any membership organization if--
                  (A) such organization is established by a 
                State exclusively to provide coverage for 
                medical care (as defined in section 213(d)) on 
                a not-for-profit basis to individuals described 
                in subparagraph (B) through--
                          (i) insurance issued by the 
                        organization, or
                          (ii) a health maintenance 
                        organization under an arrangement with 
                        the organization,
                  (B) the only individuals receiving such 
                coverage through the organization are 
                individuals--
                          (i) who are residents of such State, 
                        and
                          (ii) who, by reason of the existence 
                        or history of a medical condition--
                                  (I) are unable to acquire 
                                medical care coverage for such 
                                condition through insurance or 
                                from a health maintenance 
                                organization, or
                                  (II) are able to acquire such 
                                coverage only at a rate which 
                                is substantially in excess of 
                                the rate for such coverage 
                                through the membership 
                                organization,
                  (C) the composition of the membership in such 
                organization is specified by such State, and
                  (D) no part of the net earnings of the 
                organization inures to the benefit of any 
                private shareholder or individual.
        A spouse and any qualifying child (as defined in 
        section 24(c)) of an individual described in 
        subparagraph (B) (without regard to this sentence) 
        shall be treated as described in subparagraph (B).
          (27)(A) Any membership organization if--
                          (i) such organization is established 
                        before June 1, 1996, by a State 
                        exclusively to reimburse its members 
                        for losses arising under workmen's 
                        compensation acts,
                          (ii) such State requires that the 
                        membership of such organization consist 
                        of--
                                  (I) all persons who issue 
                                insurance covering workmen's 
                                compensation losses in such 
                                State, and
                                  (II) all persons and 
                                governmental entities who self-
                                insure against such losses, and
                          (iii) such organization operates as a 
                        non-profit organization by--
                                  (I) returning surplus income 
                                to its members or workmen's 
                                compensation policyholders on a 
                                periodic basis, and
                                  (II) reducing initial 
                                premiums in anticipation of 
                                investment income.
                  (B) Any organization (including a mutual 
                insurance company) if--
                          (i) such organization is created by 
                        State law and is organized and operated 
                        under State law exclusively to--
                                  (I) provide workmen's 
                                compensation insurance which is 
                                required by State law or with 
                                respect to which State law 
                                provides significant 
                                disincentives if such insurance 
                                is not purchased by an 
                                employer, and
                                  (II) provide related coverage 
                                which is incidental to 
                                workmen's compensation 
                                insurance,
                          (ii) such organization must provide 
                        workmen's compensation insurance to any 
                        employer in the State (for employees in 
                        the State or temporarily assigned out-
                        of-State) which seeks such insurance 
                        and meets other reasonable requirements 
                        relating thereto,
                          (iii)(I) the State makes a financial 
                        commitment with respect to such 
                        organization either by extending the 
                        full faith and credit of the State to 
                        the initial debt of such organization 
                        or by providing the initial operating 
                        capital of such organization, and (II) 
                        in the case of periods after the date 
                        of enactment of this subparagraph, the 
                        assets of such organization revert to 
                        the State upon dissolution or State law 
                        does not permit the dissolution of such 
                        organization, and
                          (iv) the majority of the board of 
                        directors or oversight body of such 
                        organization are appointed by the chief 
                        executive officer or other executive 
                        branch official of the State, by the 
                        State legislature, or by both.
          (28) The National Railroad Retirement Investment 
        Trust established under section 15(j) of the Railroad 
        Retirement Act of 1974.
          (29) CO-OP health insurance issuers.--
                  (A) In general.--A qualified nonprofit health 
                insurance issuer (within the meaning of section 
                1322 of the Patient Protection and Affordable 
                Care Act) which has received a loan or grant 
                under the CO-OP program under such section, but 
                only with respect to periods for which the 
                issuer is in compliance with the requirements 
                of such section and any agreement with respect 
                to the loan or grant.
                  (B) Conditions for exemption.--Subparagraph 
                (A) shall apply to an organization only if--
                          (i) the organization has given notice 
                        to the Secretary, in such manner as the 
                        Secretary may by regulations prescribe, 
                        that it is applying for recognition of 
                        its status under this paragraph,
                          (ii) except as provided in section 
                        1322(c)(4) of the Patient Protection 
                        and Affordable Care Act, no part of the 
                        net earnings of which inures to the 
                        benefit of any private shareholder or 
                        individual,
                          (iii) no substantial part of the 
                        activities of which is carrying on 
                        propaganda, or otherwise attempting, to 
                        influence legislation, and
                          (iv) the organization does not 
                        participate in, or intervene in 
                        (including the publishing or 
                        distributing of statements), any 
                        political campaign on behalf of (or in 
                        opposition to) any candidate for public 
                        office.
  (d) Religious and apostolic organizations.--The following 
organizations are referred to in subsection (a): Religious or 
apostolic associations or corporations, if such associations or 
corporations have a common treasury or community treasury, even 
if such associations or corporations engage in business for the 
common benefit of the members, but only if the members thereof 
include (at the time of filing their returns) in their gross 
income their entire pro rata shares, whether distributed or 
not, of the taxable income of the association or corporation 
for such year. Any amount so included in the gross income of a 
member shall be treated as a dividend received.
  (e) Cooperative hospital service organizations.--For purposes 
of this title, an organization shall be treated as an 
organization organized and operated exclusively for charitable 
purposes, if--
          (1) such organization is organized and operated 
        solely--
                  (A) to perform, on a centralized basis, one 
                or more of the following services which, if 
                performed on its own behalf by a hospital which 
                is an organization described in subsection 
                (c)(3) and exempt from taxation under 
                subsection (a), would constitute activities in 
                exercising or performing the purpose or 
                function constituting the basis for its 
                exemption: data processing, purchasing 
                (including the purchasing of insurance on a 
                group basis), warehousing, billing and 
                collection (including the purchase of patron 
                accounts receivable on a recourse basis), food, 
                clinical, industrial engineering, laboratory, 
                printing, communications, record center, and 
                personnel (including selection, testing, 
                training, and education of personnel) services; 
                and
                  (B) to perform such services solely for two 
                or more hospitals each of which is--
                          (i) an organization described in 
                        subsection (c)(3) which is exempt from 
                        taxation under subsection (a),
                          (ii) a constituent part of an 
                        organization described in subsection 
                        (c)(3) which is exempt from taxation 
                        under subsection (a) and which, if 
                        organized and operated as a separate 
                        entity, would constitute an 
                        organization described in subsection 
                        (c)(3), or
                          (iii) owned and operated by the 
                        United States, a State, the District of 
                        Columbia, or a possession of the United 
                        States, or a political subdivision or 
                        an agency or instrumentality of any of 
                        the foregoing;
          (2) such organization is organized and operated on a 
        cooperative basis and allocates or pays, within 8 1/2 
        months after the close of its taxable year, all net 
        earnings to patrons on the basis of services performed 
        for them; and
          (3) if such organization has capital stock, all of 
        such stock outstanding is owned by its patrons.
For purposes of this title, any organization which, by reason 
of the preceding sentence, is an organization described in 
subsection (c)(3) and exempt from taxation under subsection 
(a), shall be treated as a hospital and as an organization 
referred to in section 170(b)(1)(A)(iii).
  (f) Cooperative service organizations of operating 
educational organizations.--For purposes of this title, if an 
organization is--
          (1) organized and operated solely to hold, commingle, 
        and collectively invest and reinvest (including 
        arranging for and supervising the performance by 
        independent contractors of investment services related 
        thereto) in stocks and securities, the moneys 
        contributed thereto by each of the members of such 
        organization, and to collect income therefrom and turn 
        over the entire amount thereof, less expenses, to such 
        members,
          (2) organized and controlled by one or more such 
        members, and
          (3) comprised solely of members that are 
        organizations described in clause (ii) or (iv) of 
        section 170(b)(1)(A)--
                  (A) which are exempt from taxation under 
                subsection (a), or
                  (B) the income of which is excluded from 
                taxation under section 115,
        then such organization shall be treated as an 
        organization organized and operated exclusively for 
        charitable purposes.
  (g) Definition of agricultural.--For purposes of subsection 
(c)(5), the term ``agricultural'' includes the art or science 
of cultivating land, harvesting crops or aquatic resources, or 
raising livestock.
  (h) Expenditures by public charities to influence 
legislation.--
          (1) General rule.--In the case of an organization to 
        which this subsection applies, exemption from taxation 
        under subsection (a) shall be denied because a 
        substantial part of the activities of such organization 
        consists of carrying on propaganda, or otherwise 
        attempting, to influence legislation, but only if such 
        organization normally--
                  (A) makes lobbying expenditures in excess of 
                the lobbying ceiling amount for such 
                organization for each taxable year, or
                  (B) makes grass roots expenditures in excess 
                of the grass roots ceiling amount for such 
                organization for each taxable year.
          (2) Definitions.--For purposes of this subsection--
                  (A) Lobbying expenditures.--The term 
                ``lobbying expenditures'' means expenditures 
                for the purpose of influencing legislation (as 
                defined in section 4911(d)).
                  (B) Lobbying ceiling amount.--The lobbying 
                ceiling amount for any organization for any 
                taxable year is 150 percent of the lobbying 
                nontaxable amount for such organization for 
                such taxable year, determined under section 
                4911.
                  (C) Grass roots expenditures.--The term 
                ``grass roots expenditures'' means expenditures 
                for the purpose of influencing legislation (as 
                defined in section 4911(d) without regard to 
                paragraph (1)(B) thereof).
                  (D) Grass roots ceiling amount.--The grass 
                roots ceiling amount for any organization for 
                any taxable year is 150 percent of the grass 
                roots nontaxable amount for such organization 
                for such taxable year, determined under section 
                4911.
          (3) Organizations to which this subsection applies.--
        This subsection shall apply to any organization which 
        has elected (in such manner and at such time as the 
        Secretary may prescribe) to have the provisions of this 
        subsection apply to such organization and which, for 
        the taxable year which includes the date the election 
        is made, is described in subsection (c)(3) and--
                  (A) is described in paragraph (4), and
                  (B) is not a disqualified organization under 
                paragraph (5).
          (4) Organizations permitted to elect to have this 
        subsection apply.--An organization is described in this 
        paragraph if it is described in--
                  (A) section 170(b)(1)(A)(ii) (relating to 
                educational institutions),
                  (B) section 170(b)(1)(A)(iii) (relating to 
                hospitals and medical research organizations),
                  (C) section 170(b)(1)(A)(iv) (relating to 
                organizations supporting government schools),
                  (D) section 170(b)(1)(A)(vi) (relating to 
                organizations publicly supported by charitable 
                contributions),
                  (E) section 170(b)(1)(A)(ix) (relating to 
                agricultural research organizations),
                  (F) section 509(a)(2) (relating to 
                organizations publicly supported by admissions, 
                sales, etc.), or
                  (G) section 509(a)(3) (relating to 
                organizations supporting certain types of 
                public charities) except that for purposes of 
                this subparagraph, section 509(a)(3) shall be 
                applied without regard to the last sentence of 
                section 509(a).
          (5) Disqualified organizations.--For purposes of 
        paragraph (3) an organization is a disqualified 
        organization if it is--
                  (A) described in section 170(b)(1)(A)(i) 
                (relating to churches),
                  (B) an integrated auxiliary of a church or of 
                a convention or association of churches, or
                  (C) a member of an affiliated group of 
                organizations (within the meaning of section 
                4911(f)(2)) if one or more members of such 
                group is described in subparagraph (A) or (B).
          (6) Years for which election is effective.--An 
        election by an organization under this subsection shall 
        be effective for all taxable years of such organization 
        which--
                  (A) end after the date the election is made, 
                and
                  (B) begin before the date the election is 
                revoked by such organization (under regulations 
                prescribed by the Secretary).
          (7) No effect on certain organizations.--With respect 
        to any organization for a taxable year for which--
                  (A) such organization is a disqualified 
                organization (within the meaning of paragraph 
                (5)), or
                  (B) an election under this subsection is not 
                in effect for such organization,
        nothing in this subsection or in section 4911 shall be 
        construed to affect the interpretation of the phrase, 
        ``no substantial part of the activities of which is 
        carrying on propaganda, or otherwise attempting, to 
        influence legislation,'' under subsection (c)(3).
          (8) Affiliated organizations For rules regarding 
        affiliated organizations, see section 4911(f).
  (i) Prohibition of discrimination by certain social clubs.--
Notwithstanding subsection (a), an organization which is 
described in subsection (c)(7) shall not be exempt from 
taxation under subsection (a) for any taxable year if, at any 
time during such taxable year, the charter, bylaws, or other 
governing instrument, of such organization or any written 
policy statement of such organization contains a provision 
which provides for discrimination against any person on the 
basis of race, color, or religion. The preceding sentence to 
the extent it relates to discrimination on the basis of 
religion shall not apply to--
          (1) an auxiliary of a fraternal beneficiary society 
        if such society--
                  (A) is described in subsection (c)(8) and 
                exempt from tax under subsection (a), and
                  (B) limits its membership to the members of a 
                particular religion, or
          (2) a club which in good faith limits its membership 
        to the members of a particular religion in order to 
        further the teachings or principles of that religion, 
        and not to exclude individuals of a particular race or 
        color.
  (j) Special rules for certain amateur sports organizations.--
          (1) In general.--In the case of a qualified amateur 
        sports organization--
                  (A) the requirement of subsection (c)(3) that 
                no part of its activities involve the provision 
                of athletic facilities or equipment shall not 
                apply, and
                  (B) such organization shall not fail to meet 
                the requirements of subsection (c)(3) merely 
                because its membership is local or regional in 
                nature.
          (2) Qualified amateur sports organization defined.--
        For purposes of this subsection, the term ``qualified 
        amateur sports organization'' means any organization 
        organized and operated exclusively to foster national 
        or international amateur sports competition if such 
        organization is also organized and operated primarily 
        to conduct national or international competition in 
        sports or to support and develop amateur athletes for 
        national or international competition in sports.
  (k) Treatment of certain organizations providing child 
care.--For purposes of subsection (c)(3) of this section and 
sections 170(c)(2), 2055(a)(2), and 2522(a)(2), the term 
``educational purposes'' includes the providing of care of 
children away from their homes if--
          (1) substantially all of the care provided by the 
        organization is for purposes of enabling individuals to 
        be gainfully employed, and
          (2) the services provided by the organization are 
        available to the general public.
  (l) Government corporations exempt under subsection (c)(1).--
For purposes of subsection (c)(1), the following organizations 
are described in this subsection:
          (1) The Central Liquidity Facility established under 
        title III of the Federal Credit Union Act (12 U.S.C. 
        1795 et seq.).
          (2) The Resolution Trust Corporation established 
        under section 21A of the Federal Home Loan Bank Act.
          (3) The Resolution Funding Corporation established 
        under section 21B of the Federal Home Loan Bank Act.
          (4) The Patient-Centered Outcomes Research Institute 
        established under section 1181(b) of the Social 
        Security Act.
  (m) Certain organizations providing commercial-type insurance 
not exempt from tax.--
          (1) Denial of tax exemption where providing 
        commercial-type insurance is substantial part of 
        activities.--An organization described in paragraph (3) 
        or (4) of subsection (c) shall be exempt from tax under 
        subsection (a) only if no substantial part of its 
        activities consists of providing commercial-type 
        insurance.
          (2) Other organizations taxed as insurance companies 
        on insurance business.--In the case of an organization 
        described in paragraph (3) or (4) of subsection (c) 
        which is exempt from tax under subsection (a) after the 
        application of paragraph (1) of this subsection--
                  (A) the activity of providing commercial-type 
                insurance shall be treated as an unrelated 
                trade or business (as defined in section 513), 
                and
                  (B) in lieu of the tax imposed by section 511 
                with respect to such activity, such 
                organization shall be treated as an insurance 
                company for purposes of applying subchapter L 
                with respect to such activity.
          (3) Commercial-type insurance.--For purposes of this 
        subsection, the term ``commercial-type insurance'' 
        shall not include--
                  (A) insurance provided at substantially below 
                cost to a class of charitable recipients,
                  (B) incidental health insurance provided by a 
                health maintenance organization of a kind 
                customarily provided by such organizations,
                  (C) property or casualty insurance provided 
                (directly or through an organization described 
                in section 414(e)(3)(B)(ii)) by a church or 
                convention or association of churches for such 
                church or convention or association of 
                churches,
                  (D) providing retirement or welfare benefits 
                (or both) by a church or a convention or 
                association of churches (directly or through an 
                organization described in section 414(e)(3)(A) 
                or 414(e)(3)(B)(ii)) for the employees 
                (including employees described in section 
                414(e)(3)(B)) of such church or convention or 
                association of churches or the beneficiaries of 
                such employees, and
                  (E) charitable gift annuities.
          (4) Insurance includes annuities.--For purposes of 
        this subsection, the issuance of annuity contracts 
        shall be treated as providing insurance.
          (5) Charitable gift annuity.--For purposes of 
        paragraph (3)(E), the term ``charitable gift annuity'' 
        means an annuity if--
                  (A) a portion of the amount paid in 
                connection with the issuance of the annuity is 
                allowable as a deduction under section 170 or 
                2055, and
                  (B) the annuity is described in section 
                514(c)(5) (determined as if any amount paid in 
                cash in connection with such issuance were 
                property).
  (n) Charitable risk pools.--
          (1) In general.--For purposes of this title--
                  (A) a qualified charitable risk pool shall be 
                treated as an organization organized and 
                operated exclusively for charitable purposes, 
                and
                  (B) subsection (m) shall not apply to a 
                qualified charitable risk pool.
          (2) Qualified charitable risk pool.--For purposes of 
        this subsection, the term ``qualified charitable risk 
        pool'' means any organization--
                  (A) which is organized and operated solely to 
                pool insurable risks of its members (other than 
                risks related to medical malpractice) and to 
                provide information to its members with respect 
                to loss control and risk management,
                  (B) which is comprised solely of members that 
                are organizations described in subsection 
                (c)(3) and exempt from tax under subsection 
                (a), and
                  (C) which meets the organizational 
                requirements of paragraph (3).
          (3) Organizational requirements.--An organization 
        (hereinafter in this subsection referred to as the 
        ``risk pool'') meets the organizational requirements of 
        this paragraph if--
                  (A) such risk pool is organized as a 
                nonprofit organization under State law 
                provisions authorizing risk pooling 
                arrangements for charitable organizations,
                  (B) such risk pool is exempt from any income 
                tax imposed by the State (or will be so exempt 
                after such pool qualifies as an organization 
                exempt from tax under this title),
                  (C) such risk pool has obtained at least 
                $1,000,000 in startup capital from nonmember 
                charitable organizations,
                  (D) such risk pool is controlled by a board 
                of directors elected by its members, and
                  (E) the organizational documents of such risk 
                pool require that--
                          (i) each member of such pool shall at 
                        all times be an organization described 
                        in subsection (c)(3) and exempt from 
                        tax under subsection (a),
                          (ii) any member which receives a 
                        final determination that it no longer 
                        qualifies as an organization described 
                        in subsection (c)(3) shall immediately 
                        notify the pool of such determination 
                        and the effective date of such 
                        determination, and
                          (iii) each policy of insurance issued 
                        by the risk pool shall provide that 
                        such policy will not cover the insured 
                        with respect to events occurring after 
                        the date such final determination was 
                        issued to the insured.
        An organization shall not cease to qualify as a 
        qualified charitable risk pool solely by reason of the 
        failure of any of its members to continue to be an 
        organization described in subsection (c)(3) if, within 
        a reasonable period of time after such pool is notified 
        as required under subparagraph (E)(ii), such pool takes 
        such action as may be reasonably necessary to remove 
        such member from such pool.
          (4) Other definitions.--For purposes of this 
        subsection--
                  (A) Startup capital.--The term ``startup 
                capital'' means any capital contributed to, and 
                any program-related investments (within the 
                meaning of section 4944(c)) made in, the risk 
                pool before such pool commences operations.
                  (B) Nonmember charitable organization.--The 
                term ``nonmember charitable organization'' 
                means any organization which is described in 
                subsection (c)(3) and exempt from tax under 
                subsection (a) and which is not a member of the 
                risk pool and does not benefit (directly or 
                indirectly) from the insurance coverage 
                provided by the pool to its members.
  (o) Treatment of hospitals participating in provider-
sponsored organizations.--An organization shall not fail to be 
treated as organized and operated exclusively for a charitable 
purpose for purposes of subsection (c)(3) solely because a 
hospital which is owned and operated by such organization 
participates in a provider-sponsored organization (as defined 
in section 1855(d) of the Social Security Act), whether or not 
the provider-sponsored organization is exempt from tax. For 
purposes of subsection (c)(3), any person with a material 
financial interest in such a provider-sponsored organization 
shall be treated as a private shareholder or individual with 
respect to the hospital.
  (p) Suspension of tax-exempt status of terrorist 
organizations.--
          (1) In general.--The exemption from tax under 
        subsection (a) with respect to any organization 
        described in paragraph (2), and the eligibility of any 
        organization described in paragraph (2) to apply for 
        recognition of exemption under subsection (a), shall be 
        suspended during the period described in paragraph (3).
          (2) Terrorist organizations.--An organization is 
        described in this paragraph if such organization is 
        designated or otherwise individually identified--
                  (A) under section 212(a)(3)(B)(vi)(II) or 219 
                of the Immigration and Nationality Act as a 
                terrorist organization or foreign terrorist 
                organization,
                  (B) in or pursuant to an Executive order 
                which is related to terrorism and issued under 
                the authority of the International Emergency 
                Economic Powers Act or section 5 of the United 
                Nations Participation Act of 1945 for the 
                purpose of imposing on such organization an 
                economic or other sanction, or
                  (C) in or pursuant to an Executive order 
                issued under the authority of any Federal law 
                if--
                          (i) the organization is designated or 
                        otherwise individually identified in or 
                        pursuant to such Executive order as 
                        supporting or engaging in terrorist 
                        activity (as defined in section 
                        212(a)(3)(B) of the Immigration and 
                        Nationality Act) or supporting 
                        terrorism (as defined in section 
                        140(d)(2) of the Foreign Relations 
                        Authorization Act, Fiscal Years 1988 
                        and 1989); and
                          (ii) such Executive order refers to 
                        this subsection.
          (3) Period of suspension.--With respect to any 
        organization described in paragraph (2), the period of 
        suspension--
                  (A) begins on the later of--
                          (i) the date of the first publication 
                        of a designation or identification 
                        described in paragraph (2) with respect 
                        to such organization, or
                          (ii) the date of the enactment of 
                        this subsection, and (B) ends on the 
                        first date that all designations and 
                        identifications described in paragraph 
                        (2) with respect to such organization 
                        are rescinded pursuant to the law or 
                        Executive order under which such 
                        designation or identification was made.
          (4) Denial of deduction.--No deduction shall be 
        allowed under any provision of this title, including 
        sections 170, 545(b)(2), 642(c), 2055, 2106(a)(2), and 
        2522, with respect to any contribution to an 
        organization described in paragraph (2) during the 
        period described in paragraph (3).
          (5) Denial of administrative or judicial challenge of 
        suspension or denial of deduction.--Notwithstanding 
        section 7428 or any other provision of law, no 
        organization or other person may challenge a suspension 
        under paragraph (1), a designation or identification 
        described in paragraph (2), the period of suspension 
        described in paragraph (3), or a denial of a deduction 
        under paragraph (4) in any administrative or judicial 
        proceeding relating to the Federal tax liability of 
        such organization or other person.
          (6) Erroneous designation.--
                  (A) In general.--If--
                          (i) the tax exemption of any 
                        organization described in paragraph (2) 
                        is suspended under paragraph (1),
                          (ii) each designation and 
                        identification described in paragraph 
                        (2) which has been made with respect to 
                        such organization is determined to be 
                        erroneous pursuant to the law or 
                        Executive order under which such 
                        designation or identification was made, 
                        and
                          (iii) the erroneous designations and 
                        identifications result in an 
                        overpayment of income tax for any 
                        taxable year by such organization,
                credit or refund (with interest) with respect 
                to such overpayment shall be made.
                  (B) Waiver of limitations.--If the credit or 
                refund of any overpayment of tax described in 
                subparagraph (A)(iii) is prevented at any time 
                by the operation of any law or rule of law 
                (including res judicata), such credit or refund 
                may nevertheless be allowed or made if the 
                claim therefor is filed before the close of the 
                1-year period beginning on the date of the last 
                determination described in subparagraph 
                (A)(ii).
          (7) Notice of suspensions.--If the tax exemption of 
        any organization is suspended under this subsection, 
        the Internal Revenue Service shall update the listings 
        of tax-exempt organizations and shall publish 
        appropriate notice to taxpayers of such suspension and 
        of the fact that contributions to such organization are 
        not deductible during the period of such suspension.
  (q) Special rules for credit counseling organizations.--
          (1) In general.--An organization with respect to 
        which the provision of credit counseling services is a 
        substantial purpose shall not be exempt from tax under 
        subsection (a) unless such organization is described in 
        paragraph (3) or (4) of subsection (c) and such 
        organization is organized and operated in accordance 
        with the following requirements:
                  (A) The organization--
                          (i) provides credit counseling 
                        services tailored to the specific needs 
                        and circumstances of consumers,
                          (ii) makes no loans to debtors (other 
                        than loans with no fees or interest) 
                        and does not negotiate the making of 
                        loans on behalf of debtors,
                          (iii) provides services for the 
                        purpose of improving a consumer's 
                        credit record, credit history, or 
                        credit rating only to the extent that 
                        such services are incidental to 
                        providing credit counseling services, 
                        and
                          (iv) does not charge any separately 
                        stated fee for services for the purpose 
                        of improving any consumer's credit 
                        record, credit history, or credit 
                        rating.
                  (B) The organization does not refuse to 
                provide credit counseling services to a 
                consumer due to the inability of the consumer 
                to pay, the ineligibility of the consumer for 
                debt management plan enrollment, or the 
                unwillingness of the consumer to enroll in a 
                debt management plan.
                  (C) The organization establishes and 
                implements a fee policy which--
                          (i) requires that any fees charged to 
                        a consumer for services are reasonable,
                          (ii) allows for the waiver of fees if 
                        the consumer is unable to pay, and
                          (iii) except to the extent allowed by 
                        State law, prohibits charging any fee 
                        based in whole or in part on a 
                        percentage of the consumer's debt, the 
                        consumer's payments to be made pursuant 
                        to a debt management plan, or the 
                        projected or actual savings to the 
                        consumer resulting from enrolling in a 
                        debt management plan.
                  (D) At all times the organization has a board 
                of directors or other governing body--
                          (i) which is controlled by persons 
                        who represent the broad interests of 
                        the public, such as public officials 
                        acting in their capacities as such, 
                        persons having special knowledge or 
                        expertise in credit or financial 
                        education, and community leaders,
                          (ii) not more than 20 percent of the 
                        voting power of which is vested in 
                        persons who are employed by the 
                        organization or who will benefit 
                        financially, directly or indirectly, 
                        from the organization's activities 
                        (other than through the receipt of 
                        reasonable directors' fees or the 
                        repayment of consumer debt to creditors 
                        other than the credit counseling 
                        organization or its affiliates), and
                          (iii) not more than 49 percent of the 
                        voting power of which is vested in 
                        persons who are employed by the 
                        organization or who will benefit 
                        financially, directly or indirectly, 
                        from the organization's activities 
                        (other than through the receipt of 
                        reasonable directors' fees).
                  (E) The organization does not own more than 
                35 percent of--
                          (i) the total combined voting power 
                        of any corporation (other than a 
                        corporation which is an organization 
                        described in subsection (c)(3) and 
                        exempt from tax under subsection (a)) 
                        which is in the trade or business of 
                        lending money, repairing credit, or 
                        providing debt management plan 
                        services, payment processing, or 
                        similar services,
                          (ii) the profits interest of any 
                        partnership (other than a partnership 
                        which is an organization described in 
                        subsection (c)(3) and exempt from tax 
                        under subsection (a)) which is in the 
                        trade or business of lending money, 
                        repairing credit, or providing debt 
                        management plan services, payment 
                        processing, or similar services, and
                          (iii) the beneficial interest of any 
                        trust or estate (other than a trust 
                        which is an organization described in 
                        subsection (c)(3) and exempt from tax 
                        under subsection (a)) which is in the 
                        trade or business of lending money, 
                        repairing credit, or providing debt 
                        management plan services, payment 
                        processing, or similar services.
                  (F) The organization receives no amount for 
                providing referrals to others for debt 
                management plan services, and pays no amount to 
                others for obtaining referrals of consumers.
          (2) Additional requirements for organizations 
        described in subsection (c)(3)
                  (A) In general.--In addition to the 
                requirements under paragraph (1), an 
                organization with respect to which the 
                provision of credit counseling services is a 
                substantial purpose and which is described in 
                paragraph (3) of subsection (c) shall not be 
                exempt from tax under subsection (a) unless 
                such organization is organized and operated in 
                accordance with the following requirements:
                          (i) The organization does not solicit 
                        contributions from consumers during the 
                        initial counseling process or while the 
                        consumer is receiving services from the 
                        organization.
                          (ii) The aggregate revenues of the 
                        organization which are from payments of 
                        creditors of consumers of the 
                        organization and which are attributable 
                        to debt management plan services do not 
                        exceed the applicable percentage of the 
                        total revenues of the organization.
                  (B) Applicable percentage.--
                          (i) In general.--For purposes of 
                        subparagraph (A)(ii), the applicable 
                        percentage is 50 percent.
                          (ii) Transition rule.--
                        Notwithstanding clause (i), in the case 
                        of an organization with respect to 
                        which the provision of credit 
                        counseling services is a substantial 
                        purpose and which is described in 
                        paragraph (3) of subsection (c) and 
                        exempt from tax under subsection (a) on 
                        the date of the enactment of this 
                        subsection, the applicable percentage 
                        is--
                                  (I) 80 percent for the first 
                                taxable year of such 
                                organization beginning after 
                                the date which is 1 year after 
                                the date of the enactment of 
                                this subsection, and
                                  (II) 70 percent for the 
                                second such taxable year 
                                beginning after such date, and
                                  (III) 60 percent for the 
                                third such taxable year 
                                beginning after such date.
          (3) Additional requirement for organizations 
        described in subsection (c)(4).--In addition to the 
        requirements under paragraph (1), an organization with 
        respect to which the provision of credit counseling 
        services is a substantial purpose and which is 
        described in paragraph (4) of subsection (c) shall not 
        be exempt from tax under subsection (a) unless such 
        organization notifies the Secretary, in such manner as 
        the Secretary may by regulations prescribe, that it is 
        applying for recognition as a credit counseling 
        organization.
          (4) Credit counseling services; debt management plan 
        services.--For purposes of this subsection--
                  (A) Credit counseling services.--The term 
                ``credit counseling services'' means--
                          (i) the providing of educational 
                        information to the general public on 
                        budgeting, personal finance, financial 
                        literacy, saving and spending 
                        practices, and the sound use of 
                        consumer credit,
                          (ii) the assisting of individuals and 
                        families with financial problems by 
                        providing them with counseling, or
                          (iii) a combination of the activities 
                        described in clauses (i) and (ii).
                  (B) Debt management plan services.--The term 
                ``debt management plan services'' means 
                services related to the repayment, 
                consolidation, or restructuring of a consumer's 
                debt, and includes the negotiation with 
                creditors of lower interest rates, the waiver 
                or reduction of fees, and the marketing and 
                processing of debt management plans.
  (r) Additional requirements for certain hospitals.--
          (1) In general.--A hospital organization to which 
        this subsection applies shall not be treated as 
        described in subsection (c)(3) unless the 
        organization--
                  (A) meets the community health needs 
                assessment requirements described in paragraph 
                (3),
                  (B) meets the financial assistance policy 
                requirements described in paragraph (4),
                  (C) meets the requirements on charges 
                described in paragraph (5), and
                  (D) meets the billing and collection 
                requirement described in paragraph (6).
          (2) Hospital organizations to which subsection 
        applies.--
                  (A) In general.--This subsection shall apply 
                to--
                          (i) an organization which operates a 
                        facility which is required by a State 
                        to be licensed, registered, or 
                        similarly recognized as a hospital, and
                          (ii) any other organization which the 
                        Secretary determines has the provision 
                        of hospital care as its principal 
                        function or purpose constituting the 
                        basis for its exemption under 
                        subsection (c)(3) (determined without 
                        regard to this subsection).
                  (B) Organizations with more than 1 hospital 
                facility.--If a hospital organization operates 
                more than 1 hospital facility--
                          (i) the organization shall meet the 
                        requirements of this subsection 
                        separately with respect to each such 
                        facility, and
                          (ii) the organization shall not be 
                        treated as described in subsection 
                        (c)(3) with respect to any such 
                        facility for which such requirements 
                        are not separately met.
          (3) Community health needs assessments.--
                  (A) In general.--An organization meets the 
                requirements of this paragraph with respect to 
                any taxable year only if the organization--
                          (i) has conducted a community health 
                        needs assessment which meets the 
                        requirements of subparagraph (B) in 
                        such taxable year or in either of the 2 
                        taxable years immediately preceding 
                        such taxable year, and
                          (ii) has adopted an implementation 
                        strategy to meet the community health 
                        needs identified through such 
                        assessment.
                  (B) Community health needs assessment.--A 
                community health needs assessment meets the 
                requirements of this paragraph if such 
                community health needs assessment--
                          (i) takes into account input from 
                        persons who represent the broad 
                        interests of the community served by 
                        the hospital facility, including those 
                        with special knowledge of or expertise 
                        in public health, and
                          (ii) is made widely available to the 
                        public.
          (4) Financial assistance policy.--An organization 
        meets the requirements of this paragraph if the 
        organization establishes the following policies:
                  (A) Financial assistance policy.--A written 
                financial assistance policy which includes--
                          (i) eligibility criteria for 
                        financial assistance, and whether such 
                        assistance includes free or discounted 
                        care,
                          (ii) the basis for calculating 
                        amounts charged to patients,
                          (iii) the method for applying for 
                        financial assistance,
                          (iv) in the case of an organization 
                        which does not have a separate billing 
                        and collections policy, the actions the 
                        organization may take in the event of 
                        non-payment, including collections 
                        action and reporting to credit 
                        agencies, and
                          (v) measures to widely publicize the 
                        policy within the community to be 
                        served by the organization.
                  (B) Policy relating to emergency medical 
                care.--A written policy requiring the 
                organization to provide, without 
                discrimination, care for emergency medical 
                conditions (within the meaning of section 1867 
                of the Social Security Act (42 U.S.C. 1395dd)) 
                to individuals regardless of their eligibility 
                under the financial assistance policy described 
                in subparagraph (A).
          (5) Limitation on charges.--An organization meets the 
        requirements of this paragraph if the organization--
                  (A) limits amounts charged for emergency or 
                other medically necessary care provided to 
                individuals eligible for assistance under the 
                financial assistance policy described in 
                paragraph (4)(A) to not more than the amounts 
                generally billed to individuals who have 
                insurance covering such care, and
                  (B) prohibits the use of gross charges.
          (6) Billing and collection requirements.--An 
        organization meets the requirement of this paragraph 
        only if the organization does not engage in 
        extraordinary collection actions before the 
        organization has made reasonable efforts to determine 
        whether the individual is eligible for assistance under 
        the financial assistance policy described in paragraph 
        (4)(A).
          (7) Regulatory authority.--The Secretary shall issue 
        such regulations and guidance as may be necessary to 
        carry out the provisions of this subsection, including 
        guidance relating to what constitutes reasonable 
        efforts to determine the eligibility of a patient under 
        a financial assistance policy for purposes of paragraph 
        (6).

           *       *       *       *       *       *       *


                         VII. ADDITIONAL VIEWS

    H.R. 519 provides that tax-exempt entities under section 
501(c)12 of the Internal Revenue Code may retain their tax 
exemption so as long as certain income they derive from means 
other than membership payments is reinvested in operation and 
maintenance, including capital projects.
    During consideration of the bill by the Committee, I raised 
concerns regarding unintended consequences the policy changes 
in H.R. 519 might have on the transfer of water. Eliminating 
the disincentive to sell, lease or otherwise transfer water out 
of the mutual ditch irrigation district should not have the 
effect of moving water among regions in a way that 
disadvantages agricultural enterprise, impairs water quality or 
causes environmental harm.
    I look forward to working with the Chairman to ensure 
inclusion of provisions in the legislation that disallow 
revenue from the transfer of water outside of the basin in 
which the irrigation district operates for the purposes of 
calculating the entity's tax exemption, and reporting 
requirements so the Internal Revenue Service can have better 
information in evaluating these water sales. These provisions 
should ensure that water transfers are not financially 
motivated in a way that would unintentionally harm agricultural 
interests, water quality or the environment. This protection 
against the potential for abuse resulting from the policy 
changes in H.R. 519 should prevent undue harm to my Northern 
California constituencies.
                                             Mike Thompson,
                                                Member of Congress.

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