373 
this subsection or in section 4911 shall be con-
strued to affect the interpretation of the phrase, 
‘no substantial part of the activities of which is 
carrying on propaganda, or otherwise attempt-
ing, to influence legislation,’ under subsection 
(c)(3). 
‘‘(h) GOVERNMENT CORPORATIONS EXEMPT UNDER 
SUBSECTION (c)(1).—For purposes of subsection (c)(1), 
the following organizations are described in this sub-
section: 
‘‘(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 estab-
lished under section 21A of the Federal Home Loan 
Bank Act. 
‘‘(3) The Resolution Funding Corporation es-
tablished under section 21B of the Federal Home 
Loan Bank Act. 
‘‘(i) CERTAIN EDUCATIONAL ORGANIZATIONS.—An 
organization shall not be eligible for exemption as an edu-
cational organization under subsection (c)(3) if a substan-
tial amount of its activities and funds are devoted to— 
‘‘(1) conducting seminars and other similar pro-
grams, 
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‘‘(2) conducting research to educate Congress 
or the general public about public policy issues, 
‘‘(3) producing books and pamphlets, or 
‘‘(4) a combination of the foregoing. 
‘‘SEC. 254. SPECIAL RULES FOR (C)(3) ORGANIZATIONS. 
‘‘(a) NEW ORGANIZATIONS MUST NOTIFY SEC-
RETARY.—Except as provided in subsection (c), an organi-
zation shall not be treated as an organization described 
in section 253(c)(3)— 
‘‘(1) unless that it has given notice to the Sec-
retary, in such manner as the Secretary may pre-
scribe, that it is applying for recognition of such sta-
tus, or 
‘‘(2) for any period before giving of such notice, 
if such notice is given after the time prescribed by 
the Secretary by regulations for giving notice under 
this subsection. 
‘‘(b) PRESUMPTION THAT ORGANIZATIONS ARE PRI-
VATE FOUNDATIONS.—Except as provided in subsection 
(c), any organization described in section 253(c)(3) and 
which does not notify the Secretary, at such time and in 
such manner as the Secretary may by regulations pre-
scribe, that it is not a private foundation (as defined in 
section 102) shall be presumed to be a private foundation. 
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375 
‘‘(c) EXCEPTIONS.—Subsections (a) and (b) shall not 
apply to— 
‘‘(1) organizations organized before October 10, 
1969; 
‘‘(2) organizations which obtained recognition 
of tax-exempt status under section 501(c)(3) of the 
Internal Revenue Code of 1986 (in the case of sub-
section (a) only); 
‘‘(3) organizations which were determined not 
to be private foundations under the Internal Rev-
enue Code of 1986; 
‘‘(4) churches, their integrated auxiliaries, and 
conventions and associations of churches; 
‘‘(5) any organization that is not a private 
foundation and the gross receipts of which in each 
taxable year are not more than $25,000, or 
‘‘(6) such other classes of organizations which 
the Secretary may exempt. 
‘‘SEC. 255. TAX ON UNRELATED BUSINESS ACTIVITY. 
‘‘(a) IN GENERAL.—Each organization described in 
subsection (b) shall be subject to the Simplified USA Tax 
for businesses under section 201 on its gross profits from 
its unrelated business activity. 
‘‘(b) ORGANIZATIONS SUBJECT TO TAX.—This sec-
tion shall apply to— 
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376 
‘‘(1) organizations exempt from the business 
tax under section 253(a), other than instrumental-
ities of the United States described in section 
253(c)(1). 
‘‘(2) colleges and universities which are instru-
mentalities of any government and corporations 
owned by one or more such colleges or universities. 
‘‘SEC. 256. UNRELATED BUSINESS ACTIVITY. 
‘‘(a) IN GENERAL.—‘Unrelated business activity’ 
means any trade or business the conduct of which is not 
substantially related (aside from the need of such organi-
zation for income or funds or the use it makes of the prof-
its derived) to the exercise or performance by such organi-
zation of its charitable, educational, or other purpose or 
function constituting the basis for its exemption under 
section 253, except that such term does not include any 
trade or business— 
‘‘(1) in which substantially all the work in car-
rying on such trade or business is performed for the 
organization without compensation; or 
‘‘(2) which is carried on, in the case of an orga-
nization described in section 253(c)(3) or in the case 
of a college or university described in section 255(b), 
by the organization primarily for the convenience of 
its members, students, patients, officers, or employ-
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377 
ees, which is the selling by the organization of items 
of work-related clothes and equipment and items 
normally sold through vending machines, through 
food dispensing facilities, or by snack bars, for the 
convenience of its members at their usual places of 
employment; or 
‘‘(3) which is the selling of merchandise, sub-
stantially all of which has been received by the orga-
nization as gifts or contributions. 
‘‘(b) ADVERTISING, ETC., ACTIVITIES.—For purposes 
of this section, ‘trade or business’ includes any activity 
which is carried on for the production of income from the 
sale of goods or the performance of services. For purposes 
of the preceding sentence, an activity does not lose identity 
as a trade or business merely because it is carried on with-
in a larger aggregate of similar activities or within a larger 
complex of other endeavors which may, or may not, be 
related to the exempt purposes of the organization. Where 
an activity carried on for profit constitutes an unrelated 
trade or business, no part of such trade or business shall 
be excluded from such classification merely because it does 
not result in profit. 
‘‘(c) TRADE OR BUSINESS.— 
‘‘(1) CERTAIN BUSINESS ACTIVITIES.—An ac-
tivity shall not be considered a ‘trade or business’ 
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378 
solely because the activity is a business activity 
(such as certain passive rental activity) that would 
be subject to the business tax if conducted by a busi-
ness entity other than a tax-exempt organization. 
‘‘(2) REGULATIONS.—The Secretary shall pre-
scribe regulations defining a ‘trade or business.’ 
Such regulations shall be consistent with the provi-
sions under sections 511 through 513 of the Internal 
Revenue Code of 1986, except to the extent such 
provisions are inconsistent with other principles of 
the business tax. The regulations shall include exclu-
sions from the definition of ‘trade or business’ simi-
lar to those contained in section 513 of the Internal 
Revenue Code for— 
‘‘(A) certain bingo games, 
‘‘(B) certain hospital services, and 
‘‘(C) certain public entertainment activity 
at fairs and expositions by an organization 
which regularly conducts, as one of its substan-
tial exempt purposes, an agricultural or edu-
cational fair or exhibition. 
‘‘(3) TRADE
SHOWS.—The conduct of trade 
shows and conventions shall not be excluded from 
the definition of trade or business. 
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381 
treated as a patronage dividend until it is redeemed 
in cash or property. 
‘‘(2) OPPORTUNITY
TO
RECEIVE
CASH.—If a 
patron is given an opportunity to receive a patron-
age dividend in cash, but instead chooses to accept 
a per-unit retain certificate or a qualified notice of 
allocation, the patron will be treated as receiving 
cash and simultaneously contributing to the capital 
of the cooperative. 
‘‘(3) APPLICATION LIMITED TO QUALIFIED CO-
OPERATIVES.—Under rules to be prescribed by the 
Secretary, this section shall apply only to coopera-
tives to which one of the following provisions of the 
Internal Revenue Code of 1986 would have applied: 
‘‘(A) Section 501(c)(12) (relating to coop-
erative telephone companies and similar organi-
zations). 
‘‘(B) Section 501(c)(14) (relating to cer-
tain cooperative banks). 
‘‘(C) Section 521 (relating to farm co-
operatives). 
‘‘(D) Section 1381 (relating to coopera-
tives generally). 
‘‘(4) REGULATIONS.—The Secretary shall pre-
scribe regulations for the application of this section. 
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382 
The regulations shall generally be consistent with 
subchapter T of chapter 1 of the Internal Revenue 
Code of 1986 except to the extent that such rules 
are inconsistent with provisions of this chapter. 
‘‘Subchapter J—Sourcing Rules 
‘‘Sec. 265. Exports of property or services. 
‘‘Sec. 266. Imports of property or services. 
‘‘Sec. 267. Import or export of services. 
‘‘Sec. 268. International transportation services. 
‘‘Sec. 269. International communications. 
‘‘Sec. 270. Insurance. 
‘‘SEC. 265. EXPORTS OF PROPERTY OR SERVICES. 
‘‘(a) GENERAL RULE.—Taxable receipts do not in-
clude amounts received by the exporter thereof for prop-
erty or services exported from the United States for use 
or consumption outside the United States. 
‘‘(b) EXPORT THROUGH NONBUSINESS ENTITY.— 
For purposes of subsection (a), if property or services are 
sold to a governmental entity or a tax-exempt organization 
for export and are exported other than in an activity of 
such entity which is subject to the business tax, then the 
seller of such property or services is deemed to be the ex-
porter thereof. 
‘‘(c) EXPORT OF SERVICES.—See section 267 for 
rules for determining whether services are exported or im-
ported. 
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383 
‘‘SEC. 266. IMPORTS OF PROPERTY OR SERVICES. 
‘‘(a) IN GENERAL.—The import of property or serv-
ices for consumption in the United States shall constitute 
a business purchase if such property or service is to be 
used in a business activity in the United States. Property 
being held for sale or retail by a business entity that is 
in the business of selling goods shall be considered held 
for ‘use in a business activity’. 
‘‘(b) AMOUNT OF BUSINESS PURCHASE.— 
‘‘(1) IN GENERAL.—The cost of business pur-
chases with respect to the import of property or 
services for use or consumption in the United States 
is the customs value, price or other amount used for 
purposes of determining the import tax under sec-
tion 286 or section 287. 
‘‘(2) IMPORT TAX.—The cost of business pur-
chases does not include any import tax paid. No de-
duction shall be allowed with respect to property or 
service imported by a business entity unless the im-
port tax is paid with respect to such import. 
‘‘SEC. 267. IMPORT OR EXPORT OF SERVICES. 
‘‘(a) IN GENERAL.—Except as otherwise provided in 
this subchapter or in rules prescribed under subchapter 
G (relating to financial intermediation business), services 
shall not be treated as imported or exported from the loca-
tion in which they are performed. 
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384 
‘‘(b) IMPORT OF SERVICES.—A business entity shall 
be treated as importing a service if— 
‘‘(1) the entire benefit of the service will be re-
alized in the United States, and 
‘‘(2) the benefit will be realized in connection 
with the United States business activities of the 
business entity. 
‘‘(c) EXPORT
OF SERVICES.—A business will be 
treated as exporting a service if— 
‘‘(1) the entire benefit of the service will be re-
alized outside of the United States, and 
‘‘(2) the benefit will be realized solely in con-
nection with the activities of the purchaser occurring 
outside the United States. 
‘‘(d) SERVICES ACQUIRED FROM SERVICE PROVIDER 
THAT PROVIDES SERVICES IN AND OUTSIDE THE UNITED 
STATES.— 
‘‘(1) IN
GENERAL.—If a business entity ac-
quires services from a service provider that provides 
services both in and outside the United States and 
the service provider shows on the invoice where the 
services are provided— 
‘‘(A) the business entity shall treat the 
services as provided where stated on the invoice, 
and 
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385 
‘‘(B) the service provider shall treat as tax-
able receipts any services listed as provided in 
the United States. 
‘‘(2) NO INVOICE.—If a business entity acquires 
services from a service provider that provides serv-
ices both in and outside the United States and the 
service provider does not show on an invoice where 
such services are provided— 
‘‘(A) the business entity shall treat the 
services as if provided in the location to which 
payment is sent, and 
‘‘(B) the service provider shall treat as tax-
able receipts any payments received in the 
United States. 
‘‘(e) SPECIAL RULES PREVAIL.—See sections 268 
and 269 for special rule relating to transportation and 
communication services. 
‘‘SEC. 268. INTERNATIONAL TRANSPORTATION SERVICES. 
‘‘(a) TRANSPORTATION OF PROPERTY.— 
‘‘(1) TAXABLE RECEIPTS.— 
‘‘(A) EXPORTS.—Taxable receipts do not 
include receipts from the transportation of 
property exported from the United States. 
‘‘(B) IMPORTS.—Taxable receipts include 
receipts from transportation of property im-
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386 
ported into the United States only if such costs 
are not taken into account in determining the 
import tax. 
‘‘(C) PRESUMPTIONS.—The Secretary shall 
prescribe regulations describing situations in 
which a transporter of property must presume 
that no import tax has been paid on the cost of 
its services. 
‘‘(2) BUSINESS PURCHASES.— 
‘‘(A) EXPORTS.—Business purchases do 
not include amounts paid or incurred for the 
cost of transportation of property exported from 
the United States. 
‘‘(B) IMPORTS.—Amounts paid or incurred 
for transportation of goods imported into the 
United States, shall constitute a cost of busi-
ness purchase only to the extent that they are 
taken into account in determining the customs 
value for purposes of section 286(a) (relating to 
the import tax). 
‘‘(b) TRANSPORTATION OF PASSENGERS.— 
‘‘(1) TAXABLE RECEIPTS.—Taxable receipts— 
‘‘(A) include receipts from the transpor-
tation of passengers from the United States to 
a destination outside the United States, but 
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389 
‘‘(b) INSURED RISKS IN THE UNITED STATES.—If 
insurance services are provided outside the United States 
and the insured risk is located in the United States— 
‘‘(1) the insurance service shall be treated as 
imported, 
‘‘(2) the insurance premiums shall be subject to 
the import tax, and 
‘‘(3) payments of insurance benefits shall not be 
treated as imported. 
‘‘(c) 
INSURED
RISK
OUTSIDE
THE
UNITED 
STATES.—If insurance services are provided inside the 
United States and the insured risk is located outside the 
United States— 
‘‘(1) insurance services shall be treated as ex-
ported, 
‘‘(2) payments of insurance benefits shall be 
treated as payments for services outside the United 
States, and shall not be deducted as business pur-
chases. 
‘‘(d) INSURANCE
SERVICES.—Insurance services 
means the provision of insurance and services related to 
insurance other than insurance that is treated as a savings 
asset. 
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390 
‘‘SEC. 271. BANKING SERVICES. 
‘‘The Secretary shall prescribe regulations on the lo-
cation of banking services and the extent to which such 
services are to be treated as imported or exported. 
‘‘Subchapter K—Business Conducted in a 
Possession 
‘‘Sec. 276. Treatment of possessions. 
‘‘SEC. 276. TREATMENT OF POSSESSIONS. 
‘‘(a) IN GENERAL.—For purposes of the business tax 
imposed by this chapter, the U.S. possessions shall not 
be treated as part of the United States. 
‘‘(b) EFFECT ON PAYROLL TAX CREDIT.—A busi-
ness entity may not claim a payroll tax credit with respect 
to any payroll taxes paid with respect to income of resi-
dents of the U.S. possessions. 
‘‘(c) POSSESSION.—For purposes of this subchapter, 
‘U.S. possession’ or ‘possession’ means a possession of the 
United States and includes the Commonwealth of Puerto 
Rico and the Virgin Islands. 
‘‘Subchapter L—Payroll Tax Credit 
‘‘Sec. 281. Amount of credit. 
‘‘Sec. 282. Current-year payroll tax credit. 
‘‘Sec. 283. Credit carryover. 
‘‘SEC. 281. AMOUNT OF CREDIT. 
‘‘(a) AMOUNT OF CREDIT.—The payroll tax credit for 
a business entity for a taxable year is the lesser of— 
‘‘(1) the sum of— 
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391 
‘‘(A) the current-year payroll tax credit, 
and 
‘‘(B) the credit carryovers to the taxable 
year, or 
‘‘(2) the business entity’s business tax for the 
taxable year (determined without regard to the pay-
roll tax credit). 
‘‘(b) CONSOLIDATED RETURNS.—In the case of busi-
ness entities filing consolidated returns, the amount of the 
credit shall be determined using the combined payroll tax 
credits and credit carryovers of the business entities and 
the combined business tax of the business entities. 
‘‘SEC. 282. CURRENT-YEAR PAYROLL TAX CREDIT. 
‘‘(a) IN GENERAL.—The ‘current-year payroll tax 
credit’ is an amount equal to the sum of— 
‘‘(1) the employer’s share of the FICA tax im-
posed on wages of its employees during the taxable 
year, 
‘‘(2) the employer’s share of the tier 1 railroad 
retirement tax for its employees during the taxable 
year, 
‘‘(3) one-half of the allocable portion of the 
SECA tax imposed on individuals (other than inde-
pendent contractors and other business entities) who 
provide services to the business entity. 
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392 
‘‘(b) DEFINITIONS.— 
‘‘(1) EMPLOYER’S SHARE OF THE FICA TAX.— 
‘Employer’s share of the FICA tax’ means the old- 
age, survivors, disability and hospital insurance 
taxes imposed by section 3111. 
‘‘(2) EMPLOYER’S SHARE OF THE TIER 1 RAIL-
ROAD RETIREMENT TAX.—‘Employer’s share of the 
tier 1 railroad retirement tax’ means— 
‘‘(A) the tier 1 railroad retirement tax im-
posed by section 3221(a), and 
‘‘(B) the portion of the tax imposed by sec-
tion 3211(a)(1) on employee representatives at-
tributable to the tax imposed by section 3111. 
‘‘(3) ONE-HALF OF THE ALLOCABLE PORTION 
OF THE SECA TAX.— 
‘‘(A) SECA TAX.—‘SECA tax’ means the 
self-employment tax imposed by section 1401. 
‘‘(B) PARTNERSHIPS.—Until such time as 
the SECA tax and the Federal Insurance Con-
tributions Acts are amended to treat partners 
of partnerships as employees, if a partner des-
ignates a partnership as a principal source of 
employment income for the taxable year, one- 
half of the partnership’s allocable portion of the 
SECA tax of such partner equals the FICA tax 
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393 
that the employer would have been required to 
pay under section 3111 with respect to such 
partner if the partner’s self-employment income 
as reported by the partnership were wages sub-
ject to the FICA tax. A partner and partner-
ship can agree to treat no portion of a partner’s 
SECA tax as allocable to the partnership. 
‘‘(C) PROPRIETORSHIP.—In the case of an 
individual who is a proprietor or sole owner and 
provider of service to a business entity, the indi-
vidual shall allocate the portion of one-half of 
his SECA tax not allocated pursuant to sub-
paragraph (B) to his business entities in ac-
cordance with rules prescribed by the Secretary. 
‘‘(c) SPECIAL RULE.—Under rules prescribed by the 
Secretary, an individual subject to the self-employment tax 
shall pay half of the self-employment tax on an amount 
of self employment income not less than the amount of 
the individual’s self-employment income taken into ac-
count by partnerships under subparagraph (B) of sub-
section (b)(3). 
‘‘SEC. 283. CREDIT CARRYOVER. 
‘‘(a) CARRYOVER.—A current-year credit that is not 
applied in the taxable year in which earned shall constitute 
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394 
a credit carryover until applied but for no more than 15 
taxable years. 
‘‘(b) ORDER OF USE.—For purposes of determining 
which credits are applied under section 281, if the total 
credit allowable in a taxable year is less than the sum of 
the current-year payroll credit and the carryover credits, 
the current-year payroll credit shall be considered applied 
first and then credit carryovers shall be considered applied 
in the order earned. 
‘‘Subchapter M—Import Tax 
‘‘Sec. 286. Imposition of tax on property. 
‘‘Sec. 287. Imposition of tax on import of services. 
‘‘Sec. 288. General rules for the import tax. 
‘‘SEC. 286. IMPOSITION OF TAX ON PROPERTY. 
‘‘(a) GENERAL RULE.—There is hereby imposed a 
tax equal to 11 percent of the customs value of all prop-
erty entered into the United States for consumption, use 
or warehousing. 
‘‘(b) LIABILITY FOR TAX.—The tax imposed on the 
import of property by subsection (a) shall be paid by the 
person entering the property into the United States for 
consumption, use or warehousing. Such tax shall be due 
and payable at the time of import. 
‘‘(c) IMPORTS
OF PREVIOUSLY EXPORTED PROP-
ERTY.—In the case of any article that is classified under 
a heading or subheading of subchapter I or II of chapter 
98 of the Tariff Schedules of the United States, the tax 
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