362 
‘‘(II) all assets, liabilities, and items 
of income, deduction, and credit of a quali-
fied 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 cor-
poration if, at all times during the period such 
corporation was in existence, 100 percent of the 
stock of such corporation is held by the cor-
poration 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 cor-
poration acquiring all of its assets (and assum-
ing all of its liabilities) immediately before such 
cessation from the corporation or trust de-
scribed 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
363 
with, a lease of real property, but only if the 
rent attributable to such personal property 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 treat-
ed as failing to be described in this paragraph 
merely by reason of the receipt of any otherwise 
disqualifying income which is incidentally de-
rived 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 or-
ganization establishes to the satisfaction of the 
Secretary that the receipt of gross income de-
scribed 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) STATE ESTABLISHED MEDICAL CARE IN-
SURER.—Any membership organization if— 
‘‘(A) such organization is established by a 
State exclusively to provide coverage for medical
364 
care on a not-for-profit basis to individuals de-
scribed in subparagraph (B) through— 
‘‘(i) insurance issued by the organiza-
tion, or 
‘‘(ii) a health maintenance organiza-
tion under an arrangement with the orga-
nization, 
‘‘(B) the only individuals receiving such 
coverage through the organization are individ-
uals— 
‘‘(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 med-
ical 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 sub-
stantially in excess of the rate for 
such coverage through the member-
ship organization,
365 
‘‘(C) the composition of the membership in 
such organization is specified by such State, 
and 
‘‘(D) no part of the net earnings of the or-
ganization inures to the benefit of any private 
shareholder or individual. A spouse and any 
qualifying child) of an individual described in 
subparagraph (B) (without regard to this sen-
tence) shall be treated as described in subpara-
graph (B). 
‘‘(27) GRANDFATHERED WORKERS COMPENSA-
TION
ORGANIZATION.—Any membership organiza-
tion established before June 1, 1996, by a State ex-
clusively to reimburse its members for losses arising 
under workmen’s compensation acts, and described 
in section 501(c)(27) of the Internal Revenue Code 
of 1986. 
‘‘(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 cor-
porations engage in business for the common benefit of 
the members, but only if such activity is treated as unre-
lated business activity.
366 
‘‘(e) COOPERATIVE HOSPITAL SERVICE ORGANIZA-
TIONS.—For purposes of this chapter, an organization 
shall be treated as an organization organized and operated 
exclusively for charitable purposes, if— 
‘‘(1) such organization is organized and oper-
ated 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 per-
forming the purpose or function constituting 
the basis for its exemption: data processing, 
purchasing (including the purchasing of insur-
ance on a group basis), warehousing, billing 
and collection, food, clinical, industrial engi-
neering, laboratory, printing, communications, 
record center, and personnel (including selec-
tion, testing, training, and education of per-
sonnel) services; and 
‘‘(B) to perform such services solely for 
two or more hospitals each of which is—