tax-exempt use period
(2) Tax-exempt entity (A) In general For purposes of this subsection, the term “tax-exempt entity” means— (i) the United States, any State or political subdivision thereof, any possession of the United States, or any agency or instrumentality of any of the foregoing, (ii) an organization (other than a cooperative described in section 521 ) which is exempt from tax imposed by this chapter, (iii) any foreign person or entity, and (iv) any Indian tribal government described in section 7701(a)(40). For purposes of applying this subsection, any Indian tribal government referred to in clause (iv) shall be treated in the same manner as a State. (B) Exception for certain property subject to United States tax and used by foreign person or entity Clause (iii) of subparagraph (A) shall not apply with respect to any property if more than 50 percent of the gross income for the taxable year derived by the foreign person or entity from the use of such property is— (i) subject to tax under this chapter, or (ii) included under section 951 in the gross income of a United States shareholder for the taxable year with or within which ends the taxable year of the controlled foreign corporation in which such income was derived. For purposes of the preceding sentence, any exclusion or exemption shall not apply for purposes of determining the amount of the gross income so derived, but shall apply for purposes of determining the portion of such gross income subject to tax under this chapter. (C) Foreign person or entity For purposes of this paragraph, the term “foreign person or entity” means— (i) any foreign government, any international organization, or any agency or instrumentality of any of the foregoing, and (ii) any person who is not a United States person. Such term does not include any foreign partnership or other foreign pass-thru entity. (D) Treatment of certain taxable instrumentalities For purposes of this subsection, a corporation shall not be treated as an instrumentality of the United States or of any State or political subdivision thereof if— (i) all of the activities of such corporation are subject to tax under this chapter, and (ii) a majority of the board of directors of such corporation is not selected by the United States or any State or political subdivision thereof. (E) Certain previously tax-exempt organizations (i) In general For purposes of this subsection, an organization shall be treated as an organization described in subparagraph (A)(ii) with respect to any property (other than property held by such organization) if such organization was an organization (other than a cooperative described in section 521 ) exempt from tax imposed by this chapter at any time during the 5-year period ending on the date such property was first used by such organization. The preceding sentence and subparagraph (D)(ii) shall not apply to the Federal Home Loan Mortgage Corporation. (ii) Election not to have clause (i) apply (I) In general In the case of an organization formerly exempt from tax under section 501(a) as an organization described in section 501(c)(12), clause (i) shall not apply to such organization with respect to any property if such organization elects not to be exempt from tax under section 501(a) during the tax-exempt use period with respect to such property. (II) Tax-exempt use period For purposes of subclause (I), the term “tax-exempt use period” means the period beginning with the taxable year in which the property described in subclause (I) is first used by the organization and ending with the close of the 15th taxable year following the last taxable year of the applicable recovery period of such property. (III) Election Any election under subclause (I), once made, shall be irrevocable. (iii) Treatment of successor organizations Any organization which is engaged in activities substantially similar to those engaged in by a predecessor organization shall succeed to the treatment under this subparagraph of such predecessor organization. (iv) First used For purposes of this subparagraph, property shall be treated as first used by the organization— (I) when the property is first placed in service under a lease to such organization, or (II) in the case of property leased to (or held by) a partnership (or other pass-thru entity) in which the organization is a member, the later of when such property is first used by such partnership or pass-thru entity or when such organization is first a member of such partnership or pass-thru entity.