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TITLE 26-INTERNAL REVENUE CODE attributable to personal property de- scribed in subparagraph (A)(i), or (ii) if the determination of the amount of such rent depends in whole or in part on the income or profits derived by any person from the property leased (other than an amount based on a fixed percent- age or percentages of receipts or sales). (C) There shall be excluded all deductions directly connected with rents excluded under subparagraph (A). (4) Notwithstanding paragraph (1), (2), (3), or (5), in the case of debt-financed property (as defined in section 514) there shall be in- cluded, as an item of gross income derived from an unrelated trade or business, the amount ascertained under section 514(a)(1), and there shall be allowed, as a deduction. the amount ascertained under section 514(a)(2). (5) There shall be excluded all gains or losses from the sale, exchange, or other dispo- sition of property other than- (A) stock in trade or other property of a kind which would properly be includible in inventory if on hand at the close of the tax- able year, or (B) property held primarily for sale to customers in the ordinary course of the trade or business. There shall also be excluded all gains on the lapse or termination of options, written by the organization in connection with its invest- ment activities, to buy or sell securities (as de- fined in section 1236(c)). This paragraph shall not apply with respect to the cutting of timber which is considered, on the application of section 631, as a sale or exchange of such timber. (6) The net operating loss deduction pro- vided in section 172 shall be allowed, except that- (A) the net operating loss for any taxable year, the amount of the net operating loss carryback or carryover to any taxable year, and the net operating loss deduction for any taxable year shall be determined under section 172 without taking into account any amount of income or deduction which is ex- cluded under this part in computing the un- related business taxable income; and (B) the terms "preceding taxable year" and "preceding taxable years" as used in section 172 shall not include any taxable year for which the organization was not subject to the provisions of this part. (7) There shall be excluded all income de- rived from research for (A) the United States, or any of its agencies or instrumentalities, or (B) any State or political subdivision thereof; and there shall be excluded all deductions di- rectly connected with such income. (8) In the case of a college, university, or hospital, there shall be excluded all income derived from research performed for any person, and all deductions directly connected with such income. (9) In the case of an organization operated primarily for purposes of carrying on funda- mental research the results of which are freely available to the general public, there shall be excluded all income derived from re- search performed for any person, and all de- ductions directly connected with such income. (10) In the case of any organization de- scribed in section 511(a), the deduction al- lowed by section 170 (relating to charitable etc. contributions and gifts) shall be allowed (whether or not directly connected with the carrying on of the trade or business), but shall not exceed 5 percent of the unrelated business taxable income computed without the benefit of this paragraph. (11) In the case of any trust described in section 511(b), the deduction allowed by se- tion 170 (relating to charitable etc. contribu- tions and gifts) shall be allowed (whether or not directly connected with the carrying on of the trade or business), and for such pur- pose a distribution made by the trust to a beneficiary described in section 170 shall be considered as a gift or contribution. The de- duction allowed by this paragraph shall be al- lowed with the limitations prescribed in sec- tion 170(b)(1)(A) and (B) determined with reference to the unrelated business taxable income computed without the benefit of this paragraph (in lieu of with reference to adjust- ed gross income). (12) Except for purposes of computing the net operating loss under section 172 and para- graph (6), there shall be allowed a specific de- duction of $1,000. In the case of a diocese, province of a religious order, or a convention or association of churches, there shall also be allowed, with respect to each parish, individ- ual church, district, or other local unit, a spe- cific deduction equal to the lower of- (A) $1,000, or (B) the gross income derived from any un- related trade or business regularly carried on by such local unit. (13) Notwithstanding paragraphs (1), (2), or (3), amounts of interest, annuities, royalties, and rents derived from any organization (in this paragraph called the "controlled organi- zation") of which the organization deriving such amounts (in this paragraph called the "controlling organization") has control (as de- fined in section 368(c)) shall be included as an item of gross income (whether or not the ac- tivity from which such amounts are derived represents a trade or business or is regularly carried on) in an amount which bears the same ratio as- (A)(i) in the case of a controlled organiza- tion which is not exempt from taxation under section 501(a), the excess of the amount of taxable income of the controlled organization over the amount of such orga- nization's taxable income which if derived directly by the controlling organization would not be unrelated business taxable income, or (ii) in the case of a controlled organiza- tion which is exempt from taxation under section 501(a), the amount of unrelated business taxable income of the controlled organization, bears to (B) the taxable income of the controlled organization (determined in the case of a controlled organization to which subpara- graph (A)(ii) applies as if It were not an or- §512 Page 392