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TITLE 26-INTERNAL REVENUE CODE (2) Property acquired subject to mortgage, etc. For purposes of this subsection- (A) General rule Where property (no matter how acquired) is acquired subject to a mortgage or other similar lien, the amount of the indebtedness secured by such mortgage or lien shall be considered as an indebtedness of the organi- zation incurred in acquiring such property even though the organization did not assume or agree to pay such indebtedness. (B) Exceptions Where property subject to a mortgage is acquired by an organization by bequest or devise, the indebtedness secured by the mortgage shall not be treated as acquisition indebtedness during a period of 10 years fol- lowing the date of the acquisition. If an or- ganization acquires property by gift subject to a mortgage which was placed on the property more than 5 years before the gift, which property was held by the donor more than 5 years before the gift, the indebted- ness securea by such mortgage shall not be treated as acquisition indebtedness during a period of 10 years following the date of such gift. This subparagraph shall not apply if the organization, in order to ac- quire the equity in the property by bequest, devise, or gift, assumes and agrees to pay the indebtedness secured by the mortgage, or if the organization makes any payment for the equity in the property owned by the decedent or the donor. (C) Liens for taxes or assessments Where State law provides that- (i) a lien for taxes, or (ii) a lien for assessments, made by a State or a political subdivision thereof attaches to property prior to the time when such taxes or assessments become due and payable, then such lien shall be treated as similar to a mortgage (within the meaning of subparagraph (A)) but only after such taxes or assessments become due and payable and the organiza- tion has had an opportunity to pay such taxes or assessments in accordance with State law. (3) Extension of obligations For purposes of this section, an extension, renewal, or refinancing of an obligation evi- dencing a pre-existing indebtedness shall not be treated as the creation of a new indebted- ness. (4) Indebtedness incurred in performing exempt purpose For purposes of this section, the term "ac- quisition indebtedness" does not include in- debtedness the incurrence of which is inher- ent in the performance or exercise of the pur- pose or function constituting the basis of the organization's exemption, such as the indebt- edness incurred by a credit union described in section 501(c)(14) in accepting deposits from its members. (5) Annuities For purposes of this section, the term "ac- quisition indebtedness" does not include an obligation to pay an annuity which- (A) is the sole consideration (other than a mortgage to which paragraph (2)(B) ap- plies) issued in exchange for property if, at the time of the exchange, the value of the annuity is less than 90 percent of the value of the property received in the exchange, (B) is payable over the life of one individ- ual in being at the time the annuity is issued, or over the lives of two individuals in being at such time, and (C) is payable under a contract which- (I) does not guarantee a minimum amount of payments or specify a maxi- mum amount of payments, and (ii) does not provide for any adjustment of the amount of the annuity payments by reference to the income received from the transferred property or any other property. (6) Certain federal financing For purposes of this section, the term "ac- quisition indebtedness" does not include an obligation, to the extent that it is insured by the Federal Housing Administration, to fi- nance the purchase, rehabilitation, or con- struction of housing for low and moderate income persons. (7) Average acquisition indebtedness For purposes of this section, the term "average acquisition indebtedness" for any taxable year with respect to a debt-financed property means the average amount, deter- mined under regulations prescribed by the Secretary of the acquisition indebtedness during the period the property is held by the organization during the taxable year, except that for the purpose of computing the per- centage of any gain or loss to be taken into account on a sale or other disposition of debt- financed property, such term means the high- est amount of the acquisition indebtedness with respect to such property during the 12- month period ending with the date of the sale or other disposition. (d) Basis of debt-financed property acquired in corpo- rate liquidation For purposes of this subtitle, if the property was acquired in a complete or partial liquida- tion of a corporation in exchange for its stock, the basis of the property shall be the same as it would be in the hands of the transferor corpo- ration, increased by the amount of gain recog- nized to the transferor corporation upon such distribution and by the amount of any gain to the organization which was included, on ac- count of such distribution, in unrelated busi- ness taxable income under subsection (a). (e) Allocation rules Where debt-financed property is held for pur- poses described in subsection (b)(1)(A), (B), (C), or (D) as well as for other purposes, proper allo- cation shall be made with respect to basis, in- debtedness, and income and deductions. The al- locations required by this section shall be made in accordance with regulations prescribed by § 514 Page 398