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Publication 598
taxmap/pubs/p598-013.htm#en_us_publink1000267862

Income From Controlled Organizations(p14)

rule
The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed.
taxmap/pubs/p598-013.htm#en_us_publink1000267863

Excess qualifying specified payments.(p14)

rule
Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012.
If a controlled participant is not required to file a U.S. income tax return, the participant must ensure that the copy or copies of the Regulations section 1.482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, or any Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, filed for that participant.
taxmap/pubs/p598-013.htm#en_us_publink1000267864
Addition to tax for valuation misstatements.(p14)
Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. See section 512(b)(13)(E)(ii) for more information.
taxmap/pubs/p598-013.htm#en_us_publink1000267865
Net unrelated income.(p14)
This is:
taxmap/pubs/p598-013.htm#en_us_publink1000267866
Net unrelated loss.(p14)
This is:
taxmap/pubs/p598-013.htm#en_us_publink1000267867
Control.(p14)
An organization is controlled if: For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account.
As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary).