DENIAL OF EXEMPTION TO ORGANIZATIONS ENGAGED IN PROHIBITED TRANSACTIONS.

SEC. 30. DENIAL OF EXEMPTION TO ORGANIZATIONS ENGAGED IN PROHIBITED TRANSACTIONS. (a) Lending to Certain Persons.—Section 503 (relating to requirements for exemption in the case of exempt organizations) is amended by adding at the end thereof the following new subsection: “(h) Special Rules Relating to Lending by Section 401 (a) Trusts to Certain Persons.—For purposes of subsection (c) (1), a bond, debenture, note, or certificate or other evidence of indebtedness (hereinafter in this subsection referred to as ‘obligation’) acquired 72 Stat. 1630 by a trust described in section 401 (a) shall not be treated as a loan made without the receipt of adequate security if— “(1) such obligation is acquired— “(A) on the market, either (i) at the price of the obligation prevailing on a national securities exchange which is registered with the Securities and Exchange Commission, or (ii) if the obligation is not traded on such a national securities exchange, at a price not less favorable to the trust than the offering price for the obligation as established by current bid and asked prices quoted by persons independent of the issuer; “(B) from an underwriter, at a price (i) not in excess of the public offering price for the obligation as set forth in a prospectus or offering circular filed with the Securities and Exchange Commission, and (ii) at which a substantial portion of the same issue is acquired by persons independent of the issuer; or “(C) directly from the issuer, at a price not less favorable to the trust than the price paid currently for a substantial portion of the same issue by persons independent of the issuer; “(2) immediately following acquisition of such obligation— “(A) not more than 25 percent of the aggregate amount of obligations issued in such issue and outstanding at the time of acquisition is held by the trust, and “(B) at least 50 percent of the aggregate amount referred to in subparagraph (A) is held by persons independent of the issuer; and “(3) immediately following acquisition of the obligation, not more than 25 percent of the assets of the trust is invested in obligations of persons described in subsection (c).” (b) Loans to Employers Who Are Prohibited From Pledging Assets.—Section 503 is further amended by adding after subsection (h) (as added by subsection (a) of this section) the following new subsection: “(i) Loans With Respect to Which Employers Are Prohibited From Pledging Certain Assets.—Subsection (c) (1) shall not apply to a loan made by a trust described in section 401 (a) to the employer (or to a renewal of such a loan or, if the loan is repayable upon demand, to a continuation of such a loan) if the loan Dears a reasonable rate of interest, and if (in the case of a making or renewal)— “(1) the employer is prohibited (at the time of such making or renewal) by any law of the United States or regulation thereunder from directly or indirectly pledging, as security for such a loan, a particular class or classes of his assets the value of which (at such time) represents more than one-half of the value of all his assets; “(2) the making or renewal, as the case may lie, is approved in writing as an investment which is consistent with the exempt purposes of the trust by a trustee who is independent of the employer, and no other such trustee had previously refused to give such written approval; and “(3) immediately following the making or renewal, as the case may be, the aggregate amount loaned by the trust to the employer, without the receipt of adequate security, does not exceed 25 percent of the value of all the assets of the trust. For purposes of paragraph (2), the term ‘trustee’ means, with respect to any trust for which there is more than one trustee who is independent of the employer, a majority of such independent trustees. 72 Stat. 1631 For purposes of paragraph (3), the determination as to whether any amount loaned by the trust to the employer is loaned without the receipt of adequate security shall be made without regard to subsection (h).” (c) Effective Date.— (1) In general.—Except as provided in paragraph (2), the amendment made by subsection (a) shall apply with respect to taxable years ending after March 15, 1956. The amendment made by subsection (b) shall apply with respect to taxable years ending after the date of the enactment of this Act, but only with respect to periods after such date. (2) Exceptions.—Nothing in subsection (a) shall be construed to make any transaction a prohibited transaction which, under announcements of the Internal Revenue Service made with respect to section 503 (c) (1) of the Internal Revenue Code of 1954 before the date of the enactment of this Act, would not constitute a prohibited transaction. In the case of any bond, debenture, note, or certificate or other evidence of indebtedness acquired before the date of the enactment of this Act by a trust described in section 401 (a) of such Code which is held on such date, paragraphs (2) and (3) of section 503 (h) of such Code shall be treated as satisfied if such requirements would have been satisfied if such obligation had been acquired on such date of enactment. (d) Correction of Cross References.—Sections 2055 (e), 2106 (a) (2) (E), and 2522 (c) are each amended by striking out “sections 504” and inserting in lieu thereof “sections 503”.