D.3. Special Rules for Title Holding Companies

(1) Section 511(c) provides that an exempt title holding company, described in

Section 501(c)(2), is treated as being organized and operated for the same purposes as the exempt payee organization, as well as for its title-holding purpose if it both pays any amount of its net income to an organization exempt from taxation under Section 501(a) (or would pay such an amount but for the fact that the expenses of collecting its income exceed its income), and it files a consolidated return with that organization. See Sections 1501 and 1504(e) and Treas. Reg. 1.511-2(c). Therefore, if the source of income of a title holding company is related to the exempt functions of the exempt payee organization, the income won’t be subject to tax provided the holding company and the payee organization file a consolidated return on Form 990-T.

a. For example, assume that the income of X, a Section 501(c)(2)

corporation, is required to be distributed to exempt organization A. During the taxable year, X realizes net income of $900,000 from source M and $100,000 from source N. Source M is related to A’s exempt function, while source N isn’t related. X and A file a consolidated return for such taxable year. X has net unrelated business income of $100,000 subject to the modifications in Section 512(b).