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Publication 557

501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent Corporations(p57)

If your organization wants to obtain recognition of exemption from federal income tax as an organization organized for the exclusive purpose of acquiring, holding title to, and collecting income from real property, and turning over the entire amount less expenses to member organizations exempt from income tax, it should file its application on Form 1024. For a discussion of the procedures for obtaining recognition of exemption, see chapter 1, Application Procedures.

Who can control the organization.(p57)

Organizations recognized as exempt under this section can have up to 35 shareholders or beneficiaries, in contrast to title-holding organizations recognized as exempt under section 501(c)(2), which can have only one controlling parent organization.

Organizational requirements.(p57)

A 501(c)(25) organization must be either a corporation or a trust. Only one class of stock is permitted in the case of a corporation. In the case of a trust, only one class of beneficial interest is allowed.
Organizations eligible to acquire or hold interests in this type of title-holding organization are qualified pension, profit-sharing, or stock bonus plans, governmental plans, governments and their agencies and instrumentalities, and charitable organizations.
The articles of incorporation or trust instrument must include provisions showing that the corporation or trust is organized to meet the requirements of the statute, including compliance with the limitations on membership and classes of stock or beneficial interest, and compliance with the income distribution requirements. The organizing document must permit the organization's shareholders or beneficiaries to dismiss the organization's investment advisor, if any, upon a vote of the shareholders or beneficiaries holding a majority interest in the organization.
The organizing document must permit the shareholders or beneficiaries to terminate their interests by at least one of the following methods.
  1. By selling or exchanging their stock or beneficial interest to any organization described in section 501(c)(25)(C), provided that the sale or exchange doesn't cause the number of shareholders or beneficiaries to exceed 35.
  2. By having their stock or beneficial interest redeemed by the section 501(c)(25) organization upon 90 days notice.
If state law prevents a corporation from including in its articles of incorporation the above provisions, such provisions must instead be included in the bylaws of the corporation.
A 501(c)(25) organization can be organized as a nonstock corporation if its articles of incorporation or bylaws provide members with the same rights as described above.


A wholly owned subsidiary won't be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit will be treated as belonging to the section 501(c)(25) organization. Subsidiaries shouldn't apply separately for recognition of exemption.

Tax treatment of donations.(p57)

Donations to an exempt title-holding corporation generally aren't deductible as charitable contributions on the donor's federal income tax return.

Unrelated Business Income(p57)

In general, the receipt of unrelated business income by a section 501(c)(25) organization will subject the organization to loss of exempt status since the organization can't be exempt from taxation if it engages in any business other than that of holding title to real property and collecting the income from the property. However, exempt status generally won't be affected by the receipt of debt-financed income that is treated as unrelated business taxable income solely because of section 514.
Under section 514(c)(9), certain shareholders or beneficiaries aren't subject to unrelated debt-financed income tax under section 514 on their investments through the organization. These shareholders are generally schools, colleges, universities, or supporting organizations of such educational institutions. Organizations other than these will take into account as gross income from an unrelated trade or business their pro rata share of income that is treated as unrelated debt-financed income because section 514(c)(9) doesn't apply. These organizations will also take their pro rata share of the allowable deductions from unrelated taxable income.

Real property.(p57)

Real property can include personal property leased in connection with real property, but only if the rent from the personal property isn't more than 15% of the total rent for both the real property and the personal property.
Real property acquired after June 10, 1987, can't include any interest as a tenant in common (or similar interest) or any indirect interest.