((a)) ** Denial of exemption to organizations engaged in prohibited transactions**

((1)) ** General rule** An organization described in paragraph (17) or (18) of section 501(c), or described in section 401(a) and referred to in section 4975(g) (2) or (3), shall not be exempt from taxation under section 501(a) if it has engaged in a prohibited transaction.

((2)) ** Taxable years affected** An organization described in paragraph (1) shall be denied exemption from taxation under section 501(a) by reason of paragraph (1) only for taxable years after the taxable year during which it is notified by the Secretary that it has engaged in a prohibited transaction, unless such organization entered into such prohibited transaction with the purpose of diverting corpus or income of the organization from its exempt purposes, and such transaction involved a substantial part of the corpus or income of such organization.

((b)) ** Prohibited transactions** For purposes of this section, the term “prohibited transaction” means any transaction in which an organization subject to the provisions of this section—

((1)) lends any part of its income or corpus, without the receipt of adequate security and a reasonable rate of interest, to;

((2)) pays any compensation, in excess of a reasonable allowance for salaries or other compensation for personal services actually rendered, to;

((3)) makes any part of its services available on a preferential basis to;

((4)) makes any substantial purchase of securities or any other property, for more than adequate consideration in money or money’s worth, from;

((5)) sells any substantial part of its securities or other property, for less than an adequate consideration in money or money’s worth, to; or

((6)) engages in any other transaction which results in a substantial diversion of its income or corpus to;

((c)) ** Future status of organizations denied exemption** Any organization described in subsection (a)(1) which is denied exemption under section 501(a) by reason of subsection (a) of this section, with respect to any taxable year following the taxable year in which notice of denial of exemption was received, may, under regulations prescribed by the Secretary, file claim for exemption, and if the Secretary, pursuant to such regulations, is satisfied that such organization will not knowingly again engage in a prohibited transaction, such organization shall be exempt with respect to taxable years after the year in which such claim is filed.

([(d)) ** Repealed. , , ]**

((e)) ** Special rules** For purposes of subsection (b)(1), a bond, debenture, note, or certificate or other evidence of indebtedness (hereinafter in this subsection referred to as “obligation”) 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 (b).

((f)) ** Loans with respect to which employers are prohibited from pledging certain assets** Subsection (b)(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 bears 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 be, 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.