Sec. 10. Modification of tax exemption requirements for mutual ditch or irrigation companies

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Paragraph

(12)of section 501(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: In the case of a mutual ditch or irrigation company or of a like organization to a mutual ditch or irrigation company, subparagraph

(A)shall be applied without taking into account any income received or accrued— from the sale, lease, or exchange of fee or other interests in real property, including interests in water, from the sale or exchange of stock in a mutual ditch or irrigation company (or in a like organization to a mutual ditch or irrigation company) or contract rights for the delivery or use of water, or from the investment of proceeds from sales, leases, or exchanges under subclauses

(I)and (II), except that any income received under subclause (I), (II), or

(III)which is distributed or expended for expenses (other than for operations, maintenance, and capital improvements) of the mutual ditch or irrigation company or of the like organization to a mutual ditch or irrigation company (as the case may be) shall be treated as nonmember income in the year in which it is distributed or expended. For purposes of the preceding sentence, expenses (other than for operations, maintenance, and capital improvements) include expenses for the construction of conveyances designed to deliver water outside of the system of the mutual ditch or irrigation company or of the like organization. In the case of a mutual ditch or irrigation company or of a like organization to a mutual ditch or irrigation company, where State law provides that such a company or organization may be organized in a manner that permits voting on a basis which is pro rata to share ownership on corporate governance matters, subparagraph

(A)shall be applied without taking into account whether its member shareholders have one vote on corporate governance matters per share held in the corporation. Nothing in this clause shall be construed to create any inference about the requirements of this subsection for companies or organizations not included in this clause. . The amendment made by subsection

(a)shall apply to taxable years beginning after the date of the enactment of this Act.