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§ 14.6 UNRELATED DEBT-FINANCED INCOME IMPLICATIONSinsurance is treated as the conduct of an unrelated trade or business 21 and taxedunder the rules pertaining to taxable insurance companies. 22The term commercial-type insurance generally means any insurance of a typeprovided by commercial insurance companies. 23For this purpose, the issuance of annuity contracts is considered the provisionof insurance. 24 These rules do not apply to a charitable gift annuity, however,when:• a portion of the amount paid in connection with issuance of the annuity isallowable as a charitable deduction for federal income or estate tax purposes,and• the annuity is described in the special rule for annuities in the law concerningunrelated debt-financed income 25 (determined as if any amount paidin money in connection with the issuance of the annuity were property). 26§ 14.6 UNRELATED DEBT-FINANCED INCOME IMPLICATIONSA form of income that can be taxable to charitable and other types of tax-exemptorganizations is unrelated debt-financed income. Basically, this is a form of unrelatedincome, which is investment income that is traceable in one way or anotherto borrowed funds. 27In computing a tax-exempt organization’s unrelated business taxable income,there must be included with respect to each debt-financed property that is unrelatedto the organization’s exempt function—as an item of gross income derived from anunrelated trade or business—an amount of income from the property, subject to taxin the proportion in which the property is financed by the debt. 28 The term debtfinancedproperty means (with certain exceptions) all property held to produceincome and with respect to which there is an acquisition indebtedness at any timeduring the tax year (or during the preceding 12 months, if the property was disposedof during the year). 29Acquisition indebtedness, with respect to debt-financed property, means theunpaid amount of (1) the indebtedness incurred by the tax-exempt organizationin acquiring or improving the property; (2) the indebtedness incurred before anyacquisition or improvement of the property if the indebtedness would not havebeen incurred but for the acquisition or improvement; and (3) the indebtednessincurred after the acquisition or improvement of the property if the indebtednesswould not have been incurred but for the acquisition or improvement andthe incurrence of the indebtedness was reasonably foreseeable at the time of theacquisition or improvement. 3021 See § 3.5.22 IRC subch. L.23 See Tax-Exempt Organizations § 22.1.24 IRC § 501(m)(4).25 See §14.6, text accompanied by note 33.26 IRC § 501(m)(3)(E), (m)(5).27 IRC § 514. See Tax-Exempt Organizations ch. 29.28 IRC §§ 514(a)(1), 512(b)(4).29 IRC § 514(b)(1).30 IRC § 514(c)(1). 501