California Revenue and Taxation Code § 23736.1

(a) For the purposes of this article, the term “prohibited transaction” means any transaction in which an organization subject to this article— (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 that results in a substantial diversion of its income or corpus to; the creator of the organization (if a trust); a person who has made a substantial contribution to the organization; a member of the family (as defined in Section 267(c)(4) of the Internal Revenue Code) of an individual who is the creator of that trust or who has made a substantial contribution to that organization; or a corporation controlled by that creator or person through the ownership, directly or indirectly, of 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of the corporation. (b) For purposes of subdivision (a), a bond, debenture, note, or certificate or other evidence of indebtedness (hereinafter in this section referred to as “obligation”) acquired by a trust described in Section 23701n shall not be treated as a loan made without the receipt of adequate security if— (1) The obligation is acquired— (A) On the market, either (i) at the price of the obligation prevailing on a national securities exchange that is registered with the Securities and Exchange Commission, or (ii) if the obligation is not traded on 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 that obligation— (A) Not more than 25 percent of the aggregate amount of obligations issued in that 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 subdivision (a). (4) (A) In the case of a trust described in Section 23701n, or in the case of a corporation described in Section 23701h, all of the stock of which was acquired before January 1, 1961, by a trust described in Section 23701n, any indebtedness incurred by that trust or that corporation before January 1, 1961, in connection with real property that is leased before January 1, 1961, and any indebtedness incurred by that trust or that corporation on or after that date necessary to carry out the terms of that lease, shall not be considered as an indebtedness with respect to that trust or that corporation for purposes of this section. (B) In the application of paragraph (1) of subdivision (a), if a trust described in Sec

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