Internal Revenue Code:Sec. 856. Definition of real estate investment trust
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
Statute
Sec. 856. Definition of real estate investment trust
(a) In general
For purposes of this title, the term ''real estate investment
trust'' means a corporation, trust, or association -
(1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of
beneficial interest;
(3) which (but for the provisions of this part) would be
taxable as a domestic corporation;
(4) which is neither (A) a financial institution referred to in
section 582(c)(2), nor (B) an insurance company to which
subchapter L applies;
(5) the beneficial ownership of which is held by 100 or more
persons;
(6) subject to the provisions of subsection (k), which is not
closely held (as determined under subsection (h)); and
(7) which meets the requirements of subsection (c).
(b) Determination of status
The conditions described in paragraphs (1) to (4), inclusive, of
subsection (a) must be met during the entire taxable year, and the
condition described in paragraph (5) must exist during at least 335
days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months.
(c) Limitations
A corporation, trust, or association shall not be considered a
real estate investment trust for any taxable year unless -
(1) it files with its return for the taxable year an election
to be a real estate investment trust or has made such election
for a previous taxable year, and such election has not been
terminated or revoked under subsection (g);
(2) at least 95 percent (90 percent for taxable years beginning
before January 1, 1980) of its gross income (excluding gross
income from prohibited transactions) is derived from -
(A) dividends;
(B) interest;
(C) rents from real property;
(D) gain from the sale or other disposition of stock,
securities, and real property (including interests in real
property and interests in mortgages on real property) which is
not property described in section 1221(a)(1);
(E) abatements and refunds of taxes on real property;
(F) income and gain derived from foreclosure property (as
defined in subsection (e));
(G) amounts (other than amounts the determination of which
depends in whole or in part on the income or profits of any
person) received or accrued as consideration for entering into
agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase
or lease real property (including interests in real property
and interests in mortgages on real property); and
(H) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction solely by reason of
section 857(b)(6);
(3) at least 75 percent of its gross income (excluding gross
income from prohibited transactions) is derived from -
(A) rents from real property;
(B) interest on obligations secured by mortgages on real
property or on interests in real property;
(C) gain from the sale or other disposition of real property
(including interests in real property and interests in
mortgages on real property) which is not property described in
section 1221(a)(1);
(D) dividends or other distributions on, and gain (other than
gain from prohibited transactions) from the sale or other
disposition of, transferable shares (or transferable
certificates of beneficial interest) in other real estate
investment trusts which meet the requirements of this part;
(E) abatements and refunds of taxes on real property;
(F) income and gain derived from foreclosure property (as
defined in subsection (e));
(G) amounts (other than amounts the determination of which
depends in whole or in part on the income or profits of any
person) received or accrued as consideration for entering into
agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase
or lease real property (including interests in real property
and interests in mortgages on real property);
(H) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction solely by reason of
section 857(b)(6); and
(I) qualified temporary investment income; and
(4) at the close of each quarter of the taxable year -
(A) at least 75 percent of the value of its total assets is
represented by real estate assets, cash and cash items
(including receivables), and Government securities; and
(B)(i) not more than 25 percent of the value of its total
assets is represented by securities (other than those
includible under subparagraph (A)),
(ii) not more than 20 percent of the value of its total
assets is represented by securities of one or more taxable REIT
subsidiaries, and
(iii) except with respect to a taxable REIT subsidiary and
securities includible under subparagraph (A) -
(I) not more than 5 percent of the value of its total
assets is represented by securities of any one issuer,
(II) the trust does not hold securities possessing more
than 10 percent of the total voting power of the outstanding
securities of any one issuer, and
(III) the trust does not hold securities having a value of
more than 10 percent of the total value of the outstanding
securities of any one issuer.
A real estate investment trust which meets the requirements of
this paragraph at the close of any quarter shall not lose its
status as a real estate investment trust because of a discrepancy
during a subsequent quarter between the value of its various
investments and such requirements unless such discrepancy exists
immediately after the acquisition of any security or other
property and is wholly or partly the result of such acquisition.
A real estate investment trust which does not meet such
requirements at the close of any quarter by reason of a
discrepancy existing immediately after the acquisition of any
security or other property which is wholly or partly the result
of such acquisition during such quarter shall not lose its status
for such quarter as a real estate investment trust if such
discrepancy is eliminated within 30 days after the close of such
quarter and in such cases it shall be considered to have met such
requirements at the close of such quarter for purposes of
applying the preceding sentence.
(5) For purposes of this part -
(A) The term ''value'' means, with respect to securities for
which market quotations are readily available, the market value
of such securities; and with respect to other securities and
assets, fair value as determined in good faith by the trustees,
except that in the case of securities of real estate investment
trusts such fair value shall not exceed market value or asset
value, whichever is higher.
(B) The term ''real estate assets'' means real property
(including interests in real property and interests in
mortgages on real property) and shares (or transferable
certificates of beneficial interest) in other real estate
investment trusts which meet the requirements of this part.
Such term also includes any property (not otherwise a real
estate asset) attributable to the temporary investment of new
capital, but only if such property is stock or a debt
instrument, and only for the 1-year period beginning on the
date the real estate trust receives such capital.
(C) The term ''interests in real property'' includes fee
ownership and co-ownership of land or improvements thereon,
leaseholds of land or improvements thereon, options to acquire
land or improvements thereon, and options to acquire leaseholds
of land or improvements thereon, but does not include mineral,
oil, or gas royalty interests.
(D) Qualified temporary investment income. -
(i) In general. - The term ''qualified temporary investment
income'' means any income which -
(I) is attributable to stock or a debt instrument (within
the meaning of section 1275(a)(1)),
(II) is attributable to the temporary investment of new
capital, and
(III) is received or accrued during the 1-year period
beginning on the date on which the real estate investment
trust receives such capital.
(ii) New capital. - The term ''new capital'' means any
amount received by the real estate investment trust -
(I) in exchange for stock (or certificates of beneficial
interests) in such trust (other than amounts received
pursuant to a dividend reinvestment plan), or
(II) in a public offering of debt obligations of such
trust which have maturities of at least 5 years.
(E) A regular or residual interest in a REMIC shall be
treated as a real estate asset, and any amount includible in
gross income with respect to such an interest shall be treated
as interest on an obligation secured by a mortgage on real
property; except that, if less than 95 percent of the assets of
such REMIC are real estate assets (determined as if the real
estate investment trust held such assets), such real estate
investment trust shall be treated as holding directly (and as
receiving directly) its proportionate share of the assets and
income of the REMIC. For purposes of determining whether any
interest in a REMIC qualifies under the preceding sentence, any
interest held by such REMIC in another REMIC shall be treated
as a real estate asset under principles similar to the
principles of the preceding sentence, except that, if such
REMIC's are part of a tiered structure, they shall be treated
as one REMIC for purposes of this subparagraph.
(F) All other terms shall have the same meaning as when used
in the Investment Company Act of 1940, as amended (15 U.S.C.
80a-1 and following).
(G) Treatment of certain hedging instruments.--
Except to the extent provided by regulations, any income
of a real estate investment trust from a hedging
transaction (as defined in clause (ii) or (iii) of
section 1221(b)(2)(A)) which is clearly identified
pursuant to section 1221(a)(7), including gain from the
sale or disposition of such a transaction, shall not
constitute gross income under paragraph (2) to the
extent that the transaction hedges any indebtedness
incurred or to be incurred by the trust to acquire or
carry real estate assets.''.
(6) A corporation, trust, or association which fails to meet
the requirements of paragraph (2) or (3), or of both such
paragraphs, for any taxable year shall nevertheless be considered
to have satisfied the requirements of such paragraphs for such
taxable year if -
(A) following the corporation, trust, or
association's identification of the failure to meet the
requirements of paragraph (2) or (3), or of both such
paragraphs, for any taxable year, a description of each
item of its gross income described in such paragraphs is
set forth in a schedule for such taxable year filed in
accordance with regulations prescribed by the Secretary,
and;
(B) the failure to meet the requirements of paragraph (2) or
(3), or of both such paragraphs, is due to reasonable cause and
not due to willful neglect.
(7) Rules of application for failure to satisfy paragraph
(4).--
(A) In general.--A corporation, trust, or
association that fails to meet the requirements of
paragraph (4) (other than a failure to meet the
requirements of paragraph (4)(B)(iii) which is described
in subparagraph (B)(i) of this paragraph) for a
particular quarter shall nevertheless be considered to
have satisfied the requirements of such paragraph for
such quarter if--
(i) following the corporation, trust, or
association's identification of the failure to
satisfy the requirements of such paragraph for a
particular quarter, a description of each asset
that causes the corporation, trust, or association
to fail to satisfy the requirements of such
paragraph at the close of such quarter of any
taxable year is set forth in a schedule for such
quarter filed in accordance with regulations
prescribed by the Secretary,
(ii) the failure to meet the requirements of
such paragraph for a particular quarter is due to
reasonable cause and not due to willful neglect,
and
(iii)(I) the corporation, trust, or
association disposes of the assets set forth on
the schedule specified in clause (i) within 6
months after the last day of the quarter in which
the corporation, trust or association's
identification of the failure to satisfy the
requirements of such paragraph occurred or such
other time period prescribed by the Secretary and
in the manner prescribed by the Secretary, or
(II) the requirements of such paragraph are
otherwise met within the time period specified in
subclause (I).
(B) Rule for certain de minimis failures.--A
corporation, trust, or association that fails to meet
the requirements of paragraph (4)(B)(iii) for a
particular quarter shall nevertheless be considered to
have satisfied the requirements of such paragraph for
such quarter if--
(i) such failure is due to the ownership of
assets the total value of which does not exceed
the lesser of--
(I) 1 percent of the total value
of the trust's assets at the end of the
quarter for which such measurement is
done, and
(II) $10,000,000, and
(ii)(I) the corporation, trust, or
association, following the identification of such
failure, disposes of assets in order to meet the
requirements of such paragraph within 6 months
after the last day of the quarter in which the
corporation, trust or association's identification
of the failure to satisfy the requirements of such
paragraph occurred or such other time period
prescribed by the Secretary and in the manner
prescribed by the Secretary, or
(II) the requirements of such paragraph are
otherwise met within the time period specified in
subclause (I).
(C) Tax.--
(i) Tax imposed.--If subparagraph (A)
applies to a corporation, trust, or association
for any taxable year, there is hereby imposed on
such corporation, trust, or association a tax in
an amount equal to the greater of--
(I) $50,000, or
(II)
the <<NOTE: Regulations.>> amount
determined (pursuant to regulations
promulgated by the Secretary) by
multiplying the net income generated by
the assets
described in the schedule specified in
subparagraph (A)(i) for the period
specified in clause (ii) by the highest
rate of tax specified in section 11.
(ii) Period.--For purposes of clause
(i)(II), the period described in this clause is
the period beginning on the first date that the
failure to satisfy the requirements of such
paragraph (4) occurs as a result of the ownership
of such assets and ending on the earlier of the
date on which the trust disposes of such assets or
the end of the first quarter when there is no
longer a failure to satisfy such paragraph (4).
(iii) Administrative provisions.--For
purposes of subtitle F, the taxes imposed by this
subparagraph shall be treated as excise taxes with
respect to which the deficiency procedures of such
subtitle apply.
(d) Rents from real property defined
(1) Amounts included
For purposes of paragraphs (2) and (3) of subsection (c), the
term ''rents from real property'' includes (subject to paragraph
(2)) -
(A) rents from interests in real property,
(B) charges for services customarily furnished or rendered in
connection with the rental of real property, whether or not
such charges are separately stated, and
(C) rent attributable to personal property which is leased
under, or in connection with, a lease of real property, but
only if the rent attributable to such personal property for the
taxable year does not exceed 15 percent of the total rent for
the taxable year attributable to both the real and personal
property leased under, or in connection with, such lease.
For purposes of subparagraph (C), with respect to each lease of
real property, rent attributable to personal property for the
taxable year is that amount which bears the same ratio to total
rent for the taxable year as the average of the fair market
values of the personal property at the beginning and at the end
of the taxable year bears to the average of the aggregate fair
market values of both the real property and the personal property
at the beginning and at the end of such taxable year.
(2) Amounts excluded
For purposes of paragraphs (2) and (3) of subsection (c), the
term ''rents from real property'' does not include -
(A) except as provided in paragraphs (4) and (6), any amount
received or accrued, directly or indirectly, with respect to
any real or personal property, if the determination of such
amount depends in whole or in part on the income or profits
derived by any person from such property (except that any
amount so received or accrued shall not be excluded from the
term ''rents from real property'' solely by reason of being
based on a fixed percentage or percentages of receipts or
sales);
(B) except as provided in paragraph (8), any amount received
or accrued directly or indirectly from any person if the real
estate investment trust owns, directly or indirectly -
(i) in the case of any person which is a corporation, stock
of such person possessing 10 percent or more of the total
combined voting power of all classes of stock entitled to
vote, or 10 percent or more of the total value of shares of
all classes of stock of such person; or
(ii) in the case of any person which is not a corporation,
an interest of 10 percent or more in the assets or net
profits of such person; and
(C) any impermissible tenant service income (as defined in
paragraph (7)).
(3) Independent contractor defined
For purposes of this subsection and subsection (e), the term
''independent contractor'' means any person -
(A) who does not own, directly or indirectly, more than 35
percent of the shares, or certificates of beneficial interest,
in the real estate investment trust; and
(B) if such person is a corporation, not more than 35 percent
of the total combined voting power of whose stock (or 35
percent of the total shares of all classes of whose stock), or,
if such person is not a corporation, not more than 35 percent
of the interest in whose assets or net profits is owned,
directly or indirectly, by one or more persons owning 35
percent or more of the shares or certificates of beneficial
interest in the trust.
In the event that any class of stock of either the real estate
investment trust or such person is regularly traded on an
established securities market, only persons who own, directly or
indirectly, more than 5 percent of such class of stock shall be
taken into account as owning any of the stock of such class for
purposes of applying the 35 percent limitation set forth in
subparagraph (B) (but all of the outstanding stock of such class
shall be considered outstanding in order to compute the
denominator for purpose of determining the applicable percentage
of ownership).
(4) Special rule for certain contingent rents
Where a real estate investment trust receives or accrues, with
respect to real or personal property, any amount which would be
excluded from the term ''rents from real property'' solely
because the tenant of the real estate investment trust receives
or accrues, directly or indirectly, from subtenants any amount
the determination of which depends in whole or in part on the
income or profits derived by any person from such property, only
a proportionate part (determined pursuant to regulations
prescribed by the Secretary) of the amount received or accrued by
the real estate investment trust from that tenant will be
excluded from the term ''rents from real property''.
(5) Constructive ownership of stock
For purposes of this subsection, the rules prescribed by
section 318(a) for determining the ownership of stock shall apply
in determining the ownership of stock, assets, or net profits of
any person; except that -
(A) ''10 percent'' shall be substituted for ''50 percent'' in
subparagraph (C) of paragraphs (2) and (3) of section 318(a),
and
(B) section 318(a)(3)(A) shall be applied in the case of a
partnership by taking into account only partners who own
(directly or indirectly) 25 percent or more of the capital
interest, or the profits interest, in the partnership.
(6) Special rule for certain property subleased by tenant of real
estate investment trusts
(A) In general
If -
(i) a real estate investment trust receives or accrues,
with respect to real or personal property, amounts from a
tenant which derives substantially all of its income with
respect to such property from the subleasing of substantially
all of such property, and
(ii) a portion of the amount such tenant receives or
accrues, directly or indirectly, from subtenants consists of
qualified rents,
then the amounts which the trust receives or accrues from the
tenant shall not be excluded from the term ''rents from real
property'' by reason of being based on the income or profits of
such tenant to the extent the amounts so received or accrued
are attributable to qualified rents received or accrued by such
tenant.
(B) Qualified rents
For purposes of subparagraph (A), the term ''qualified
rents'' means any amount which would be treated as rents from
real property if received by the real estate investment trust.
(7) Impermissible tenant service income
For purposes of paragraph (2)(C) -
(A) In general
The term ''impermissible tenant service income'' means, with
respect to any real or personal property, any amount received
or accrued directly or indirectly by the real estate investment
trust for -
(i) services furnished or rendered by the trust to the
tenants of such property, or
(ii) managing or operating such property.
(B) Disqualification of all amounts where more than de minimis
amount
If the amount described in subparagraph (A) with respect to a
property for any taxable year exceeds 1 percent of all amounts
received or accrued during such taxable year directly or
indirectly by the real estate investment trust with respect to
such property, the impermissible tenant service income of the
trust with respect to the property shall include all such
amounts.
(C) Exceptions
For purposes of subparagraph (A) -
(i) services furnished or rendered, or management or
operation provided, through an independent contractor from
whom the trust itself does not derive or receive any income
or through a taxable REIT subsidiary of such trust shall not
be treated as furnished, rendered, or provided by the trust,
and
(ii) there shall not be taken into account any amount which
would be excluded from unrelated business taxable income
under section 512(b)(3) if received by an organization
described in section 511(a)(2).
(D) Amount attributable to impermissible services
For purposes of subparagraph (A), the amount treated as
received for any service (or management or operation) shall not
be less than 150 percent of the direct cost of the trust in
furnishing or rendering the service (or providing the
management or operation).
(E) Coordination with limitations
For purposes of paragraphs (2) and (3) of subsection (c),
amounts described in subparagraph (A) shall be included in the
gross income of the corporation, trust, or association.
(8) Special rule for taxable REIT subsidiaries
For purposes of this subsection, amounts paid to a real estate
investment trust by a taxable REIT subsidiary of such trust shall
not be excluded from rents from real property by reason of
paragraph (2)(B) if the requirements of either of the following
subparagraphs are met:
(A) Limited rental exception.--
(i) In general.--The requirements of this
subparagraph are met with respect to any property
if at least 90 percent of the leased space of the
property is rented to persons other than taxable
REIT subsidiaries of such trust and other than
persons described in paragraph (2)(B).
(ii) Rents must be substantially
comparable.--Clause (i) shall apply only to the
extent that the amounts paid to the trust as rents
from real property (as defined in paragraph (1)
without regard to paragraph (2)(B)) from such
property are substantially comparable to such
rents paid by the other tenants of the trust's
property for comparable space.
(iii) Times for testing rent
comparability.--The substantial comparability
requirement of clause (ii) shall be treated as met
with respect to a lease to a taxable REIT
subsidiary of the trust if such requirement is met
under the terms of the lease--
(I) at the time such lease is
entered into,
(II) at the time of each extension
of the lease, including a failure to
exercise a right to terminate, and
(III) at the time of any
modification of the lease between the
trust and the taxable REIT subsidiary if
the rent under such lease is effectively
increased pursuant to such modification.
With respect to subclause (III), if the taxable
REIT subsidiary of the trust is a controlled
taxable REIT subsidiary of the trust, the term
rents from real property' shall not in any event
include rent under such lease to the extent of the
increase in such rent on account of such
modification.
(iv) Controlled taxable reit subsidiary.--
For purposes of clause (iii), the term `controlled
taxable REIT subsidiary' means, with respect to
any real estate investment trust, any taxable REIT
subsidiary of such trust if such trust owns
directly or indirectly--
(I) stock possessing more than 50
percent of the total voting power of the
outstanding stock of such subsidiary, or
(II) stock having a value of more
than 50 percent of the total value of
the outstanding stock of such
subsidiary.
(v) Continuing qualification based on third
party actions.--If the requirements of clause (i)
are met at a time referred to in clause (iii),
such requirements shall continue to be treated as
met so long as there is no increase in the space
leased to any taxable REIT subsidiary of such
trust or to any person described in paragraph
(2)(B).
(vi) Correction period.--If there is an
increase referred to in clause (v) during any
calendar quarter with respect to any property, the
requirements of clause (iii) shall be treated as
met during the quarter and the succeeding quarter
if such requirements are met at the close of such
succeeding quarter.
(9) Eligible independent contractor
For purposes of paragraph (8)(B) -
(A) In general
The term ''eligible independent contractor'' means, with
respect to any qualified lodging facility, any independent
contractor if, at the time such contractor enters into a
management agreement or other similar service contract with the
taxable REIT subsidiary to operate the facility, such
contractor (or any related person) is actively engaged in the
trade or business of operating qualified lodging facilities for
any person who is not a related person with respect to the real
estate investment trust or the taxable REIT subsidiary.
(B) Special rules
Solely for purposes of this paragraph and paragraph (8)(B), a
person shall not fail to be treated as an independent
contractor with respect to any qualified lodging facility by
reason of any of the following:
(i) The taxable REIT subsidiary bears the expenses for the
operation of the facility pursuant to the management
agreement or other similar service contract.
(ii) The taxable REIT subsidiary receives the revenues from
the operation of such facility, net of expenses for such
operation and fees payable to the operator pursuant to such
agreement or contract.
(iii) The real estate investment trust receives income from
such person with respect to another property that is
attributable to a lease of such other property to such person
that was in effect as of the later of -
(I) January 1, 1999, or
(II) the earliest date that any taxable REIT subsidiary
of such trust entered into a management agreement or other
similar service contract with such person with respect to
such qualified lodging facility.
(C) Renewals, etc., of existing leases
For purposes of subparagraph (B)(iii) -
(i) a lease shall be treated as in effect on January 1,
1999, without regard to its renewal after such date, so long
as such renewal is pursuant to the terms of such lease as in
effect on whichever of the dates under subparagraph (B)(iii)
is the latest, and
(ii) a lease of a property entered into after whichever of
the dates under subparagraph (B)(iii) is the latest shall be
treated as in effect on such date if -
(I) on such date, a lease of such property from the trust
was in effect, and
(II) under the terms of the new lease, such trust
receives a substantially similar or lesser benefit in
comparison to the lease referred to in subclause (I).
(D) Qualified lodging facility
For purposes of this paragraph -
(i) In general
The term ''qualified lodging facility'' means any lodging
facility unless wagering activities are conducted at or in
connection with such facility by any person who is engaged in
the business of accepting wagers and who is legally
authorized to engage in such business at or in connection
with such facility.
(ii) Lodging facility
The term ''lodging facility'' means a hotel, motel, or
other establishment more than one-half of the dwelling units
in which are used on a transient basis.
(iii) Customary amenities and facilities
The term ''lodging facility'' includes customary amenities
and facilities operated as part of, or associated with, the
lodging facility so long as such amenities and facilities are
customary for other properties of a comparable size and class
owned by other owners unrelated to such real estate
investment trust.
(E) Operate includes manage
References in this paragraph to operating a property shall be
treated as including a reference to managing the property.
(F) Related person
Persons shall be treated as related to each other if such
persons are treated as a single employer under subsection (a)
or (b) of section 52.
(e) Special rules for foreclosure property
(1) Foreclosure property defined
For purposes of this part, the term ''foreclosure property''
means any real property (including interests in real property),
and any personal property incident to such real property,
acquired by the real estate investment trust as the result of
such trust having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by
agreement or process of law, after there was default (or default
was imminent) on a lease of such property or on an indebtedness
which such property secured. Such term does not include property
acquired by the real estate investment trust as a result of
indebtedness arising from the sale or other disposition of
property of the trust described in section 1221(a)(1) which was
not originally acquired as foreclosure property.
(2) Grace period
Except as provided in paragraph (3), property shall cease to be
foreclosure property with respect to the real estate investment
trust as of the close of the 3d taxable year following the
taxable year in which the trust acquired such property.
(3) Extensions
If the real estate investment trust establishes to the
satisfaction of the Secretary that an extension of the grace
period is necessary for the orderly liquidation of the trust's
interests in such property, the Secretary may grant one extension
of the grace period for such property. Any such extension shall
not extend the grace period beyond the close of the 3d taxable
year following the last taxable year in the period under
paragraph (2).
(4) Termination of grace period in certain cases
Any foreclosure property shall cease to be such on the first
day (occurring on or after the day on which the real estate
investment trust acquired the property) on which -
(A) a lease is entered into with respect to such property
which, by its terms, will give rise to income which is not
described in subsection (c)(3) (other than subparagraph (F) of
such subsection), or any amount is received or accrued,
directly or indirectly, pursuant to a lease entered into on or
after such day which is not described in such subsection,
(B) any construction takes place on such property (other than
completion of a building, or completion of any other
improvement, where more than 10 percent of the construction of
such building or other improvement was completed before default
became imminent), or
(C) if such day is more than 90 days after the day on which
such property was acquired by the real estate investment trust
and the property is used in a trade or business which is
conducted by the trust (other than through an independent
contractor (within the meaning of section (d)(3)) from whom the
trust itself does not derive or receive any income).
For purposes of subparagraph (C), property shall not be treated
as used in a trade or business by reason of any activities of the
real estate investment trust with respect to such property to the
extent that such activities would not result in amounts received
or accrued, directly or indirectly, with respect to such property
being treated as other than rents from real property.
(5) Taxpayer must make election
Property shall be treated as foreclosure property for purposes
of this part only if the real estate investment trust so elects
(in the manner provided in regulations prescribed by the
Secretary) on or before the due date (including any extensions of
time) for filing its return of tax under this chapter for the
taxable year in which such trust acquires such property. A real
estate investment trust may revoke any such election for a
taxable year by filing the revocation (in the manner provided by
the Secretary) on or before the due date (including any extension
of time) for filing its return of tax under this chapter for the
taxable year. If a trust revokes an election for any property,
no election may be made by the trust under this paragraph with
respect to the property for any subsequent taxable year.
(6) Special rule for qualified health care properties
For purposes of this subsection -
(A) Acquisition at expiration of lease
The term ''foreclosure property'' shall include any qualified
health care property acquired by a real estate investment trust
as the result of the termination of a lease of such property
(other than a termination by reason of a default, or the
imminence of a default, on the lease).
(B) Grace period
In the case of a qualified health care property which is
foreclosure property solely by reason of subparagraph (A), in
lieu of applying paragraphs (2) and (3) -
(i) the qualified health care property shall cease to be
foreclosure property as of the close of the second taxable
year after the taxable year in which such trust acquired such
property, and
(ii) if the real estate investment trust establishes to the
satisfaction of the Secretary that an extension of the grace
period in clause (i) is necessary to the orderly leasing or
liquidation of the trust's interest in such qualified health
care property, the Secretary may grant one or more extensions
of the grace period for such qualified health care property.
Any such extension shall not extend the grace period beyond the
close of the 6th year after the taxable year in which such
trust acquired such qualified health care property.
(C) Income from independent contractors
For purposes of applying paragraph (4)(C) with respect to
qualified health care property which is foreclosure property by
reason of subparagraph (A) or paragraph (1), income derived or
received by the trust from an independent contractor shall be
disregarded to the extent such income is attributable to -
(i) any lease of property in effect on the date the real
estate investment trust acquired the qualified health care
property (without regard to its renewal after such date so
long as such renewal is pursuant to the terms of such lease
as in effect on such date), or
(ii) any lease of property entered into after such date if
-
(I) on such date, a lease of such property from the trust
was in effect, and
(II) under the terms of the new lease, such trust
receives a substantially similar or lesser benefit in
comparison to the lease referred to in subclause (I).
(D) Qualified health care property
(i) In general
The term ''qualified health care property'' means any real
property (including interests therein), and any personal
property incident to such real property, which -
(I) is a health care facility, or
(II) is necessary or incidental to the use of a health
care facility.
(ii) Health care facility
For purposes of clause (i), the term ''health care
facility'' means a hospital, nursing facility, assisted
living facility, congregate care facility, qualified
continuing care facility (as defined in section 7872(g)(4)),
or other licensed facility which extends medical or nursing
or ancillary services to patients and which, immediately
before the termination, expiration, default, or breach of the
lease of or mortgage secured by such facility, was operated
by a provider of such services which was eligible for
participation in the medicare program under title XVIII of
the Social Security Act with respect to such facility.
(f) Interest
(1) In general
For purposes of paragraphs (2)(B) and (3)(B) of subsection (c),
the term ''interest'' does not include any amount received or
accrued, directly or indirectly, if the determination of such
amount depends in whole or in part on the income or profits of
any person except that -
(A) any amount so received or accrued shall not be excluded
from the term ''interest'' solely by reason of being based on a
fixed percentage or percentages of receipts or sales, and
(B) where a real estate investment trust receives any amount
which would be excluded from the term ''interest'' solely
because the debtor of the real estate investment trust receives
or accrues any amount the determination of which depends in
whole or in part on the income or profits of any person, only a
proportionate part (determined pursuant to regulations
prescribed by the Secretary) of the amount received or accrued
by the real estate investment trust from the debtor will be
excluded from the term ''interest''.
(2) Special rule
If -
(A) a real estate investment trust receives or accrues with
respect to an obligation secured by a mortgage on real property
or an interest in real property amounts from a debtor which
derives substantially all of its gross income with respect to
such property (not taking into account any gain on any
disposition) from the leasing of substantially all of its
interests in such property to tenants, and
(B) a portion of the amount which such debtor receives or
accrues, directly or indirectly, from tenants consists of
qualified rents (as defined in subsection (d)(6)(B)),
then the amounts which the trust receives or accrues from such
debtor shall not be excluded from the term ''interest'' by reason
of being based on the income or profits of such debtor to the
extent the amounts so received are attributable to qualified
rents received or accrued by such debtor.
(g) Termination of election
(1) Failure to qualify
An election under subsection (c)(1) made by a corporation,
trust, or association shall terminate if the corporation, trust,
or association is not a real estate investment trust to which the
provisions of this part apply for the taxable year with respect
to which the election is made, or for any succeeding taxable
year unless paragraph (5) applies. Such termination shall be
effective for the taxable year for which the corporation,
trust, or association is not a real estate investment trust
to which the provisions of this part apply, and for all
succeeding taxable years.
(2) Revocation
An election under subsection (c)(1) made by a corporation,
trust, or association may be revoked by it for any taxable year
after the first taxable year for which the election is
effective. A revocation under this paragraph shall be effective
for the taxable year in which made and for all succeeding taxable
years. Such revocation must be made on or before the 90th day
after the first day of the first taxable year for which the
revocation is to be effective. Such revocation shall be made in
such manner as the Secretary shall prescribe by regulations.
(3) Election after termination or revocation
Except as provided in paragraph (4), if a corporation, trust,
or association has made an election under subsection (c)(1) and
such election has been terminated or revoked under paragraph (1)
or paragraph (2), such corporation, trust, or association (and
any successor corporation, trust, or association) shall not be
eligible to make an election under subsection (c)(1) for any
taxable year prior to the fifth taxable year which begins after
the first taxable year for which such termination or revocation
is effective.
(4) Exception
If the election of a corporation, trust, or association has
been terminated under paragraph (1), paragraph (3) shall not
apply if -
(A) the corporation, trust, or association does not willfully
fail to file within the time prescribed by law an income tax
return for the taxable year with respect to which the
termination of the election under subsection (c)(1) occurs;
(B) the inclusion of any incorrect information in the return
referred to in subparagraph (A) is not due to fraud with intent
to evade tax; and
(C) the corporation, trust, or association establishes to the
satisfaction of the Secretary that its failure to qualify as a
real estate investment trust to which the provisions of this
part apply is due to reasonable cause and not due to willful
neglect.
(5) Entities to which paragraph applies.--This paragraph
applies to a corporation, trust, or association--
(A) which is not a real estate investment trust to
which the provisions of this part apply for the taxable
year due to one or more failures to comply with one or
more of the provisions of this part (other than
paragraph (2), (3), or (4) of subsection (c),
(B) such failures are due to reasonable cause and
not due to willful neglect, and
(C) if such corporation, trust, or association
pays (as prescribed by the Secretary in regulations and
in the same manner as tax) a penalty of $50,000 for each
failure to satisfy a provision of this part due to
reasonable cause and not willful neglect.
(h) Closely held determinations
(1) Section 542(a)(2) applied
(A) In general
For purposes of subsection (a)(6), a corporation, trust, or
association is closely held if the stock ownership requirement
of section 542(a)(2) is met.
(B) Waiver of partnership attribution, etc.
For purposes of subparagraph (A) -
(i) paragraph (2) of section 544(a) shall be applied as if
such paragraph did not contain the phrase ''or by or for his
partner'', and
(ii) sections 544(a)(4)(A) and 544(b)(1) shall be applied
by substituting ''the entity meet the stock ownership
requirement of section 542(a)(2)'' for ''the corporation a
personal holding company''.
(2) Subsections (a)(5) and (6) not to apply to 1st year
Paragraphs (5) and (6) of subsection (a) shall not apply to the
1st taxable year for which an election is made under subsection
(c)(1) by any corporation, trust, or association.
(3) Treatment of trusts described in section 401(a)
(A) Look-thru treatment
(i) In general
Except as provided in clause (ii), in determining whether
the stock ownership requirement of section 542(a)(2) is met
for purposes of paragraph (1)(A), any stock held by a
qualified trust shall be treated as held directly by its
beneficiaries in proportion to their actuarial interests in
such trust and shall not be treated as held by such trust.
(ii) Certain related trusts not eligible
Clause (i) shall not apply to any qualified trust if one or
more disqualified persons (as defined in section 4975(e)(2),
without regard to subparagraphs (B) and (I) thereof) with
respect to such qualified trust hold in the aggregate 5
percent or more in value of the interests in the real estate
investment trust and such real estate investment trust has
accumulated earnings and profits attributable to any period
for which it did not qualify as a real estate investment
trust.
(B) Coordination with personal holding company rules
If any entity qualifies as a real estate investment trust for
any taxable year by reason of subparagraph (A), such entity
shall not be treated as a personal holding company for such
taxable year for purposes of part II of subchapter G of this
chapter.
(C) Treatment for purposes of unrelated business tax
If any qualified trust holds more than 10 percent (by value)
of the interests in any pension-held REIT at any time during a
taxable year, the trust shall be treated as having for such
taxable year gross income from an unrelated trade or business
in an amount which bears the same ratio to the aggregate
dividends paid (or treated as paid) by the REIT to the trust
for the taxable year of the REIT with or within which the
taxable year of the trust ends (the ''REIT year'') as -
(i) the gross income (less direct expenses related thereto)
of the REIT for the REIT year from unrelated trades or
businesses (determined as if the REIT were a qualified
trust), bears to
(ii) the gross income (less direct expenses related
thereto) of the REIT for the REIT year.
This subparagraph shall apply only if the ratio determined
under the preceding sentence is at least 5 percent.
(D) Pension-held REIT
The purposes of subparagraph (C) -
(i) In general
A real estate investment trust is a pension-held REIT if
such trust would not have qualified as a real estate
investment trust but for the provisions of this paragraph and
if such trust is predominantly held by qualified trusts.
(ii) Predominantly held
For purposes of clause (i), a real estate investment trust
is predominantly held by qualified trusts if -
(I) at least 1 qualified trust holds more than 25 percent
(by value) of the interests in such real estate investment
trust, or
(II) 1 or more qualified trusts (each of whom own more
than 10 percent by value of the interests in such real
estate investment trust) hold in the aggregate more than 50
percent (by value) of the interests in such real estate
investment trust.
(E) Qualified trust
For purposes of this paragraph, the term ''qualified trust''
means any trust described in section 401(a) and exempt from tax
under section 501(a).
(i) Treatment of certain wholly owned subsidiaries
(1) In general
For purposes of this title -
(A) a corporation which is a qualified REIT subsidiary shall
not be treated as a separate corporation, and
(B) all assets, liabilities, and items of income, deduction,
and credit of a qualified REIT subsidiary shall be treated as
assets, liabilities, and such items (as the case may be) of the
real estate investment trust.
(2) Qualified REIT subsidiary
For purposes of this subsection, the term ''qualified REIT
subsidiary'' means any corporation if 100 percent of the stock of
such corporation is held by the real estate investment trust.
Such term shall not include a taxable REIT subsidiary.
(3) Treatment of termination of qualified subsidiary status
For purposes of this subtitle, if any corporation which was a
qualified REIT subsidiary ceases to meet the requirements of
paragraph (2), such corporation shall be treated as a new
corporation acquiring all of its assets (and assuming all of its
liabilities) immediately before such cessation from the real
estate investment trust in exchange for its stock.
(j) Treatment of shared appreciation mortgages
(1) In general
Solely for purposes of subsection (c) of this section and
section 857(b)(6), any income derived from a shared appreciation
provision shall be treated as gain recognized on the sale of the
secured property.
(2) Treatment of income
For purposes of applying subsection (c) of this section and
section 857(b)(6) to any income described in paragraph (1) -
(A) the real estate investment trust shall be treated as
holding the secured property for the period during which it
held the shared appreciation provision (or, if shorter, for the
period during which the secured property was held by the person
holding such property), and
(B) the secured property shall be treated as property
described in section 1221(a)(1) if it is so described in the
hands of the person holding the secured property (or it would
be so described if held by the real estate investment trust).
(3) Coordination with prohibited transactions safe harbor
For purposes of section 857(b)(6)(C) -
(A) the real estate investment trust shall be treated as
having sold the secured property when it recognizes any income
described in paragraph (1), and
(B) any expenditures made by any holder of the secured
property shall be treated as made by the real estate investment
trust.
(4) Coordination with 4-year holding period
(A) In general
For purposes of section 857(b)(6)(C), if a real estate
investment trust is treated as having sold secured property
under paragraph (3)(A), the trust shall be treated as having
held such property for at least 4 years if -
(i) the secured property is sold or otherwise disposed of
pursuant to a case under title 11 of the United States Code,
(ii) the seller is under the jurisdiction of the court in
such case, and
(iii) the disposition is required by the court or is
pursuant to a plan approved by the court.
(B) Exception
Subparagraph (A) shall not apply if -
(i) the secured property was acquired by the seller with
the intent to evict or foreclose, or
(ii) the trust knew or had reason to know that default on
the obligation described in paragraph (5)(A) would occur.
(5) Definitions
For purposes of this subsection -
(A) Shared appreciation provision
The term ''shared appreciation provision'' means any
provision -
(i) which is in connection with an obligation which is held
by the real estate investment trust and is secured by an
interest in real property, and
(ii) which entitles the real estate investment trust to
receive a specified portion of any gain realized on the sale
or exchange of such real property (or of any gain which would
be realized if the property were sold on a specified date) or
appreciation in value as of any specified date.
(B) Secured property
The term ''secured property'' means the real property
referred to in subparagraph (A).
(k) Requirement that entity not be closely held treated as met in
certain cases
A corporation, trust, or association -
(1) which for a taxable year meets the requirements of section
857(f)(1), and
(2) which does not know, or exercising reasonable diligence
would not have known, whether the entity failed to meet the
requirement of subsection (a)(6),
shall be treated as having met the requirement of subsection (a)(6)
for the taxable year.
(l) Taxable REIT subsidiary
For purposes of this part -
(1) In general
The term ''taxable REIT subsidiary'' means, with respect to a
real estate investment trust, a corporation (other than a real
estate investment trust) if -
(A) such trust directly or indirectly owns stock in such
corporation, and
(B) such trust and such corporation jointly elect that such
corporation shall be treated as a taxable REIT subsidiary of
such trust for purposes of this part.
Such an election, once made, shall be irrevocable unless both
such trust and corporation consent to its revocation. Such
election, and any revocation thereof, may be made without the
consent of the Secretary.
(2) Thirty-five percent ownership in another taxable REIT
subsidiary
The term ''taxable REIT subsidiary'' includes, with respect to
any real estate investment trust, any corporation (other than a
real estate investment trust) with respect to which a taxable
REIT subsidiary of such trust owns directly or indirectly -
(A) securities possessing more than 35 percent of the total
voting power of the outstanding securities of such corporation,
or
(B) securities having a value of more than 35 percent of the
total value of the outstanding securities of such corporation.
The preceding sentence shall not apply to a qualified REIT
subsidiary (as defined in subsection (i)(2)). The rule of section
856(c)(7) shall apply for purposes of subparagraph (B).
(3) Exceptions
The term ''taxable REIT subsidiary'' shall not include -
(A) any corporation which directly or indirectly operates or
manages a lodging facility or a health care facility, and
(B) any corporation which directly or indirectly provides to
any other person (under a franchise, license, or otherwise)
rights to any brand name under which any lodging facility or
health care facility is operated.
Subparagraph (B) shall not apply to rights provided to an
eligible independent contractor to operate or manage a lodging
facility if such rights are held by such corporation as a
franchisee, licensee, or in a similar capacity and such lodging
facility is either owned by such corporation or is leased to such
corporation from the real estate investment trust.
(4) Definitions
For purposes of paragraph (3) -
(A) Lodging facility
The term ''lodging facility'' has the meaning given to such
term by subsection (d)(9)(D)(ii).
(B) Health care facility
The term ''health care facility'' has the meaning given to
such term by subsection (e)(6)(D)(ii).
(m) Safe Harbor in Applying Subsection (c)(4).--
(1) In general.--In applying subclause (III) of subsection
(c)(4)(B)(iii), except as otherwise determined by the Secretary
in regulations, the following shall not be considered securities
held by the trust:
(A) Straight debt securities of an issuer which
meet the requirements of paragraph (2).
(B) Any loan to an individual or an estate.
(C) Any section 467 rental agreement (as defined
in section 467(d)), other than with a person described
in subsection (d)(2)(B).
(D) Any obligation to pay rents from real property
(as defined in subsection (d)(1)).
(E) Any security issued by a State or any
political subdivision thereof, the District of Columbia,
a foreign government or any political subdivision
thereof, or the Commonwealth of Puerto Rico, but only if
the determination of any payment received or accrued
under such security does not depend in whole or in part
on the profits of
any entity not described in this subparagraph or
payments on any obligation issued by such an entity,
(F) Any security issued by a real estate
investment trust.
(G) Any other arrangement as determined by the
Secretary.
(2) Special rules relating to straight debt securities.--
(A) In general.--For purposes of paragraph (1)(A),
securities meet the requirements of this paragraph if
such securities are straight debt, as defined in section
1361(c)(5) (without regard to subparagraph (B)(iii)
thereof).
(B) Special rules relating to certain
contingencies.--For purposes of subparagraph (A), any
interest or principal shall not be treated as failing to
satisfy section 1361(c)(5)(B)(i) solely by reason of the
fact that--
(i) the time of payment of such interest or
principal is subject to a contingency, but only
if--
(I) any such contingency does not
have the effect of changing the
effective yield to maturity, as
determined under section 1272, other
than a change in the annual yield to
maturity which does not exceed the
greater of \1/4\ of 1 percent or 5
percent of the annual yield to maturity,
or
(II) neither the aggregate issue
price nor the aggregate face amount of
the issuer's debt instruments held by
the trust exceeds $1,000,000 and not
more than 12 months of unaccrued
interest can be required to be prepaid
thereunder, or
(ii) the time or amount of payment is
subject to a contingency upon a default or the
exercise of a prepayment right by the issuer of
the debt, but only if such contingency is
consistent with customary commercial practice.
(C) Special rules relating to corporate or
partnership issuers.--In the case of an issuer which is
a corporation or a partnership, securities that
otherwise would be described in paragraph (1)(A) shall
be considered not to be so described if the trust
holding such securities and any of its controlled
taxable REIT subsidiaries (as defined in subsection
(d)(8)(A)(iv)) hold any securities of the issuer which--
(i) are not described in paragraph (1)
(prior to the application of this subparagraph),
and
(ii) have an aggregate value greater than 1
percent of the issuer's outstanding securities
determined without regard to paragraph (3)(A)(i).
(3) Look-through rule for partnership securities.--
(A) In general.--For purposes of applying
subclause (III) of subsection (c)(4)(B)(iii)--
(i) a trust's interest as a partner in a
partnership (as defined in section 7701(a)(2))
shall not be considered a security, and
(ii) the trust shall be deemed to own its
proportionate share of each of the assets of the
partnership.
(B) Determination of trust's interest in
partnership assets.--For purposes of subparagraph (A),
with
respect to any taxable year beginning after the date of
the enactment of this subparagraph--
(i) the trust's interest in the partnership
assets shall be the trust's proportionate interest
in any securities issued by the partnership
(determined without regard to subparagraph (A)(i)
and paragraph (4), but not including securities
described in paragraph (1)), and
(ii) the value of any debt instrument shall
be the adjusted issue price thereof, as defined in
section 1272(a)(4).
(4) Certain partnership debt instruments not treated as a
security.--For purposes of applying subclause (III) of
subsection (c)(4)(B)(iii)--
(A) any debt instrument issued by a partnership
and not described in paragraph (1) shall not be
considered a security to the extent of the trust's
interest as a partner in the partnership, and
(B) any debt instrument issued by a partnership
and not described in paragraph (1) shall not be
considered a security if at least 75 percent of the
partnership's gross income (excluding gross income from
prohibited transactions) is derived from sources
referred to in subsection (c)(3).
(5) Secretarial guidance.--The Secretary is authorized to
provide guidance (including through the issuance of a written
determination, as defined in section 6110(b)) that an
arrangement shall not be considered a security held by the trust
for purposes of applying subclause (III) of subsection
(c)(4)(B)(iii) notwithstanding that such arrangement otherwise
could be considered a security under subparagraph (F) of
subsection (c)(5).
(6) Transition rule.--
(A) In general.--Notwithstanding paragraph (2)(C),
securities held by a trust shall not be considered
securities held by the trust for purposes of subsection
(c)(4)(B)(iii)(III) during any period beginning on or
before October 22, 2004, if such securities--
(i) are held by such trust continuously
during such period, and
(ii) would not be taken into account for
purposes of such subsection by reason of paragraph
(7)(C) of subsection (c) (as in effect on October
22, 2004) if the amendments made by section 243 of
the American Jobs Creation Act of 2004 had never
been enacted.
(B) Rule not to apply to securities held after
maturity date.--Subparagraph (A) shall not apply with
respect to any security after the later of October 22,
2004, or the latest maturity date under the contract (as
in effect on October 22, 2004) taking into account any
renewal or extension permitted under the contract if
such renewal or extension does not significantly modify
any other terms of the contract.
(C) Successors.--If the successor of a trust to
which this paragraph applies acquires securities in a
transaction to which section 381 applies, such trusts
shall be treated as a single entity for purposes of
determining the holding period of such securities under
subparagraph (A).
Sources
(Added Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1004;
amended Pub. L. 88-272, title II, Sec. 225(k)(4), Feb. 26, 1964, 78
Stat. 94; Pub. L. 88-554, Sec. 4(b)(4), Aug. 31, 1964, 78 Stat.
763; Pub. L. 93-625, Sec. 6(a), (b), (d)(1), Jan. 3, 1975, 88 Stat.
2112-2114; Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(O), (2),
title XVI, Sec. 1602(a), 1603(a), (c)(1)-(4), 1604(a)-(c)(1),
(d)-(f)(3)(A), (g), (k)(1), (2)(A), title XIX, Sec. 1901(a)(111),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 1746, 1748-1753, 1783,
1834; Pub. L. 95-600, title III, Sec. 363(a), (c), title VII, Sec.
701(t)(2), Nov. 6, 1978, 92 Stat. 2852, 2853, 2912; Pub. L. 98-369,
div. A, title X, Sec. 1001(b)(12), (e), July 18, 1984, 98 Stat.
1011, 1012; Pub. L. 99-514, title VI, Sec. 661(a), 662, 663,
671(b)(1), title IX, Sec. 901(d)(4)(E), Oct. 22, 1986, 100 Stat.
2299, 2300, 2302, 2317, 2380; Pub. L. 100-647, title I, Sec.
1006(p)(1), (3), (4)(A), (5), (q), (t)(11), Nov. 10, 1988, 102
Stat. 3416, 3417, 3422; Pub. L. 103-66, title XIII, Sec. 13149(a),
Aug. 10, 1993, 107 Stat. 445; Pub. L. 104-188, title I, Sec.
1621(b)(5), 1704(t)(35), Aug. 20, 1996, 110 Stat. 1867, 1889; Pub.
L. 105-34, title XII, Sec. 1251(b)-1253, 1255(a), (b)(1), 1257,
1258, 1261, 1262, Aug. 5, 1997, 111 Stat. 1031-1036; Pub. L.
106-170, title V, Sec. 532(c)(2)(H)-(K), 541-542(b)(3)(A)(i),
(B)(i), 543, 551(a), 561(a), Dec. 17, 1999, 113 Stat. 1930,
1940-1943, 1948, 1949; Pub. L. 106-554, Sec. 1(a)(7) (title III,
Sec. 319(9), (10)), Dec. 21, 2000, 114 Stat. 2763, 2763A-646.)
References in Text
REFERENCES IN TEXT
The Investment Company Act of 1940, referred to in subsec.
(c)(5)(F), is title I of act Aug. 22, 1940, ch. 686, 54 Stat. 789,
as amended, which is classified generally to subchapter I (Sec.
80a-1 et seq.) of chapter 2D of Title 15, Commerce and Trade. For
complete classification of this Act to the Code, see section 80a-51
of Title 15 and Tables.
The Social Security Act, referred to in subsec. (e)(6)(D)(ii), is
act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title XVIII
of the Act is classified generally to subchapter XVIII (Sec. 1395
et seq.) of chapter 7 of Title 42, The Public Health and Welfare.
For complete classification of this Act to the Code, see section
1305 of Title 42 and Tables.
Miscellaneous
AMENDMENTS
2005 - P.L. 109-135, Section 403(d)
(2) Subsection (m) of <<NOTE: 26 USC 856.>> section 856 is
amended by adding at the end the following new paragraph:
``(6) Transition rule.--
``(A) In general.--Notwithstanding paragraph (2)(C),
securities held by a trust shall not be considered
securities held by the trust for purposes of subsection
(c)(4)(B)(iii)(III) during any period beginning on or
before October 22, 2004, if such securities--
``(i) are held by such trust continuously
during such period, and
``(ii) would not be taken into account for
purposes of such subsection by reason of paragraph
(7)(C) of subsection (c) (as in effect on October
22, 2004) if the amendments made by section 243 of
the American Jobs Creation Act of 2004 had never
been enacted.
``(B) Rule not to apply to securities held after
maturity date.--Subparagraph (A) shall not apply with
respect to any security after the later of October 22,
2004, or the latest maturity date under the contract (as
in effect on October 22, 2004) taking into account any
renewal or extension permitted under the contract if
such renewal or extension does not significantly modify
any other terms of the contract.
``(C) Successors.--If the successor of a trust to
which this paragraph applies acquires securities in a
transaction to which section 381 applies, such trusts
shall be treated as a single entity for purposes of
determining the holding period of such securities under
subparagraph (A).''.
2005 - P.L. 109-135, Section 403
(d) Amendments Related to Section 243 of the Act.--
(1) Paragraph (7) of section 856(c) is amended to read as
follows:
``(7) Rules of application for failure to satisfy paragraph
(4).--
``(A) In general.--A corporation, trust, or
association that fails to meet the requirements of
paragraph (4) (other than a failure to meet the
requirements of paragraph (4)(B)(iii) which is described
in subparagraph (B)(i) of this paragraph) for a
particular quarter shall nevertheless be considered to
have satisfied the requirements of such paragraph for
such quarter if--
``(i) following the corporation, trust, or
association's identification of the failure to
satisfy the requirements of such paragraph for a
particular quarter, a description of each asset
that causes the corporation, trust, or association
to fail to satisfy the requirements of such
paragraph at the close of such quarter of any
taxable year is set forth in a schedule for such
quarter filed in accordance with regulations
prescribed by the Secretary,
``(ii) the failure to meet the requirements of
such paragraph for a particular quarter is due to
reasonable cause and not due to willful neglect,
and
``(iii)(I) the corporation, trust, or
association disposes of the assets set forth on
the schedule specified in clause (i) within 6
months after the last day of the quarter in which
the corporation, trust or association's
identification of the failure to satisfy the
requirements of such paragraph occurred or such
other time period prescribed by the Secretary and
in the manner prescribed by the Secretary, or
``(II) the requirements of such paragraph are
otherwise met within the time period specified in
subclause (I).
``(B) Rule for certain de minimis failures.--A
corporation, trust, or association that fails to meet
the requirements of paragraph (4)(B)(iii) for a
particular quarter shall nevertheless be considered to
have satisfied the requirements of such paragraph for
such quarter if--
``(i) such failure is due to the ownership of
assets the total value of which does not exceed
the lesser of--
``(I) 1 percent of the total value
of the trust's assets at the end of the
quarter for which such measurement is
done, and
``(II) $10,000,000, and
``(ii)(I) the corporation, trust, or
association, following the identification of such
failure, disposes of assets in order to meet the
requirements of such paragraph within 6 months
after the last day of the quarter in which the
corporation, trust or association's identification
of the failure to satisfy the requirements of such
paragraph occurred or such other time period
prescribed by the Secretary and in the manner
prescribed by the Secretary, or
``(II) the requirements of such paragraph are
otherwise met within the time period specified in
subclause (I).
``(C) Tax.--
``(i) Tax imposed.--If subparagraph (A)
applies to a corporation, trust, or association
for any taxable year, there is hereby imposed on
such corporation, trust, or association a tax in
an amount equal to the greater of--
``(I) $50,000, or
``(II)
the <<NOTE: Regulations.>> amount
determined (pursuant to regulations
promulgated by the Secretary) by
multiplying the net income generated by
the assets
described in the schedule specified in
subparagraph (A)(i) for the period
specified in clause (ii) by the highest
rate of tax specified in section 11.
``(ii) Period.--For purposes of clause
(i)(II), the period described in this clause is
the period beginning on the first date that the
failure to satisfy the requirements of such
paragraph (4) occurs as a result of the ownership
of such assets and ending on the earlier of the
date on which the trust disposes of such assets or
the end of the first quarter when there is no
longer a failure to satisfy such paragraph (4).
``(iii) Administrative provisions.--For
purposes of subtitle F, the taxes imposed by this
subparagraph shall be treated as excise taxes with
respect to which the deficiency procedures of such
subtitle apply.''.
2004 - Subsec.835(b)(4),Pub.L.108-357, amended Sec.856(c)(5)
(E) by striking the last sentence referring to FASITS.
2004 - Subsec.243(f)(3),Pub.L.108-357, amended Sec.856
(g) by amending the first sentence in (1) and adding a
new paragraph (5).
2004 - Subsec.243(f)(2),Pub.L.108-357, amended Sec.856
(c)(6)by adding a new subparagraph (A), striking the old
subparagraph (A) and (B), and redesignating subparagraph
(C) as new subparagraph (B).
2004 - Subsec.243(f),Pub.L.108-357, amended Sec.856(c)
by adding a new paragraph (7) "Rules of application for
failure to satisfy paragraph (4)".
2004 - Subsec.243(d),Pub.L.108-357, amended Sec.856(c)(5)
(G) by amending and restating (G).
2004 - Subsec.243(b),Pub.L.108-357, amended Sec.856(d)
(8)(A)by inserting a new subparagraph (A).
2004 - Subsec.243(a)(2),Pub.L.108-357, amended Sec.856
by adding a new subsection (m).
2004 - Subsec.243(a)(1),Pub.L.108-357, amended Sec.856(c) by
deleting paragraph (7).
2000 - Subsec. (c)(7). Pub. L. 106-554, Sec. 1(a)(7) (title III,
Sec. 319(9)), substituted ''paragraph (4)(B)(iii)(III)'' for
''paragraph (4)(B)(ii)(III)'' in introductory provisions.
Subsec. (l)(4)(A). Pub. L. 106-554, Sec. 1(a)(7) (title III, Sec.
319(10)), substituted ''subsection (d)(9)(D)(ii)'' for ''paragraph
(9)(D)(ii)''.
1999 - Subsec. (c)(2)(D), (3)(C). Pub. L. 106-170, Sec.
532(c)(2)(H), (I), substituted ''section 1221(a)(1)'' for ''section
1221(1)''.
Subsec. (c)(4)(B). Pub. L. 106-170, Sec. 541(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
''not more than 25 percent of the value of its total assets is
represented by securities (other than those includible under
subparagraph (A)) for purposes of this calculation limited in
respect of any one issuer to an amount not greater in value than 5
percent of the value of the total assets of the trust and to not
more than 10 percent of the outstanding voting securities of such
issuer.''
Subsec. (c)(7). Pub. L. 106-170, Sec. 541(b), added par. (7).
Subsec. (d)(1). Pub. L. 106-170, Sec. 542(b)(3)(A)(i),
substituted ''fair market values'' for ''adjusted bases'' in two
places in concluding provisions.
Subsec. (d)(2)(B). Pub. L. 106-170, Sec. 542(b)(2), inserted
''except as provided in paragraph (8),'' after ''(B)'' in
introductory provisions.
Subsec. (d)(2)(B)(i). Pub. L. 106-170, Sec. 542(b)(3)(B)(i),
substituted ''value'' for ''number''.
Subsec. (d)(3). Pub. L. 106-170, Sec. 561(a), inserted concluding
provisions.
Subsec. (d)(7)(C)(i). Pub. L. 106-170, Sec. 542(a), inserted ''or
through a taxable REIT subsidiary of such trust'' after ''income''.
Subsec. (d)(8), (9). Pub. L. 106-170, Sec. 542(b)(1), added pars.
(8) and (9).
Subsec. (e)(1). Pub. L. 106-170, Sec. 532(c)(2)(J), substituted
''section 1221(a)(1)'' for ''section 1221(1)''.
Subsec. (e)(6). Pub. L. 106-170, Sec. 551(a), added par. (6).
Subsec. (i)(2). Pub. L. 106-170, Sec. 543(b), inserted at end
''Such term shall not include a taxable REIT subsidiary.''
Subsec. (j)(2)(B). Pub. L. 106-170, Sec. 532(c)(2)(K),
substituted ''section 1221(a)(1)'' for ''section 1221(1)''.
Subsec. (l). Pub. L. 106-170, Sec. 543(a), added subsec. (l).
1997 - Subsec. (a)(6). Pub. L. 105-34, Sec. 1251(b)(2), inserted
''subject to the provisions of subsection (k),'' before ''which is
not''.
Subsec. (c)(3)(I). Pub. L. 105-34, Sec. 1255(a)(1), inserted
''and'' at end.
Subsec. (c)(4). Pub. L. 105-34, Sec. 1255(a)(2), (3),
redesignated par. (5) as (4) and struck out former par. (4) which
read as follows: ''less than 30 percent of its gross income is
derived from the sale or other disposition of -
''(A) stock or securities held for less than 1 year;
''(B) property in a transaction which is a prohibited
transaction; and
''(C) real property (including interests in real property and
interests in mortgages on real property) held for less than 4
years other than -
''(i) property compulsorily or involuntarily converted within
the meaning of section 1033, and
''(ii) property which is foreclosure property within the
definition of section 856(e); and''.
Subsec. (c)(5). Pub. L. 105-34, Sec. 1255(a)(3), redesignated
par. (6) as (5). Former par. (5) redesignated (4).
Subsec. (c)(5)(G). Pub. L. 105-34, Sec. 1258, amended heading and
text of subpar. (G) generally. Prior to amendment, text read as
follows: ''Except to the extent provided by regulations, any -
''(i) payment to a real estate investment trust under a bona
fide interest rate swap or cap agreement entered into by the real
estate investment trust to hedge any variable rate indebtedness
of such trust incurred or to be incurred to acquire or carry real
estate assets, and
''(ii) any gain from the sale or other disposition of such
agreement,
shall be treated as income qualifying under paragraph (2).''
Pub. L. 105-34, Sec. 1255(b)(1), struck out ''and such agreement
shall be treated as a security for purposes of paragraph (4)(A)''
after ''under paragraph (2)'' in concluding provisions.
Subsec. (c)(6), (7). Pub. L. 105-34, Sec. 1255(a)(3),
redesignated par. (7) as (6). Former par. (6) redesignated (5).
Subsec. (c)(8). Pub. L. 105-34, Sec. 1255(a)(2), struck out
heading and text of par. (8). Text read as follows: ''In the case
of the taxable year in which a real estate investment trust is
completely liquidated, there shall not be taken into account under
paragraph (4) any gain from the sale, exchange, or distribution of
any property after the adoption of the plan of complete
liquidation.''
Subsec. (d)(2). Pub. L. 105-34, Sec. 1252(a), added subpar. (C)
and struck out former subpar. (C) and concluding provisions which
read as follows:
''(C) any amount received or accrued, directly or indirectly,
with respect to any real or personal property if the real estate
investment trust furnishes or renders services to the tenants of
such property, or manages or operates such property, other than
through an independent contractor from whom the trust itself does
not derive or receive any income.
Subparagraph (C) shall not apply with respect to any amount if such
amount would be excluded from unrelated business taxable income
under section 512(b)(3) if received by an organization described in
section 511(a)(2).''
Subsec. (d)(5). Pub. L. 105-34, Sec. 1253, substituted ''except
that - '' and subpars. (A) and (B) for ''except that '10 percent'
shall be substituted for '50 percent' in subparagraph (C) of
section 318(a)(2) and 318(a)(3).''
Subsec. (d)(7). Pub. L. 105-34, Sec. 1252(b), added par. (7).
Subsec. (e)(2). Pub. L. 105-34, Sec. 1257(a)(1), which directed
amendment of par. (2) by substituting ''as of the close of the 3d
taxable year following the taxable year in which the trust acquired
such property'' for ''on the date which is 2 years after the date
the trust acquired such property'', was executed by making the
substitution for ''on the date which is 2 years after the date such
trust acquired such property'' to reflect the probable intent of
Congress.
Subsec. (e)(3). Pub. L. 105-34, Sec. 1257(a)(2), substituted
''grant one extension'' for ''grant one or more extensions'' and
''Any such extension shall not extend the grace period beyond the
close of the 3d taxable year following the last taxable year in the
period under paragraph (2).'' for ''Any such extension shall not
extend the grace period beyond the date which is 6 years after the
date such trust acquired such property.''
Subsec. (e)(4). Pub. L. 105-34, Sec. 1257(c), inserted concluding
provisions ''For purposes of subparagraph (C), property shall not
be treated as used in a trade or business by reason of any
activities of the real estate investment trust with respect to such
property to the extent that such activities would not result in
amounts received or accrued, directly or indirectly, with respect
to such property being treated as other than rents from real
property.''
Subsec. (e)(5). Pub. L. 105-34, Sec. 1257(b), substituted ''A
real estate investment trust may revoke any such election for a
taxable year by filing the revocation (in the manner provided by
the Secretary) on or before the due date (including any extension
of time) for filing its return of tax under this chapter for the
taxable year. If a trust revokes an election for any property, no
election may be made by the trust under this paragraph with respect
to the property for any subsequent taxable year.'' for ''Any such
election shall be irrevocable.''
Subsec. (i)(2). Pub. L. 105-34, Sec. 1262, struck out ''at all
times during the period such corporation was in existence'' after
''real estate investment trust''.
Subsec. (j)(4). Pub. L. 105-34, Sec. 1261(a), added par. (4).
Former par. (4) redesignated (5).
Subsec. (j)(5). Pub. L. 105-34, Sec. 1261(a), redesignated par.
(4) as (5).
Subsec. (j)(5)(A)(ii). Pub. L. 105-34, Sec. 1261(b), inserted
before period at end ''or appreciation in value as of any specified
date''.
Subsec. (k). Pub. L. 105-34, Sec. 1251(b)(1), added subsec. (k).
1996 - Subsec. (a)(4). Pub. L. 104-188, Sec. 1704(t)(35),
substituted ''section 582(c)(2)'' for ''section 582(c)(5)''.
Subsec. (c)(6)(E). Pub. L. 104-188, Sec. 1621(b)(5), inserted at
end ''The principles of the preceding provisions of this
subparagraph shall apply to regular interests in a FASIT.''
1993 - Subsec. (h)(3). Pub. L. 103-66 added par. (3).
1988 - Subsec. (c)(6)(D). Pub. L. 100-647, Sec. 1006(t)(11),
struck out subpar. (D), as added by Pub. L. 99-514, Sec. 671(b)(1),
which read as follows: ''A regular or residual interest in a REMIC
shall be treated as an interest in real property, and any amount
includible in gross income with respect to such an interest shall
be treated as interest; except that, if less than 95 percent of the
assets of such REMIC are interests in real property (determined as
if the taxpayer held such assets), such interest shall be so
treated only in the proportion which the assets of the REMIC
consist of such interests.''
Subsec. (c)(6)(D)(i)(I). Pub. L. 100-647, Sec. 1006(p)(1),
substituted ''debt instrument (within the meaning of section
1275(a)(1))'' for ''debt instrument''.
Subsec. (c)(6)(D)(ii)(I). Pub. L. 100-647, Sec. 1006(p)(5),
substituted ''stock (or certificates of beneficial interests) in
such trust'' for ''stock in such trust''.
Subsec. (c)(6)(E), (F). Pub. L. 100-647, Sec. 1006(t)(11), added
subpar. (E) and redesignated former subpar. (E) as (F).
Subsec. (c)(6)(G). Pub. L. 100-647, Sec. 1006(p)(4)(A), added
subpar. (G).
Subsec. (c)(8). Pub. L. 100-647, Sec. 1006(p)(3), added par. (8).
Subsec. (d)(6)(A). Pub. L. 100-647, Sec. 1006(q)(1), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: ''If -
''(i) a real estate investment trust receives or accrues, with
respect to real or personal property, amounts from a tenant which
derives substantially all of its income with respect to such
property from the subleasing of substantially all of such
property, and
''(ii) such tenant receives or accrues, directly or indirectly,
from subtenants only amounts which are qualified rents,
then the amounts that the trust receives or accrues from the tenant
shall not be excluded from the term 'rents from real property'
solely by reason of being based on the income or profits of such
tenant.''
Subsec. (f). Pub. L. 100-647, Sec. 1006(q)(2), amended subsec.
(f) generally, making changes in content and structure.
1986 - Subsec. (a)(4). Pub. L. 99-514, Sec. 901(d)(4)(E),
substituted ''referred to in section 582(c)(5)'' for ''to which
section 585, 586, or 593 applies''.
Subsec. (a)(6). Pub. L. 99-514, Sec. 661(a)(1), amended par. (6)
generally. Prior to amendment, par. (6) read as follows: ''which
would not be a personal holding company (as defined in section 542)
if all of its adjusted ordinary gross income (as defined in section
543(b)(2)) constituted personal holding company income (as defined
in section 543); and''.
Subsec. (c)(3)(I). Pub. L. 99-514, Sec. 662(b)(1), added subpar.
(I).
Subsec. (c)(6)(B). Pub. L. 99-514, Sec. 662(b)(2), inserted
''Such term also includes any property (not otherwise a real estate
asset) attributable to the temporary investment of new capital, but
only if such property is stock or a debt instrument, and only for
the 1-year period beginning on the date the real estate trust
receives such capital.''
Subsec. (c)(6)(D). Pub. L. 99-514, Sec. 671(b)(1), added subpar.
(D) relating to REMIC interest. Former subpar. (D) redesignated
(E).
Pub. L. 99-514, Sec. 662(b)(3), added subpar. (D) relating to
qualified temporary investment income. Former subpar. (D)
redesignated (E).
Subsec. (c)(6)(E). Pub. L. 99-514, Sec. 662(b)(3), 671(b)(1),
made identical redesignations of former subpar. (D) as (E).
Subsec. (d)(2). Pub. L. 99-514, Sec. 663(a), (b)(3), inserted
reference to par. (6) in subpar. (A) and inserted at end
''Subparagraph (C) shall not apply with respect to any amount if
such amount would be excluded from unrelated business taxable
income under section 512(b)(3) if received by an organization
described in section 511(a)(2).''
Subsec. (d)(6). Pub. L. 99-514, Sec. 663(b)(1), added par. (6).
Subsec. (f). Pub. L. 99-514, Sec. 663(b)(2), amended subsec. (f)
generally, restating former introductory provisions and par. (1) as
introductory provisions of par. (1) and as subpar. (A), restating
provisions of par. (2), adding subpar. (1)(B), and striking out
former concluding provisions which read as follows: ''The
provisions of this subsection shall apply only with respect to
amounts received or accrued pursuant to loans made after May 27,
1976. For purposes of the preceding sentence, a loan is considered
to be made before May 28, 1976, if such loan is made pursuant to a
binding commitment entered into before May 28, 1976.''
Subsec. (h). Pub. L. 99-514, Sec. 661(a)(2), added subsec. (h).
Subsec. (i). Pub. L. 99-514, Sec. 662(a), added subsec. (i).
Subsec. (j). Pub. L. 99-514, Sec. 662(c), added subsec. (j).
1984 - Subsec. (c)(4)(A). Pub. L. 98-369 substituted ''6 months''
for ''1 year'', applicable to property acquired after June 22,
1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment
note below.
1978 - Subsec. (c)(2)(H). Pub. L. 95-600, Sec. 363(a)(1), added
subpar. (H).
Subsec. (c)(3)(D). Pub. L. 95-600, Sec. 701(t)(2), inserted
''(other than gain from prohibited transactions)'' after ''on, and
gain''.
Subsec. (c)(3)(H). Pub. L. 95-600, Sec. 363(a)(2), added subpar.
(H).
Subsec. (c)(4)(B). Pub. L. 95-600, Sec. 363(a)(3), substituted
''property in a transaction which is a prohibited transaction'' for
''section 1221(1) property (other than foreclosure property)''.
Subsec. (e)(3). Pub. L. 95-600, Sec. 363(c), substituted ''the
Secretary may grant one or more extensions of the grace period for
such property'' for ''the Secretary may extend the grace period for
such property'' and ''shall not extend the grace period beyond the
date which is 6 years after the date such trust acquired such
property'' for ''shall be for a period of not more than one year,
and not more than two extensions shall be granted with respect to
any property''.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1603(a), 1604(f)(1),
(2), in introductory provisions substituted ''this title'' for
''this subtitle'' and ''a corporation, trust, or association'' for
''an unincorporated trust or an unincorporated association'', in
par. (1) inserted ''or directors'' after ''trustees'', and in par.
(4) substituted reference to which is neither (A) a financial
institution to which section 585, 586, or 593 applies, nor (B) an
insurance company to which subchapter L applies for reference to
which does not hold any property primarily for sale to customers in
the ordinary course of its trade or business.
Subsec. (c). Pub. L. 94-455, Sec. 1604(f)(3)(A), in introductory
provision substituted ''A corporation, trust, or association'' for
''A trust or association''.
Subsec. (c)(1). Pub. L. 94-455, Sec. 1604(k)(2)(A),
1901(a)(111)(A), struck out reference to which began after Dec. 31,
1960 and inserted reference to such election has not been
terminated or revoked under subsec. (g).
Subsec. (c)(2). Pub. L. 94-455, Sec. 1603(c)(2), 1604(a), (c)(1),
in introductory provision substituted ''95 percent (90 percent for
taxable years beginning before January 1, 1980) of its gross income
(excluding gross income from prohibited transactions)'' for ''90
percent of its gross income'', in subpar. (D) inserted reference to
which is not property not described in section 1221(1), and added
subpar. (G).
Subsec. (c)(3). Pub. L. 94-455, Sec. 1603(c)(1), (3), 1604(c)(1),
in introductory provision inserted ''(excluding gross income from
prohibited transactions) 75 percent of its gross income'', in
subpar. (C) inserted reference to which is not property described
in section 1221(1), and added subpar. (G).
Subsec. (c)(4). Pub. L. 94-455, Sec. 1402(b)(2), provided that
''9 months'' would be changed to ''1 year''.
Pub. L. 94-455, Sec. 1402(b)(1)(O), 1604(d), in subpar. (A)
provided that ''6 months'' would be changed to ''9 months'' for
taxable years beginning in 1977, added subpar. (B), and
redesignated former subpar. (B) as (C), and in subpar. (C) as so
redesignated, substituted ''(including interest in real property
and interest in mortgages on real property'' for ''(including
interest in real property)'' and inserted reference to property
which is foreclosure property within the definition of section
856(e).
Subsec. (c)(6)(C). Pub. L. 94-455, Sec. 1604(e), inserted
reference to options to acquire land or improvements thereon, and
options to acquire leaseholds of land or improvements thereon.
Subsec. (c)(6)(D). Pub. L. 94-455, Sec. 1901(a)(111)(B), inserted
''(15 U.S.C. 80a-1 and following)'' after '', as amended''.
Subsec. (c)(7). Pub. L. 94-455, Sec. 1602(a), added par. (7).
Subsec. (d). Pub. L. 94-455, Sec. 1604(b), among other changes,
inserted provisions including in definition of rents from real
property charges for services customarily furnished or rendered in
connection with rental of real property and rent attributable to
personal property which is leased under, or in connection with, a
lease of real property, provisions relating to the computation of
the amount of rent attributable to personal property, and
provisions relating to the special rule for certain contingent
rents.
Subsec. (e)(1). Pub. L. 94-455, Sec. 1603(c)(4), inserted
provision relating to the exclusion, from definition of foreclosure
property, of property acquired by the real estate investment trust
or other disposition of property of the trust described in section
1221(1) of this title.
Subsec. (e)(3), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out ''or his delegate'' after ''Secretary'' each time appearing.
Subsec. (f). Pub. L. 94-455, Sec. 1604(g), added subsec. (f).
Subsec. (g). Pub. L. 94-455, Sec. 1604(k)(1), added subsec. (g).
1975 - Subsec. (a)(4). Pub. L. 93-625, Sec. 6(b), inserted
''(other than foreclosure property, as defined in subsection (e))''
after ''property''.
Subsec. (c)(2)(F), (3)(F). Pub. L. 93-625, Sec. 6(d)(1), added
subpar. (F) to pars. (2) and (3).
Subsec. (e). Pub. L. 93-625, Sec. 6(a), added subsec. (e).
1964 - Subsec. (a)(6). Pub L. 88-272 substituted ''adjusted
ordinary gross income (as defined in section 543(b)(2))'' for
''gross income''.
Subsec. (d). Pub. L. 88-5544 inserted reference to subparagraph
(C) of section 318(a)(3) of this title.
EFFECTIVE DATE OF 2005 AMENDMENT
P.L. 109-135, Section 403(d)(4) Effective Dates.--
(1) Subsections (a) and (b).--The amendments made by
subsections (a) and (b) shall apply to taxable years beginning
after December 31, 2000.
(2) Subsections (c) and (e).--The amendments made by
subsections (c) and (e) shall apply to taxable years beginning
after the date of the enactment of this Act.
(3) Subsection (d).--The amendment made by subsection (d)
shall apply to transactions entered into after December 31,
2004.
(4) Subsection (f).--
(A) The amendment made by paragraph (1) of
subsection (f) shall apply to failures with respect to
which the requirements of subparagraph (A) or (B) of
section 856(c)(7) of the Internal Revenue Code of 1986
(as added by such paragraph) are satisfied after the
date of the enactment of this Act.
(B) The amendment made by paragraph (2) of
subsection (f) shall apply to failures with respect to
which the requirements of paragraph (6) of section
856(c) of the Internal Revenue Code of 1986 (as amended
by such paragraph) are satisfied after the date of the
enactment of this Act.
(C) The amendments made by paragraph (3) of
subsection (f) shall apply to failures with respect to
which the requirements of paragraph (5) of section
856(g) of the Internal Revenue Code of 1986 (as added by
such paragraph) are satisfied after the date of the
enactment of this Act.
(D) The amendment made by paragraph (4) of
subsection (f) shall apply to taxable years ending after
the date of the enactment of this Act.
(E) The amendments made by paragraph (5) of
subsection (f) shall apply to statements filed after the
date of the enactment of this Act.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendments by section 243(a) and (b),Pub.L.108-357, to this
section 856, shall apply to taxable years begining after
December 31, 2000. Amendments by section 243(d)and(f),Pub.L.
108-357, shall apply to taxable years beginning after the
date of the enactment of this Act.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by section 532(c)(2)(H)-(K) of Pub. L. 106-170
applicable to any instrument held, acquired, or entered into, any
transaction entered into, and supplies held or acquired on or after
Dec. 17, 1999, see section 532(d) of Pub. L. 106-170, set out as a
note under section 170 of this title.
Pub. L. 106-170, title V, Sec. 542(b)(3)(A)(ii), Dec. 17, 1999,
113 Stat. 1943, provided that: ''The amendment made by this
subparagraph (amending this section) shall apply to taxable years
beginning after December 31, 2000.''
Pub. L. 106-170, title V, Sec. 542(b)(3)(B)(ii), Dec. 17, 1999,
113 Stat. 1943, provided that: ''The amendment made by this
subparagraph (amending this section) shall apply to amounts
received or accrued in taxable years beginning after December 31,
2000, except for amounts paid pursuant to leases in effect on July
12, 1999, or pursuant to a binding contract in effect on such date
and at all times thereafter.''
Pub. L. 106-170, title V, Sec. 546, Dec. 17, 1999, 113 Stat.
1946, provided that:
''(a) In General. - The amendments made by this subpart (subpart
A (Sec. 541-547) of title V of Pub. L. 106-170, amending this
section and sections 163 and 857 of this title) shall apply to
taxable years beginning after December 31, 2000.
''(b) Transitional Rules Related to Section 541. -
''(1) Existing arrangements. -
''(A) In general. - Except as otherwise provided in this
paragraph, the amendment made by section 541 (amending this
section) shall not apply to a real estate investment trust with
respect to -
''(i) securities of a corporation held directly or
indirectly by such trust on July 12, 1999;
''(ii) securities of a corporation held by an entity on
July 12, 1999, if such trust acquires control of such entity
pursuant to a written binding contract in effect on such date
and at all times thereafter before such acquisition;
''(iii) securities received by such trust (or a successor)
in exchange for, or with respect to, securities described in
clause (i) or (ii) in a transaction in which gain or loss is
not recognized; and
''(iv) securities acquired directly or indirectly by such
trust as part of a reorganization (as defined in section
368(a)(1) of the Internal Revenue Code of 1986) with respect
to such trust if such securities are described in clause (i),
(ii), or (iii) with respect to any other real estate
investment trust.
''(B) New trade or business or substantial new assets. -
Subparagraph (A) shall cease to apply to securities of a
corporation as of the first day after July 12, 1999, on which
such corporation engages in a substantial new line of business,
or acquires any substantial asset, other than -
''(i) pursuant to a binding contract in effect on such date
and at all times thereafter before the acquisition of such
asset;
''(ii) in a transaction in which gain or loss is not
recognized by reason of section 1031 or 1033 of the Internal
Revenue Code of 1986; or
''(iii) in a reorganization (as so defined) with another
corporation the securities of which are described in
paragraph (1)(A) of this subsection.
''(C) Limitation on transition rules. - Subparagraph (A)
shall cease to apply to securities of a corporation held,
acquired, or received, directly or indirectly, by a real estate
investment trust as of the first day after July 12, 1999, on
which such trust acquires any additional securities of such
corporation other than -
''(i) pursuant to a binding contract in effect on July 12,
1999, and at all times thereafter; or
''(ii) in a reorganization (as so defined) with another
corporation the securities of which are described in
paragraph (1)(A) of this subsection.
''(2) Tax-free conversion. - If -
''(A) at the time of an election for a corporation to become
a taxable REIT subsidiary, the amendment made by section 541
does not apply to such corporation by reason of paragraph (1);
and
''(B) such election first takes effect before January 1,
2004,
such election shall be treated as a reorganization qualifying
under section 368(a)(1)(A) of such Code.''
Pub. L. 106-170, title V, Sec. 551(b), Dec. 17, 1999, 113 Stat.
1949, provided that: ''The amendment made by this section (amending
this section) shall apply to taxable years beginning after December
31, 2000.''
Pub. L. 106-170, title V, Sec. 561(b), Dec. 17, 1999, 113 Stat.
1950, provided that: ''The amendment made by this section (amending
this section) shall apply to taxable years beginning after December
31, 2000.''
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1263 of Pub. L. 105-34, set out as
a note under section 852 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1621(b)(5) of Pub. L. 104-188 effective
Sept. 1, 1997, see section 1621(d) of Pub. L. 104-188, set out as a
note under section 26 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13149(b) of Pub. L. 103-66 provided that: ''The amendment
made by this section (amending this section) shall apply to taxable
years beginning after December 31, 1993.''
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(p)(4)(B) of Pub. L. 100-647 provided that: ''The
amendment made by subparagraph (A) (amending this section) shall
apply to taxable years ending after the date of the enactment of
this Act (Nov. 10, 1988).''
Amendment by section 1006(p)(1), (3), (5), (q), (t)(11) of Pub.
L. 100-647 effective, except as otherwise provided, as if included
in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1006(p)(2) of Pub. L. 100-647 provided that:
''Notwithstanding section 669 of the Reform Act (Pub. L. 99-514,
set out below), the amendment made by section 662(c) of the Reform
Act (amending this section) shall apply to taxable years beginning
after December 31, 1986, but only in the case of obligations
acquired after October 22, 1986.''
Section 669 of subtitle G (Sec. 661-668) of title VI of Pub. L.
99-514, as amended by Pub. L. 100-647, title I, Sec. 1018(u)(29),
Nov. 10, 1988, 102 Stat. 3591, provided that:
''(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle (amending this
section and sections 857 to 860, 4981, and 6697 of this title)
shall apply to taxable years beginning after December 31, 1986.
''(b) Section 668. - The amendments made by section 668 (amending
sections 857, 858, and 4981 of this title) shall apply to calendar
years beginning after December 31, 1986.
''(c) Retention of Existing Transitional Rule. - The amendment
made by section 663(b)(2) (amending this section) shall not apply
with respect to amounts received or accrued pursuant to loans made
before May 28, 1976. For purposes of the preceding sentence, a loan
is considered to be made before May 28, 1976, if such loan is made
pursuant to a binding commitment entered into before May 28,
1976.''
Amendment by section 671(b)(1) of Pub. L. 99-514 effective Jan.
1, 1987, see section 675(a) of Pub. L. 99-514, as amended, set out
as an Effective Date note under section 860A of this title.
Amendment by section 901(d)(4)(E) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 901(e) of
Pub. L. 99-514, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 363(d) of Pub. L. 95-600 provided that: ''The amendments
made by subsections (a) (amending this section) and (b) (amending
section 857 of this title) shall apply to taxable years ending
after the date of the enactment of this Act (Nov. 6, 1978). The
amendment made by subsection (c) (amending this section) shall
apply to extensions granted after the date of the enactment of this
Act with respect to periods beginning after December 31, 1977.''
Amendment by section 701(t)(2) of Pub. L. 95-600 effective Oct.
4, 1976, see section 701(t)(5) of Pub. L. 95-600, set out as a note
under section 859 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 1608(d) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) Except as provided in paragraphs (2) and (3), the
amendments made by sections 1603, 1604, and 1605 (enacting sections
860 and 4981 of this title and amending this section and sections
275, 857, 858, 6161, 6211 to 6214, 6344, 6512, 6601, and 7422 of
this title) shall apply to taxable years of real estate investment
trusts beginning after the date of the enactment of this Act (Oct.
4, 1976).
''(2) If, as a result of a determination (as defined in section
859(c) of the Internal Revenue Code of 1986 (formerly I.R.C.
1954)), occurring after the date of enactment of this Act (Oct. 4,
1976), with respect to the real estate investment trust, such trust
does not meet the requirement of section 856(a)(4) of the Internal
Revenue Code of 1986 (as in effect before the amendment of such
section by this Act) for any taxable year beginning on or before
the date of the enactment of this Act, such trust may elect, within
60 days after such determination in the manner provided in
regulations prescribed by the Secretary of the Treasury or his
delegate, to have the provisions of section 1603 (other than
paragraphs (1), (2), (3), and (4) of section 1603(c)) apply with
respect to such taxable year. Where the provisions of section 1603
apply to a real estate investment trust with respect to any taxable
year beginning on or before the date of the enactment of this Act -
''(A) credit or refund of any overpayment of tax which results
from the application of section 1603 to such taxable year shall
be made as if on the date of the determination (as defined in
section 859(c) of the Internal Revenue Code of 1986) 2 years
remained before the expiration of the period of limitation
prescribed by section 6511 of such Code on the filing of claim
for refund for the taxable year to which the overpayment relates,
''(B) the running of the statute of limitations provided in
section 6501 of such Code on the making of assessments, and the
bringing of distraint or a proceeding in court for collection, in
respect of any deficiency (as defined in section 6211 of such
Code) established by such a determination, and all interest,
additions to tax, additional amounts, or assessable penalties in
respect thereof, shall be suspended for a period of 2 years after
the date of such determination, and
''(C) the collection of any deficiency (as defined in section
6211 of such Code) established by such determination and all
interest, additions to tax, additional amounts, and assessable
penalties in respect thereof shall, except in cases of jeopardy,
be stayed until the expiration of 60 days after the date of such
determination.
No distraint or proceeding in court shall be begun for the
collection of an amount the collection of which is stayed under
subparagraph (C) during the period for which the collection of such
amount is stayed.
''(3) Section 856(g)(3) of the Internal Revenue Code of 1986, as
added by section 1604 of this Act, shall not apply with respect to
a termination of an election, filed by a taxpayer under section
856(c)(1) of such Code on or before the date of the enactment of
this Act (Oct. 4, 1976), unless the provisions of part II of
subchapter M of chapter 1 of subtitle A of such Code apply to such
taxpayer for a taxable year ending after the date of the enactment
of this Act for which such election is in effect.''
EFFECTIVE DATE OF 1975 AMENDMENT
Section 6(e) of Pub. L. 93-625, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendments made by this section (amending this section and section
857 of this title) apply to foreclosure property acquired after
December 31, 1973. Notwithstanding the provisions of section
856(e)(5) of the Internal Revenue Code of 1986 (formerly I.R.C.
1954) (as added by subsection (a) of this section) any taxpayer
required to make an election with respect to foreclosure property
sooner than 90 days after the date of enactment of this Act (Jan.
3, 1975), may make that election at any time before the 91st day
after the date of enactment of this Act.''
EFFECTIVE DATE OF 1964 AMENDMENTS
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of sections 302 and 304 of this title, such amendments
shall not apply to distributions in payment for stock acquisitions
or redemptions, if such acquisitions or redemptions occurred before
Aug. 31, 1964, see section 4(c) of Pub. L. 88-554, set out as a
note under section 318 of this title.
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out
as a note under section 316 of this title.
EFFECTIVE DATE
Section 10(k) of Pub. L. 86-779 provided that: ''The amendments
made by this section (enacting this section and sections 857 and
858 and amending sections 11, 34, 116, 243, 318, 443, 852, 855, and
1504 of this title) shall apply with respect to taxable years of
real estate investment trusts beginning after December 31, 1960.''
STUDY RELATING TO TAXABLE REIT SUBSIDIARIES
Pub. L. 106-170, title V, Sec. 547, Dec. 17, 1999, 113 Stat.
1947, provided that: ''The Secretary of the Treasury shall conduct
a study to determine how many taxable REIT subsidiaries are in
existence and the aggregate amount of taxes paid by such
subsidiaries. The Secretary shall submit a report to the Congress
describing the results of such study.''
TRUST NOT DISQUALIFIED IN CERTAIN CASES WHERE INCOME TESTS NOT MET
Section 1608(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendment made by section 1602 (amending this section and section
857 of this title) shall apply to taxable years of real estate
investment trusts beginning after the date of the enactment of this
Act (Oct. 4, 1976). In addition, the amendments made by section
1602 shall apply to a taxable year of a real estate investment
trust beginning before the date of the enactment of this Act if, as
the result of a determination (as defined in section 859(c) of the
Internal Revenue Code of 1986 (formerly I.R.C. 1954)) with respect
to such trust occurring after the date of the enactment of this
Act, such trust for such taxable years does not meet the
requirements of section 856(c)(2) or section 856(c)(3), or of both
such sections, of such Code as in effect for such taxable year. In
any case, the amendment made by section 1602(a) requiring a
schedule to be attached to the income tax return of certain real
estate investment trusts shall apply only to taxable years of such
trusts beginning after the date of the enactment of this Act. If
the amendments made by section 1602 apply to a taxable year ending
on or before the date of enactment of this Act, the reference to
paragraph (2)(B) in section 857(b)(5) of such Code, as amended,
shall be considered to be a reference to paragraph (2)(C) of
section 857(b) of such Code, as in effect immediately before the
enactment of this Act.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 108, 163, 291, 318, 501,
857, 859, 860G, 860L, 1212, 6049, 6655, 7701, 7704 of this title.
