### §269B. Stapled entities

#### (a) General rule

Except as otherwise provided by regulations, for purposes of this title—

(1) if a domestic corporation and a foreign corporation are stapled entities, the foreign corporation shall be treated as a domestic corporation.

(2) in applying section 1563, stock in a second corporation which constitutes a stapled interest with respect to stock of a first corporation shall be treated as owned by such first corporation, and

(3) in applying subchapter M for purposes of determining whether any stapled entity is a regulated investment company or a real estate investment trust, all entities which are stapled entities with respect to each other shall be treated as 1 entity.

#### (b) Secretary to prescribe regulations

The Secretary shall prescribe such regulations as may be necessary to prevent avoidance or evasion of Federal income tax through the use of stapled entities. Such regulations may include (but shall not be limited to) regulations providing the extent to which 1 of such entities shall be treated as owning the other entity (to the extent of the stapled interest) and regulations providing that any tax imposed on the foreign corporation referred to in subsection (a)(1) may, if not paid by such corporation, be collected from the domestic corporation referred to in such subsection or the shareholders of such foreign corporation.

#### (c) Definitions

For purposes of this section—

#### (1) Entity

The term "entity" means any corporation, partnership, trust, association, estate, or other form of carrying on a business or activity.

#### (2) Stapled entities

The term "stapled entities" means any group of 2 or more entities if more than 50 percent in value of the beneficial ownership in each of such entities consists of stapled interests.

#### (3) Stapled interests

Two or more interests are stapled interests if, by reason of form of ownership, restrictions on transfer, or other terms or conditions, in connection with the transfer of 1 of such interests the other such interests are also transferred or required to be transferred.

#### (d) Special rule for treaties

Nothing in section 894 or 7852(d) or in any other provision of law shall be construed as permitting an exemption, by reason of any treaty obligation of the United States heretofore or hereafter entered into, from the provisions of this section.

#### (e) Subsection (a)(1) not to apply in certain cases

#### (1) In general

Subsection (a)(1) shall not apply if it is established to the satisfaction of the Secretary that the domestic corporation and the foreign corporation referred to in such subsection are foreign owned.

#### (2) Foreign owned

For purposes of paragraph (1), a corporation is foreign owned if less than 50 percent of—

(A) the total combined voting power of all classes of stock of such corporation entitled to vote, and

(B) the total value of the stock of the corporation,

is held directly (or indirectly through applying paragraphs (2) and (3) of section 958(a) and paragraph (4) of section 318(a)) by United States persons (as defined in section 7701(a)(30)).

(Added Pub. L. 98–369, div. A, title I, §136(a), July 18, 1984, 98 Stat. 669; amended Pub. L. 99–514, title XVIII, §1810(j), Oct. 22, 1986, 100 Stat. 2829.)

#### **Editorial Notes**

#### Amendments

1986—Subsec. (b). Pub. L. 99–514, §1810(j)(1), inserted "and regulations providing that any tax imposed on the foreign corporation referred to in subsection (a)(1) may, if not paid by such corporation, be collected from the domestic corporation referred to in such subsection or the shareholders of such foreign corporation".

Subsec. (e). Pub. L. 99–514, §1810(j)(2), added subsec. (e).

#### **Statutory Notes and Related Subsidiaries**

#### Effective Date of 1986 Amendment

Amendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

#### Effective Date

Pub. L. 98–369, div. A, title I, §136(c), July 18, 1984, 98 Stat. 670, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(1) In general.—Except as otherwise provided in this subsection, the amendments made by this section [enacting this section] shall take effect on the date of the enactment of this Act [July 18, 1984].

"(2) Interests stapled as of june 30, 1983.—Except as otherwise provided in this subsection, in the case of any interests which on June 30, 1983, were stapled interests (as defined in section 269B(c)(3) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this section)), the amendments made by this section shall take effect on January 1, 1985 (January 1, 1987, in the case of stapled interests in a foreign corporation).

"(3) Certain stapled entities which include real estate investment trust.—Paragraph (3) of section 269B(a) of such Code shall not apply in determining the application of the provisions of part II of subchapter M of chapter 1 of such Code to any real estate investment trust which is part of a group of stapled entities if—

"(A) all members of such group were stapled entities as of June 30, 1983, and

"(B) as of June 30, 1983, such group included one or more real estate investment trusts.

"(4) Certain stapled entities which include puerto rican corporations.—

"(A) Paragraph (1) of section 269B(a) of such Code shall not apply to a domestic corporation and a qualified Puerto Rican corporation which, on June 30, 1983, were stapled entities.

"(B) For purposes of subparagraph (A), the term 'qualified Puerto Rican corporation' means any corporation organized in Puerto Rico—

"(i) which is described in section 957(c) of such Code or would be so described if any dividends it received from any other corporation described in such section 957(c) were treated as gross income of the type described in such section 957(c), and

"(ii) does not, at any time during the taxable year, own (within the meaning of section 958 of such Code but before applying paragraph (2) of section 269B(a) of such Code) any stock of any corporation which is not described in such section 957(c).

"(5) Treaty rule not to apply to stapled entities entitled to treaty benefits as of june 30, 1983.—In the case of any entity which was a stapled entity as of June 30, 1983, subsection (d) of section 269B of such Code shall not apply to any treaty benefit to which such entity was entitled as of June 30, 1983.

"(6) Elections to treat stapled foreign entities as subsidiaries.—

"(A) In general.—In the case of any foreign corporation and domestic corporation which as of June 30, 1983, were stapled entities, such domestic corporation may elect (in lieu of applying paragraph (1) of section 269B(a) of such Code) to be treated as owning all interests in the foreign corporation which constitute stapled interests with respect to stock of the domestic corporation.

"(B) Election.—Any election under subparagraph (A) shall be made not later than 180 days after the date of the enactment of this Act and shall be made in such manner as the Secretary of the Treasury or his delegate shall prescribe.

"(C) Election irrevocable.—Any election under subparagraph (A), once made, may be revoked only with the consent of the Secretary of the Treasury or his delegate.

"(7) Other stapled entities which include real estate investment trust.—

"(A) In general.—Paragraph (3) of section 269B(a) of such Code shall not apply in determining the application of the provisions of part II of subchapter M of chapter 1 of such Code to any qualified real estate investment trust which is a part of a group of stapled entities—

"(i) which was created pursuant to a written board of directors resolution adopted on April 5, 1984, and

"(ii) all members of such group were stapled entities as of June 16, 1985.

"(B) Qualified real estate investment trust.—The term 'qualified real estate investment trust' means any real estate trust—

"(i) at least 75 percent of the gross income of which is derived from interest on obligations secured by mortgages on real property (as defined in section 856 of such Code),

"(ii) with respect to which the interest on the obligations described in clause (i) made or acquired by such trust (other than to persons who are independent contractors, as defined in section 856(d)(3) of such Code) is at an arm's length rate or a rate not more than 1 percentage point greater than the associated borrowing cost of the trust, and

"(iii) with respect to which any real property held by the trust is not used in the trade or business of any other member of the group of stapled entities."

#### Termination of Exception for Certain Real Estate Investment Trusts From the Treatment of Stapled Entities

Pub. L. 105–206, title VII, §7002, July 22, 1998, 112 Stat. 827, provided that:

"(a) In General.—Notwithstanding paragraph (3) of section 136(c) of the Tax Reform Act of 1984 [Pub. L. 98–369, set out above] (relating to stapled stock; stapled entities), the REIT gross income provisions shall be applied by treating the activities and gross income of members of the stapled REIT group properly allocable to any nonqualified real property interest held by the exempt REIT or any stapled entity which is a member of such group (or treated under subsection (c) as held by such REIT or stapled entity) as the activities and gross income of the exempt REIT in the same manner as if the exempt REIT and such group were one entity.

"(b) Nonqualified Real Property Interest.—For purposes of this section—

"(1) In general.—The term 'nonqualified real property interest' means, with respect to any exempt REIT, any interest in real property acquired after March 26, 1998, by the exempt REIT or any stapled entity.

"(2) Exception for binding contracts, etc.—Such term shall not include any interest in real property acquired after March 26, 1998, by the exempt REIT or any stapled entity if—

"(A) the acquisition is pursuant to a written agreement (including a put option, buy-sell agreement, and an agreement relating to a third party default) which was binding on such date and at all times thereafter on such REIT or stapled entity; or

"(B) the acquisition is described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission.

"(3) Improvements and leases.—

"(A) In general.—Except as otherwise provided in this paragraph, the term 'nonqualified real property interest' shall not include—

"(i) any improvement to land owned or leased by the exempt REIT or any member of the stapled REIT group; and

"(ii) any repair to, or improvement of, any improvement owned or leased by the exempt REIT or any member of the stapled REIT group,

if such ownership or leasehold interest is a qualified real property interest.

"(B) Leases.—The term 'nonqualified real property interest' shall not include—

"(i) any lease of a qualified real property interest if such lease is not otherwise such an interest; or

"(ii) any renewal of a lease which is a qualified real property interest,

but only if the rent on any lease referred to in clause (i) or any renewal referred to in clause (ii) does not exceed an arm's length rate.

"(C) Termination where change in use.—

"(i) In general.—Subparagraph (A) shall not apply to any improvement placed in service after December 31, 1999, which is part of a change in the use of the property to which such improvement relates unless the cost of such improvement does not exceed 200 percent of—

"(I) the cost of such property; or

"(II) if such property is substituted basis property (as defined in section 7701(a)(42) of the Internal Revenue Code of 1986), the fair market value of the property at the time of acquisition.

"(ii) Binding contracts.—For purposes of clause (i), an improvement shall be treated as placed in service before January 1, 2000, if such improvement is placed in service before January 1, 2004, pursuant to a binding contract in effect on December 31, 1999, and at all times thereafter.

"(4) Exception for permitted transfers, etc.—The term 'nonqualified real property interest' shall not include any interest in real property acquired solely as a result of a direct or indirect contribution, distribution, or other transfer of such interest from the exempt REIT or any member of the stapled REIT group to such REIT or any such member, but only to the extent the aggregate of the interests of the exempt REIT and all stapled entities in such interest in real property (determined in accordance with subsection (c)(1)) is not increased by reason of the transfer.

"(5) Treatment of entities which are not stapled, etc. on march 26, 1998.—Notwithstanding any other provision of this section, all interests in real property held by an exempt REIT or any stapled entity with respect to such REIT (or treated under subsection (c) as held by such REIT or stapled entity) shall be treated as nonqualified real property interests unless—

"(A) such stapled entity was a stapled entity with respect to such REIT as of March 26, 1998, and at all times thereafter; and

"(B) as of March 26, 1998, and at all times thereafter, such REIT was a real estate investment trust.

"(6) Qualified real property interest.—The term 'qualified real property interest' means any interest in real property other than a nonqualified real property interest.

"(c) Treatment of Property Held by 10-Percent Subsidiaries.—For purposes of this section—

"(1) In general.—Any exempt REIT and any stapled entity shall be treated as holding their proportionate shares of each interest in real property held by any 10-percent subsidiary entity of the exempt REIT or stapled entity, as the case may be.

"(2) Property held by 10-percent subsidiaries treated as nonqualified.—

"(A) In general.—Except as provided in subparagraph (B), any interest in real property held by a 10-percent subsidiary entity of an exempt REIT or stapled entity shall be treated as a nonqualified real property interest.

"(B) Exception for interests in real property held on march 26, 1998, etc.—In the case of an entity which was a 10-percent subsidiary entity of an exempt REIT or stapled entity on March 26, 1998, and at all times thereafter, an interest in real property held by such subsidiary entity shall be treated as a qualified real property interest if such interest would be so treated if held or acquired directly by the exempt REIT or the stapled entity.

"(3) Reduction in qualified real property interests if increase in ownership of subsidiary.—If, after March 26, 1998, an exempt REIT or stapled entity increases its ownership interest in a subsidiary entity to which paragraph (2)(B) applies above its ownership interest in such subsidiary entity as of such date, the additional portion of each interest in real property which is treated as held by the exempt REIT or stapled entity by reason of such increased ownership shall be treated as a nonqualified real property interest.

"(4) Special rules for determining ownership.—For purposes of this subsection—

"(A) percentage ownership of an entity shall be determined in accordance with subsection (e)(4);

"(B) interests in the entity which are acquired by an exempt REIT or a member of the stapled REIT group in any acquisition described in an agreement, announcement, or filing described in subsection (b)(2) shall be treated as acquired on March 26, 1998; and

"(C) except as provided in guidance prescribed by the Secretary, any change in proportionate ownership which is attributable solely to fluctuations in the relative fair market values of different classes of stock shall not be taken into account.

"(5) Treatment of 60-percent partnerships.—

"(A) In general.—If, as of March 26, 1998—

"(i) an exempt REIT or stapled entity held directly or indirectly at least 60 percent of the capital or profits interest in a partnership; and

"(ii) 90 percent or more of the capital interests and 90 percent or more of the profits interests in such partnership (other than interests held directly or indirectly by the exempt REIT or stapled entity) are, or will be, redeemable or exchangeable for consideration the amount of which is determined by reference to the value of shares of stock in the exempt REIT or stapled entity (or both),

paragraph (3) shall not apply to such partnership, and such REIT or entity shall be treated for all purposes of this section as holding all of the capital and profits interests in such partnership.

"(B) Limitation to one partnership.—If, as of January 1, 1999, more than one partnership owned by any exempt REIT or stapled entity meets the requirements of subparagraph (A), only the largest such partnership on such date (determined by aggregate asset bases) shall be treated as meeting such requirements.

"(C) Mirror entity.—For purposes of subparagraph (A), an interest in a partnership formed after March 26, 1998, shall be treated as held by an exempt REIT or stapled entity on March 26, 1998, if such partnership is formed to mirror the stapling of an exempt REIT and a stapled entity in connection with an acquisition agreed to or announced on or before March 26, 1998.

"(d) Treatment of Property Secured by Mortgage Held by Exempt REIT or Member of Stapled REIT Group.—

"(1) In general.—In the case of any nonqualified obligation held by an exempt REIT or any member of the stapled REIT group, the REIT gross income provisions shall be applied by treating the exempt REIT as having impermissible tenant service income equal to—

"(A) the interest income from such obligation which is properly allocable to the property described in paragraph (2); and

"(B) the income of any member of the stapled REIT group from services described in paragraph (2) with respect to such property.

If the income referred to in subparagraph (A) or (B) is of a 10-percent subsidiary entity, only the portion of such income which is properly allocable to the exempt REIT's or the stapled entity's interest in the subsidiary entity shall be taken into account.

"(2) Nonqualified obligation.—Except as otherwise provided in this subsection, the term 'nonqualified obligation' means any obligation secured by a mortgage on an interest in real property if the income of any member of the stapled REIT group for services furnished with respect to such property would be impermissible tenant service income were such property held by the exempt REIT and such services furnished by the exempt REIT.

"(3) Exception for certain market rate obligations.—Such term shall not include any obligation—

"(A) payments under which would be treated as interest if received by a REIT; and

"(B) the rate of interest on which does not exceed an arm's length rate.

"(4) Exception for existing obligations.—Such term shall not include any obligation—

"(A) which is secured on March 26, 1998, by an interest in real property; and

"(B) which is held on such date by the exempt REIT or any entity which is a member of the stapled REIT group on such date and at all times thereafter,

but only so long as such obligation is secured by such interest, and the interest payable on such obligation is not changed to a rate which exceeds an arm's length rate unless such change is pursuant to the terms of the obligation in effect on March 26, 1998. The preceding sentence shall not cease to apply by reason of the refinancing of the obligation if (immediately after the refinancing) the principal amount of the obligation resulting from the refinancing does not exceed the principal amount of the refinanced obligation (immediately before the refinancing) and the interest payable on such refinanced obligation does not exceed an arm's length rate.

"(5) Treatment of entities which are not stapled, etc. on march 26, 1998.—A rule similar to the rule of subsection (b)(5) shall apply for purposes of this subsection.

"(6) Increase in amount of nonqualified obligations if increase in ownership of subsidiary.—A rule similar to the rule of subsection (c)(3) shall apply for purposes of this subsection.

"(7) Coordination with subsection (a).—This subsection shall not apply to the portion of any interest in real property that the exempt REIT or stapled entity holds or is treated as holding under this section without regard to this subsection.

"(e) Definitions.—For purposes of this section—

"(1) REIT gross income provisions.—The term 'REIT gross income provisions' means—

"(A) paragraphs (2), (3), and (6) of section 856(c) of the Internal Revenue Code of 1986; and

"(B) section 857(b)(5) of such Code.

"(2) Exempt reit.—The term 'exempt REIT' means a real estate investment trust to which section 269B of the Internal Revenue Code of 1986 does not apply by reason of paragraph (3) of section 136(c) of the Tax Reform Act of 1984.

"(3) Stapled reit group.—The term 'stapled REIT group' means, with respect to an exempt REIT, the group consisting of—

"(A) all entities which are stapled entities with respect to the exempt REIT; and

"(B) all entities which are 10-percent subsidiary entities of the exempt REIT or any such stapled entity.

"(4) 10-percent subsidiary entity.—

"(A) In general.—The term '10-percent subsidiary entity' means, with respect to any exempt REIT or stapled entity, any entity in which the exempt REIT or stapled entity (as the case may be) directly or indirectly holds at least a 10-percent interest.

"(B) Exception for certain c corporation subsidiaries of reits.—A corporation which would, but for this subparagraph, be treated as a 10-percent subsidiary of an exempt REIT shall not be so treated if such corporation is taxable under section 11 of the Internal Revenue Code of 1986.

"(C) 10-percent interest.—The term '10-percent interest' means—

"(i) in the case of an interest in a corporation, ownership of 10 percent (by vote or value) of the stock in such corporation;

"(ii) in the case of an interest in a partnership, ownership of 10 percent of the capital or profits interest in the partnership; and

"(iii) in any other case, ownership of 10 percent of the beneficial interests in the entity.

"(5) Other definitions.—Terms used in this section which are used in section 269B or section 856 of such Code shall have the respective meanings given such terms by such section.

"(f) Guidance.—The Secretary may prescribe such guidance as may be necessary or appropriate to carry out the purposes of this section, including guidance to prevent the avoidance of such purposes and to prevent the double counting of income.

"(g) Effective Date.—This section shall apply to taxable years ending after March 26, 1998."

#### Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.