69–006 

110TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 110–606 

HOUSING ASSISTANCE TAX ACT OF 2008 

APRIL 24, 2008.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. RANGEL, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

[To accompany H.R. 5720] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 5720) to amend the Internal Revenue Code of 1986 to 

provide assistance for housing, having considered the same, report 

favorably thereon with an amendment and recommend that the bill 

as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE; ETC. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Housing Assistance Tax Act of 

2008’’. 

(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment 

to, or repeal of, a section or other provision, the reference shall be considered to be 

made to a section or other provision of the Internal Revenue Code of 1986. 

(c) TABLE OF CONTENTS.—The table of contents of this Act is as follows: 

Sec. 1. Short title; etc. 

TITLE I—HOUSING TAX INCENTIVES 

Subtitle A—Multi-Family Housing 

PART 1—LOW-INCOME HOUSING TAX CREDIT

Sec. 101. Temporary increase in volume cap for low-income housing tax credit. 

Sec. 102. Determination of credit rate. 

Sec. 103. Modifications to definition of eligible basis. 

Sec. 104. Other simplification and reform of low-income housing tax incentives. 

PART 2—MODIFICATIONS TO TAX-EXEMPT HOUSING BOND RULES

Sec. 111. Recycling of tax-exempt debt for financing residential rental projects. 

Sec. 112. Coordination of certain rules applicable to low-income housing credit and qualified residential rental 

project exempt facility bonds. 

PART 3—REFORMS RELATED TO THE LOW-INCOME HOUSING CREDIT AND TAX-EXEMPT HOUSING BONDS

Sec. 121. Hold harmless for reductions in area median gross income. 

Sec. 122. Exception to annual current income determination requirement where determination not relevant. 


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Subtitle B—Single Family Housing 

Sec. 131. First-time homebuyer credit. 

Sec. 132. Additional standard deduction for real property taxes for nonitemizers. 

Subtitle C—General Provisions 

Sec. 141. Temporary liberalization of tax-exempt housing bond rules. 

Sec. 142. Repeal of alternative minimum tax limitations on tax-exempt housing bonds, low-income housing tax 

credit, and rehabilitation credit. 

Sec. 143. Bonds guaranteed by Federal home loan banks eligible for treatment as tax-exempt bonds. 

Sec. 144. Modification of rules pertaining to FIRPTA nonforeign affidavits. 

Sec. 145. Modification of definition of tax-exempt use property for purposes of the rehabilitation credit. 

TITLE II—REFORMS RELATED TO REAL ESTATE INVESTMENT TRUSTS 

Subtitle A—Foreign Currency and Other Qualified Activities 

Sec. 201. Revisions to REIT income tests. 

Sec. 202. Revisions to REIT asset tests. 

Sec. 203. Conforming foreign currency revisions. 

Subtitle B—Taxable REIT Subsidiaries 

Sec. 211. Conforming taxable REIT subsidiary asset test. 

Subtitle C—Dealer Sales 

Sec. 221. Holding period under safe harbor. 

Sec. 222. Determining value of sales under safe harbor. 

Subtitle D—Health Care REITs 

Sec. 231. Conformity for health care facilities. 

Subtitle E—Effective Dates 

Sec. 241. Effective dates. 

TITLE III—REVENUE PROVISIONS 

Sec. 301. Broker reporting of customer’s basis in securities transactions. 

Sec. 302. Delay in application of worldwide allocation of interest. 

Sec. 303. Time for payment of corporate estimated taxes. 

TITLE I—HOUSING TAX INCENTIVES 

Subtitle A—Multi-Family Housing 

PART 1—LOW-INCOME HOUSING TAX CREDIT 

SEC. 101. TEMPORARY INCREASE IN VOLUME CAP FOR LOW-INCOME HOUSING TAX CREDIT. 

Paragraph (3) of section 42(h) is amended by adding at the end the following new 

subparagraph: ‘‘(I) INCREASE IN STATE HOUSING CREDIT CEILING FOR 2008 AND 2009.—In 

the case of calendar years 2008 and 2009, the dollar amount in effect under 

subparagraph (C)(ii)(I) for such calendar year (after any increase under 

subparagraph (H)) shall be increased by $0.20.’’. 

SEC. 102. DETERMINATION OF CREDIT RATE. 

(a) ELIMINATION OF DISTINCTION BETWEEN NEW AND EXISTING BUILDINGS; MIN- IMUM CREDIT RATE FOR NON-FEDERALLY SUBSIDIZED BUILDINGS.— (1) IN GENERAL.—Subsection (b) section 42 is amended to read as follows: ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of this section— ‘‘(1) IN GENERAL.—The term ‘applicable percentage’ means, with respect to 

any building, the appropriate percentage prescribed by the Secretary for the 

earlier of— ‘‘(A) the month in which such building is placed in service, or 

‘‘(B) at the election of the taxpayer— ‘‘(i) the month in which the taxpayer and the housing credit agency 

enter into an agreement with respect to such building (which is binding 

on such agency, the taxpayer, and all successors in interest) as to the 

housing credit dollar amount to be allocated to such building, or ‘‘(ii) in the case of any building to which subsection (h)(4)(B) applies, 

the month in which the tax-exempt obligations are issued. 

A month may be elected under clause (ii) only if the election is made not later 

than the 5th day after the close of such month. Such an election, once made, 

shall be irrevocable. 

‘‘(2) METHOD OF PRESCRIBING PERCENTAGES.—

‘‘(A) IN GENERAL.—For purposes of paragraph (1), the percentages prescribed by the Secretary for any month shall be—


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‘‘(i) in the case of any building which is not federally subsidized for 

the taxable year, the greater of—

‘‘(I) the average percentage determined under subclause (II) for 

months in the preceding calendar year, or 

‘‘(II) the percentage which will yield over a 10-year period 

amounts of credit under subsection (a) which have a present value 

equal to 70 percent of the qualified basis of such building, and 

‘‘(ii) in the case of any other building, the percentage which will yield 

over a 10-year period amounts of credit under subsection (a) which 

have a present value equal to 30 percent of the qualified basis of such 

building. 

‘‘(B) METHOD OF DISCOUNTING.—The present value under subparagraph 

(A) shall be determined—

‘‘(i) as of the last day of the 1st year of the 10-year period referred 

to in subparagraph (A), 

‘‘(ii) by using a discount rate equal to 72 percent of the average of 

the annual Federal mid-term rate and the annual Federal long-term 

rate applicable under section 1274(d)(1) to the month applicable under 

subparagraph (A) and compounded annually, and 

‘‘(iii) by assuming that the credit allowable under this section for any 

year is received on the last day of such year. 

‘‘(3) CROSS REFERENCES.—

‘‘(A) For treatment of certain rehabilitation expenditures as separate 

buildings, see subsection (e). 

‘‘(B) For determination of applicable percentage for increases in qualified 

basis after the 1st year of the credit period, see subsection (f)(3). 

‘‘(C) For authority of housing credit agency to limit applicable percentage 

and qualified basis which may be taken into account under this section 

with respect to any building, see subsection (h)(7).’’. 

(2) CONFORMING AMENDMENTS.—

(A) Subparagraph (B) of section 42(e)(3) is amended by striking ‘‘subsection (b)(2)(B)(ii)’’ and inserting ‘‘subsection (b)(2)(A)(ii)’’. 

(B) Subparagraph (A) of section 42(i)(2) is amended by striking ‘‘new 

building’’ and inserting ‘‘building’’. 

(b) MODIFICATIONS TO DEFINITION OF FEDERALLY SUBSIDIZED BUILDING.—

(1) IN GENERAL.—Subparagraph (A) of section 42(i)(2) is amended by striking 

‘‘, or any below market Federal loan,’’. 

(2) CONFORMING AMENDMENTS.—

(A) Subparagraph (B) of section 42(i)(2) is amended—

(i) by striking ‘‘BALANCE OF LOAN OR’’ in the heading thereof, 

(ii) by striking ‘‘loan or’’ in the matter preceding clause (i), and 

(iii) by striking ‘‘subsection (d)—’’ and all that follows and inserting 

‘‘subsection (d) the proceeds of such obligation.’’. 

(B) Subparagraph (C) of section 42(i)(2) is amended—

(i) by striking ‘‘or below market Federal loan’’ in the matter preceding clause (i), 

(ii) in clause (i)—

(I) by striking ‘‘or loan (when issued or made)’’ and inserting 

‘‘(when issued)’’, and 

(II) by striking ‘‘the proceeds of such obligation or loan’’ and inserting ‘‘the proceeds of such obligation’’, and 

(iii) by striking ‘‘, and such loan is repaid,’’ in clause (ii). 

(C) Paragraph (2) of section 42(i) is amended by striking subparagraphs 

(D) and (E). 

(c) EFFECTIVE DATE.—The amendments made by this subsection shall apply to 

buildings placed in service after the date of the enactment of this Act. 

SEC. 103. MODIFICATIONS TO DEFINITION OF ELIGIBLE BASIS. 

(a) INCREASE IN CREDIT FOR CERTAIN STATE DESIGNATED BUILDINGS.—Subparagraph (C) of section 42(d)(5) (relating to increase in credit for buildings in high cost 

areas), before redesignation under subsection (f), is amended by adding at the end 

the following new clause: 

‘‘(v) BUILDINGS DESIGNATED BY STATE HOUSING CREDIT AGENCY.—Any 

building which is designated by the State housing credit agency as requiring the increase in credit under this subparagraph in order for such 

building to be financially feasible as part of a qualified low-income 

housing project shall be treated for purposes of this subparagraph as 

located in a difficult development area which is designated for purposes 

of this subparagraph. The preceding sentence shall not apply to any 


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building if paragraph (1) of subsection (h) does not apply to any portion 

of the eligible basis of such building by reason of paragraph (4) of such 

subsection.’’. 

(b) MODIFICATION TO REHABILITATION REQUIREMENTS.—

(1) IN GENERAL.—Clause (ii) of section 42(e)(3)(A) is amended—

(A) by striking ‘‘10 percent’’ in subclause (I) and inserting ‘‘20 percent’’, 

and 

(B) by striking ‘‘$3,000’’ in subclause (II) and inserting ‘‘$6,000’’. 

(2) INFLATION ADJUSTMENT.—Paragraph (3) of section 42(e) is amended by 

adding at the end the following new subparagraph: 

‘‘(D) INFLATION ADJUSTMENT.—In the case of any expenditures which are 

treated under paragraph (4) as placed in service during any calendar year 

after 2009, the $6,000 amount in subparagraph (A)(ii)(II) shall be increased 

by an amount equal to—

‘‘(i) such dollar amount, multiplied by 

‘‘(ii) the cost-of-living adjustment determined under section 1(f)(3) for 

such calendar year by substituting ‘calendar year 2008’ for ‘calendar 

year 1992’ in subparagraph (B) thereof. 

Any increase under the preceding sentence which is not a multiple of $100 

shall be rounded to the nearest multiple of $100.’’. 

(3) CONFORMING AMENDMENT.—Subclause (II) of section 42(f)(5)(B)(ii) is 

amended by striking ‘‘if subsection (e)(3)(A)(ii)(II)’’ and all that follows and inserting ‘‘if the dollar amount in effect under subsection (e)(3)(A)(ii)(II) were twothirds of such amount.’’. 

(c) INCREASE IN ALLOWABLE COMMUNITY SERVICE FACILITY SPACE FOR SMALL

PROJECTS.—Clause (ii) of section 42(d)(4)(C) (relating to limitation) is amended by 

striking ‘‘10 percent of the eligible basis of the qualified low-income housing project 

of which it is a part. For purposes of’’ and inserting ‘‘the sum of—

‘‘(I) 15 percent of so much of the eligible basis of the qualified 

low-income housing project of which it is a part as does not exceed 

$5,000,000, plus 

‘‘(II) 10 percent of so much of the eligible basis of such project 

as is not taken into account under subclause (I). 

For purposes of’’. 

(d) CLARIFICATION OF TREATMENT OF FEDERAL GRANTS.—Subparagraph (A) of section 42(d)(5) is amended to read as follows: 

‘‘(A) FEDERAL GRANTS NOT TAKEN INTO ACCOUNT IN DETERMINING ELIGIBLE

BASIS.—The eligible basis of a building shall not include any costs financed 

with the proceeds of a Federally funded grant.’’. 

(e) SIMPLIFICATION OF RELATED PARTY RULES.—Clause (iii) of section 42(d)(2)(D), 

before redesignation under subsection (f)(2), is amended—

(1) by striking all that precedes subclause (II), 

(2) by redesignating subclause (II) as clause (iii) and moving such clause two 

ems to the left, and 

(3) by striking the last sentence thereof. 

(f) REPEAL OF DEADWOOD.—

(1) Clause (ii) of section 42(d)(2)(B) is amended by striking ‘‘the later of—’’

and all that follows and inserting ‘‘the date the building was last placed in service,’’. 

(2) Subparagraph (D) of section 42(d)(2) is amended by striking clause (i) and 

by redesignating clauses (ii) and (iii) as clauses (i) and (ii), respectively. 

(3) Paragraph (5) of section 42(d) is amended by striking subparagraph (B) 

and by redesignating subparagraph (C) as subparagraph (B). 

(g) EFFECTIVE DATE.—The amendments made by this subsection shall apply to 

buildings placed in service after the date of the enactment of this Act. 

SEC. 104. OTHER SIMPLIFICATION AND REFORM OF LOW-INCOME HOUSING TAX INCENTIVES. 

(a) REPEAL PROHIBITION ON MODERATE REHABILITATION ASSISTANCE.—Paragraph 

(2) of section 42(c) (defining qualified low-income building) is amended by striking 

the flush sentence at the end. 

(b) MODIFICATION OF TIME LIMIT FOR INCURRING 10 PERCENT OF PROJECT’S

COST.—Clause (ii) of section 42(h)(1)(E) is amended by striking ‘‘(as of the later of 

the date which is 6 months after the date that the allocation was made or the close 

of the calendar year in which the allocation is made)’’ and inserting ‘‘(as of the date 

which is 1 year after the date that the allocation was made)’’. 

(c) REPEAL OF BONDING REQUIREMENT ON DISPOSITION OF BUILDING.—Paragraph 

(6) of section 42(j) (relating to no recapture on disposition of building (or interest 

therein) where bond posted) is amended to read as follows: 


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‘‘(6) NO RECAPTURE ON DISPOSITION OF BUILDING WHICH CONTINUES IN QUALIFIED USE.—

‘‘(A) IN GENERAL.—The increase in tax under this subsection shall not 

apply solely by reason of the disposition of a building (or an interest therein) if it is reasonably expected that such building will continue to be operated as a qualified low-income building for the remaining compliance period 

with respect to such building. 

‘‘(B) STATUTE OF LIMITATIONS.—If a building (or an interest therein) is 

disposed of during any taxable year and there is any reduction in the qualified basis of such building which results in an increase in tax under this 

subsection for such taxable or any subsequent taxable year, then—

‘‘(i) the statutory period for the assessment of any deficiency with respect to such increase in tax shall not expire before the expiration of 

3 years from the date the Secretary is notified by the taxpayer (in such 

manner as the Secretary may prescribe) of such reduction in qualified 

basis, and 

‘‘(ii) such deficiency may be assessed before the expiration of such 3- 

year period notwithstanding the provisions of any other law or rule of 

law which would otherwise prevent such assessment.’’. 

(d) ENERGY EFFICIENCY AND HISTORIC NATURE TAKEN INTO ACCOUNT IN MAKING

ALLOCATIONS.—Subparagraph (C) of section 42(m)(1) (relating to plans for allocation 

of credit among projects) is amended by striking ‘‘and’’ at the end of clause (vii), by 

striking the period at the end of clause (viii) and inserting a comma, and by adding 

at the end the following new clauses: 

‘‘(ix) the energy efficiency of the project, and 

‘‘(x) the historic nature of the project.’’. 

(e) CONTINUED ELIGIBILITY FOR STUDENTS WHO RECEIVED FOSTER CARE ASSISTANCE.—Clause (i) of section 42(i)(3)(D) is amended by striking ‘‘or’’ at the end of subclause (I), by redesignating subclause (II) as subclause (III), and by inserting after 

subclause (I) the following new subclause: 

‘‘(II) a student who was previously under the care and placement 

responsibility of the State agency responsible for administering a 

plan under part B or part E of title IV of the Social Security Act, 

or’’. 

(f) TREATMENT OF RURAL PROJECTS.—Section 42(i) (relating to definitions and special rules) is amended by adding at the end the following new paragraph: 

‘‘(8) TREATMENT OF RURAL PROJECTS.—For purposes of this section, in the case 

of any project for residential rental property located in a rural area (as defined 

in section 520 of the Housing Act of 1949), any income limitation measured by 

reference to area median gross income shall be measured by reference to the 

greater of area median gross income or national non-metropolitan median income. The preceding sentence shall not apply with respect to any building if 

paragraph (1) of section 42(h) does not apply by reason of paragraph (4) thereof 

to any portion of the credit determined under this section with respect to such 

building.’’. 

(g) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to buildings placed in service after the 

date of the enactment of this Act. 

(2) REPEAL OF BONDING REQUIREMENT ON DISPOSITION OF BUILDING.—The 

amendment made by subsection (c) shall apply to—

(A) interests in buildings disposed after the date of the enactment of this 

Act, and 

(B) interests in buildings disposed of on or before such date if—

(i) it is reasonably expected that such building will continue to be operated as a qualified low-income building (within the meaning of section 42 of the Internal Revenue Code of 1986) for the remaining compliance period (within the meaning of such section) with respect to such 

building, and 

(ii) the taxpayer elects the application of this subparagraph with respect to such disposition. 

Notwithstanding the preceding sentence, the amendments made by subsection 

(c) shall not apply to any disposition after the date 5 years after the date of 

the enactment of this Act. 

(3) ENERGY EFFICIENCY AND HISTORIC NATURE TAKEN INTO ACCOUNT IN MAKING ALLOCATIONS.—The amendments made by subsection (d) shall apply to allocations made after December 31, 2008. 


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(4) CONTINUED ELIGIBILITY FOR STUDENTS WHO RECEIVED FOSTER CARE ASSISTANCE.—The amendments made by subsection (e) shall apply to determinations 

made after the date of the enactment of this Act. 

(5) TREATMENT OF RURAL PROJECTS.—The amendment made by subsection (f) 

shall apply to determinations made after the date of the enactment of this Act. 

PART 2—MODIFICATIONS TO TAX-EXEMPT HOUSING 

BOND RULES 

SEC. 111. RECYCLING OF TAX-EXEMPT DEBT FOR FINANCING RESIDENTIAL RENTAL 

PROJECTS. 

(a) IN GENERAL.—Subsection (i) of section 146 (relating to treatment of refunding 

issues) is amended by adding at the end the following new paragraph: 

‘‘(6) TREATMENT OF CERTAIN RESIDENTIAL RENTAL PROJECT BONDS AS REFUNDING BONDS IRRESPECTIVE OF OBLIGOR.—

‘‘(A) IN GENERAL.—If, during the 6-month period beginning on the date 

of a repayment of a loan financed by an issue 95 percent or more of the 

net proceeds of which are used to provide projects described in section 

142(d), such repayment is used to provide a new loan for any project so described, any bond which is issued to refinance such issue shall be treated 

as a refunding issue to the extent the principal amount of such refunding 

issue does not exceed the principal amount of the bonds refunded. 

‘‘(B) LIMITATIONS.—Subparagraph (A) shall apply to only one refunding of 

the original issue and only if—

‘‘(i) the refunding issue is issued not later than 4 years after the date 

on which the original issue was issued, 

‘‘(ii) the latest maturity date of any bond of the refunding issue is not 

later than 34 years after the date on which the refunded bond was 

issued, and 

‘‘(iii) the refunding issue is approved in accordance with section 147(f) 

before the issuance of the refunding issue.’’. 

(b) LOW-INCOME HOUSING CREDIT.—Clause (ii) of section 42(h)(4)(A) is amended 

by inserting ‘‘or such financing is refunded as described in section 146(i)(6)’’ before 

the period at the end. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to repayments of loans received after the date of the enactment of this Act. 

SEC. 112. COORDINATION OF CERTAIN RULES APPLICABLE TO LOW-INCOME HOUSING CREDIT AND QUALIFIED RESIDENTIAL RENTAL PROJECT EXEMPT FACILITY BONDS. 

(a) DETERMINATION OF NEXT AVAILABLE UNIT.—Paragraph (3) of section 142(d) 

(relating to current income determinations) is amended by adding at the end the 

following new subparagraph: 

‘‘(C) EXCEPTION FOR PROJECTS WITH RESPECT TO WHICH AFFORDABLE

HOUSING CREDIT IS ALLOWED.—In the case of a project with respect to which 

credit is allowed under section 42, the second sentence of subparagraph (B) 

shall be applied by substituting ‘building (within the meaning of section 42)’

for ‘project’.’’. 

(b) STUDENTS.—Paragraph (2) of section 142(d) (relating to definitions and special 

rules) is amended by adding at the end the following new subparagraph: 

‘‘(C) STUDENTS.—Rules similar to the rules of 42(i)(3)(D) shall apply for 

purposes of this subsection.’’. 

(c) SINGLE-ROOM OCCUPANCY UNITS.—Paragraph (2) of section 142(d) (relating to 

definitions and special rules), as amended by subsection (b), is further amended by 

adding at the end the following new subparagraph: 

‘‘(D) SINGLE-ROOM OCCUPANCY UNITS.—A unit shall not fail to be treated 

as a residential unit merely because such unit is a single-room occupancy 

unit (within the meaning of section 42).’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to determinations of the status of qualified residential rental projects for periods beginning 

after the date of the enactment of this Act, with respect to bonds issued before, on, 

or after such date. 


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PART 3—REFORMS RELATED TO THE LOW-INCOME 

HOUSING CREDIT AND TAX-EXEMPT HOUSING BONDS 

SEC. 121. HOLD HARMLESS FOR REDUCTIONS IN AREA MEDIAN GROSS INCOME. 

(a) IN GENERAL.—Paragraph (2) of section 142(d), as amended by section 112, is 

further amended by adding at the end the following new subparagraph: 

‘‘(E) HOLD HARMLESS FOR REDUCTIONS IN AREA MEDIAN GROSS INCOME.—

‘‘(i) IN GENERAL.—Any determination of area median gross income 

under subparagraph (B) with respect to any project for any calendar 

year after 2008 shall not be less than the area median gross income 

determined under such subparagraph with respect to such project for 

the calendar year preceding the calendar year for which such determination is made. 

‘‘(ii) SPECIAL RULE FOR CERTAIN CENSUS CHANGES.—In the case of a 

HUD hold harmless impacted project, the area median gross income 

with respect to such project for any calendar year after 2008 (hereafter 

in this clause referred to as the current calendar year) shall be the 

greater of the amount determined without regard to this clause or the 

sum of—

‘‘(I) the area median gross income determined under the HUD 

hold harmless policy with respect to such project for calendar year 

2008, plus 

‘‘(II) any increase in the area median gross income determined 

under subparagraph (B) (determined without regard to the HUD 

hold harmless policy and this subparagraph) with respect to such 

project for the current calendar year over the area median gross income (as so determined) with respect to such project for calendar 

year 2008. 

‘‘(iii) HUD HOLD HARMLESS POLICY.—The term ‘HUD hold harmless 

policy’ means the regulations under which a policy similar to the rules 

of clause (i) applied to prevent a change in the method of determining 

area median gross income from resulting in a reduction in the area median gross income determined with respect to certain projects in calendar years 2007 and 2008. 

‘‘(iv) HUD HOLD HARMLESS IMPACTED PROJECT.—The term ‘HUD hold 

harmless impacted project’ means any project with respect to which 

area median gross income was determined under subparagraph (B) for 

calendar year 2007 or 2008 if such determination would have been less 

but for the HUD hold harmless policy.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to determinations of area median gross income for calendar years after 2008. 

SEC. 122. EXCEPTION TO ANNUAL CURRENT INCOME DETERMINATION REQUIREMENT WHERE 

DETERMINATION NOT RELEVANT. 

(a) IN GENERAL.—Subparagraph (A) of section 142(d)(3) is amended by adding at 

the end the following new sentence: ‘‘The preceding sentence shall not apply with 

respect to any project for any year if during such year no residential unit in the 

project is occupied by a new resident whose income exceeds the applicable income 

limit.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to years 

ending after the date of the enactment of this Act. 

Subtitle B—Single Family Housing 

SEC. 131. FIRST-TIME HOMEBUYER CREDIT. 

(a) IN GENERAL.—Subpart C of part IV of subchapter A of chapter 1 is amended 

by redesignating section 36 as section 37 and by inserting after section 35 the following new section: 

‘‘SEC. 36. FIRST-TIME HOMEBUYER CREDIT. 

‘‘(a) ALLOWANCE OF CREDIT.—In the case of an individual who is a first-time 

homebuyer of a principal residence in the United States during a taxable year, there 

shall be allowed as a credit against the tax imposed by this subtitle for such taxable 

year an amount equal to 10 percent of the purchase price of the residence. 

‘‘(b) LIMITATIONS.—

‘‘(1) DOLLAR LIMITATION.—


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‘‘(A) IN GENERAL.—Except as otherwise provided in this paragraph, the credit allowed under subsection (a) shall not exceed $7,500. ‘‘(B) MARRIED INDIVIDUALS FILING SEPARATELY.—In the case of a married 

individual filing a separate return, subparagraph (A) shall be applied by 

substituting ‘$3,750’ for ‘$7,500’. ‘‘(C) OTHER INDIVIDUALS.—If two or more individuals who are not married 

purchase a principal residence, the amount of the credit allowed under subsection (a) shall be allocated among such individuals in such manner as the 

Secretary may prescribe, except that the total amount of the credits allowed 

to all such individuals shall not exceed $7,500. ‘‘(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.— ‘‘(A) IN GENERAL.—The amount allowable as a credit under subsection (a) 

(determined without regard to this paragraph) for the taxable year shall be 

reduced (but not below zero) by the amount which bears the same ratio to 

the amount which is so allowable as— ‘‘(i) the excess (if any) of— ‘‘(I) the taxpayer’s modified adjusted gross income for such taxable year, over ‘‘(II) $70,000 ($140,000 in the case of a joint return), bears to ‘‘(ii) $20,000. ‘‘(B) MODIFIED ADJUSTED GROSS INCOME.—For purposes of subparagraph 

(A), the term ‘modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded 

from gross income under section 911, 931, or 933. 

‘‘(c) DEFINITIONS.—For purposes of this section—

‘‘(1) FIRST-TIME HOMEBUYER.—The term ‘first-time homebuyer’ means any individual if such individual (and if married, such individual’s spouse) had no 

present ownership interest in a principal residence during the 3-year period 

ending on the date of the purchase of the principal residence to which this section applies. 

‘‘(2) PRINCIPAL RESIDENCE.—The term ‘principal residence’ has the same 

meaning as when used in section 121. 

‘‘(3) PURCHASE.—

‘‘(A) IN GENERAL.—The term ‘purchase’ means any acquisition, but only 

if—

‘‘(i) the property is not acquired from a person related to the person 

acquiring it, and 

‘‘(ii) the basis of the property in the hands of the person acquiring 

it is not determined—

‘‘(I) in whole or in part by reference to the adjusted basis of such 

property in the hands of the person from whom acquired, or 

‘‘(II) under section 1014(a) (relating to property acquired from a 

decedent). 

‘‘(B) CONSTRUCTION.—A residence which is constructed by the taxpayer 

shall be treated as purchased by the taxpayer on the date the taxpayer first 

occupies such residence. 

‘‘(4) PURCHASE PRICE.—The term ‘purchase price’ means the adjusted basis of 

the principal residence on the date such residence is purchased. 

‘‘(5) RELATED PERSONS.—A person shall be treated as related to another person if the relationship between such persons would result in the disallowance 

of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for 

purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, 

and lineal descendants). 

‘‘(d) EXCEPTIONS.—No credit under subsection (a) shall be allowed to any taxpayer 

for any taxable year with respect to the purchase of a residence if—

‘‘(1) a credit under section 1400C (relating to first-time homebuyer in the District of Columbia) is allowable to the taxpayer (or the taxpayer’s spouse) for 

such taxable year or any prior taxable year, 

‘‘(2) the residence is financed by the proceeds of a qualified mortgage issue 

the interest on which is exempt from tax under section 103, 

‘‘(3) the taxpayer is a nonresident alien, or 

‘‘(4) the taxpayer disposes of such residence (or such residence ceases to be 

the principal residence of the taxpayer (and, if married, the taxpayer’s spouse)) 

before the close of such taxable year. 

‘‘(e) REPORTING.—If the Secretary requires information reporting under section 

6045 by a person described in subsection (e)(2) thereof to verify the eligibility of taxpayers for the credit allowable by this section, the exception provided by section 

6045(e) shall not apply. 


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‘‘(f) RECAPTURE OF CREDIT.— ‘‘(1) IN GENERAL.—Except as otherwise provided in this subsection, if a credit 

under subsection (a) is allowed to a taxpayer, the tax imposed by this chapter 

shall be increased by 62⁄3 percent of the amount of such credit for each taxable 

year in the recapture period. 

‘‘(2) ACCELERATION OF RECAPTURE.—If a taxpayer disposes of the principal 

residence with respect to which a credit was allowed under subsection (a) (or 

such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer’s spouse)) before the end of the recapture period— 

‘‘(A) the tax imposed by this chapter for the taxable year of such disposition or cessation, shall be increased by the excess of the amount of the credit allowed over the amounts of tax imposed by paragraph (1) for preceding 

taxable years, and 

‘‘(B) paragraph (1) shall not apply with respect to such credit for such 

taxable year or any subsequent taxable year . 

‘‘(3) LIMITATION BASED ON GAIN.—In the case of the sale of the principal residence to a person who is not related to the taxpayer, the increase in tax determined under paragraph (2) shall not exceed the amount of gain (if any) on such 

sale. Solely for purposes of the preceding sentence, the adjusted basis of such 

residence shall be reduced by the amount of the credit allowed under subsection 

(a) to the extent not previously recaptured under paragraph (1). 

‘‘(4) EXCEPTIONS.— ‘‘(A) DEATH OF TAXPAYER.—Paragraphs (1) and (2) shall not apply to any 

taxable year ending after the date of the taxpayer’s death. 

‘‘(B) INVOLUNTARY CONVERSION.—Paragraph (2) shall not apply in the 

case of a residence which is compulsorily or involuntarily converted (within 

the meaning of section 1033(a)) if the taxpayer acquires a new principal 

residence during the 2-year period beginning on the date of the disposition 

or cessation referred to in paragraph (2). Paragraph (2) shall apply to such 

new principal residence during the recapture period in the same manner as 

if such new principal residence were the converted residence. 

‘‘(C) TRANSFERS BETWEEN SPOUSES OR INCIDENT TO DIVORCE.—In the case 

of a transfer of a residence to which section 1041(a) applies— 

‘‘(i) paragraph (2) shall not apply to such transfer, and 

‘‘(ii) in the case of taxable years ending after such transfer, paragraphs (1) and (2) shall apply to the transferee in the same manner as 

if such transferee were the transferor (and shall not apply to the transferor). 

‘‘(5) JOINT RETURNS.—In the case of a credit allowed under subsection (a) with 

respect to a joint return, half of such credit shall be treated as having been allowed to each individual filing such return for purposes of this subsection. 

‘‘(6) RECAPTURE PERIOD.—For purposes of this subsection, the term ‘recapture 

period’ means the 15 taxable years beginning with the second taxable year following the taxable year in which the purchase of the principal residence for 

which a credit is allowed under subsection (a) was made. 

‘‘(g) APPLICATION OF SECTION.—This section shall only apply to a principal residence purchased by the taxpayer on or after April 9, 2008, and before April 1, 

2009.’’. 

(b) CONFORMING AMENDMENTS.— 

(1) Section 26(b)(2) is amended by striking ‘‘and’’ at the end of subparagraph 

(U), by striking the period and inserting ‘‘, and’’ and the end of subparagraph 

(V), and by inserting after subparagraph (V) the following new subparagraph: 

‘‘(W) section 36(f) (relating to recapture of homebuyer credit).’’. 

(2) Section 6211(b)(4)(A) is amended by striking ‘‘34,’’ and all that follows 

through ‘‘6428’’ and inserting ‘‘34, 35, 36, 53(e), and 6428’’. 

(3) Section 1324(b)(2) of title 31, United States Code, is amended by inserting 

‘‘, 36,’’ after ‘‘section 35’’. 

(4) The table of sections for subpart C of part IV of subchapter A of chapter 

1 is amended by redesignating the item relating to section 36 as an item relating to section 37 and by inserting before such item the following new item: 

‘‘Sec. 36. First-time homebuyer credit.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to residences purchased on or after April 9, 2008, in taxable years ending on or after such 

date. 

SEC. 132. ADDITIONAL STANDARD DEDUCTION FOR REAL PROPERTY TAXES FOR NONITEMIZERS. 

(a) IN GENERAL.—Section 63(c)(1) (defining standard deduction) is amended by 

striking ‘‘and’’ at the end of subparagraph (A), by striking the period at the end of 


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subparagraph (B) and inserting ‘‘, and’’, and by adding at the end the following new 

subparagraph: 

‘‘(C) in the case of any taxable year beginning in 2008, the real property 

tax deduction.’’. 

(b) DEFINITION.—Section 63(c) is amended by adding at the end the following new 

paragraph: 

‘‘(7) REAL PROPERTY TAX DEDUCTION.—For purposes of paragraph (1), the real 

property tax deduction is the lesser of—

‘‘(A) the amount allowable as a deduction under this chapter for State 

and local taxes described in section 164(a)(1), or 

‘‘(B) $350 ($700 in the case of a joint return). 

Any taxes taken into account under section 62(a) shall not be taken into account 

under this paragraph.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2007. 

Subtitle C—General Provisions 

SEC. 141. TEMPORARY LIBERALIZATION OF TAX-EXEMPT HOUSING BOND RULES. 

(a) TEMPORARY INCREASE IN VOLUME CAP.—

(1) IN GENERAL.—Subsection (d) of section 146 is amended by adding at the 

end the following new paragraph: 

‘‘(5) INCREASE AND SET ASIDE FOR HOUSING BONDS FOR 2008.—

‘‘(A) INCREASE FOR 2008.—In the case of calendar year 2008, the State ceiling for each State shall be increased by an amount equal to $10,000,000,000 

multiplied by a fraction—

‘‘(i) the numerator of which is the population of such State, and 

‘‘(ii) the denominator of which is the total population of all States. 

‘‘(B) SET ASIDE.—

‘‘(i) IN GENERAL.—Any amount of the State ceiling for any State 

which is attributable to an increase under this paragraph shall be allocated solely for one or more qualified housing issues. 

‘‘(ii) QUALIFIED HOUSING ISSUE.—For purposes of this paragraph, the 

term ‘qualified housing issue’ means—

‘‘(I) an issue described in section 142(a)(7) (relating to qualified 

residential rental projects), or 

‘‘(II) a qualified mortgage issue (determined by substituting ‘12- 

month period’ for ‘42-month period’ each place it appears in section 

143(a)(2)(D)(i)).’’. 

(2) CARRYFORWARD OF UNUSED LIMITATIONS.—Subsection (f) of section 146 is 

amended by adding at the end the following new paragraph: 

‘‘(6) SPECIAL RULES FOR INCREASED VOLUME CAP UNDER SUBSECTION (d)(5).—

No amount which is attributable to the increase under subsection (d)(5) may be 

used—

‘‘(A) for any issue other than a qualified housing issue (as defined in subsection (d)(5)), or 

‘‘(B) to issue any bond after calendar year 2010.’’. 

(b) TEMPORARY RULE FOR USE OF QUALIFIED MORTGAGE BONDS PROCEEDS FOR

SUBPRIME REFINANCING LOANS.—

(1) IN GENERAL.—Section 143(k) (relating to other definitions and special 

rules) is amended by adding at the end the following new paragraph: 

‘‘(12) SPECIAL RULES FOR SUBPRIME REFINANCINGS.—

‘‘(A) IN GENERAL.—Notwithstanding the requirements of subsection (i)(1), 

the proceeds of a qualified mortgage issue may be used to refinance a mortgage on a residence which was originally financed by the mortgagor 

through a qualified subprime loan. 

‘‘(B) SPECIAL RULES.—In applying subparagraph (A) to any refinancing—

‘‘(i) subsection (a)(2)(D)(i) shall be applied by substituting ‘12-month 

period’ for ‘42-month period’ each place it appears, 

‘‘(ii) subsection (d) (relating to 3-year requirement) shall not apply, 

and 

‘‘(iii) subsection (e) (relating to purchase price requirement) shall be 

applied by using the market value of the residence at the time of refinancing in lieu of the acquisition cost. 

‘‘(C) QUALIFIED SUBPRIME LOAN.—The term ‘qualified subprime loan’

means an adjustable rate single-family residential mortgage loan made 

after December 31, 2001, and before January 1, 2008, that the bond issuer 


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determines would be reasonably likely to cause financial hardship to the 

borrower if not refinanced. 

‘‘(D) TERMINATION.—This paragraph shall not apply to any bonds issued 

after December 31, 2010.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to bonds 

issued after the date of the enactment of this Act. 

SEC. 142. REPEAL OF ALTERNATIVE MINIMUM TAX LIMITATIONS ON TAX-EXEMPT HOUSING 

BONDS, LOW-INCOME HOUSING TAX CREDIT, AND REHABILITATION CREDIT. 

(a) TAX-EXEMPT INTEREST ON CERTAIN HOUSING BONDS EXEMPTED FROM ALTERNATIVE MINIMUM TAX.—

(1) IN GENERAL.—Subparagraph (C) of section 57(a)(5) (relating to specified 

private activity bonds) is amended by redesignating clauses (iii) and (iv) as 

clauses (iv) and (v), respectively, and by inserting after clause (ii) the following 

new clause: 

‘‘(iii) EXCEPTION FOR CERTAIN HOUSING BONDS.—For purposes of 

clause (i), the term ‘private activity bond’ shall not include any bond 

issued after the date of the enactment of this clause if such bond is—

‘‘(I) an exempt facility bond issued as part of an issue 95 percent 

or more of the net proceeds of which are to be used to provide 

qualified residential rental projects (as defined in section 142(d)), 

‘‘(II) a qualified mortgage bond (as defined in section 143(a)), or 

‘‘(III) a qualified veterans’ mortgage bond (as defined in section 

143(b)). 

The preceding sentence shall not apply to any refunding bond unless 

such preceding sentence applied to the refunded bond (or in the case 

of a series of refundings, the original bond).’’. 

(2) NO ADJUSTMENT TO ADJUSTED CURRENT EARNINGS.—Subparagraph (B) of 

section 56(g)(4) is amended by adding at the end the following new clause: 

‘‘(iii) TAX EXEMPT INTEREST ON CERTAIN HOUSING BONDS.—Clause (i) 

shall not apply in the case of any interest on a bond to which section 

57(a)(5)(C)(iii) applies.’’. 

(b) ALLOWANCE OF LOW-INCOME HOUSING CREDIT AGAINST ALTERNATIVE MINIMUM

TAX.—Subparagraph (B) of section 38(c)(4) (relating to specified credits) is amended 

by redesignating clauses (ii) through (iv) as clauses (iii) through (v) and inserting 

after clause (i) the following new clause: 

‘‘(ii) the credit determined under section 42 to the extent attributable 

to buildings placed in service after December 31, 2007,’’. 

(c) ALLOWANCE OF REHABILITATION CREDIT AGAINST ALTERNATIVE MINIMUM

TAX.—Subparagraph (B) of section 38(c)(4), as amended by subsection (b), is amended by striking ‘‘and’’ at the end of clause (iv), by redesignating clause (v) as clause 

(vi), and by inserting after clause (iv) the following new clause: 

‘‘(v) the credit determined under section 47 to the extent attributable 

to qualified rehabilitation expenditures properly taken into account for 

periods after December 31, 2007, and’’. 

(d) EFFECTIVE DATE.—

(1) HOUSING BONDS.—The amendments made by subsection (a) shall apply to 

bonds issued after the date of the enactment of this Act. 

(2) LOW INCOME HOUSING CREDIT.—The amendments made by subsection (b) 

shall apply to credits determined under section 42 of the Internal Revenue Code 

of 1986 to the extent attributable to buildings placed in service after December 

31, 2007. 

(3) REHABILITATION CREDIT.—The amendments made by subsection (c) shall 

apply to credits determined under section 47 of the Internal Revenue Code of 

1986 to the extent attributable to qualified rehabilitation expenditures properly 

taken into account for periods after December 31, 2007. 

SEC. 143. BONDS GUARANTEED BY FEDERAL HOME LOAN BANKS ELIGIBLE FOR TREATMENT 

AS TAX-EXEMPT BONDS. 

(a) IN GENERAL.—Subparagraph (A) of section 149(b)(3) (relating to exceptions for 

certain insurance programs) is amended by striking ‘‘or’’ at the end of clause (ii), 

by striking the period at the end of clause (iii) and inserting ‘‘, or’’ and by adding 

at the end the following new clause: 

‘‘(iv) any guarantee by a Federal home loan bank made in connection 

with the original issuance of a bond during the period beginning on the 

date of the enactment of this Act and ending on December 31, 2010 (or 

a renewal or extension of a guarantee so made).’’. 

(b) SAFETY AND SOUNDNESS REQUIREMENTS.—Paragraph (3) of section 149(b) is 

amended by adding at the end the following new subparagraph: 


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‘‘(E) SAFETY AND SOUNDNESS REQUIREMENTS FOR FEDERAL HOME LOAN

BANKS.—Clause (iv) of subparagraph (A) shall not apply to any guarantee 

by a Federal home loan bank unless such bank meets safety and soundness 

collateral requirements for such guarantees which are at least as stringent 

as such requirements which apply under regulations applicable to such 

guarantees by Federal home loan banks as in effect on April 9, 2008.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to guarantees made after the date of the enactment of this Act. 

SEC. 144. MODIFICATION OF RULES PERTAINING TO FIRPTA NONFOREIGN AFFIDAVITS. 

(a) IN GENERAL.—Subsection (b) of section 1445 (relating to exemptions) is amended by adding at the end the following: 

‘‘(9) ALTERNATIVE PROCEDURE FOR FURNISHING NONFOREIGN AFFIDAVIT.—For 

purposes of paragraphs (2) and (7)—

‘‘(A) IN GENERAL.—Paragraph (2) shall be treated as applying to a transaction if, in connection with a disposition of a United States real property 

interest—

‘‘(i) the affidavit specified in paragraph (2) is furnished to a qualified 

substitute, and 

‘‘(ii) the qualified substitute furnishes a statement to the transferee 

stating, under penalty of perjury, that the qualified substitute has such 

affidavit in his possession. 

‘‘(B) REGULATIONS.—The Secretary shall prescribe such regulations as 

may be necessary or appropriate to carry out this paragraph.’’. 

(b) QUALIFIED SUBSTITUTE.—Subsection (f) of section 1445 (relating to definitions) 

is amended by adding at the end the following new paragraph: 

‘‘(6) QUALIFIED SUBSTITUTE.—The term ‘qualified substitute’ means, with respect to a disposition of a United States real property interest—

‘‘(A) the person (including any attorney or title company) responsible for 

closing the transaction, other than the transferor’s agent, and 

‘‘(B) the transferee’s agent.’’. 

(c) EXEMPTION NOT TO APPLY IF KNOWLEDGE OR NOTICE THAT AFFIDAVIT OR

STATEMENT IS FALSE.—

(1) IN GENERAL.—Paragraph (7) of section 1445(b) (relating to special rules for 

paragraphs (2) and (3)) is amended to read as follows: 

‘‘(7) SPECIAL RULES FOR PARAGRAPHS (2), (3), AND (9).—Paragraph (2), (3), or (9) 

(as the case may be) shall not apply to any disposition—

‘‘(A) if—

‘‘(i) the transferee or qualified substitute has actual knowledge that 

the affidavit referred to in such paragraph, or the statement referred 

to in paragraph (9)(A)(ii), is false, or 

‘‘(ii) the transferee or qualified substitute receives a notice (as described in subsection (d)) from a transferor’s agent, transferee’s agent, 

or qualified substitute that such affidavit or statement is false, or 

‘‘(B) if the Secretary by regulations requires the transferee or qualified 

substitute to furnish a copy of such affidavit or statement to the Secretary 

and the transferee or qualified substitute fails to furnish a copy of such affidavit or statement to the Secretary at such time and in such manner as 

required by such regulations.’’. 

(2) LIABILITY.—

(A) NOTICE.—Paragraph (1) of section 1445(d) (relating to notice of false 

affidavit; foreign corporations) is amended to read as follows: 

‘‘(1) NOTICE OF FALSE AFFIDAVIT; FOREIGN CORPORATIONS.—If—

‘‘(A) the transferor furnishes the transferee or qualified substitute an affidavit described in paragraph (2) of subsection (b) or a domestic corporation 

furnishes the transferee an affidavit described in paragraph (3) of subsection (b), and 

‘‘(B) in the case of—

‘‘(i) any transferor’s agent—

‘‘(I) such agent has actual knowledge that such affidavit is false, 

or 

‘‘(II) in the case of an affidavit described in subsection (b)(2) furnished by a corporation, such corporation is a foreign corporation, 

or 

‘‘(ii) any transferee’s agent or qualified substitute, such agent or substitute has actual knowledge that such affidavit is false, 

such agent or qualified substitute shall so notify the transferee at such time 

and in such manner as the Secretary shall require by regulations.’’. 


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(B) FAILURE TO FURNISH NOTICE.—Paragraph (2) of section 1445(d) (relating to failure to furnish notice) is amended to read as follows: 

‘‘(2) FAILURE TO FURNISH NOTICE.—

‘‘(A) IN GENERAL.—If any transferor’s agent, transferee’s agent, or qualified substitute is required by paragraph (1) to furnish notice, but fails to 

furnish such notice at such time or times and in such manner as may be 

required by regulations, such agent or substitute shall have the same duty 

to deduct and withhold that the transferee would have had if such agent 

or substitute had complied with paragraph (1). 

‘‘(B) LIABILITY LIMITED TO AMOUNT OF COMPENSATION.—An agent’s or substitute’s liability under subparagraph (A) shall be limited to the amount of 

compensation the agent or substitute derives from the transaction.’’. 

(C) CONFORMING AMENDMENT.—The heading for section 1445(d) is 

amended by striking ‘‘OR TRANSFEREE’S AGENTS’’ and inserting ‘‘, TRANSFEREE’S AGENTS, OR QUALIFIED SUBSTITUTES’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to dispositions of United States real property interests after the date of the enactment 

of this Act. 

SEC. 145. MODIFICATION OF DEFINITION OF TAX-EXEMPT USE PROPERTY FOR PURPOSES OF 

THE REHABILITATION CREDIT. 

(a) IN GENERAL.—Subclause (I) of section 47(c)(2)(B)(v) is amended by striking 

‘‘section 168(h)’’ and inserting ‘‘section 168(h), except that ‘50 percent’ shall be substituted for ‘35 percent’ in paragraph (1)(B)(iii) thereof’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to expenditures properly taken into account for periods after December 31, 2007. 

TITLE II—REFORMS RELATED TO REAL 

ESTATE INVESTMENT TRUSTS 

Subtitle A—Foreign Currency and Other Qualified 

Activities 

SEC. 201. REVISIONS TO REIT INCOME TESTS. 

(a) ADDITION OF PERMISSIBLE INCOME CATEGORIES.—Section 856(c) (relating to 

limitations) is amended—

(1) by striking ‘‘and’’ at the end of paragraph (2)(G) and by inserting after 

paragraph (2)(H) the following new subparagraphs: 

‘‘(I) passive foreign exchange gains; and 

‘‘(J) any other item of income or gain as determined by the Secretary;’’, 

and 

(2) by striking ‘‘and’’ at the end of paragraphs (3)(H) and (3)(I) and by inserting after paragraph (3)(I) the following new subparagraphs: 

‘‘(J) real estate foreign exchange gains; and 

‘‘(K) any other item of income or gain as determined by the Secretary; 

and’’. 

(b) RULES REGARDING FOREIGN CURRENCY TRANSACTIONS.—Section 856 (defining 

real estate investment trust) is amended by adding at the end the following new 

subsection: 

‘‘(n) RULES REGARDING FOREIGN CURRENCY TRANSACTIONS.—With respect to any 

taxable year—

‘‘(1) REAL ESTATE FOREIGN EXCHANGE GAINS.—For purposes of subsection 

(c)(3)(J), the term ‘real estate foreign exchange gains’ means—

‘‘(A) foreign currency gains (as defined in section 988(b)(1)) which are attributable to—

‘‘(i) any item described in subsection (c)(3) (other than in subparagraph (J) thereof), 

‘‘(ii) the acquisition or ownership of obligations secured by mortgages 

on real property or on interests in real property (other than foreign currency gains attributable to any item described in clause (i)), or 

‘‘(iii) becoming or being the obligor under obligations secured by 

mortgages on real property or on interests in real property (other than 

foreign currency gains attributable to any item described in clause (i)), 

‘‘(B) gains described in section 987 attributable to a qualified business 

unit (as defined by section 989) of the real estate investment trust, but only 

if such qualified business unit meets the requirements under—


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‘‘(i) subsection (c)(3) (without regard to subparagraph (J) thereof) for 

the taxable year, and ‘‘(ii) subsection (c)(4)(A) at the close of each quarter that the real estate investment trust has directly or indirectly held the qualified business unit, and ‘‘(C) any other foreign currency gains as determined by the Secretary. ‘‘(2) PASSIVE FOREIGN EXCHANGE GAINS.—For purposes of subsection (c)(2)(I), 

the term ‘passive foreign exchange gains’ means— ‘‘(A) real estate foreign exchange gains, 

‘‘(B) foreign currency gains (as defined in section 988(b)(1)) which are not 

described in subparagraph (A) and which are attributable to any item described in subsection (c)(2) (other than in subparagraph (I) thereof), and ‘‘(C) any other foreign currency gains as determined by the Secretary.’’. (c) ADDITION TO REIT HEDGING RULE.—Subparagraph (G) of section 856(c)(5) is 

amended to read as follows: ‘‘(G) TREATMENT OF CERTAIN HEDGING INSTRUMENTS.—Except to the extent as determined by the Secretary— ‘‘(i) 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 paragraphs (2) and (3) to the extent that the transaction hedges any indebtedness incurred or to be incurred by the trust 

to acquire or carry real estate assets, and ‘‘(ii) any income of a real estate investment trust from a transaction 

entered into by the trust primarily to manage risk of currency fluctuations with respect to any item described in paragraph (2) or (3), including gain from the termination of such a transaction, shall not constitute 

gross income under paragraphs (2) and (3), but only if such transaction 

is clearly identified as such before the close of the day on which it was 

acquired, originated, or entered into (or such other time as the Secretary may prescribe).’’. (d) AUTHORITY TO EXCLUDE ITEMS OF INCOME FROM REIT INCOME TESTS.—Section 856(c)(5) is amended by adding at the end the following new subparagraph: ‘‘(H) SECRETARIAL AUTHORITY TO EXCLUDE OTHER ITEMS OF INCOME.—The 

Secretary is authorized to determine whether any item of income or gain 

which does not otherwise qualify under paragraph (2) or (3) may be considered as not constituting gross income solely for purposes of this part.’’. 

SEC. 202. REVISIONS TO REIT ASSET TESTS. 

(a) CLARIFICATION OF VALUATION TEST.—The first sentence in the matter following section 856(c)(4)(B)(iii)(III) is amended by inserting ‘‘(including a discrepancy 

caused solely by the change in the foreign currency exchange rate used to value a 

foreign asset)’’ after ‘‘such requirements’’. 

(b) CLARIFICATION OF PERMISSIBLE ASSET CATEGORY.—Section 856(c)(5), as 

amended by section 201(d), is amended by adding at the end the following new subparagraph: 

‘‘(I) CASH.—The term ‘cash’ includes foreign currency if the real estate investment trust or its qualified business unit (as defined in section 989) uses 

such foreign currency as its functional currency (as defined in section 

985(b)).’’. 

SEC. 203. CONFORMING FOREIGN CURRENCY REVISIONS. 

(a) NET INCOME FROM FORECLOSURE PROPERTY.—Clause (i) of section 857(b)(4)(B) 

is amended to read as follows: 

‘‘(i) gain (including any foreign currency gain, as defined in section 

988(b)(1)) from the sale or other disposition of foreclosure property described in section 1221(a)(1) and the gross income for the taxable year 

derived from foreclosure property (as defined in section 856(e)), but 

only to the extent such gross income is not described in (or, in the case 

of foreign currency gain, not attributable to gross income described in) 

section 856(c)(3) other than subparagraph (F) thereof, over’’. 

(b) NET INCOME FROM PROHIBITED TRANSACTIONS.—Clause (i) of section 

857(b)(6)(B) is amended to read as follows: 

‘‘(i) the term ‘net income derived from prohibited transactions’ means 

the excess of the gain (including any foreign currency gain, as defined 

in section 988(b)(1)) from prohibited transactions over the deductions 

(including any foreign currency loss, as defined in section 988(b)(2)) allowed by this chapter which are directly connected with prohibited 

transactions;’’. 


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15 

Subtitle B—Taxable REIT Subsidiaries 

SEC. 211. CONFORMING TAXABLE REIT SUBSIDIARY ASSET TEST. 

Section 856(c)(4)(B)(ii) is amended by striking ‘‘20 percent’’ and inserting ‘‘25 percent’’. 

Subtitle C—Dealer Sales 

SEC. 221. HOLDING PERIOD UNDER SAFE HARBOR. 

Section 857(b)(6) (relating to income from prohibited transactions) is amended— (1) by striking ‘‘4 years’’ in subparagraphs (C)(i), (C)(iv), and (D)(i) and inserting ‘‘2 years’’, (2) by striking ‘‘4-year period’’ in subparagraphs (C)(ii), (D)(ii), and (D)(iii) and 

inserting ‘‘2-year period’’, and 

(3) by striking ‘‘real estate asset’’and all that follows through ‘‘if’’ in the matter preceding clause (i) of subparagraphs (C) and (D), respectively, and inserting 

‘‘real estate asset (as defined in section 856(c)(5)(B)) and which is described in 

section 1221(a)(1) if’’. 

SEC. 222. DETERMINING VALUE OF SALES UNDER SAFE HARBOR. 

Section 857(b)(6) is amended—

(1) by striking the semicolon at the end of subparagraph (C)(iii) and inserting 

‘‘, or (III) the fair market value of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does 

not exceed 10 percent of the fair market value of all of the assets of the trust 

as of the beginning of the taxable year;’’, and 

(2) by adding ‘‘or’’ at the end of subclause (II) of subparagraph (D)(iv) and by 

adding at the end of such subparagraph the following new subclause: 

‘‘(III) the fair market value of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the 

taxable year does not exceed 10 percent of the fair market value of all 

of the assets of the trust as of the beginning of the taxable year,’’. 

Subtitle D—Health Care REITs 

SEC. 231. CONFORMITY FOR HEALTH CARE FACILITIES. 

(a) RELATED PARTY RENTALS.—Subparagraph (B) of section 856(d)(8) (relating to 

special rule for taxable REIT subsidiaries) is amended to read as follows: 

‘‘(B) EXCEPTION FOR CERTAIN LODGING FACILITIES AND HEALTH CARE PROPERTY.—The requirements of this subparagraph are met with respect to an 

interest in real property which is a qualified lodging facility or a qualified 

health care property (as defined in subsection (e)(6)(D)(i)) leased by the 

trust to a taxable REIT subsidiary of the trust if the property is operated 

on behalf of such subsidiary by a person who is an eligible independent contractor. For purposes of this section, a taxable REIT subsidiary is not considered to be operating or managing a qualified health care property or 

qualified lodging facility solely because it directly or indirectly possesses a 

license, permit or similar instrument enabling it to do so.’’. 

(b) ELIGIBLE INDEPENDENT CONTRACTOR.—Subparagraphs (A) and (B) of section 

856(d)(9) (relating to eligible independent contractor) are amended to read as follows: 

‘‘(A) IN GENERAL.—The term ‘eligible independent contractor’ means, with 

respect to any qualified lodging facility or qualified health care property (as 

defined in subsection (e)(6)(D)(i)), 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 such qualified 

lodging facility or qualified health care property, such contractor (or any related person) is actively engaged in the trade or business of operating qualified lodging facilities or qualified health care properties, respectively, 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 or qualified health care 

property (as so defined) by reason of the following: 


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‘‘(i) The taxable REIT subsidiary bears the expenses for the operation 

of such qualified lodging facility or qualified health care property pursuant to the management agreement or other similar service contract. 

‘‘(ii) The taxable REIT subsidiary receives the revenues from the operation of such qualified lodging facility or qualified health care property, 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 or qualified health care property.’’. 

(c) TAXABLE REIT SUBSIDIARIES.—The last sentence of section 856(l)(3) is amended—

(1) by inserting ‘‘or a health care facility’’ after ‘‘a lodging facility’’, and 

(2) by inserting ‘‘or health care facility’’ after ‘‘such lodging facility’’. 

Subtitle E—Effective Dates 

SEC. 241. EFFECTIVE DATES. 

(a) IN GENERAL.—Except as otherwise provided in this section, the amendments 

made by this title shall apply to taxable years beginning after the date of the enactment of this Act. 

(b) REIT INCOME TESTS.—

(1) The amendment made by section 201(a) and (b) shall apply to gains and 

items of income recognized after the date of the enactment of this Act. 

(2) The amendment made by section 201(c) shall apply to transactions entered 

into after the date of the enactment of this Act. 

(3) The amendment made by section 201(d) shall apply after the date of the 

enactment of this Act. 

(c) CONFORMING FOREIGN CURRENCY REVISIONS.—

(1) The amendment made by section 203(a) shall apply to gains recognized 

after the date of the enactment of this Act. 

(2) The amendment made by section 203(b) shall apply to gains and deductions recognized after the date of the enactment of this Act. 

(d) DEALER SALES.—The amendments made by subtitle C shall apply to sales 

made after the date of the enactment of this Act. 

TITLE III—REVENUE PROVISIONS 

SEC. 301. BROKER REPORTING OF CUSTOMER’S BASIS IN SECURITIES TRANSACTIONS. 

(a) IN GENERAL.—

(1) BROKER REPORTING FOR SECURITIES TRANSACTIONS.—Section 6045 (relating 

to returns of brokers) is amended by adding at the end the following new subsection: 

‘‘(g) ADDITIONAL INFORMATION REQUIRED IN THE CASE OF SECURITIES TRANSACTIONS, ETC.—

‘‘(1) IN GENERAL.—If a broker is otherwise required to make a return under 

subsection (a) with respect to the gross proceeds of the sale of a covered security, the broker shall include in such return the information described in paragraph (2). 

‘‘(2) ADDITIONAL INFORMATION REQUIRED.—

‘‘(A) IN GENERAL.—The information required under paragraph (1) to be 

shown on a return with respect to a covered security of a customer shall 

include the customer’s adjusted basis in such security and whether any 

gain or loss with respect to such security is long-term or short-term (within 

the meaning of section 1222). 

‘‘(B) DETERMINATION OF ADJUSTED BASIS.—For purposes of subparagraph 

(A)—

‘‘(i) IN GENERAL.—The customer’s adjusted basis shall be determined—


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17 

‘‘(I) in the case of any security (other than any stock for which 

an average basis method is permissible under section 1012), in accordance with the first-in first-out method unless the customer notifies the broker by means of making an adequate identification of 

the stock sold or transferred, and ‘‘(II) in the case of any stock for which an average basis method 

is permissible under section 1012, in accordance with the broker’s default method unless the customer notifies the broker that he 

elects another acceptable method under section 1012 with respect 

to the account in which such stock is held. ‘‘(ii) EXCEPTION FOR WASH SALES.—Except as otherwise provided by 

the Secretary, the customer’s adjusted basis shall be determined without regard to section 1091 (relating to loss from wash sales of stock or 

securities) unless the transactions occur in the same account with respect to identical securities. ‘‘(3) COVERED SECURITY.—For purposes of this subsection— ‘‘(A) IN GENERAL.—The term ‘covered security’ means any specified security acquired on or after the applicable date if such security— ‘‘(i) was acquired through a transaction in the account in which such 

security is held, or ‘‘(ii) was transferred to such account from an account in which such 

security was a covered security, but only if the broker received a statement under section 6045A with respect to the transfer. 

‘‘(B) SPECIFIED SECURITY.—The term ‘specified security’ means—

‘‘(i) any share of stock in a corporation, 

‘‘(ii) any note, bond, debenture, or other evidence of indebtedness, 

‘‘(iii) any commodity, or contract or derivative with respect to such 

commodity, if the Secretary determines that adjusted basis reporting is 

appropriate for purposes of this subsection, and 

‘‘(iv) any other financial instrument with respect to which the Secretary determines that adjusted basis reporting is appropriate for purposes of this subsection. 

‘‘(C) APPLICABLE DATE.—The term ‘applicable date’ means—

‘‘(i) January 1, 2010, in the case of any specified security which is 

stock in a corporation (other than any stock described in clause (ii)), 

‘‘(ii) January 1, 2011, in the case of any stock for which an average 

basis method is permissible under section 1012, and 

‘‘(iii) January 1, 2012, or such later date determined by the Secretary 

in the case of any other specified security. 

‘‘(4) TREATMENT OF S CORPORATIONS.—In the case of the sale of a covered security acquired by an S corporation (other than a financial institution) after December 31, 2011, such S corporation shall be treated in the same manner as 

a partnership for purposes of this section. 

‘‘(5) SPECIAL RULES FOR SHORT SALES.—In the case of a short sale, reporting 

under this section shall be made for the year in which such sale is closed.’’. 

(2) BROKER INFORMATION REQUIRED WITH RESPECT TO OPTIONS.—Section 6045, 

as amended by subsection (a), is amended by adding at the end the following 

new subsection: 

‘‘(h) APPLICATION TO OPTIONS ON SECURITIES.—

‘‘(1) EXERCISE OF OPTION.—For purposes of this section, if a covered security 

is acquired or disposed of pursuant to the exercise of an option that was granted 

or acquired in the same account as the covered security, the amount received 

with respect to the grant or paid with respect to the acquisition of such option 

shall be treated as an adjustment to gross proceeds or as an adjustment to 

basis, as the case may be. 

‘‘(2) LAPSE OR CLOSING TRANSACTION.—In the case of the lapse (or closing 

transaction (as defined in section 1234(b)(2)(A))) of an option on a specified security or the exercise of a cash-settled option on a specified security, reporting 

under subsections (a) and (g) with respect to such option shall be made for the 

calendar year which includes the date of such lapse, closing transaction, or exercise. 

‘‘(3) PROSPECTIVE APPLICATION.—Paragraphs (1) and (2) shall not apply to any 

option which is granted or acquired before January 1, 2012. 

‘‘(4) DEFINITIONS.—For purposes of this subsection, the terms ‘covered security’ and ‘specified security’ shall have the meanings given such terms in subsection (g)(3).’’. 

(3) EXTENSION OF PERIOD FOR STATEMENTS SENT TO CUSTOMERS.—

(A) IN GENERAL.—Subsection (b) of section 6045 is amended by striking 

‘‘January 31’’ and inserting ‘‘February 15’’. 


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(B) STATEMENTS RELATED TO SUBSTITUTE PAYMENTS.—Subsection (d) of 

section 6045 is amended—

(i) by striking ‘‘at such time and’’, and 

(ii) by inserting after ‘‘other item.’’ the following new sentence: ‘‘The 

written statement required under the preceding sentence shall be furnished on or before February 15 of the year following the calendar year 

in which the payment was made.’’. 

(C) OTHER STATEMENTS.—Subsection (b) of section 6045 is amended by 

adding at the end the following: ‘‘In the case of a consolidated reporting 

statement (as defined in regulations) with respect to any account, any statement which would otherwise be required to be furnished on or before January 31 of a calendar year with respect to any item reportable to the taxpayer shall instead be required to be furnished on or before February 15 

of such calendar year if furnished with such consolidated reporting statement.’’. 

(b) DETERMINATION OF BASIS OF CERTAIN SECURITIES ON ACCOUNT BY ACCOUNT

OR AVERAGE BASIS METHOD.—Section 1012 (relating to basis of property–cost) is 

amended—

(1) by striking ‘‘The basis of property’’ and inserting the following: 

‘‘(a) IN GENERAL.—The basis of property’’, 

(2) by striking ‘‘The cost of real property’’ and inserting the following: 

‘‘(b) SPECIAL RULE FOR APPORTIONED REAL ESTATE TAXES.—The cost of real property’’, and 

(3) by adding at the end the following new subsections: 

‘‘(c) DETERMINATIONS BY ACCOUNT.—

‘‘(1) IN GENERAL.—In the case of the sale, exchange, or other disposition of 

a specified security on or after the applicable date, the conventions prescribed 

by regulations under this section shall be applied on an account by account 

basis. 

‘‘(2) APPLICATION TO OPEN-END FUNDS.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph (B), any stock in 

an open-end fund acquired before January 1, 2011, shall be treated as a 

separate account from any such stock acquired on or after such date. 

‘‘(B) ELECTION BY OPEN-END FUND FOR TREATMENT AS SINGLE ACCOUNT.—

If an open-end fund elects to have this subparagraph apply with respect to 

one or more of its stockholders—

‘‘(i) subparagraph (A) shall not apply with respect to any stock in 

such fund held by such stockholders, and 

‘‘(ii) all stock in such fund which is held by such stockholders shall 

be treated as covered securities described in section 6045(g)(3) without 

regard to the date of the acquisition of such stock. 

A rule similar to the rule of the preceding sentence shall apply with respect 

to a broker holding stock in an open-end fund as a nominee. 

‘‘(3) DEFINITIONS.—For purposes of this section—

‘‘(A) OPEN-END FUND.—The term ‘open-end fund’ means a regulated investment company (as defined in section 851) which is offering for sale or 

has outstanding any redeemable security of which it is the issuer. Any 

stock which is traded on an established securities exchange shall not be 

treated as stock in an open-end fund. 

‘‘(B) SPECIFIED SECURITY; APPLICABLE DATE.—The terms ‘specified security’ and ‘applicable date’ shall have the meaning given such terms in section 6045(g). 

‘‘(d) AVERAGE BASIS FOR STOCK ACQUIRED PURSUANT TO A DIVIDEND REINVESTMENT PLAN.—

‘‘(1) IN GENERAL.—In the case of any stock acquired after December 31, 2010, 

in connection with a dividend reinvestment plan, the basis of such stock while 

held as part of such plan shall be determined using one of the methods which 

may be used for determining the basis of stock in an open-end fund. 

‘‘(2) TREATMENT AFTER TRANSFER.—In the case of the transfer to another account of stock to which paragraph (1) applies, such stock shall have a cost basis 

in such other account equal to its basis in the dividend reinvestment plan immediately before such transfer (properly adjusted for any fees or other charges 

taken into account in connection with such transfer). 

‘‘(3) SEPARATE ACCOUNTS; ELECTION FOR TREATMENT AS SINGLE ACCOUNT.—

Rules similar to the rules of subsection (c)(2) shall apply for purposes of this 

subsection. 

‘‘(4) DIVIDEND REINVESTMENT PLAN.—For purposes of this subsection—


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‘‘(A) IN GENERAL.—The term ‘dividend reinvestment plan’ means any arrangement under which dividends on any stock are reinvested in stock 

identical to the stock with respect to which the dividends are paid. ‘‘(B) INITIAL STOCK ACQUISITION TREATED AS ACQUIRED IN CONNECTION

WITH PLAN.—Stock shall be treated as acquired in connection with a dividend reinvestment plan if such stock is acquired pursuant to such plan or 

if the dividends paid on such stock are subject to such plan.’’. (c) INFORMATION BY TRANSFERORS TO AID BROKERS.— (1) IN GENERAL.—Subpart B of part III of subchapter A of chapter 61 is 

amended by inserting after section 6045 the following new section: 

‘‘SEC. 6045A. INFORMATION REQUIRED IN CONNECTION WITH TRANSFERS OF COVERED SECURITIES TO BROKERS. 

‘‘(a) FURNISHING OF INFORMATION.—Every applicable person which transfers to a 

broker (as defined in section 6045(c)(1)) a security which is a covered security (as 

defined in section 6045(g)(3)) in the hands of such applicable person shall furnish 

to such broker a written statement in such manner and setting forth such information as the Secretary may by regulations prescribe for purposes of enabling such 

broker to meet the requirements of section 6045(g). 

‘‘(b) APPLICABLE PERSON.—For purposes of subsection (a), the term ‘applicable person’ means—

‘‘(1) any broker (as defined in section 6045(c)(1)), and 

‘‘(2) any other person as provided by the Secretary in regulations. 

‘‘(c) TIME FOR FURNISHING STATEMENT.—Except as otherwise provided by the Secretary, any statement required by subsection (a) shall be furnished not later than 

15 days after the date of the transfer described in such subsection.’’. 

(2) ASSESSABLE PENALTIES.—Paragraph (2) of section 6724(d) (defining payee 

statement) is amended by redesignating subparagraphs (I) through (CC) as subparagraphs (J) through (DD), respectively, and by inserting after subparagraph 

(H) the following new subparagraph: 

‘‘(I) section 6045A (relating to information required in connection with 

transfers of covered securities to brokers),’’. 

(3) CLERICAL AMENDMENT.—The table of sections for subpart B of part III of 

subchapter A of chapter 61 is amended by inserting after the item relating to 

section 6045 the following new item: 

‘‘Sec. 6045A. Information required in connection with transfers of covered securities to brokers.’’. 

(d) ADDITIONAL ISSUER INFORMATION TO AID BROKERS.—

(1) IN GENERAL.—Subpart B of part III of subchapter A of chapter 61, as 

amended by subsection (b), is amended by inserting after section 6045A the following new section: 

‘‘SEC. 6045B. RETURNS RELATING TO ACTIONS AFFECTING BASIS OF SPECIFIED SECURITIES. 

‘‘(a) IN GENERAL.—According to the forms or regulations prescribed by the Secretary, any issuer of a specified security shall make a return setting forth—

‘‘(1) a description of any organizational action which affects the basis of such 

specified security of such issuer, 

‘‘(2) the quantitative effect on the basis of such specified security resulting 

from such action, and 

‘‘(3) such other information as the Secretary may prescribe. 

‘‘(b) TIME FOR FILING RETURN.—Any return required by subsection (a) shall be 

filed not later than the earlier of—

‘‘(1) 45 days after the date of the action described in subsection (a), or 

‘‘(2) January 15 of the year following the calendar year during which such action occurred. 

‘‘(c) STATEMENTS TO BE FURNISHED TO HOLDERS OF SPECIFIED SECURITIES OR

THEIR NOMINEES.—According to the forms or regulations prescribed by the Secretary, every person required to make a return under subsection (a) with respect 

to a specified security shall furnish to the nominee with respect to the specified security (or certificate holder if there is no nominee) a written statement showing—

‘‘(1) the name, address, and phone number of the information contact of the 

person required to make such return, 

‘‘(2) the information required to be shown on such return with respect to such 

security, and 

‘‘(3) such other information as the Secretary may prescribe. 

The written statement required under the preceding sentence shall be furnished to 

the holder on or before January 15 of the year following the calendar year during 

which the action described in subsection (a) occurred. 

‘‘(d) SPECIFIED SECURITY.—For purposes of this section, the term ‘specified security’ has the meaning given such term by section 6045(g)(3)(B). No return shall be 


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required under this section with respect to actions described in subsection (a) with 

respect to a specified security which occur before the applicable date (as defined in 

section 6045(g)(3)(C)) with respect to such security. ‘‘(e) PUBLIC REPORTING IN LIEU OF RETURN.—The Secretary may waive the requirements under subsections (a) and (c) with respect to a specified security, if the 

person required to make the return under subsection (a) makes publicly available, 

in such form and manner as the Secretary determines necessary to carry out the 

purposes of this section— ‘‘(1) the name, address, phone number, and email address of the information 

contact of such person, and ‘‘(2) the information described in paragraphs (1), (2), and (3) of subsection 

(a).’’. 

(2) ASSESSABLE PENALTIES.— (A) Subparagraph (B) of section 6724(d)(1) of such Code (defining information return) is amended by redesignating clause (iv) and each of the 

clauses which follow as clauses (v) through (xxii), respectively, and by inserting after clause (iii) the following new clause: ‘‘(iv) section 6045B(a) (relating to returns relating to actions affecting 

basis of specified securities),’’. (B) Paragraph (2) of section 6724(d) of such Code (defining payee statement), as amended by subsection (c)(2), is amended by redesignating subparagraphs (J) through (DD) as subparagraphs (K) through (EE), respectively, and by inserting after subparagraph (I) the following new subparagraph: ‘‘(J) subsections (c) and (e) of section 6045B (relating to returns relating 

to actions affecting basis of specified securities),’’. (3) CLERICAL AMENDMENT.—The table of sections for subpart B of part III of 

subchapter A of chapter 61 of such Code, as amended by subsection (b)(3), is 

amended by inserting after the item relating to section 6045A the following new 

item: 

‘‘Sec. 6045B. Returns relating to actions affecting basis of specified securities.’’. 

(e) EFFECTIVE DATE.— (1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall take effect on January 1, 2010. 

(2) EXTENSION OF PERIOD FOR STATEMENTS SENT TO CUSTOMERS.—The amendments made by subsection (a)(3) shall apply to statements required to be furnished after December 31, 2008. 

SEC. 302. DELAY IN APPLICATION OF WORLDWIDE ALLOCATION OF INTEREST. 

(a) IN GENERAL.—Paragraphs (5)(D) and (6) of section 864(f) are each amended 

by striking ‘‘December 31, 2008’’ and inserting ‘‘December 31, 2009’’. (b) TRANSITIONAL RULE.—Subsection (f) of section 864 is amended by adding at 

the end the following new paragraph: 

‘‘(7) TRANSITION.—In the case of the first taxable year to which this subsection applies, the increase (if any) in the amount of the interest expense allocable to sources within the United States by reason of the application of this 

subsection shall be 78 percent of the amount of such increase determined without regard to this paragraph.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2008. 

SEC. 303. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES. 

(a) REPEAL OF ADJUSTMENT FOR 2012.—Subparagraph (B) of section 401(1) of the 

Tax Increase Prevention and Reconciliation Act of 2005 is amended by striking the 

percentage contained therein and inserting ‘‘100 percent’’. 

(b) MODIFICATION OF ADJUSTMENT FOR 2013.—The percentage under subparagraph (C) of section 401(1) of the Tax Increase Prevention and Reconciliation Act 

of 2005 in effect on the date of the enactment of this Act is increased by 13 percentage points. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

The bill, H.R. 5720, as amended, (1) provides a temporary twoyear increase in the volume cap for the low-income housing credit, 

(2) makes various programmatic reforms and simplifications to the 

low-income housing credit and tax-exempt bond rules relating to 


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housing, (3) provides a temporary increase in the volume cap for 

tax-exempt housing bonds and allows recycling of tax-exempt debt 

for financing residential rental projects, (4) creates a refundable 

first-time homebuyer credit, (5) provides an additional standard deduction for real property taxes for non-itemizers, (6) provides AMT 

relief for tax-exempt housing bonds, the low-income housing and 

rehabilitation credits, (7) temporarily modifies the Federal guarantee tax-exempt bond restriction for Federal home loan banks, (8) 

modifies the FIRPTA non-foreign affidavit rules, (9) amends the 

definition of tax-exempt use property for the rehabilitation credit, 

(10) reforms the rules for real estate investment trusts, (11) establishes broker reporting of customers’ basis in securities transactions, (12) delays application of worldwide allocation of interest 

expense, and (13) adjusts the time for payment of corporate estimated taxes for certain large corporations. 

B. BACKGROUND AND NEED FOR LEGISLATION

The provisions approved by the Committee reflect the need to improve the tax provisions relating to multi-family low-income housing and respond in a targeted revenue-neutral way to temporary 

housing and credit market imbalances, as well as other purposes. 

C. LEGISLATIVE HISTORY

The Committee on Ways and Means marked up the Housing Assistance Tax Act of 2008 on April 9, 2008, and ordered the bill, as 

amended, favorably reported. 

II. EXPLANATION OF THE BILL 

TITLE I—BENEFITS FOR MULTI-FAMILY LOW-INCOME 

HOUSING 

OVERVIEW

Low-income housing credit 

The low-income housing credit may be claimed over a 10-year period for the cost of building rental housing occupied by tenants having incomes below specified levels. The amount of the credit for any 

taxable year in the credit period is the applicable percentage of the 

qualified basis of each qualified low-income building. The qualified 

basis of any qualified low-income building for any taxable year 

equals the applicable fraction of the eligible basis of the building. 

The credit percentage for newly constructed or substantially rehabilitated housing that is not Federally subsidized is adjusted 

monthly by the Internal Revenue Service so that the 10 annual installments of the credit have a present value of 70 percent of the 

total qualified basis. The credit percentage for newly constructed or 

substantially rehabilitated housing that is Federally subsidized and 

for existing housing that is substantially rehabilitated is calculated 

to have a present value of 30 percent of qualified basis. These are 

referred to as the 70-percent credit and 30-percent credit, respectively. 


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Tax-exempt bonds for housing 

Private activity bonds are bonds that nominally are issued by 

State or local governments, but the proceeds of which are used (directly or indirectly) by a private person and payment of which is 

derived from funds of such private person. The exclusion from income for interest paid on State and local bonds does not apply to 

private activity bonds, unless the bonds are issued for certain permitted purposes (‘‘qualified private activity bonds’’). The definition 

of a qualified private activity bond includes, but is not limited to, 

qualified mortgage bonds, qualified veterans’ mortgage bonds, and 

bonds for qualified residential rental projects. 

Residential rental property may be financed with qualified private activity bonds if the financed project is a ‘‘qualified residential 

rental project.’’ A project is a qualified residential rental project if 

20 percent or more of the residential units in such project are occupied by individuals whose income is 50 percent or less of area median gross income (the ‘‘20–50 test’’). Alternatively, a project is a 

qualified residential rental project if 40 percent or more of the residential units in such project are occupied by individuals whose income is 60 percent or less of area median gross income (the ‘‘40–

60 test’’). The issuer must elect to apply either the 20–50 test or 

the 40–60 test. Operators of qualified residential rental projects 

must annually certify that such project meets the requirements for 

qualification, including meeting the 20–50 test or the 40–60 test. 

REASONS FOR CHANGE

Safe, affordable housing is a major priority to all individual 

Americans. The temporary increase in the volume limit for the low 

income housing credit is intended to augment the supply of rental 

housing for low-income individuals. The various improvements to 

the low-income housing credit and tax-exempt bond rules are designed to create new opportunities for such housing in situations 

and geographical areas which have not previously benefited from 

the low-income housing credit and tax-exempt bond financing. In 

the first comprehensive effort to improve the technical operation of 

the credit in over a decade, the Committee intends to eliminate 

outdated requirements, unnecessary restrictions, and needless complexity in the development and operation of low-income credit 

projects. The Committee also believes that a change to the refunding rules for multi-family housing bonds will allow more efficient 

combinations of the credit and tax-exempt bonds in certain circumstances. The Committee believes that all the modifications described in this title of the bill are necessary improvements to the 

vitally important system of housing tax incentives in the Code. In 

the future, the Committee will continue to monitor the operation 

of the low-income credit and tax-exempt housing bonds to ensure 

that these subsidies for affordable housing continue to serve lowincome individuals efficiently. 


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A. LOW-INCOME HOUSING CREDIT

1. Temporary increase in the low-income housing credit volume 

limits (Sec. 101 of the bill and Sec. 42 of the Code) 

PRESENT LAW

In general 

The low-income housing credit may be claimed over a 10-year period by owners of certain residential rental property for the cost of 

rental housing occupied by tenants having incomes below specified 

levels (sec. 42). The amount of the credit for any taxable year in 

the credit period is the applicable percentage of the qualified basis 

of each qualified low-income building. The qualified basis of any 

qualified low-income building for any taxable year equals the applicable fraction of the eligible basis of the building. 

Volume limits 

A low-income housing credit is allowable only if the owner of a 

qualified building receives a housing credit allocation from the 

State or local housing credit agency. Generally, the aggregate credit authority provided annually to each State for calendar year 2008 

is $2.00 per resident, with a minimum annual cap of $2,325,000 for 

certain small population States (Rev. Proc. 2007–66). These 

amounts are indexed for inflation. Projects that also receive financing with proceeds of tax-exempt bonds issued subject to the private 

activity bond volume limit do not require an allocation of the lowincome housing credit. 

EXPLANATION OF PROVISION

The provision increases from $2.00 per resident to $2.20 per resident the allocation authority provided annually to each State for 

calendar years 2008 and 2009. In 2010, the volume limit will return to the prescribed levels had this provision not been enacted. 

EFFECTIVE DATE

The provision is effective for low-income credit allocations made 

for calendar years after 2007. 

2. Determination of credit rate (Sec. 102 of the bill and Sec. 42 of 

the Code) 

(a) Modifications to the applicable percentage 

PRESENT LAW

In general 

The low-income housing credit may be claimed over a 10-year 

credit period after each low-income building is placed-in-service. 

The amount of the credit for any taxable year in the 4 credit period 

is the applicable percentage of the qualified basis of each qualified 

low-income building. 

Present value credit 

The calculation of the applicable percentage is designed to 

produce a credit equal to: (1) 70 percent of the present value of the 


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building’s qualified basis in the case of newly constructed or substantially rehabilitated housing that is not Federally subsidized 

(the ‘‘70-percent credit’’); or (2) 30 percent of the present value of 

the building’s qualified basis in the case of newly constructed or 

substantially rehabilitated housing that is Federally subsidized and 

existing housing that is substantially rehabilitated (the ‘‘30-percent 

credit’’). Where existing housing is substantially rehabilitated, the 

existing housing is eligible for the 30-percent credit and the qualified rehabilitation expenses (if not Federally subsidized) are eligible for the 70-percent credit. 

Calculation of the applicable percentage 

The credit percentage for a low-income building is set for the earlier of: (1) the month the building is placed in service; or (2) at the 

election of the taxpayer, (a) the month the taxpayer and the housing credit agency enter into a binding agreement with respect to 

such building for a credit allocation, or (b) in the case of a tax-exempt bond-financed project for which no credit allocation is required, the month in which the tax-exempt bonds are issued. 

These credit percentages (used for the 70-percent credit and 30- 

percent credit) are adjusted monthly by the IRS on a discounted 

after-tax basis (assuming a 28-percent tax rate) based on the average of the Applicable Federal Rates for mid-term and long-term obligations for the month the building is placed in service. The discounting formula assumes that each credit is received on the last 

day of each year and that the present value is computed on the last 

day of the first year. In a project consisting of two or more buildings placed in service in different months, a separate credit percentage may apply to each building. 

EXPLANATION OF PROVISION

The provision expands the class of low-income buildings eligible 

for the 70-percent credit and provides a floor on the applicable 

credit percentages for non-Federally subsidized buildings. 

The provision extends the 70-percent credit to non-Federally subsidized existing housing that is substantially rehabilitated (i.e., in 

the case of an existing building which is substantially rehabilitated, both the qualified basis of the existing building and the 

qualified rehabilitation expenses are eligible for the 70-percent 

credit as long as the building is not Federally-subsidized.) 

Also, the provision provides a floor on the applicable percentage 

for non-Federally subsidized buildings equal to the average percentage for such buildings during the preceding calendar year. 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 

(b) Modification to the definition of a Federally subsidized building 

PRESENT LAW

If any portion of the eligible basis of a building is Federally subsidized, then the building is ineligible for the 70-percent credit. A 

Federal subsidy is defined as: (1) any obligation the interest of 

which is tax exempt from tax under section 103; (2) a direct or indiVerDate Aug 31 2005 04:25 Apr 26, 2008 Jkt 069006 PO 00000 Frm 00024 Fmt 6659 Sfmt 6602 E:\HR\OC\HR606.XXX HR606

wwoods2 on PRODPC68 with REPORTS
25 

rect Federal loan if the interest rate is less than the applicable 

Federal rate; or (3) assistance provided under the HOME Investments Partnership Act or the Native American Housing Assistance 

and Self Determination Act of 1996. 

EXPLANATION OF PROVISION

The provision limits the definition of a Federal subsidy for these 

purposes to any obligation the interest on which is exempt from tax 

under section 103. Therefore, additional buildings may become eligible for the 70-percent credit. 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 

3. Modifications to definition of eligible basis (Sec. 103 of the bill 

and Sec. 42 of the Code) 

(a) Modification to the enhanced credit for buildings in high-cost 

areas 

PRESENT LAW

Generally, buildings located in high-cost areas (i.e., qualified census tracts and difficult development areas) are eligible for an enhanced credit. Under the enhanced credit, the 70-percent and 30- 

percent credits are increased to a 91-percent and 39-percent credit, 

respectively. The mechanism for this increase is through an increase from 100 to 130 percent of the otherwise applicable eligible 

basis of a new building or the rehabilitation expenditures of an existing building. A further requirement for the enhanced credit is 

that the portions of each metropolitan statistical area or nonmetropolitan statistical area designated as difficult to develop areas cannot exceed an aggregate area having 20 percent of the population 

of such statistical area. 

EXPLANATION OF PROVISION

The provision adds a third type of high-cost area eligible for an 

enhanced credit. The third type is defined as any building designated by the State housing credit agency as requiring the enhanced credit in order for such building to be financially feasible. 

This new type of high-cost area is not subject to the present-law 

limitation limiting high cost areas to 20 percent of the population 

of each metropolitan statistical area or nonmetropolitan statistical 

area. 

It is expected that the State allocating agencies shall set standards for determining which areas shall be designated difficult development areas and which projects shall be allocated additional 

credits in such areas in the State allocating agency’s allocation 

plan. It is also expected that the State allocating agency shall publicly express its reasons for such area designations and the basis 

for allocating additional credits to a project. 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 


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26 

1 Rehabilitation expenditures are amounts chargeable to a capital account and incurred for 

property (or additions or improvements to property) of a character subject to the allowance for 

depreciation in connection with the rehabilitation of a building. Such term does not include the 

cost of acquiring the building (or any interest therein). Other rules apply. 2The credit period for an existing building does not begin before the credit period for the rehabilitation expenditures. 3 A present-law rule reduces the $3,000 amount to $2,000 for any building substantially assisted, financed, or operated under Housing and Urban Development (‘‘HUD’’) section 8, section 

221(d)(3), or section 236 programs, or under the USDA Rural Development section 515 program 

where an assignment of the mortgage secured by the property in the project to HUD or the 

USDA Rural Development otherwise would occur or when a claim against a Federal mortgage 

insurance fund would occur. A conforming change is made by the provision so that that the 

$2,000 amount will be increased to two-thirds of the $6,000 amount as indexed. 

(b) Modification to the substantial rehabilitation requirement 

PRESENT LAW

Rehabilitation expenditures 1 paid or incurred by a taxpayer with 

respect to a low-income building are treated as a separate building 

and may be eligible for the 70-percent credit if they satisfy the otherwise applicable credit rules.2 To qualify for the credit, the rehabilitation expenditures must equal the greater of an amount that 

is (1) at least 10 percent of the adjusted basis of the building being 

rehabbed; or (2) at least $3,000 per low-income unit in the building 

being rehabbed. 

At the election of the taxpayer, a special rule applies allowing 

the 30-percent credit to both existing buildings and rehabilitation 

expenditures if the second prong (i.e., at least $3,000 of rehabilitation expenditures per low-income unit) of the rehabilitation expenditures test is satisfied. This special rule applies only in the case 

where the taxpayer acquired the building and immediately prior to 

that acquisition the building was owned by or on behalf of a government unit. 

EXPLANATION OF PROVISION

The provision increases the minimum expenditure requirements. 

Under the provision, the rehabilitation expenditures must equal 

the greater of an amount that is (1) at least 20 percent of the adjusted basis of the building being rehabbed; or (2) at least $6,000 

per low-income unit in the building being rehabbed. The provision 

also indexes the $6,000 amount for inflation. The other present-law 

rules apply.3

The provision retains the taxpayer election allowing the 30-percent credit to both existing building and the rehabilitation expenditures if the second prong (i.e., at least $3,000 of rehabilitation expenditures per low-income unit) of the rehabilitation expenditures 

test is satisfied. 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 

(c) Community service facility eligibility for the credit 

PRESENT LAW

In general, the qualified basis of a low-income building is limited 

to that portion of the building dedicated to qualified low-income use 

(either living space or certain common areas). However certain 


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27 

‘‘community service facilities’’ used by non-tenants of the low-income building may be included in the qualified basis of the low-income building if certain requirements are satisfied. For this purpose, a community service facility: (1) means any facility to serve 

primarily individuals whose income is 60 percent or less of area 

median income; and (2) may not exceed 10 percent of the eligible 

basis of the qualified low-income housing credit project of which it 

is a part. 

EXPLANATION OF PROVISION

The provision expands the size of the community service facility 

with respect to which the low-income housing credit may be 

claimed. Under the provision the size of the community service facility may not exceed the sum of: (1) 15 percent of so much of the 

eligible basis of the qualified low-income housing credit project of 

which it is a part as does not exceed $5,000,000; and (2) 10 percent 

of any excess over $5,000,000 of the eligible basis of the qualified 

low-income housing credit project of which it is a part. 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 

(d) Clarification of the treatment of Federal grants 

PRESENT LAW

The compliance period for any low-income credit building is the 

period of fifteen taxable years beginning with the taxable year in 

which the building is placed in service, or at the election of the taxpayer the succeeding taxable year. If during any year of the compliance period, a grant is made with respect to any building or the 

operation thereof and any portion of the grant is funded with Federal funds, the eligible basis of the building must be reduced by the 

portion of the grant that is Federally-funded. This basis reduction 

must be made for the taxable year in which the grant is made and 

all succeeding taxable years. 

EXPLANATION OF PROVISION

The provision clarifies the basis reduction rule to apply to Federally-funded grants received before the compliance period. It also 

provides that no basis reduction is required for Federally-funded 

grants to enable the property to be rented to low-income tenants 

received during the compliance period if those grants do not otherwise increase the taxpayer’s eligible basis in the building. 

The provision also directs the modification of section 1.42–16(b) 

of the regulations to provide that none of the following shall be considered a grant made with respect to a building or its operation for 

purposes of section 42(d)(5)(A) of the Internal Revenue Code of 

1986: (1) rental assistance under section 521 of the Housing Act of 

1949 (42 U.S.C. 1490a); (2) assistance under section 538(f)(5) of the 

Housing Act of 1949 (42 U.S.C. 1490p–2(f)(5)); (3) interest reduction payments under section 236 of the National Housing Act (12 

U.S.C. 1715z–1); (4) rental assistance under section 202 of the 

Housing Act of 1959 (12 U.S.C. 1701q); (5) rental assistance under 

section 811 of the Cranston-Gonzalez National Affordable Housing 


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28 

4The Internal Revenue Service may waive the 10-year requirement for any building substantially assisted, financed, or operated under Housing and Urban Development (‘‘HUD’’) section 

8, section 221(d)(3), or section 236 programs, or under the Farmers’ Home Administration section 515 program where an assignment of the mortgage secured by the property in the project 

to HUD or the Farmers’ Home Administration otherwise would occur or when a claim against 

a Federal mortgage insurance fund would occur. 5 In addition, certain businesses under common control are related persons for purposes of 

these rules. 

Act (42 U.S.C. 8013); (6) modernization, operating, and rental assistance pursuant to section 202 of the Native American Housing 

Assistance and Self-Determination Act of 1996 (25 U.S.C. 4132); (7) 

assistance under title IV of the Stewart B. McKinney Homeless Assistance Act (42 U.S.C. 11361 et seq.); (8) tenant-based rental assistance under section 212 of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12742); (9) assistance under the 

AIDS Housing Opportunity Act (42 U.S.C. 12901 et seq.); (10) per 

diem payments under section 2012 of title 38, United States Code; 

(11) rent supplements under section 101 of the Housing and Urban 

Development Act of 1965 (12 U.S.C. 1701s); (12) assistance under 

section 542 of the Housing Act of 1949 (42 U.S.C. 1490r); and (13) 

any other ongoing payment used to enable the property to be 

rented to low-income tenants. Further, no basis reduction is required for market rate loans made to owners of qualified low-income housing projects from the proceeds of Federally-funded 

grants. Nothing contained in this direction to modify the regulations is intended to create any inference with respect to the consideration of any program specified under subsection (a) as a grant 

made with respect to a building or its operation for purposes of section 42(d)(5)(A) of the Internal Revenue Code of 1986 as in effect 

on the day before such date of enactment. 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 

(e) Modification to the definition of related persons 

PRESENT LAW

With certain exceptions,4 the eligible basis of an existing building 

is zero for low-income housing credit purposes unless: (1) the building was acquired by purchase; (2) there has been a period of at 

least 10 years between the acquisition by purchase and the later 

of the date the building was last placed in service or the date of 

the most recent nonqualified substantial improvement of the building (e.g., improvements equaling at least 25 percent of the adjusted 

basis of the building before such improvements); and (3) the building was not previously placed-in-service by the taxpayer or a related person (sec. 42(d)(2)(B)). In order for a building to be acquired 

by purchase, it may not be acquired from a related party. 

The definition of related persons for purposes of these rules is 

the same as the definition used in sections 267(b) and 707(b)(1) (relating to the disallowance of losses) with one modification.5 Under 

the modification, in determining whether two persons are related, 

‘‘10 percent’’ is substituted for ‘‘50 percent’’ in determining the 

threshold level of ownership in certain partnerships and corporations. For example, under the low-income credit provision, two 


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29 

partnerships are related if the same persons own more than ten 

percent of the capital interests or profits interest in each partnership. 

EXPLANATION OF PROVISION

The provision repeals the ten-percent attribution rule used to determine whether parties are related for purposes of determining 

whether an existing building qualifies for the low-income housing 

credit. Under the provision, two persons are related for this purpose if they bear a relationship to each other specified in sections 

267(b) or 707(b)(1). 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 

4. Other simplification and reform of low-income housing tax 

incentives (Sec. 104 of the bill and Sec. 42 of the Code) 

(a) Repeal prohibition of the credit for buildings receiving HUD 

moderate rehabilitation assistance 

PRESENT LAW

Generally, the low-income housing credit is available to otherwise qualifying buildings which also receive direct assistance under 

HUD section 8 programs. No credit is allowed to any building with 

respect to which moderate rehabilitation assistance is provided at 

any time during the compliance period, under section 8(e)(2) of the 

United States Housing Act of 1937 (other than assistance under 

the Stewart B. McKinney Homeless Assistance Act). 

EXPLANATION OF PROVISION

The provision eliminates the present-law prohibition against providing the low-income housing credit to buildings receiving moderate rehabilitation assistance under section 8(e)(2) of the United 

States Housing Act of 1937. 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 

(b) Carryover allocation rule 

PRESENT LAW

In general, the allocation of the low-income housing credit must 

be made not later than the close of the calendar year in which the 

building is placed in service. One exception to this rule is a carryover allocation. In a carryover allocation, an allocation may be 

made to a building that has not yet been placed in service, provided that: (1) more than 10 percent of the taxpayer’s reasonably 

expected basis in the project (as of the close of the second calendar 

year following the calendar year of the allocation) is incurred as of 

the later of six months after the allocation is made or the end of 

the calendar year in which the allocation is made; and (2) the 


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30 

building is placed in service not later than the close of the second 

calendar year following the calendar year of the allocation. 

EXPLANATION OF PROVISION

The provision modifies the first prong of the carryover allocation 

rule. Under this modification such an allocation will satisfy the 

first prong provided that more than 10 percent of the taxpayer’s 

reasonably expected basis in the project (as of the close of the second calendar year following the calendar year of the allocation) is 

incurred as of 12 months after the allocation is made. The second 

prong of the carryover allocation rules is unchanged. 

EFFECTIVE DATE

The provision is effective for buildings placed in service after the 

date of enactment. 

(c) Modification of bond posting requirement 

PRESENT LAW

The compliance period for any building is the period beginning 

on the first day of the first taxable year of the credit period of such 

building and ending 15 years from such date. 

The penalty for any building subject to the 15-year compliance 

period failing to remain part of a qualified low-income project (due, 

for example, to noncompliance with the minimum set aside requirement, or the gross rent requirement, or other requirements with respect to the units comprising the set aside) is recapture of the accelerated portion of the credit, with interest, for all prior years. 

Generally, any change in ownership by a taxpayer of a building 

subject to the compliance period is also a recapture event. An exception is provided if the seller satisfies certain bond posting requirements (in an amount and manner prescribed by Treasury), 

and if it can reasonably be expected that such building will continue to be operated as a qualified low-income building for the remainder of the compliance period. 

EXPLANATION OF PROVISION

The provision eliminates the bond posting requirement. In its 

place the provision extends the otherwise applicable statute of limitation until three years after the Secretary of the Treasury is notified of noncompliance with the low-income housing credit rules. 

This provision sunsets five years after the date of enactment. 

EFFECTIVE DATE

The provision applies with respect to dispositions of interests in 

buildings after the date of enactment. 

Also, at the election of the taxpayer, the provision applies with 

respect to dispositions of interests in a building on or before the 

date of enactment if it is reasonably expected that such building 

will continue to be a qualified low-income building for the remaining compliance period. 


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31 

6See also the discussion of the full-time student rule in item 1.B.2., above. 

(d) Treatment of individuals who previously received foster care assistance 

PRESENT LAW

In general, student housing does not qualify for the low-income 

housing credit. Two exceptions are provided from this general 

rule.6 These two exceptions are units occupied by an individual: (1) 

who is a student and receiving assistance under title IV of the Social Security Act (Temporary Assistance for Needy Families); or (2) 

enrolled in a job training program receiving assistance under the 

Job Training Partnership Act or under other similar Federal, State, 

or local laws. 

EXPLANATION OF PROVISION

The provision adds a third exception to the general rule that student housing is not eligible for the low-income housing credit. This 

new exception applies in the case of a student who was previously 

under the care and placement responsibility of a foster care program (under part B or E of title IV of the Social Security Act). 

EFFECTIVE DATE

The provision is effective for determinations made after the date 

of enactment. 

(e) Additions to housing credit agency allocation plan criteria 

PRESENT LAW

Each State must develop a plan for allocating credits, and such 

plan must include certain allocation criteria including: (1) project 

location; (2) housing needs characteristics; (3) project characteristics (including whether the project uses existing housing as part of 

a community revitalization plan); (4) sponsor characteristics; (5) 

tenant populations with special needs; (6) tenant populations of individuals with children; and (7) projects intended for eventual tenant ownership. 

The State allocation plan must also give preference to housing 

projects: (1) that serve the lowest-income tenants; (2) that are obligated to serve qualified tenants for the longest periods; and (3) that 

are located in qualified census tracts and the development of which 

contributes to a concerted community revitalization plan. For this 

purpose, a qualified census tract is defined as a census tract: (1) 

designated by the Secretary of HUD; and (2) for the most recent 

year for which census data is available for such tract, either 50 

percent or more of the households have an income that is less than 

60 percent of the area median income for that year or which has 

a poverty rate of at least 25 percent. 

Present law also requires that housing credit agencies perform a 

comprehensive market study of the housing needs of the low-income individuals in the area to be served by the project and a written explanation, available to the general public, for any allocation 

not made in accordance with the established priorities and selection criteria of the housing credit agency. It also requires that the 


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housing credit agency conduct site visits to monitor for compliance 

with habitability standards. 

EXPLANATION OF PROVISION

The provision adds two additional criteria which States must use 

in their allocation of credits among potential low-income housing 

projects. The additional criteria are: (1) the energy efficiency of the 

project; (2) the historic nature of the project. 

EFFECTIVE DATE

The provision is effective for allocations made after December 31, 

2008. 

(f) Measurement of area median gross income for certain projects 

located in certain nonmetropolitan areas 

PRESENT LAW

In order to be eligible for the low-income housing credit, a qualified low-income building must be part of a qualified low-income 

housing project. In general, a qualified low-income housing project 

is defined as a project which satisfies one of two tests at the election of the taxpayer. The first test is met if 20 percent or more of 

the residential units in the project are both rent-restricted and occupied by individuals whose income is 50 percent or less of area 

median gross income (the ‘‘20–50 test’’). The second test is met if 

40 percent or more of the residential units in such project are both 

rent-restricted and occupied by individuals whose income is 60 percent or less of area median gross income (the ‘‘40–60 test’’). 

In the case of property placed in service during 2006, 2007, and 

2008 in a nonmetropolitan area within the Gulf Opportunity Zone, 

the income targeting rules of the low-income housing credit are applied by replacing the area median gross income standard with a 

national nonmetropolitan median gross income standard. These 

new income targeting rules apply to all such buildings in the Gulf 

Opportunity Zone regardless of whether the building receives its 

credit allocation under the otherwise applicable low-income housing 

credit cap or the additional credit cap (described below). The income targeting rules are not changed for buildings in metropolitan 

areas in the Gulf Opportunity Zone. 

EXPLANATION OF PROVISION

The measurement of area median gross income applied for residential rental property located in certain rural areas is modified in 

the case of projects subject to the low-income housing volume limits. In the case of such properties located in rural areas (as defined 

in section 520 of the Housing Act of 1949), the income targeting 

rules of the low-income housing credit are applied by reference to 

the greater of the otherwise applicable area median gross income 

standard, or the national nonmetropolitan median gross income. 

This new income targeting rule applies to all such buildings if the 

building receives a low-income housing credit allocation under the 

otherwise applicable low-income housing credit volume limit. It 

does not apply in the case of buildings which do not require a lowincome housing credit allocation because they are substantially 


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7Sec. 147(b). 

bond-financed. The area median gross income rules are not 

changed for buildings in metropolitan areas. 

EFFECTIVE DATE

The provision is effective for determinations after the date of enactment. 

B. MODIFICATIONS TO TAX-EXEMPT HOUSING BOND RULES

1. Refunding treatment for certain multi-family housing bonds 

(Sec. 111 of the bill and Sec. 146 of the Code) 

PRESENT LAW

In general 

Private activity bonds are bonds that nominally are issued by 

State or local governments, but the proceeds of which are used (directly or indirectly) by a private person and payment of which is 

derived from funds of such private person. The exclusion from income for interest paid on State and local bonds does not apply to 

private activity bonds, unless the bonds are issued for certain permitted purposes (‘‘qualified private activity bonds’’). The definition 

of a qualified private activity bond includes, but is not limited to, 

qualified mortgage bonds, qualified veterans’ mortgage bonds, and 

bonds for qualified residential rental projects. 

Qualified residential rental projects 

Residential rental property may be financed with qualified private activity bonds if the financed project is a ‘‘qualified residential 

rental project.’’ A project is a qualified residential rental project if 

20 percent or more of the residential units in such project are occupied by individuals whose income is 50 percent or less of area median gross income (the ‘‘20–50 test’’). Alternatively, a project is a 

qualified residential rental project if 40 percent or more of the residential units in such project are occupied by individuals whose income is 60 percent or less of area median gross income (the ‘‘40–

60 test’’). The issuer must elect to apply either the 20–50 test or 

the 40–60 test. Operators of qualified residential rental projects 

must annually certify that such project meets the requirements for 

qualification, including meeting the 20–50 test or the 40–60 test. 

As with most qualified private activity bonds, bonds for qualified 

residential rental projects are subject to annual State volume limitations (the ‘‘State volume cap’’). For calendar year 2008, the State 

volume cap, which is indexed for inflation, equals $85 per resident 

of the State, or $262.09 million, if greater. 

Bonds issued to finance qualified residential rental projects are 

subject to a term to maturity rule which limits the period of time 

such bonds may remain outstanding. Generally, this rule provides 

that the average maturity of a qualified private activity bond cannot exceed 120 percent of the economic life of the property being 

financed.7


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8Sec. 42(g)(2)(D)(ii). 

9Sec. 142(d)(3)(B). 

EXPLANATION OF PROVISION

Under the provision, if within 6 months after receipt of a repayment of a conduit loan used to finance a qualified residential rental 

project, such repayment is used to finance a second qualified residential rental project, any bond issued to refinance the first issue 

of bonds (i.e., the bond financing the original conduit loan) shall be 

treated as a refunding issue. Thus, under the provision, the refinancing bond is treated as a refunding notwithstanding a change 

in obligors under the first and second conduit loans. The provision 

only applies to the first refunding of the refunded bond and only 

if such refunding bond is issued within four years of the date of 

issue of the refunded bond. In addition, the final maturity date for 

the refunding bonds cannot be later than 34 years after the date 

of issuance of the refunded bond. 

EFFECTIVE DATE

The provision applies to repayments of loans received after the 

date of enactment. 

2. Coordination of certain rules applicable to the low-income housing credit and qualified residential rental project exempt facility 

bonds (Sec. 112 of the bill and Sec. 142 of the Code) 

Next-available-unit rule 

PRESENT LAW

In order to be eligible for the low-income housing credit, each of 

the residential units with respect to which the credit is claimed 

must be: (1) occupied by low-income tenants; and (2) rent-restricted. If the incomes of any such tenants rise above certain levels, then the credit with respect to that unit is denied unless the 

next available unit in the low-income building (of a size comparable 

to or smaller than such unit) is rented to a new tenant who satisfies the income and rent-restriction requirements (the ‘‘next-available-unit rule’’).8

Subject to certain requirements, tax-exempt bonds may be issued 

to finance qualified residential rental projects. The tax-exempt 

bond rules for qualified residential projects have similar tenant income limitations as the low-income credit, but apply the next available unit rule on a project basis rather than a building-by-building 

basis.9 Therefore, to avoid noncompliance when the income of a 

tenant rises above certain levels, the next available unit (of a size 

comparable to or smaller than such unit) in the entire project 

(rather than just the same building) must be rented to a new tenant who satisfies the income and rent-restriction requirements. 

EXPLANATION OF PROVISION

In the case of a low-income building which is tax-exempt bond 

financed and eligible for the low-income housing credit, the provision provides that both the bond and credit restrictions will be satisfied if the next available unit in the building is rented to a new 

tenant who satisfies the income and rent-restriction requirements. 


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It therefore conforms the tax-exempt bond rule to the low-income 

housing credit rule. 

EFFECTIVE DATE

The provision applies to determinations of the status of qualified 

residential rental projects for periods beginning after the date of 

enactment with respect to bonds issued before, on, or after such 

date. 

Students 

PRESENT LAW

In general 

The low-income housing credit is not available for any residential 

unit unless it is available for use by the general public. For these 

purposes, a residential unit generally is available for use by the 

general public if the unit is rented in a manner consistent with 

housing policy governing nondiscrimination as evidenced by the 

rules and regulations of the Department of Housing and Urban Development (‘‘HUD’’). Notwithstanding compliance with the HUD 

rules and regulations, a residential rental unit is not available for 

use by the general public if such unit is: (1) provided only for a 

member of a social organization; or (2) provided by an employer for 

its employees. Other rules may apply. 

Rules for full-time students 

For purposes of the low-income housing credit, no credit is allowed with respect to an otherwise eligible unit occupied entirely 

by full-time students unless those students are comprised entirely 

of single parents and their children. Further, the single parents 

may not be dependents of another individual and the children may 

not be dependents of another individual other than their parents. 

For purposes of the tax-exempt bond rules, a slightly different fulltime student rule applies. 

EXPLANATION OF PROVISION

The provision conforms the tax-exempt bond rule with respect to 

students to the low-income housing credit rule. 

The Committee also has become aware of Internal Revenue Service (the ‘‘IRS’’) efforts to apply the social organization prohibition 

to residential units advertised to members of the artist community 

but effectively open to all otherwise eligible low-income applicants. 

While fully supportive of the IRS enforcement efforts with regard 

to the general public use and other related rules, the Committee 

expresses its understanding that the present-law rules were never 

intended to apply to deny otherwise available low-income housing 

credits with respect to any residential units solely because nondiscriminatory marketing efforts were made to encourage members 

of a particular category of individuals to reside in such units so 

long as there is no direct or indirect benefit to an employer or organization. 


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10Treas. Reg. sec. 1.103–8(b)(10)(ii). 

EFFECTIVE DATE

The full-time student provision applies to determinations of the 

status of qualified residential rental projects for periods beginning 

after the date of enactment with respect to bonds issued before, on, 

or after such date. 

Single-room occupancy units 

PRESENT LAW

Unlike the requirements for projects financed with tax-exempt 

bonds, certain single-room occupancy housing used on a nontransient basis may qualify for the low-income credit, even though such 

housing may provide eating, cooking, and sanitation facilities on a 

shared basis. An example of housing that may qualify for the credit 

is a residential hotel used on a nontransient basis that is available 

to all members of the public. 

Among other requirements, qualified residential rental projects 

financed with tax-exempt bonds generally cannot be used on a 

transient basis. Treasury regulations clarify that a residential unit 

will not be treated as used on a transient basis if the unit contains 

complete facilities for living, including living, sleeping, eating, cooking, and sanitation.10

EXPLANATION OF PROVISION

The provision conforms the tax-exempt bond rule to the low-income housing credit rule. 

EFFECTIVE DATE

The provision applies to determinations of the status of qualified 

residential rental projects for periods beginning after the date of 

enactment with respect to bonds issued before, on, or after such 

date. 

C. REFORMS RELATED TO THE LOW-INCOME HOUSING CREDIT AND

TAX-EXEMPT HOUSING BONDS

1. Hold harmless for reductions in area median gross income (Sec. 

121 of the bill and Sec. 42 of the Code) 

PRESENT LAW

Tax rules 

Tax-exempt bonds 

Residential rental property may be financed with exempt facility 

bonds if the financed project is a ‘‘qualified residential rental 

project.’’ A project is a qualified residential rental project if 20 percent or more of the residential units in such project are occupied 

by individuals whose income is 50 percent or less of area median 

gross income (the ‘‘20–50 test’’). Alternatively, a project is a qualified residential rental project if 40 percent or more of the residential units in such project are occupied by individuals whose income 

is 60 percent or less of area median gross income (the ‘‘40–60 test’’). 


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37 

The issuer must elect to apply either the 20–50 test or the 40–60 

test (sec. 142). 

Low-income housing tax credit 

In order to be eligible for the low-income housing credit, a qualified low-income building must be part of a qualified low-income 

housing project. In general, a qualified low-income housing project 

is defined as a project that satisfies one of two tests at the election 

of the taxpayer (sec. 42(g)). The first test is met if 20 percent or 

more of the residential units in the project are both rent-restricted, 

and occupied by individuals whose income is 50 percent or less of 

area median gross income (the ‘‘20–50 test’’). The second test is met 

if 40 percent or more of the residential units in such project are 

both rent-restricted, and occupied by individuals whose income is 

60 percent or less of area median gross income (the ‘‘40–60 test’’). 

These income figures are adjusted for family size. 

Determination of income and area median gross income 

The income of individuals and area median gross income are determined by the Secretary of the Treasury in a manner consistent 

with determinations of lower-income families and area median 

gross income under section 8 of the Housing Act of 1937 (sec. 

142(d)). These determinations under section 8 are made by HUD. 

These determinations also include adjustments for family size. 

Therefore such determinations (individual and area median gross 

income) are applicable for purposes of tax-exempt bonds and the 

low-income housing credit. 

HUD hold harmless policy 

Generally HUD releases its calculation of area median gross income for a calendar year early in that year. Historically HUD has 

used the most recent decennial census data and updated it with 

other data on income, employment and earnings. 

Recently HUD modified its methodology to include additional 

data in its calculation of area median gross income. In some instances this change in methodology resulted in significantly lower 

numbers for area median gross income in some areas. In response 

to this result, HUD provided that such areas are not treated as 

having a lower area median gross income for purposes of HUD 

housing programs. 

EXPLANATION OF PROVISION

In general 

The provision makes two modifications to the determination of 

area median gross income for purposes of tax-exempt bonds and 

the low-income housing credit. 

Determination of income and area median gross income 

The provision provides that any determination of area median 

gross income with respect to a project may not be less than the determination of area median gross income with respect to that 

project for the preceding calendar year. This modification applies to 

all projects and is not limited to projects benefiting from the HUD 

hold harmless policy. 


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HUD hold harmless policy 

In the case of a HUD hold harmless impacted project, the determination of area median gross income for the project is the greater 

of (i) the amount determined without regard to the special rule for 

HUD hold harmless impacted projects or (ii) the sum of the area 

median gross income determined under the HUD hold harmless 

policy with respect to the project for 2008 plus any increase in area 

median gross income after 2008. 

EFFECTIVE DATE

The provision applies to determinations of area median gross income for calendar years after 2008. 

2. Exception from the annual recertification requirement for 

projects which are entirely low-income use (Sec. 122 of the bill 

and Sec. 142 of the Code) 

PRESENT LAW

Tax rules 

In general 

Tax-exempt bonds 

Residential rental property may be financed with exempt facility 

bonds if the financed project is a ‘‘qualified residential rental 

project.’’ A project is a qualified residential rental project if 20 percent or more of the residential units in such project are occupied 

by individuals whose income is 50 percent or less of area median 

gross income (the ‘‘20–50 test’’). Alternatively, a project is a qualified residential rental project if 40 percent or more of the residential units in such project are occupied by individuals whose income 

is 60 percent or less of area median gross income (the ‘‘40–60 test’’). 

The issuer must elect to apply either the 20–50 test or the 40–60 

test (sec. 142). 

Low-income housing tax credits 

In order to be eligible for the low-income housing credit, a qualified low-income building must be part of a qualified low-income 

housing project. In general, a qualified low-income housing project 

is defined as a project that satisfies one of two tests at the election 

of the taxpayer (sec. 42(g)). The first test is met if 20 percent or 

more of the residential units in the project are both rent-restricted, 

and occupied by individuals whose income is 50 percent or less of 

area median gross income (the ‘‘20–50 test’’). The second test is met 

if 40 percent or more of the residential units in such project are 

both rent-restricted, and occupied by individuals whose income is 

60 percent or less of area median gross income (the ‘‘40–60 test’’). 

These income figures are adjusted for family size. 

Determination of income and area median gross income 

The income of individuals and area median gross income are determined by the Secretary of the Treasury in a manner consistent 

with determinations of lower-income families and area median 

gross income under section 8 of the Housing Act of 1937 (sec. 

142(d)). These determinations also include adjustments for family 

size. 


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Certification 

The Code provides that the operator of any qualified residential 

rental project must submit to the Secretary of the Treasury (at 

such time and in such manner as the Secretary prescribes) an annual certification that the project continues to satisfy the requirements of a qualified residential rental project. Any failure to comply with the annual certification to the Secretary of the Treasury 

will subject the operator to penalties but will not affect the tax-exempt status of the underlying bonds (sec. 142(d)(7)). 

Similar rules apply for the low-income housing credit regarding 

tenant incomes (sec. 42(g)(4)). IRS Revenue Procedure 1994–64 allows a taxpayer to request a waiver of this certification under certain circumstances with the consent of the State agency responsible 

for monitoring the low-income credit project. 

Treatment of tenants whose incomes rise above the income 

limits 

Generally a low-income unit will continue to be treated as such 

even when the tenant’s income rises above the income limits provided that the next available unit {of a size comparable to or smaller than such unit) in the project is occupied by a new resident who 

satisfies the income limits. 

HUD rules 

A family’s eligibility for various types of HUD housing assistance 

is based on its income and family composition. The HUD Handbook 

4350.3 contains the certification and annual recertification rules to 

be followed by project operators. Under the HUD program requirements tenants have the responsibility to provide timely information 

to the project operators. Operators have the responsibility to review 

and verify the tenant information and to make changes to assistance payment and tenant rent to satisfy program requirements. 

EXPLANATION OF PROVISION

The provision waives the annual recertification requirements 

under the low-income credit (sec. 42) and tax-exempt bonds (sec. 

142) for any project as long as no residential unit in the project is 

occupied by tenants who fail to satisfy the otherwise applicable income limits. The provision does not modify the HUD rules; therefore some projects must continue annual certification notwithstanding this provision. 

EFFECTIVE DATE

The provision is effective for years ending after the date of enactment. 

TITLE II—BENEFITS FOR SINGLE FAMILY HOUSING 

A. FIRST-TIME HOMEBUYER CREDIT (SEC. 131 OF THE BILL AND SEC. 

36 OF THE CODE) 

PRESENT LAW

Qualified mortgage bonds are issued to make mortgage loans to 

qualified mortgagors for owner-occupied residences. The subsidy 


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11Sec. 1400C. The credit was enacted as part of the Taxpayer Relief Act of 1997 and was 

originally scheduled to expire on December 31, 2000. It has been extended several times, the 

last extension through December 31, 2007. 

provided for qualified mortgage bonds allows issuers to finance 

mortgages for homebuyers at reduced interest rates. The Code imposes several limitations on qualified mortgage bonds, including a 

‘‘first-time homebuyer’’ requirement. The first-time homebuyer requirement provides that qualified mortgage bonds generally cannot 

be used to finance a mortgage for a homebuyer who had an ownership interest in a principal residence in the three years preceding 

the execution of the mortgage. In addition, bond proceeds generally 

only can be used for new mortgages, i.e., proceeds cannot be used 

to acquire or refinance existing mortgages. 

In addition, prior to 2008, first-time homebuyers of a principal 

residence in the District of Columbia were eligible for a nonrefundable tax credit of up to $5,000 of the amount of the purchase price. 

The $5,000 maximum credit applies both to individuals and married couples filing a joint return. A married individual filing separately can claim a maximum credit of $2,500. The instructions to 

IRS Form 8859 (District of Columbia First-Time Homebuyer Credit) state that if ‘‘two or more unmarried individuals buy a main 

home, they can allocate the credit among the individual owners in 

any manner they choose.’’ The credit phases out for individual taxpayers with modified adjusted gross income between $70,000 and 

$90,000 ($110,000–$130,000 for joint filers). For purposes of eligibility, ‘‘first-time homebuyer’’ means any individual if such individual did not have a present ownership interest in a principal residence in the District of Columbia in the one-year period ending on 

the date of the purchase of the residence to which the credit applies. The credit expired for residences purchased after December 

31, 2007.11

REASONS FOR CHANGE

The Committee wishes to provide temporary alternatives to assist first-time homebuyers. The provision is intended to provide 

first-time homebuyers with the equivalent of an interest-free loan, 

effectively reducing the cost incurred by first-time homebuyers in 

borrowing to acquire a home. 

EXPLANATION OF PROVISION

Under the proposal, a taxpayer who is a first-time homebuyer is 

allowed a refundable tax credit equal to the lesser of $7,500 or 10 

percent of the purchase price of a principal residence. The $7,500 

maximum credit applies both to individuals and married couples 

filing a joint return. A married individual filing separately can 

claim a maximum credit of $3,750. The credit is allowed for the tax 

year in which the taxpayer purchases the home. 

The credit phases out for individual taxpayers with modified adjusted gross income between $70,000 and $90,000 ($140,000–

$160,000 for joint filers) for the year of purchase. 

A taxpayer is considered a first-time homebuyer if such individual had no ownership interest in a principal residence in the 

United States during the 3-year period prior to the purchase of the 

home to which the credit applies. 


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12 If the deduction for State and local taxes is attributable to business or rental income, the 

deduction is allowed in computing adjusted gross income and therefore is not an itemized deduction. 

No credit is allowed if the D.C. homebuyer credit is allowable for 

the taxable year the residence is purchased or a prior taxable year. 

A taxpayer is not permitted to claim the credit if the taxpayer’s financing is from tax-exempt mortgage revenue bonds, if the taxpayer is a nonresident alien, or if the taxpayer disposes of the residence (or it ceases to be a principal residence) before the close of 

a taxable year for which a credit otherwise would be allowable. 

The credit is recaptured ratably over fifteen years with no interest charge beginning in the second taxable year after the taxable 

year in which the home is purchased. For example, if the taxpayer 

purchases a home in 2008, the credit is allowed on the 2008 tax 

return, and repayments commence with the 2010 tax return. If the 

taxpayer sells the home (or the home ceases to be used as the principal residence of the taxpayer or the taxpayer’s spouse) prior to 

complete repayment of the credit, any remaining credit repayment 

amount is due on the tax return for the year in which the home 

is sold (or ceases to be used as the principal residence). However, 

the credit repayment amount may not exceed the amount of gain 

from the sale of the residence to an unrelated person. For this purpose, gain is determined by reducing the basis of the residence by 

the amount of the credit to the extent not previously recaptured. 

No amount is recaptured after the death of a taxpayer. In the case 

of an involuntary conversion of the home, recapture is not accelerated if a new principal residence is acquired within a two year period. In the case of a transfer of the residence to a spouse or to a 

former spouse incident to divorce, the transferee spouse (and not 

the transferor spouse) will be responsible for any future recapture. 

EFFECTIVE DATE

The provision is effective for qualifying home purchases after 

April 8, 2008 and before April 1, 2009 (without regard to whether 

or not there was a binding contract to purchase prior to the date 

of committee action). 

B. ADDITIONAL STANDARD DEDUCTION FOR STATE AND LOCAL REAL

PROPERTY TAXES (SEC. 132 OF THE BILL AND SEC. 63 OF THE CODE) 

PRESENT LAW

An individual taxpayer’s taxable income is computed by reducing 

adjusted gross income either by a standard deduction or, if the taxpayer elects, by the taxpayer’s itemized deductions. Unless an individual taxpayer elects, no itemized deduction is allowed for the taxable year. The deduction for certain taxes, including income taxes, 

real property taxes, and personal property taxes, generally is an 

itemized deduction.12

REASONS FOR CHANGE

The Committee believes an additional standard deduction for 

real property taxes is appropriate in order to help lessen the impact of rising State and local property tax bills on those individual 


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13 In the case of an individual taxpayer who does not elect to itemize deductions, although 

no itemized deductions are allowed to the taxpayer, itemized deductions are nevertheless treated 

as ‘‘allowable.’’ See section 63(e). 

taxpayers with insufficient total itemized deductions to elect not to 

take the standard deduction. 

EXPLANATION OF PROVISION

The provision increases an individual taxpayer’s standard deduction for a taxable year beginning in 2008 by the lesser of (1) the 

amount allowable 13 to the taxpayer as a deduction for State and 

local taxes described in section 164(a)(1) (relating to real property 

taxes), or (2) $350 ($700 in the case of a married individual filing 

jointly). The increased standard deduction is determined by taking 

into account real estate taxes for which a deduction is allowable to 

the taxpayer under section 164 and, in the case of a tenant-stockholder in a cooperative housing corporation, real estate taxes for 

which a deduction is allowable to the taxpayer under section 216. 

No taxes deductible in computing adjusted gross income are taken 

into account in computing the increased standard deduction. 

EFFECTIVE DATE

The provision applies to taxable years beginning in 2008. 

TITLE III—GENERAL HOUSING PROVISIONS 

A. MODIFICATIONS TO QUALIFIED PRIVATE ACTIVITY BOND RULES

FOR HOUSING (SEC. 141 OF THE BILL AND SECS. 142, 143, AND 146 

OF THE CODE) 

PRESENT LAW

In general 

Private activity bonds are bonds that nominally are issued by 

State or local governments, but the proceeds of which are used (directly or indirectly) by a private person and payment of which is 

derived from funds of such private person. The exclusion from income for interest paid on State and local bonds does not apply to 

private activity bonds, unless the bonds are issued for certain permitted purposes (‘‘qualified private activity bonds’’). The definition 

of a qualified private activity bond includes, but is not limited to, 

qualified mortgage bonds, qualified veterans’ mortgage bonds, and 

bonds for qualified residential rental projects. 

Qualified private activity bond rules for housing 

Qualified mortgage bonds are issued to make mortgage loans to 

qualified mortgagors for owner-occupied residences. The Code imposes several limitations on qualified mortgage bonds, including income limitations for homebuyers, purchase price limitations for the 

home financed with bond proceeds, and a ‘‘first-time homebuyer’’

requirement. The income limitations are satisfied if all financing 

provided by an issue is provided for mortgagors whose family income does not exceed 115 percent of the median family income for 

the metropolitan area or State, whichever is greater, in which the 

financed residences are located. The purchase price limitations provide that a residence financed with qualified mortgage bonds may 


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not have a purchase price in excess of 90 percent of the average 

area purchase price for that residence. The first-time homebuyer 

requirement provides that qualified mortgage bonds generally cannot be used to finance a mortgage for a homebuyer who had an 

ownership interest in a principal residence in the three years preceding the execution of the mortgage. In addition, bond proceeds 

generally only can be used for new mortgages, i.e., proceeds cannot 

be used to acquire or refinance existing mortgages. Under present 

law, the proceeds of qualified mortgage bonds generally must be 

used to finance mortgages within 42 months from the date of 

issuance of the bonds. 

Residential rental property may be financed with qualified private activity bonds if the financed project is a ‘‘qualified residential 

rental project.’’ A project is a qualified residential rental project if 

20 percent or more of the residential units in such project are occupied by individuals whose income is 50 percent or less of area median gross income (the ‘‘20–50 test’’). Alternatively, a project is a 

qualified residential rental project if 40 percent or more of the residential units in such project are occupied by individuals whose income is 60 percent or less of area median gross income (the ‘‘40–

60 test’’). 

As with most qualified private activity bonds, qualified mortgage 

bonds and bonds for qualified residential rental projects are subject 

to annual State volume limitations (the ‘‘State volume cap’’). For 

calendar year 2008, the State volume cap, which is indexed for inflation, equals $85 per resident of the State, or $262.09 million, if 

greater. The interest income from qualified mortgage bonds and 

bonds for qualified residential rental projects is a preference item 

for purposes of calculating the alternative minimum tax (‘‘AMT’’). 

REASONS FOR CHANGE

The Committee is concerned that the general deterioration in the 

credit markets and decline in housing prices is making it difficult 

for many homeowners to refinance high interest rate mortgages. 

The Committee believes that additional tools are needed to alleviate the financial burdens faced by homeowners with subprime, adjustable-rate mortgages that are due to reset over the next several 

years. The Committee also believes that tax-exempt bonds are an 

effective way to provide these homeowners with lower-cost refinancing options than are otherwise available under current market 

conditions. Thus, the Committee believes it is appropriate to temporarily expand the purposes for which qualified mortgage bonds 

may be issued and to temporarily increase the volume cap available for housing projects. 

EXPLANATION OF PROVISION

Temporary volume cap increase 

The provision authorizes an additional $10 billion of volume cap 

for 2008 for the purpose of issuing qualified mortgage bonds or private activity bonds for qualified residential rental projects. The additional volume cap is allocated to each State in the same proportion as the population of such State bears to the population of all 

the States. Qualified mortgage bonds issued with respect to the additional volume cap may be used to finance either mortgages perVerDate Aug 31 2005 04:25 Apr 26, 2008 Jkt 069006 PO 00000 Frm 00043 Fmt 6659 Sfmt 6602 E:\HR\OC\HR606.XXX HR606

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mitted under present law (e.g., new mortgages) or qualified 

subprime loans as defined under the bill. However, all proceeds of 

qualified mortgage bonds issued with respect to the additional volume cap must be used within 12 months of the date of issuance of 

such bonds. Additional volume cap that remains unused at the end 

of 2008 may be carried forward to 2009 and 2010, but solely for the 

purpose of issuing qualified mortgage bonds or private activity 

bonds for qualified residential rental projects. 

Qualified mortgage bonds for certain refinancings 

The provision creates an exception to the new mortgage requirement for qualified mortgage bonds by authorizing the use of such 

bonds to refinance a qualified subprime loan. The provision defines 

a qualified subprime loan as an adjustable rate residential mortgage loan originated after December 31, 2001, and before January 

1, 2008, that the issuer determines would be reasonably Iikely to 

cause financial hardship to the borrower if not refinanced. Under 

the provision, proceeds of qualified mortgage bonds used to refinance qualified subprime loans must be so used within 12 months 

from the date of issuance of the bond. In addition, the provision 

also provides that qualified subprime loans cannot be refinanced by 

bonds issued after December 31, 2010. 

EFFECTIVE DATE

The provision applies to bonds issued after the date of enactment. 

B. ALTERNATIVE MINIMUM TAX TREATMENT OF INTEREST ON CERTAIN BONDS, THE LOW-INCOME HOUSING CREDIT, AND THE REHABILITATION CREDIT (SEC. 142 OF THE BILL AND SECS. 38, 56 AND

57 OF THE CODE) 

PRESENT LAW

In general 

Present law imposes an alternative minimum tax (‘‘AMT’’) on individuals and corporations. AMT is the amount by which the tentative minimum tax exceeds the regular income tax. The tentative 

minimum tax is computed based upon a taxpayer’s alternative minimum taxable income (‘‘AMTI’’). AMTI is the taxpayer’s taxable income modified to take into account certain preferences and adjustments. 

Tax-exempt bonds 

One of the preference items is tax-exempt interest on certain taxexempt bonds issued for private activities (sec. 57(a)(5)). Also, in 

the case of a corporation, an adjustment based on current earnings 

is determined, in part, by taking into account 75 percent of items, 

including tax-exempt interest, that are excluded from taxable income but included in the corporation’s earnings and profits (sec. 

56(g)(4)(B)). 

Low-income housing and rehabilitation credits 

Business tax credits generally may not exceed the excess of the 

taxpayer’s income tax liability over the tentative minimum tax (or, 


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45 

14 A special rule treats the tentative minimum tax as being zero for purposes of determining 

the tax liability limitation with respect to certain energy credits, the work opportunity credit 

and the credit for taxes paid with respect to employee cash tips (sec. 38(c)(4)). Thus, the credits 

listed in the preceding sentence may offset the alternative minimum tax liability. 

if greater, 25 percent of the regular tax liability in excess of 

$25,000). Thus, business tax credits generally cannot offset the alternative minimum tax liability.14

Credits in excess of the limitation may be carried back one year 

and carried forward for up to 20 years. 

REASONS FOR CHANGE

The alternative minimum tax limits the intended benefits of taxexempt housing bonds for some taxpayers who invest in these 

bonds. Also, the alternative minimum tax limits the intended effects of the low-income housing tax credit and the rehabilitation 

credit for some taxpayers. The Committee believes that the tax exemption for interest on these housing bonds, the low-income housing tax credit and the rehabilitation credit should be available to 

taxpayers regardless of their alternative minimum tax status. Accordingly, the bill eliminates the treatment of this interest as a tax 

preference under the alternative minimum tax and provides that 

these credits can be utilized to offset both the regular tax and the 

alternative minimum tax. 

EXPLANATION OF PROVISION

Tax-exempt bonds 

The bill provides that tax-exempt interest on (i) exempt facility 

bonds issued as part of an issue 95 percent or more of the net proceeds of which are used to provide qualified residential rental 

projects (as defined in section 142(d)), (ii) qualified mortgage bonds 

(as defined in section 143(a)), and (iii) qualified veterans’ mortgage 

bonds (as defined in section 143(b)) is not an item of tax preference 

for purposes of the alternative minimum tax. Also, this interest is 

not included in the corporate adjustment based on current earnings. The provision does not apply to interest on any refunding 

bond unless interest on the refunded bond (or in the case of a series of refundings, the original bond) was not an item of tax preference. 

Low-income housing and rehabilitation credits 

The bill treats the tentative minimum tax as being zero for purposes of determining the tax liability limitation with respect to the 

low-income housing credit and the rehabilitation credit. 

Thus, the low-income housing tax credit and the rehabilitation 

credit may offset the alternative minimum tax liability. 

EFFECTIVE DATE

The provision applies to interest on bonds issued after the date 

of enactment. 

The provision applies to low-income housing credits determined 

under section 42 attributable to buildings placed in service after 

December 31, 2007 (including any carryback of the credits). 

The provision applies to rehabilitation credits determined under 

section 47 attributable to qualified rehabilitation expenses properly 


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taken into account for periods after December 31, 2007 (including 

any carryback of the credits). 

C. BONDS GUARANTEED BY FEDERAL HOME LOAN BANKS ELIGIBLE

FOR TREATMENT AS TAX-EXEMPT BONDS (SEC. 143 OF THE BILL

AND SEC. 149 OF THE CODE) 

PRESENT LAW

Interest paid on bonds issued by State and local governments 

generally is excluded from gross income for Federal income tax 

purposes. However, the exclusion generally does not apply to State 

and local bonds that are Federally guaranteed. Under present law, 

a bond is Federally guaranteed if: (1) the payment of principal or 

interest with respect to such bond is guaranteed (in whole or in 

part) by the United States (or any agency or instrumentality thereof); (2) such bond is issued as part of an issue and five percent or 

more of the proceeds of such issue is to be (a) used in making loans 

the payment of principal or interest with respect to which is guaranteed (in whole or in part) by the United States (or any agency 

or instrumentality thereof), or (b) invested directly or indirectly in 

Federally insured deposits or accounts; or (3) the payment of principal or interest on such bond is otherwise indirectly guaranteed (in 

whole or in part) by the United States (or any agency or instrumentality thereof). 

The Federal guarantee restriction was enacted in 1984 with certain exceptions for certain guarantee programs in existence at that 

time. The exceptions include guarantees by: the Federal Housing 

Administration; the Department of Veterans’ Affairs; the Federal 

National Mortgage Association; the Federal Home Loan Mortgage 

Association; the Government National Mortgage Association; the 

Student Loan Marketing Association; and the Bonneville Power 

Authority. The exception also includes guarantees for certain housing programs. These are: (a) private activity bonds for a qualified 

residential rental project or a housing program obligation under 

section 11(b) of the United States Housing Act of 1937; (b) a qualified mortgage bond; or (c) a qualified veterans’ mortgage bond. 

REASONS FOR CHANGE

The Committee is concerned that the recent deterioration in the 

credit markets is increasing the borrowing costs of State and local 

governments for essential governmental projects. The Committee 

believes that additional tools are needed to allow State and local 

governments easier access to the credit markets. Thus, the Committee believes it is appropriate to provide a temporary exception 

to the Federal guarantee prohibition to reduce the borrowing costs 

of State and local governments. 

EXPLANATION OF PROVISION

Under the provision, bonds issued by State and local governments are not treated as Federally guaranteed by reason of any 

guarantee provided by any Federal Home Loan Bank of a bond 

issued after the date of enactment and before January 1, 2011, if 

such bank made a guarantee of such bond in connection with such 

issuance. 


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15 Nonresident aliens present in the United States for a period or period aggregating 183 days 

or more during a taxable year are taxed at a flat 30 percent on their net U.S. source capital 

gains. Sec. 871(a)(2). 16Sec. 897(a)(1). 17Sec. 1445(a). 18Sec. 1445(b). 

The exception to the Federal guarantee prohibition does not 

apply to any guarantee by a Federal home loan bank unless such 

bank meets safety and soundness collateral requirements for such 

guarantees which are at least as stringent as the regulatory requirements for guarantees by Federal home loan banks as in effect 

on April 9, 2008. 

EFFECTIVE DATE

The provision applies to guarantees made after the date of enactment. 

D. MODIFICATION OF RULES PERTAINING TO FIRPTA NONFOREIGN

AFFIDAVITS (SEC. 144 OF THE BILL AND SEC. 1445 OF THE CODE) 

PRESENT LAW

In general, nonresident aliens and foreign corporations are not 

taxed on capital gains.15 However, such foreign persons must take 

into account gains and losses from the disposition of an interest in 

United States real property (‘‘USRPI’’), as if such persons were engaged in a trade or business in the United States during the taxable year, and such gain or loss were effectively connected with 

such trade or business.16

Although tax is imposed upon such dispositions on a net basis, 

in the case of any disposition of a USRPI by a foreign person, the 

transferee is generally required to deduct and withhold a tax equal 

to ten percent of the amount realized.17 The transferee is exempt 

from this withholding requirement if: 

In general, the transferred interest is not a USRPI; 

The transferee receives a ‘‘qualifying statement’’ from the 

Secretary of the Treasury (or his delegate) that states that the 

transferor is exempt from the tax on the disposition of the 

USRPI or has reached agreement with the Secretary for payment of such tax, and that any withholding tax has been satisfied or secured; 

The USRPI is acquired by the transferee for use by him as 

a residence and the amount realized does not exceed $300,000; 

or 

The transferor furnishes to the transferee an affidavit by the 

transferor stating, under penalties of perjury, the transferor’s 

United States taxpayer identification number and that the 

transferor is not a foreign person. However, this rule does not 

apply if the transferee has actual knowledge that such affidavit is false or if the transferee receives a notice from a transferor’s agent or a transferee’s agent that such affidavit is false, 

or if the transferee fails to meet the Secretary’s requirement 

that the transferee furnish a copy of such affidavit to the Secretary.18 Regulations require the transferee to retain the transVerDate Aug 31 2005 04:25 Apr 26, 2008 Jkt 069006 PO 00000 Frm 00047 Fmt 6659 Sfmt 6602 E:\HR\OC\HR606.XXX HR606

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19Treas. Reg. sec. 1.1445–2(b)(3). 20Sec. 1445(d)(1). 21Sec. 1445(d)(2)(A). 22Sec. 1445(d)(2)(B). 23Sec. 6045(e)(1). There is an exception to this requirement for a sale or exchange of a resi- dence for $250,000 or less ($500,000 if the seller is married), if certain conditions are met. Sec. 

6045(e)(5). 24 If there is no such person, then the real estate reporting person with respect to that transaction is either the mortgage lender, seller’s broker, buyer’s broker, or other person designated 

under regulations, in that order. Sec. 6045(e)(2). 

feror’s affidavit until the end of the fifth taxable year following 

the taxable year in which the transfer takes place.19

In certain circumstances, agents may be liable for some or all of 

the withholding tax. In general, if the transferor’s agent or the 

transferee’s agent has actual knowledge that the affidavit is false, 

then such agent is required to notify the transferee pursuant to 

regulations.20 An agent that is required to notify the transferee 

pursuant to regulations yet fails to do so is under the same duty 

to deduct and withhold that the transferee would have been under 

if such agent had properly given such notice.21 However, an agent’s 

liability under these circumstances is limited to the amount of the 

agent’s compensation from the transaction.22

In the case of a real estate transaction, a ‘‘real estate reporting 

person’’ is required to file an information return and to furnish certain written statements to customers.23 A real estate reporting person means the person (including any attorney or title company) responsible for closing the transaction, if there is such a person.24

REASONS FOR CHANGE

The Committee believes that U.S. persons generally are hesitant 

to provide their social security numbers to persons with whom they 

do not have an ongoing business relationship. The Committee believes that offering transferors of USRPIs the option of providing 

nonforeign affidavits solely to the person responsible for closing the 

transaction should better protect the social security numbers of 

transferors and provide assurance to transferors that their private 

information will be secure. 

EXPLANATION OF PROVISION

The provision provides an alternate procedure with respect to the 

nonforeign affidavit. Under this procedure, in lieu of furnishing a 

nonforeign affidavit to the transferee, a transferor may furnish 

such affidavit to a ‘‘qualified substitute.’’ Such qualified substitute 

is then required to furnish a statement to the transferee stating, 

under penalties of perjury, that the qualified substitute has such 

affidavit in his or her possession. With respect to a disposition of 

a USRPI, the term ‘‘qualified substitute’’ means (1) the person, including any attorney or title company, responsible for closing the 

transaction, other than the transferor’s agent, and (2) the transferee’s agent. 

This exemption does not apply if the transferee or qualified substitute has actual knowledge that such affidavit or statement is 

false, if the transferee or qualified substitute receives a notice from 

a transferor’s agent, transferee’s agent, or qualified substitute that 

such affidavit or statement is false, or if the transferee or qualified 

substitute fails to meet a regulatory requirement that the transVerDate Aug 31 2005 04:25 Apr 26, 2008 Jkt 069006 PO 00000 Frm 00048 Fmt 6659 Sfmt 6602 E:\HR\OC\HR606.XXX HR606

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25 A disqualified lease for this purpose is a lease to a tax-exempt entity in specified circumstances. These are: (1) part or all of the property was financed, directly or indirectly, by 

tax-exempt bond financing and the entity (or a related entity) participated in the financing; (2) 

under the lease there is a fixed or determinable price purchase or sale involving the entity or 

a related entity (or the equivalent of such an option); (3) the term of the lease exceeds 20 years; 

or (4) there has been a sale and leaseback of the property and the entity (or a related entity) 

used the property before the sale, transfer, or lease (sec. 168(h)(1)(B)). 

feree or qualified substitute furnish a copy of such affidavit or 

statement to the Secretary. 

Moreover, if the transferor’s agent, the transferee’s agent, or the 

qualified substitute has actual knowledge that the affidavit or 

statement is false, then such agent or qualified substitute is required to notify the transferee. As under present law, the time and 

manner of such notice is to be specified by regulations. An agent 

or qualified substitute that is required to notify the transferee pursuant to regulations yet fails to do so has the same duty to deduct 

and withhold that the transferee would have had if such agent or 

qualified substitute had properly given such notice. An agent’s or 

qualified substitute’s liability under these circumstances is limited 

to the amount of the compensation that such agent or qualified 

substitute derives from the transaction. 

The Secretary of the Treasury is required to prescribe such regulations as may be necessary or appropriate to carry out this provision. It is intended that such rules will require the qualified substitute and transferee to retain the documentation for a period 

commensurate with the period required under the present-law regulations. 

EFFECTIVE DATE

The provision is effective for dispositions after the date of enactment. 

E. MODIFY REHABILITATION CREDIT TAX-EXEMPT USE SAFE HARBOR

(SEC. 145 OF THE BILL AND SEC. 47 OF THE CODE) 

PRESENT LAW

A 10-percent credit is provided for rehabilitation expenditures 

with respect to buildings first placed in service before 1936. A 20- 

percent credit is provided for rehabilitation expenditures with respect to a certified historic structure. 

Rehabilitation expenditures eligible for the credit do not include 

any expenditure in connection with the rehabilitation of a building 

that is allocable to the portion of the property that is (or may reasonably be expected to be) tax-exempt use property. In the case of 

nonresidential real property, tax-exempt use property generally 

means the portion of the property leased in a disqualified lease 25

to tax-exempt entities (sec. 168(h)(1)). For this purpose, a tax-exempt entity means (1) the United States, a State or political subdivision, a U.S. possession, or an agency or instrumentality thereof, 

(2) a tax-exempt organization, (3) a foreign person or entity, or (4) 

an Indian tribal government. 

A safe harbor provides, however, that in the case of nonresidential real property, the property is treated as tax-exempt use property only if the portion of the property leased to tax-exempt entities 

in disqualified leases is more than 35 percent of the property. 


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26 Even if a REIT meets the 90 percent income distribution requirement for REIT qualification, more stringent distribution requirements must be met in order to avoid an excise tax under 

section 4981. 27Secs. 856 and 857. 

REASONS FOR CHANGE

The Committee is concerned that the rehabilitation tax credit 

may not be providing an incentive to rehabilitate buildings when 

a tax-exempt entity leases a portion of the building in some circumstances. For example, when a governmental entity such as a 

post office uses a portion of the building exceeding 35 percent, the 

amount of the tax credit for rehabilitating the building is reduced. 

The Committee believes that increasing the present-law percentage 

of permitted tax-exempt use somewhat, from 35 percent to 50 percent, will encourage the rehabilitation of more buildings. 

EXPLANATION OF PROVISION

The provision increases from 35 percent to 50 percent the percentage of the property that may be leased to a tax-exempt entity 

in a disqualified lease without requiring allocation of rehabilitation 

expenditures under the rehabilitation credit. Under the provision, 

for determining rehabilitation expenditures eligible for the credit, 

nonresidential real property is treated as ‘‘tax-exempt use’’ property only if the portion of the property leased to tax-exempt entities 

in disqualified leases is more than 50 percent of the property. For 

this purpose, a tax-exempt entity continues to have the same 

meaning provided by present law. 

EFFECTIVE DATE

The provision is effective for expenditures properly taken into account for periods after December 31, 2007. 

TITLE IV—REAL ESTATE INVESTMENT TRUST (‘‘REIT’’) 

MODIFICATIONS 

(SECS. 201–241 OF THE BILL AND SECS. 856 AND 857 OF THE CODE) 

PRESENT LAW

In general 

A real estate investment trust (‘‘REIT’’) is an entity that otherwise would be taxed as a U.S. corporation and that elects to be 

taxed under a special REIT tax regime. In order to qualify as a 

REIT, an entity must meet a number of requirements. At least 90 

percent of REIT income (other than net capital gain) must be distributed annually; 26 the REIT must derive most of its income from 

passive, generally real-estate-related investments; and REIT assets 

must be primarily real- estate-related. In addition, a REIT must 

have transferable interests and at least 100 shareholders, and no 

more than 50 percent of the REIT interests may be owned by 5 or 

fewer individual shareholders (as determined using specified attribution rules). Other requirements also apply.27

If an electing entity meets the requirements for REIT status, the 

portion of its income that is distributed to its shareholders each 

year as a dividend is deductible by the REIT (unlike the case of a 

regular subchapter C corporation, which cannot deduct dividends). 


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28 A REIT that has net capital gain can either distribute that gain as a ‘‘capital gain’’ dividend 

or retain that gain without distributing it but cause the shareholders to be treated as if they 

had received and reinvested a capital gain dividend. In either case, the gain is in effect taxed 

only as net capital gain of the shareholders. Sec. 857(b)(3). 29Secs. 856(c)(3) and 1221(a)(1). Income from sales that are not prohibited transactions solely 

by virtue of section 857(b)(6) is also qualified REIT income. 30Sec. 856(d). Amounts attributable to the provision of certain services by an independent contractor or by a taxable REIT subsidiary can be qualified rents. Sec. 856(d)(7). 31Sec. 856(c)(3). 32 A hedging transaction for this purpose is one defined in clause (ii) or (iii) of section 

1221(b)(2)(A). The identification requirement is defined in section 1221(a)(7). 33Sec. 856(c)(5)(G). 34See Rev. Rul. 74–191, 1974–1 C.B. 170. 

As a result, the distributed income of the REIT is not taxed at the 

entity level; instead, it is taxed only at the investor level.28

Income tests 

In general 

A REIT is restricted to earning certain types of generally passive 

income. Among other requirements, at least 75 percent of the gross 

income of a REIT in a taxable year must consist of real-estate-related income. This includes rents from real property, income from 

the sale or exchange of real property (including interests in real 

property) that is not stock in trade, inventory, or held by the taxpayer primarily for sale to customers in the ordinary course of its 

trade or business, interest on mortgages secured by real property 

or interests in real property, and certain income from foreclosure 

property (the ‘‘75-percent income test’’).29 Amounts attributable to 

most types of services provided to tenants (other than certain ‘‘customary services’’), or to more than specified amounts of personal 

property, are not qualifying rents.30 In addition, rents received 

from any entity in which the REIT owns more than 10 percent of 

the vote or value also generally are not qualifying income. However, there is an exception for certain rents received from taxable 

REIT subsidiaries (described further below), in which a REIT may 

own more than 10 percent of the vote or value. 

In addition, 95 percent of REIT gross income for the taxable year 

must be from the 75-percent required sources, plus a permitted second category of other, generally passive investments such as dividends, capital gains, and interest income (the ‘‘95-percent income 

test’’).31

Income from certain hedging transactions 

Except as provided by regulations, income from a hedging transaction which is clearly identified,32 including gain from the sale or 

disposition of such a transaction, is not included as gross income 

under the 95-percent income test, to the extent the transaction 

hedges any indebtedness incurred or to be incurred by the REIT to 

acquire or carry real estate assets.33

Foreign currency exchange gain 

A REIT must be a U.S. domestic entity, but it is permitted to 

hold foreign real estate or other foreign-based assets, provided the 

75-percent and 95-percent income tests and the other requirements 

for REIT qualification are met.34 A REIT that holds foreign real estate or other foreign-based assets may have foreign currency exchange gain under the foreign currency transaction rules of the 


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35Sec. 985(b)(1). 36Sec. 989(a). 37Sec. 988(c)(1)(B) and (C). 38Section 988 applies to (i) the acquisition of a debt instrument or becoming the obligor under 

a debt instrument; (ii) accruing (or otherwise taking into account) any item of expense or gross 

income or receipts which is to be paid after the date on which so accrued or taken into account, 

and (iii) entering into or acquiring any forward contract, futures contract, option, or similar financial instrument (except for any regulated futures contract or nonequity option which would 

be marked to market under section 1256 if held on the last day of the taxable year). Section 

988 also applies to the disposition of any nonfunctional currency. Nonfunctional currency includes ‘‘coin or currency, and nonfunctional currency denominated demand or time deposits or 

similar instruments issued by a bank or other financial institution.’’ Sec. 988(c)(1). 39 Rev. Rul. 2007–33, 2007–21 I.R.B. 1281. This ruling does not address the treatment of currency gain that might arise with respect to the payment of principal on an obligation that would 

produce qualified income. The ruling also does not address the treatment of foreign currency 

gain that might arise in connection with an indebtedness denominated in a foreign currency 

that is incurred to acquire assets that produce qualifying income. A private letter ruling conCode (described below). Foreign currency exchange gain is not explicitly included in the statutory definitions of qualifying income for 

purposes of the 75-percent and 95-percent income tests, though the 

IRS has issued some guidance that allows foreign currency gain to 

be treated as qualified income in certain circumstances. 

The foreign currency transaction rules of sections 985 through 

989 apply whenever a taxpayer engages in a business or investment activity using a currency other than the taxpayer’s functional 

currency (a ‘‘nonfunctional currency’’). Section 985 provides in general that all determinations for Federal income tax purposes are 

made in the taxpayer’s functional currency. A taxpayer’s functional 

currency is the dollar except in the case of a qualified business unit 

(‘‘QBU’’), in which case the functional currency is ‘‘the currency of 

the economic environment in which a significant part of such unit’s 

activities are conducted and which is used by such unit in keeping 

its books and records.’’ 35 A QBU is any separate and clearly identified unit of a trade or business of a taxpayer if the unit maintains 

separate books and records.36

A taxpayer that engages in a business or investment activity 

using a currency other than the U.S. dollar may have gain or loss 

under section 987 or 988, depending on the nature of the activity 

and type of entity (if any) through which the activity is conducted. 

A U.S. taxpayer becomes subject to section 988 when it enters 

into a ‘‘section 988 transaction.’’ Among other things, a ‘‘section 988 

transaction’’ includes the acquisition of a debt instrument, becoming an obligor under a debt instrument, the accrual of items of expense or gross income, or the disposition of any nonfunctional currency.37

When a REIT holds a mortgage (or other instrument or arrangement described in section 988) 38 denominated in a nonfunctional 

currency or determined by reference to the value of a nonfunctional 

currency and the applicable foreign currency exchange rate changes 

between the time interest on an obligation to (or an obligation of) 

the REIT accrues and the time it is paid, the REIT may have foreign currency gain or loss under the rules of section 988. In May 

2007, the IRS ruled in Rev. Rul. 2007–33 that if section 988 currency gain is recognized by a REIT with respect to an item of income, the section 988 gain will be qualifying income for purposes 

of the 95-percent and 75-percent income tests of sections 856(c)(2) 

and (3), respectively, to the extent the underlying income so qualifies. Analogous relief was not provided for section 988 gain with respect to any items other than income items.39


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cluded that section 988 currency gain attributable to fluctuation in the exchange rates of currency used to make payments on non-dollar debt obligations incurred to acquire investments 

that produced qualifying non-dollar income would be treated as qualifying income, where the 

borrowings were to be used to finance the acquisition of the investments on a cost-effective 

basis, and not to speculate in foreign currency. PLR 200808024. A private letter ruling may be 

relied upon only by the taxpayer to which the ruling is issued. 40 Recent proposed regulations under section 987 would replace previously proposed rules in 

an attempt to limit the ability of taxpayers to recognize non-economic foreign currency losses 

that could reduce otherwise taxable income, as well as to prevent non-economic currency gains 

that could arise. The 2006 proposed regulations would provide certain tracing-type rules. See 

REG–208270–86 (Sept. 7, 2006). See also Notice 2000–20 (March 22, 2000), discussing concerns 

regarding earlier proposed regulations issued in 1991. The 2006 proposed regulations when 

originally issued did not by their terms apply to REITs, RICs, or certain other types of entities. 

Prop. Reg. Sec. 1.987–1(b)(iii). But see Notice 2007–42, 2007–21 I.R.B. 1288, infra. 41See, e.g., PLR 200625019 and PLR 200550025. A private letter ruling may be relied upon 

only by the taxpayer to which the ruling was issued. 42 In this structure, the parent REIT treats the dividends paid by the subsidiary REIT as a 

qualified REIT dividend, minimizing any currency gains by exchanging the foreign currency into 

dollars at the time of the dividend distribution. 43 Notice 2007–42, 2007–21 I.R.B. 1288. Compare REG–208270–86 (Sept. 7, 2006), which by 

its terms did not apply to REITs. 44PLR 200039027 and PLR 200127024. A private letter ruling may be relied upon only by 

the taxpayer to which the ruling was issued. 

Section 987 applies when there is a remittance from a foreign 

business or investment activity conducted through a QBU that is 

a branch that keeps its books and records in a functional currency 

other than the dollar. If a REIT has a QBU that keeps its books 

and records in a foreign currency, the REIT could have foreign currency exchange gain or loss under section 987 with respect to remittances.40

The IRS has ruled in several private rulings that a REIT may 

establish a REIT subsidiary that itself qualifies as a separate REIT 

(and, thus, would not be treated as a branch) to conduct qualified 

REIT activity with respect to foreign investments in a particular 

foreign currency, and that subsidiary can itself be treated as a 

QBU whose functional currency is that particular foreign currency, 

if that subsidiary keeps its books and records in that particular foreign currency.41 While this structure provides a method of doing 

business abroad, this structure effectively requires a separate REIT 

subsidiary for each different currency in which the REIT may conduct activities.42

At the same time that it issued Rev. Rul. 2007–33, the IRS also 

issued a notice regarding the application of section 987 to a QBU 

of a REIT. The notice states that until further guidance is issued, 

a REIT that has a QBU that uses a functional currency other than 

the U.S. dollar may apply the principles of proposed regulations 

issued on September 7, 2006, to determine whether section 987 

currency gain is derived from income described in sections 856(c)(2) 

or (3).43

Certain other items 

Certain private letter rulings issued to particular taxpayers have 

permitted various other types of income to be ignored for purposes 

of the 75-percent or 95-percent income tests, due to the relationship 

of the income to REIT qualifying assets or income. A few examples 

include a settlement payment received by a REIT with respect to 

construction of a mall or a payment received as a ‘‘breakup’’ fee in 

a proposed merger.44


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45Sec. 856(c)(4)(A). Certain stock or debt instruments that are temporary investments also 

qualify if they are temporary investments of new capital, but only for the one-year period beginning on the date the REIT receives such capital. Sec. 856(c)(5)(B). 46Sec. 856(c)(4)(B)(i). 47Sec. 856(c)(4)(B)(iii). 48Sec. 856(c)(4)(B)(ii). 49Sec. 856(c)(4). In the case of such an acquisition, the REIT also has a grace period of 30 

days after the close of the quarter to eliminate the discrepancy. 50 An independent contractor will not fail to be treated as such for this purpose because the 

TRS bears the expenses of operation of the facility under the contract, or because the TRS receives the revenues from the operation of the facility, net of expenses for such operation and 

fees payable to the operator pursuant to the contract, or both. Sec. 857(d)(9)(B). 

Asset tests 

At least 75 percent of the value of a REIT’s assets must be real 

estate assets, cash and cash items (including receivables) and Government securities (the ‘‘75-percent asset test’’). Real estate assets 

are real property (including interests in real property and mortgages on real property) and shares (or transferable certificates of 

beneficial interest) in other REITs.45 No more than 25 percent of 

a REIT’s assets may be securities other than such real estate assets.46

Except with respect to a taxable REIT subsidiary (described further below), not more than 5 percent of the value of a REIT’s assets 

may be securities of any one issuer, and the REIT may not possess 

securities representing more than 10 percent of the outstanding 

value or voting power of any one issuer.47 In addition, not more 

than 20 percent of the value of a REIT’s assets may be securities 

of one or more taxable REIT subsidiaries.48

The asset tests must be met as of the close of each quarter. However, a REIT that has met the asset tests as of the close of any 

quarter does not lose its REIT status solely because of a discrepancy during a subsequent quarter between the value of the REIT’s 

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.49

Taxable REIT subsidiaries 

A REIT generally cannot own more than 10 percent of the vote 

or value of a single entity; however, there is an exception for ownership of a taxable REIT subsidiary (‘‘TRS’’) that is taxed as a corporation, provided that securities of one or more TRSs do not represent more than 20 percent of the value of REIT assets. 

A TRS generally can engage in any kind of business activity except that it is not permitted directly or indirectly to operate either 

a lodging facility or a health care facility. However, a TRS is permitted to rent hotel, motel, or other transient lodging facilities 

from its parent REIT and is permitted to hire an independent contractor to operate such facilities.50

Furthermore, rent paid to the REIT by the TRS with respect to 

hotel, motel, or other transient lodging facilities operated by an 

independent contractor is qualified rent for purposes of the REIT’s 

75-percent and 95-percent income tests. This lodging facility rental 

rule is an exception to the general rule that rent paid to a REIT 

by any corporation (including a TRS) in which the REIT owns 10 

percent or more of the vote or value is not qualified rental income 

for purposes of the 75-percent or 95-percent REIT income tests, unless, in the case of a TRS, at least 90 percent of the space is rented 


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51 REITs are also subject to a tax equal to 100 percent of redetermined rents, redetermined 

deductions, and excess interest. These are defined generally as the amounts of specified REIT 

transactions with a TRS of the REIT, to the extent such amounts differ from an arm’s length 

amount. 52This definition is the same as the definition of certain property the sale or other disposition 

of which would produce ordinary income rather than capital gain under section 1221(a)(1). 53 Additional requirements for the safe harbor limit the amount of expenditures the REIT can 

make during the four year period prior to the sale that are includible in the adjusted basis of 

the property, require marketing to be done by an independent contractor, and forbid a sales 

price that is based on the income or profits of any person. 54 Rev. Rul. 2007–33, 2007–21 I.R.B. 1281. 

to unrelated parties and the rent paid by the TRS is comparable 

to the rent paid by the unrelated parties.51

Prohibited transactions tax 

REITs are subject to a prohibited transactions tax (‘‘PTT’’) of 100 

percent of the net income derived from prohibited transactions. For 

this purpose, a prohibited transaction is a sale or other disposition 

of property that is ‘‘stock in trade of a taxpayer or other property 

which would properly be included in the inventory of the taxpayer 

if on hand at the close of the taxable year, or property held for sale 

to customers by the taxpayer in the ordinary course of his trade or 

business’’ (sec. 1221(a)(1)) 52 and is not foreclosure property. The 

PTT for a REIT does not apply if the sale satisfies certain safe harbor requirements in sections 857(b)(6)(C) or (D), including an asset 

holding period of at least four years.53 If the conditions are met, 

the REIT may either i) make no more than 7 sales within a taxable 

year (other than sales of foreclosure property or involuntary conversions under section 1033), or ii) sell no more than 10 percent of 

the aggregate bases of all its assets as of the beginning of the taxable year (computed without regard to sales of foreclosure property 

or involuntary conversions under section 1033), without being subject to the PTT tax. 

REASONS FOR CHANGE

The Committee believes that present law contains undesirable 

uncertainty and complexity in determining the effect of foreign currency gain on REIT qualification when a REIT invests in otherwise 

qualified foreign assets that produce otherwise qualified foreign income. If foreign currency gain is attributable to otherwise qualifying REIT income from foreign investments, such currency gain 

should not cause disqualification of a REIT. The Treasury Department has issued some guidance to that effect in the case of certain 

income items.54 The Committee wishes to assure that the same result will occur with respect to foreign currency gain on a REIT’s 

receipt of payments of principal (rather than income) on an asset 

that would produce qualified REIT income (for example, the receipt 

of principal payments on a mortgage that is secured by real property and denominated in foreign currency). If a REIT borrows in 

a foreign currency to facilitate the acquisition of qualified assets 

denominated in a foreign currency, the Committee wishes to assure 

that the same result will occur with respect to payments of interest 

and principal on such a borrowing. 

Similarly, although the Treasury Department has indicated that 

a REIT may operate in a foreign country with a qualified business 

unit that uses a nonfunctional currency and that the REIT may 

rely on the principles of the 2006 proposed Treasury regulations to 


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55 Notice 2007–42, 2007–21 I.R.B. 1288. 56PLR 200039027. 57PLR 200127024. 

determine whether currency gain on remittances is qualified REIT 

income,55 the Committee wishes to provide a simpler method to determine that foreign currency gain on remittances from a qualified 

business unit will not adversely affect REIT qualification. The 

Committee therefore has adopted rules that are intended both to 

assure that appropriate foreign currency gain will not disqualify a 

REIT and to preclude the treatment of income from foreign currency speculation as qualified income. 

The Committee also believes it is desirable to grant regulatory 

authority to the Treasury Department to permit other types of income that are not statutorily designated as qualified income to be 

disregarded for purposes of the REIT gross income tests in appropriate cases. Under present law, the Internal Revenue Service has 

issued private rulings that have reached this result in cases involving income related to the conduct of permitted REIT activities, for 

example, income relating to settlement of a lawsuit over construction of a mall in which a REIT was investing,56 and income from 

a ‘‘breakup’’ fee related to the termination of a proposed acquisition 

of another REIT.57 However, a private ruling may be relied upon 

only by the taxpayer to whom the ruling is issued. The Committee 

believes it is desirable for the Treasury Department to be permitted to issue generally applicable guidance in appropriate cases. 

With respect to taxable REIT subsidiaries (‘‘TRSs’’), the Committee believes it is appropriate to allow a greater percentage of a 

REIT’s assets to consist of stock of such subsidiaries. The Committee believes that a 25 percent limitation is consistent with the 

present law rule that at least 75 percent of REIT assets must be 

real estate assets, cash, cash items, and Government securities. 

The Committee also believes it is desirable to extend to health 

care facilities the rules that permit a TRS to bear the costs and receive the revenues of a qualified lodging facility, and to pay qualified arm’s length rent to the REIT for such a facility, provided the 

facility is operated by an independent contractor and the TRS pays 

an arm’s length fee to the independent contractor for such operation. Also, the Committee desires to provide that a taxable REIT 

subsidiary is not considered to be directly or indirectly operating a 

lodging or health care facility (i.e., without the required use of an 

independent contractor) merely because it possesses a license to do 

so. 

Finally, the Committee is concerned that the four-year holding 

period for the safe harbor from prohibited transactions tax may inappropriately deter REITs from selling their properties, and that 

the present law rule requiring use of basis for purposes of the 10- 

percent safe harbor limitation may unfairly affect a REIT that sells 

more recently acquired, higher-basis assets instead of longer-held 

assets with greater appreciation. The Committee thus desires to 

shorten the required holding period for REIT asset sales that can 

qualify for the safe harbor from the prohibited transactions tax 

(‘‘PTT’’), and to allow a REIT that makes more than 7 sales in a 

taxable year to make sales under the alternative safe harbor equal 

to 10 percent of the aggregate fair market value of the REIT assets, where the basis of property sold during the year exceeds the 


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58 In the case of a section 988 transaction, it is intended that the provision only apply to foreign currency gains that are directly attributable to income items that otherwise are treated 

as qualifying income for purposes of the 75-percent and 95-percent income tests, respectively, 

(or directly attributable to the acquisition or ownership of, or to becoming the obligor under, 

obligations secured by mortgages on real property or on interests on real property). As one example, foreign currency gains attributable to gain arising between the time of the accrual of 

interest income on a foreign-currency denominated obligation secured by a mortgage on real 

property and the time of payment, would constitute qualifying income for purposes of both 75- 

percent and 95-percent income tests, assuming that the interest accruals themselves constitute 

qualifying income for purposes of such tests. However, any additional foreign currency gains 

arising from subsequent disposition of the foreign currency received in payment of the accrued 

interest would be attributable to holding the foreign currency after its receipt and would not 

constitute qualifying income under either test. 59 In the case of a QBU that meets those tests, section 987 foreign currency gain on remittances as of the time of remittance is qualified income. Any currency gain arising from holding 

the currency after remittance is not qualifying income. 

amount permitted under the present law rule (10 percent of aggregate basis of REIT assets). The Committee believes these changes 

will enable REITs to sell properties more readily and thus capture 

asset values for shareholders with more flexibility. 

EXPLANATION OF PROVISION

Foreign currency gain 

The provision treats certain foreign currency gains recognized 

under section 987 or section 988 as qualifying income for purposes 

of the 75-percent and 95-percent income tests. In the case of a section 988 transaction, foreign currency gain that is ‘‘attributable to’’

income items that otherwise are treated as qualifying income for 

purposes of the 75-percent and 95-percent income tests respectively 

(and including any other 988 gain attributable to the acquisition or 

ownership of, or to becoming the obligor under, obligations secured 

by mortgages on real property or on interests in real property), are 

treated as qualifying income for those tests.58 The provision 

reaches a result similar to that in Rev. Rul. 2007–33 in the case 

of gain attributable to an item of REIT income, and in addition provides a similar result in the case of currency gain attributable to 

principal payments received on certain REIT assets or to principal 

or interest payments with respect to certain liabilities of a REIT. 

In the case of a QBU with a functional currency other than the 

U.S. dollar, section 987 foreign currency gain is treated as qualifying income for purposes of both the 75-percent and 95-percent income tests if such gain is attributable to a QBU that independently 

meets the 75-percent income and asset tests (before application of 

the provision).59 The provision thus allows currency gain on remittances to qualify as good REIT income without requiring for that 

purpose the particular tracing-type rules of the existing section 987 

proposed regulations as allowed for REITs under Notice 2007–42. 

The QBU itself does not have to meet the 95-percent income test 

in order for currency gain on its remittances to be treated as qualified income. The REIT still is required to meet the 95-percent income test, as well as all the other REIT requirements, on an overall basis that includes the income and assets of its QBU. However, 

for this purpose, any currency gains on remittances from a QBU 

that meets the 75 percent income and asset tests are added to 

qualifying income for purposes of both the 75-percent and 95-percent income tests. 


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In addition, any other foreign currency gain may, if so determined by the Secretary of the Treasury, be considered qualified income. 

The provision makes several changes to other REIT provisions. 

First, the present law rule that excludes certain hedging income 

from the computation of the 95-percent income test is extended to 

exclude such hedging income from the computation of the 75-percent income test as well. Second, the provision excludes currency 

hedging income for purposes of the 75-percent or 95-percent tests, 

respectively, where the income from the hedged item, if any, would 

be good income under the provision for such 75-percent or 95-percent income tests, respectively. Third, the rule that if a REIT has 

met the asset tests as of the close of any quarter it will not fail 

them solely because of a discrepancy due to variations in value that 

are not attributable to the acquisition of investments is clarified to 

include a discrepancy caused solely by the change in the foreign 

currency exchange rate used to value a foreign asset. Fourth, the 

term ‘‘cash’’ for purposes of the REIT asset qualification rules is defined to include foreign currency if the REIT or its QBU uses such 

currency as its functional currency. Fifth, permitted foreclosure 

property income also includes foreign currency gain that is attributable to otherwise permitted income from foreclosure property. Finally, foreign currency gain under section 988(b)(1), or loss under 

section 988(b)(2), that is attributable to any prohibited transaction 

is taken into account in determining the amount of prohibited 

transaction net income subject to the 100 percent tax. 

Treasury authority regarding other items of income 

The provision authorizes the Treasury Department to issue guidance that would allow other items of income to be excluded from 

the computation of qualifying gross income in appropriate cases. 

Taxable REIT subsidiary limit increase 

The provision increases the percentage of the value of REIT assets that can be held in securities of a taxable REIT subsidiary to 

25 percent from the present 20 percent. 

Holding period under safe harbor for prohibited transactions 

The provision shortens from four years to two years the minimum holding period under the prohibited transactions tax safe 

harbor. The provision makes clear that the safe harbor is an exception from the prohibited transactions tax only and does not cause 

a sale that otherwise does not qualify for capital gains treatment 

(i.e., because it was a sale of property held for sale to customers 

in the ordinary course of business under section 1221(a)(1)) to become a capital gain transaction. Consequently, capital gain treatment continues to be determined based on all the facts and circumstances as under present law, without regard to the prohibited 

transactions tax safe harbor. 

Permitted extent of sales under safe harbor for prohibited transactions 

The provision changes the prohibited transactions tax safe harbor provisions concerning maximum amount of sales within a taxable year that are consistent with the alternative prohibited transVerDate Aug 31 2005 04:25 Apr 26, 2008 Jkt 069006 PO 00000 Frm 00058 Fmt 6659 Sfmt 6602 E:\HR\OC\HR606.XXX HR606

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60Sec. 1001. 

actions tax safe harbor (that is an alternative to the test for no 

more than 7 sales). Instead of the present alternative limit of 10- 

percent of the aggregate bases of all the assets of the REIT as of 

the beginning of the taxable year, the limit under the provision is 

either 10 percent of such basis or 10 percent of the aggregate fair 

market value of all the assets of the REIT as of such time. 

Health care facilities held by a taxable REIT subsidiary 

The provision expands the taxable REIT subsidiary exception for 

hotel, motel, and other transient facilities so that it also applies to 

health care facilities. Thus, a taxable REIT subsidiary is permitted 

to rent a health care facility from its parent REIT and hire an 

independent contractor to operate such a facility; the rents paid to 

the parent REIT are qualifying rental income for purposes of the 

75-percent and 95-percent income tests. Under the provision, a taxable REIT subsidiary is not be considered to be operating or managing a qualified health care property or a qualified lodging facility 

other than through an independent contractor solely because the 

taxable REIT subsidiary directly or indirectly possesses a license, 

permit, or similar instrument enabling it to do so. 

EFFECTIVE DATE

The provision generally is effective for taxable years beginning 

after the date of enactment. However, the rules treating certain 

foreign currency gain as qualified income for purposes of the income tests apply to gains and items of income recognized after the 

date of enactment. The hedging rules are effective for transactions 

entered into after such date of enactment. The Treasury authority 

to exclude items from income for purposes of the income qualification tests applies after the date of enactment. The foreign currency 

amendment relating to gain from foreclosure property applies to 

gains recognized after the date of enactment, and the provision relating to net prohibited transactions income applies to gains and 

deductions recognized after the date of enactment. The provisions 

relating to the prohibited transactions tax safe harbor apply to 

sales made after the date of enactment. 

TITLE V—REVENUE PROVISIONS 

A. BROKER REPORTING OF CUSTOMER’S BASIS IN SECURITIES TRANSACTIONS (SEC. 301 OF THE BILL AND SEC. 6045 AND NEW SECS. 

6045A AND 6045B OF THE CODE) 

PRESENT LAW

In general 

Gain or loss generally is recognized for Federal income tax purposes on realization of that gain or loss (for example, through the 

sale of property giving rise to the gain or loss). The taxpayer’s gain 

or loss on a disposition of property is the difference between the 

amount realized and the adjusted basis.60

To compute adjusted basis, a taxpayer must first determine the 

property’s unadjusted or original basis and then make adjustments 


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61Sec. 1016. 62Treas. Reg. sec. 1.1012–1(c)(1). 63Treas. Reg. sec. 1.1012–1(c). 64Treas. Reg. sec. 1.1012–1(e). 65Sec. 6041(a). 66Sec. 6045(a). 67Sec. 6045(b). 68 Id. 69Sec. 6721. 

prescribed by the Code.61 The original basis of property is its cost, 

except as otherwise prescribed by the Code (for example, in the 

case of property acquired by gift or bequest or in a tax-free exchange). Once determined, the taxpayer’s original basis generally is 

adjusted downward to take account of depreciation or amortization, 

and generally is adjusted upward to reflect income and gain inclusions or capital outlays with respect to the property. 

Basis computation rules 

If a taxpayer has acquired stock in a corporation on different 

dates or at different prices and sells or transfers some of the shares 

of that stock, and the lot from which the stock is sold or transferred is not adequately identified, the shares deemed sold are the 

earliest acquired shares (the ‘‘first-in-first-out rule’’).62 If a taxpayer makes an adequate identification of shares of stock that it 

sells, the shares of stock treated as sold are the shares that have 

been identified.63 A taxpayer who owns shares in a regulated investment company (‘‘RIC’’) generally is permitted to elect, in lieu 

of the specific identification or first-in-first-out methods, to determine the basis of RIC shares sold under one of two average-costbasis methods described in Treasury regulations.64

Information reporting 

Present law imposes information reporting requirements on participants in certain transactions. Under these requirements, information is generally reported to the IRS and furnished to taxpayers. 

These requirements are intended to assist taxpayers in preparing 

their income tax returns and to help the IRS determine whether 

taxpayers’ tax returns are correct and complete. For example, every 

person engaged in a trade or business generally is required to file 

information returns for each calendar year for payments of $600 or 

more made in the course of the payor’s trade or business.65

Section 6045(a) requires brokers to file with the IRS annual information returns showing the gross proceeds realized by customers from various sale transactions. The Secretary is authorized 

to require brokers to report additional information related to customers.66 Brokers are required to furnish to every customer information statements with the same gross proceeds information that 

is included in the returns filed with the IRS for that customer.67

These information statements are required to be furnished by January 31 of the year following the calendar year for which the return under section 6045(a) is required to be filed.68

A person who is required to file information returns but who fails 

to do so by the due date for the returns, includes on the returns 

incorrect information, or files incomplete returns generally is subject to a penalty of $50 for each return with respect to which such 

a failure occurs, up to a maximum of $250,000 in any calendar 

year.69 Similar penalties, with a $100,000 calendar year maximum, 


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70Sec. 6722. 71Sec. 6001. 72Treas. Reg. sec. 1.6001–1(a). 73Treas. Reg. sec. 1.1015–1(g). 

apply to failures to furnish correct information statements to recipients of payments for which information reporting is required.70

Present law does not require broker information reporting with 

respect to a customer’s basis in property but does impose an obligation to keep records, as described below. 

Basis recordkeeping requirements 

Taxpayers are required to ‘‘keep such records . . . as the Secretary may from time to time prescribe.’’ 71 Treasury regulations 

impose recordkeeping requirements on any person required to file 

information returns.72

Treasury regulations provide that donors and donees should keep 

records that are relevant in determining a donee’s basis in property.73 IRS Publication 552 states that a taxpayer should keep 

basis records for property until the period of limitations expires for 

the year in which the taxpayer disposes of the property. 

REASONS FOR CHANGE

The Committee believes that there may be significant underreporting of capital gain income as a result of misreporting of basis. 

Requiring brokers to report basis to the IRS and to their customers 

may reduce capital gain underreporting: When coupled with the 

present-law requirement to report gross proceeds, mandatory basis 

reporting will give both taxpayers and the IRS information needed 

to compute gain (or loss) from securities sales. The provision also 

includes rules—such as mandatory broker-to-broker reporting and 

issuer reporting of certain organizational actions—intended to facilitate accurate reporting of tax basis. 

EXPLANATION OF PROVISION

In general 

Under the provision, every broker that is required to file a return 

under section 6045(a) reporting the gross proceeds from the sale of 

a covered security must include in the return (1) the customer’s adjusted basis in the security and (2) whether any gain or loss with 

respect to the security is long-term or short-term (within the meaning of section 1222). 

Covered securities 

A covered security is any specified security acquired on or after 

an applicable date if the security was (1) acquired through a transaction in the account in which the security is held or (2) was transferred to that account from an account in which the security was 

a covered security, but only if the transferee broker received a 

statement under section 6045A (described below) with respect to 

the transfer. Under this rule, certain securities acquired by gift or 

inheritance are not covered securities. 

A specified security is any share of stock in a corporation (including stock of a regulated investment company); any note, bond, debenture, or other evidence of indebtedness; any commodity or a 


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contract or a derivative with respect to the commodity if the Secretary determines that adjusted basis reporting is appropriate; and 

any other financial instrument with respect to which the Secretary 

determines that adjusted basis reporting is appropriate. 

For stock in a corporation (other than stock for which an average 

basis method is permissible under section 1012), the applicable 

date is January 1, 2010. For any stock for which an average basis 

method is permissible under section 1012, the applicable date is 

January 1, 2011. Consequently, the applicable date for certain 

stock acquired through a dividend reinvestment plan (for which 

stock additional rules are described below) and for stock in openend funds (defined below) is January 1, 2011. Open-end funds are 

permitted to elect to treat as a covered security any stock in the 

fund acquired before January 1, 2011. This election is described 

below. For any specified security other than stock in a corporation 

or stock for which an average basis method is permitted, the applicable date is January 1, 2012, or a later date determined by the 

Secretary. 

Computation of adjusted basis 

The customer’s adjusted basis required to be reported to the IRS 

is determined under the following rules. The adjusted basis of any 

security other than stock for which an average basis method is permissible under section 1012 is determined under the first-in, firstout method unless the customer notifies the broker by means of 

making an adequate identification (under the rules of section 1012 

for specific identification) of the stock sold or transferred. The adjusted basis of stock for which an average basis method is permissible under section 1012 is determined in accordance with the broker’s default method under section 1012 (that is, the first-in, firstout method, the average cost method, or the specific identification 

method) unless the customer notifies the broker that the customer 

elects another permitted method. This notification is made separately for each account in which stock for which the average cost 

method is permissible is held and, once made, applies to all stock 

held in that account. As a result of this rule, a broker’s basis computation method used for stock held in one account with that 

broker may differ from the basis computation method used for 

stock held in another account with that broker. 

For any sale, exchange, or other disposition of a specified security after the applicable date (defined previously), the provision 

modifies section 1012 so that the conventions prescribed by regulations under that section for determining adjusted basis (the firstin, first-out, specific identification, and average cost conventions) 

apply on an account-by-account basis. Under this rule, for example, 

if a customer holds shares of the same specified security in accounts with different brokers, each broker makes its adjusted basis 

determinations by reference only to the shares held in the account 

with that broker, and only shares in the account from which the 

sale is made may be identified as the shares sold. Unless the election described next applies, stock in an open-end fund acquired before January 1, 2011 is treated as a separate account. A consequence of this rule is that if adjusted basis is being determined 

using the average cost convention, average cost is computed without regard to any open-end stock acquired before January 1, 2011. 


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An open-end fund, however, may elect (at the time and in the form 

and manner prescribed by the Secretary), on a stockholder-bystockholder basis, to treat as covered securities all stock in the 

fund held by the stockholder without regard to when the stock was 

acquired. When this election applies, the average cost of a customer’s open-end stock is determined by taking into account shares 

of stock acquired before, on, and after January 1, 2011. A similar 

election is allowed for any broker holding stock in an open-end 

fund as a nominee of the beneficial owner of the stock. 

An open-end fund generally is a regulated investment company 

(as defined in section 851) that offers for sale or has outstanding 

any redeemable security of which it is the issuer. Any stock, however, that is traded on an established securities exchange is not 

treated as stock in an open-end fund. So-called exchange traded 

funds, funds in which there is intra-day pricing and in which 

shares may be purchased on an exchange (rather than from the 

funds directly) therefore are not open-end funds. If a regulated investment company offers two or more classes of shares one or more 

of which is traded on an established securities exchange and one 

or more of which is not traded on such an exchange, the regulated 

investment company will be treated as an open-end fund only with 

respect to the class or classes of shares that are not traded on an 

established securities exchange. 

If stock is acquired on or after January 1, 2011, in connection 

with a dividend reinvestment plan, the basis of that stock is determined under one of the basis computation methods permissible for 

stock in an open-end fund. Accordingly, an average cost method 

may be used for determining the basis of this stock. In determining 

basis under this rule, the account-by-account rules described previously, including the election available to open-end funds, apply. 

The special rule for stock acquired through a dividend reinvestment plan, however, applies only while the stock is held as part of 

the dividend reinvestment plan. If stock to which this rule applies 

is transferred to another account, the stock will have a cost basis 

in that other account equal to its basis in the dividend reinvestment plan immediately before the transfer (with any proper adjustment for charges incurred in connection with the transfer). After 

the transfer, however, the transferee broker may use the otherwise 

applicable convention (that is, the first-in, first-out method or the 

specific identification method) for determining which shares are 

sold when a sale is made of some but not all shares of a particular 

security. It is expected that when stock acquired through a dividend reinvestment plan is transferred to another account, the 

broker executing the transfer will provide information necessary in 

applying an allowable convention for determining which shares are 

sold. Accordingly, the transferor broker will be expected to state 

that shares transferred have a long-term holding period or, for 

shares that have a short-term holding period, the dates on which 

the shares were acquired. 

A dividend reinvestment plan means any arrangement under 

which dividends on stock are reinvested in stock identical to the 

stock with respect to which the dividends are paid. Stock is treated 

as acquired in connection with such a plan if the stock is acquired 

pursuant to the plan or if the dividends paid on the stock are subject to the plan. 


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Exception for wash sales 

Unless the Secretary provides otherwise, a customer’s adjusted 

basis in a covered security generally is determined without taking 

into account the effect on basis of the wash sale rules of section 

1091. If, however, the acquisition and sale transactions resulting in 

a wash sale under section 1091 occur in the same account and are 

in identical securities, adjusted basis is determined by taking into 

account the effect of the wash sale rules. Securities are identical 

for this purpose only if they have the same Committee on Uniform 

Security Identification Procedures number. 

Special rules for short sales 

The provision provides that in the case of a short sale, gross proceeds and basis reporting under section 6045 generally is required 

in the year in which the short sale is closed (rather than, as under 

the present law rule for gross proceeds reporting, the year in which 

the short sale is entered into). 

Reporting requirements for options 

The provision generally eliminates the present-law regulatory exception from section 6045(a) reporting for certain options. If a covered security is acquired or disposed of by reason of the exercise 

of an option that was granted or acquired in the same account as 

the covered security, the amount of the premium received or paid 

with respect to the acquisition of the option is treated as an adjustment to the gross proceeds from the subsequent sale of the covered 

security or as an adjustment to the customer’s adjusted basis in 

that security. Gross proceeds and basis reporting also is required 

when there is a lapse of, or a closing transaction with respect to, 

an option on a specified security or an exercise of a cash-settled option. Reporting is required for the calendar year that includes the 

date of the lapse, closing transaction, or exercise. For example, if 

a taxpayer acquires for $5 a cash settlement stock option with a 

strike price of $100 and settles the option when the stock trades 

at $120, a broker through which the acquisition and cash settlement are executed is required to report gross proceeds of $20 from 

the cash settlement and a basis in the option of $5. These reporting 

rules related to options transactions apply only to options granted 

or acquired on or after January 1, 2012. 

Treatment of S corporations 

The provision provides that for purposes of section 6045, an S 

corporation (other than a financial institution) is treated in the 

same manner as a partnership. This rule applies to any sale of a 

covered security acquired by an S corporation (other than a financial institution) after December 31, 2011. When this rule takes effect, brokers generally will be required to report gross proceeds and 

basis information to customers that are S corporations. 

Time for providing statements to customers 

The provision changes to February 15 the present-law January 

31 deadline for furnishing certain information statements to customers. The statements to which the new February 15 deadline applies are (1) statements showing gross proceeds (under section 


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statements with respect to reportable items (including, but not limited to, interest, dividends, and royalties) that are furnished with 

consolidated reporting statements (as defined in regulations). The 

term ‘‘consolidated reporting statement’’ is intended to refer to annual account information statements that brokerage firms customarily provide to their customers and that include tax-related information. It is intended that the February 15 deadline for consolidated reporting statements apply in the same manner to statements furnished for any account or accounts, taxable and retirement, held by a customer with a mutual fund or other broker. 

Broker-to-broker and issuer reporting 

Every broker (as defined in section 6045(c)(1)), and any other 

person specified in Treasury regulations, that transfers to a broker 

(as defined in section 6045(c)(l)) a security that is a covered security when held by that broker or other person must, under new section 6045A, furnish to the transferee broker a written statement 

that allows the transferee broker to satisfy the provision’s basis 

and holding period reporting requirements. The Secretary may provide regulations that prescribe the content of this statement and 

the manner in which it must be furnished. It is contemplated that 

the Secretary will permit this broker-to-broker reporting requirement to be satisfied electronically rather than by paper. Unless the 

Secretary provides otherwise, the statement required by this rule 

must be furnished not later than 15 days after the date of the 

transfer of the covered security. 

Present law penalties for failure to furnish correct payee statements apply to failures to furnish correct statements in connection 

with the transfer of covered securities. 

New section 6045B requires, according to forms or regulations 

prescribed by the Secretary, any issuer of a specified security to file 

a return setting forth a description of any organizational action 

(such as a stock split or a merger or acquisition) that affects the 

basis of the specified security, the quantitative effect on the basis 

of that specified security, and any other information required by 

the Secretary. This return must be filed within 45 days after the 

date of the organizational action or, if earlier, by January 15 of the 

year following the calendar year during which the action occurred. 

Every person required to file this return for a specified security 

also must furnish, according to forms or regulations prescribed by 

the Secretary, to the nominee with respect to that security (or to 

a certificate holder if there is no nominee) a written statement 

showing the name, address, and phone number of the information 

contact of the person required to file the return, the information required to be included on the return with respect to the security, 

and any other information required by the Secretary. This statement must be furnished to the nominee or certificate holder on or 

before January 15 of the year following the calendar year in which 

the organizational action took place. No return or information 

statement is required to be provided under new section 6045B for 

any action with respect to a specified security if the action occurs 

before the applicable date (as defined previously) for that security. 

The Secretary may waive the return filing and information statement requirements if the person to which the requirements apply 

makes publicly available, in the form and manner determined by 


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74 However, exceptions to the fungibility principle are provided in particular cases, some of 

which are described below. 

the Secretary, the name, address, phone number, and e-mail address of the information contact of that person, and the information 

about the organizational action and its effect on basis otherwise required to be included in the return. 

The present-law penalties for failure to file correct information 

returns apply to failures to file correct returns in connection with 

organizational actions. Similarly, the present-law penalties for failure to furnish correct payee statements apply to a failure under 

new section 6045B to furnish correct statements to nominees or 

holders or to provide required publicly-available information in lieu 

of returns and written statements. 

EFFECTIVE DATE

The provision generally takes effect on January 1, 2010. The 

change to February 15 of the present-law January 31 deadline for 

furnishing certain information statements to customers applies to 

statements required to be furnished after December 31, 2008. 

B. DELAY IMPLEMENTATION OF WORLDWIDE INTEREST ALLOCATION

(SEC. 302 OF THE BILL AND SEC. 864(f) OF THE CODE)

PRESENT LAW

In general 

In order to compute the foreign tax credit limitation, a taxpayer 

must determine the amount of its taxable income from foreign 

sources. Thus, the taxpayer must allocate and apportion deductions 

between items of U.S.-source gross income, on the one hand, and 

items of foreign-source gross income, on the other. 

In the case of interest expense, the rules generally are based on 

the approach that money is fungible and that interest expense is 

properly attributable to all business activities and property of a 

taxpayer, regardless of any specific purpose for incurring an obligation on which interest is paid.74 For interest allocation purposes, 

all members of an affiliated group of corporations generally are 

treated as a single corporation (the so-called ‘‘one-taxpayer rule’’) 

and allocation must be made on the basis of assets rather than 

gross income. The term ‘‘affiliated group’’ in this context generally 

is defined by reference to the rules for determining whether corporations are eligible to file consolidated returns. 

For consolidation purposes, the term ‘‘affiliated group’’ means one 

or more chains of includible corporations connected through stock 

ownership with a common parent corporation which is an includible corporation, but only if: (1) The common parent owns directly 

stock possessing at least 80 percent of the total voting power and 

at least 80 percent of the total value of at least one other includible 

corporation; and (2) stock meeting the same voting power and value 

standards with respect to each includible corporation (excluding the 

common parent) is directly owned by one or more other includible 

corporations. 

Generally, the term ‘‘includible corporation’’ means any domestic 

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75One such exception is that the affiliated group for interest allocation purposes includes section 936 corporations that are excluded from the consolidated group. 76Pub. L. No. 108–357, sec. 401 (2004). 

sively for charitable or educational purposes), certain life insurance 

companies, corporations electing application of the possession tax 

credit, regulated investment companies, real estate investment 

trusts, and domestic international sales corporations. A foreign corporation generally is not an includible corporation. 

Subject to exceptions, the consolidated return and interest allocation definitions of affiliation generally are consistent with each 

other.75 For example, both definitions generally exclude all foreign 

corporations from the affiliated group. Thus, while debt generally 

is considered fungible among the assets of a group of domestic affiliated corporations, the same rules do not apply as between the 

domestic and foreign members of a group with the same degree of 

common control as the domestic affiliated group. 

Banks, savings institutions, and other financial affiliates 

The affiliated group for interest allocation purposes generally excludes what are referred to in the Treasury regulations as ‘‘financial corporations’’ (Treas. Reg. sec. 1.861–11T(d)(4)). These include 

any corporation, otherwise a member of the affiliated group for consolidation purposes, that is a financial institution (described in section 581 or section 591), the business of which is predominantly 

with persons other than related persons or their customers, and 

which is required by State or Federal law to be operated separately 

from any other entity which is not a financial institution (sec. 

864(e)(5)(C)). The category of financial corporations also includes, 

to the extent provided in regulations, bank holding companies (including financial holding companies), subsidiaries of banks and 

bank holding companies (including financial holding companies), 

and savings institutions predominantly engaged in the active conduct of a banking, financing, or similar business (sec. 864(e)(5)(D)). 

A financial corporation is not treated as a member of the regular 

affiliated group for purposes of applying the one-taxpayer rule to 

other non-financial members of that group. Instead, all such financial corporations that would be so affiliated are treated as a separate single corporation for interest allocation purposes. 

Worldwide interest allocation 

In general 

The American Jobs Creation Act of 2004 (‘‘AJCA’’)76 modifies the 

interest expense allocation rules described above (which generally 

apply for purposes of computing the foreign tax credit limitation) 

by providing a one-time election (the ‘‘worldwide affiliated group 

election’’) under which the taxable income of the domestic members 

of an affiliated group from sources outside the United States generally is determined by allocating and apportioning interest expense of the domestic members of a worldwide affiliated group on 

a worldwide-group basis (i.e., as if all members of the worldwide 

group were a single corporation). If a group makes this election, the 

taxable income of the domestic members of a worldwide affiliated 

group from sources outside the United States is determined by allocating and apportioning the third-party interest expense of those 


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77For purposes of determining the assets of the worldwide affiliated group, neither stock in 

corporations within the group nor indebtedness (including receivables) between members of the 

group is taken into account. 78 Although the interest expense of a foreign subsidiary is taken into account for purposes of 

allocating the interest expense of the domestic members of the electing worldwide affiliated 

group for foreign tax credit limitation purposes, the interest expense incurred by a foreign subsidiary is not deductible on a U.S. return. 79 Indirect ownership is determined under the rules of section 958(a)(2) or through applying 

rules similar to those of section 958(a)(2) to stock owned directly or indirectly by domestic partnerships, trusts, or estates. 

domestic members to foreign-source income in an amount equal to 

the excess (if any) of (1) the worldwide affiliated group’s worldwide 

third-party interest expense multiplied by the ratio which the foreign assets of the worldwide affiliated group bears to the total assets of the worldwide affiliated group,77 over (2) the third-party interest expense incurred by foreign members of the group to the extent such interest would be allocated to foreign sources if the principles of worldwide interest allocation were applied separately to 

the foreign members of the group.78

For purposes of the new elective rules based on worldwide 

fungibility, the worldwide affiliated group means all corporations in 

an affiliated group as well as all controlled foreign corporations 

that, in the aggregate, either directly or indirectly,79 would be 

members of such an affiliated group if section 1504(b)(3) did not 

apply (i.e., in which at least 80 percent of the vote and value of the 

stock of such corporations is owned by one or more other corporations included in the affiliated group). Thus, if an affiliated group 

makes this election, the taxable income from sources outside the 

United States of domestic group members generally is determined 

by allocating and apportioning interest expense of the domestic 

members of the worldwide affiliated group as if all of the interest 

expense and assets of 80 percent or greater owned domestic corporations (i.e., corporations that are part of the affiliated group, as 

modified to include insurance companies) and certain controlled 

foreign corporations were attributable to a single corporation. 

The common parent of the domestic affiliated group must make 

the worldwide affiliated group election. It must be made for the 

first taxable year beginning after December 31, 2008, in which a 

worldwide affiliated group exists that includes at least one foreign 

corporation that meets the requirements for inclusion in a worldwide affiliated group. Once made, the election applies to the common parent and all other members of the worldwide affiliated 

group for the taxable year for which the election was made and all 

subsequent taxable years, unless revoked with the consent of the 

Secretary of the Treasury. 

Financial institution group election 

Taxpayers are allowed to apply the bank group rules to exclude 

certain financial institutions from the affiliated group for interest 

allocation purposes under the worldwide fungibility approach. The 

rules also provide a one-time ‘‘financial institution group’’ election 

that expands the bank group. At the election of the common parent 

of the pre-election worldwide affiliated group, the interest expense 

allocation rules are applied separately to a subgroup of the worldwide affiliated group that consists of (1) all corporations that are 

part of the bank group, and (2) all ‘‘financial corporations.’’ For this 

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80See Treas. Reg. sec. 1.904–4(e)(2). 

cent of its gross income is financial services income (as described 

in section 904(d)(2)(C)(i) and the regulations thereunder) that is derived from transactions with unrelated persons.80 For these purposes, items of income or gain from a transaction or series of transactions are disregarded if a principal purpose for the transaction or 

transactions is to qualify any corporation as a financial corporation. 

The common parent of the pre-election worldwide affiliated group 

must make the election for the first taxable year beginning after 

December 31, 2008, in which a worldwide affiliated group includes 

a financial corporation. Once made, the election applies to the financial institution group for the taxable year and all subsequent 

taxable years. In addition, anti-abuse rules are provided under 

which certain transfers from one member of a financial institution 

group to a member of the worldwide affiliated group outside of the 

financial institution group are treated as reducing the amount of 

indebtedness of the separate financial institution group. Regulatory 

authority is provided with respect to the election to provide for the 

direct allocation of interest expense in circumstances in which such 

allocation is appropriate to carry out the purposes of these rules, 

to prevent assets or interest expense from being taken into account 

more than once, or to address changes in members of any group 

(through acquisitions or otherwise) treated as affiliated under these 

rules. 

Effective date of worldwide interest allocation under AJCA 

The worldwide interest allocation rules under AJCA are effective 

for taxable years beginning after December 31, 2008. 

REASONS FOR CHANGE

The Committee believes that it is appropriate to delay implementation of the worldwide interest allocation rules. 

EXPLANATION OF PROVISION

The provision delays the effective date of worldwide interest allocation rules for one year, until taxable years beginning after December 31, 2009. The required dates for making the worldwide affiliated group election and the financial institution group election 

are changed accordingly. 

The provision also provides a special phase-in rule in the case of 

the first taxable year to which the worldwide interest allocation 

rules apply. For that year, the amount of the taxpayer’s taxable income from foreign sources is reduced by 22 percent of the excess 

of (i) the amount of its taxable income from foreign sources as calculated using the worldwide interest allocation rules over (ii) the 

amount of its taxable income from foreign sources as calculated 

using the present-law interest allocation rules. Any foreign tax 

credits disallowed by virtue of this reduction in foreign-source taxable income may be carried back or forward under the normal rules 

for carrybacks and carryforwards of excess foreign tax credits. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 


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C. MODIFICATIONS TO CORPORATE ESTIMATED TAX PAYMENTS (SEC. 303 OF THE BILL) 

PRESENT LAW

In general 

In general, corporations are required to make quarterly estimated tax payments of their income tax liability. For a corporation 

whose taxable year is a calendar year, these estimated tax payments must be made by April 15, June 15, September 15, and December 15. 

Tax Increase Prevention and Reconciliation Act of 2005 (‘‘TIPRA’’) 

TIPRA provided the following special rules: 

In case of a corporation with assets of at least $1 billion, the payments due in July, August, and September, 20I2, shall be increased 

to 106.25 percent of the payment otherwise due and the next required payment shall be reduced accordingly. 

In case of a corporation with assets of at least $1 billion, the payments due in July, August, and September, 2013, shall be increased to 100.75 percent of the payment otherwise due and the 

next required payment shall be reduced accordingly. 

Subsequent legislation 

Several public laws have been enacted since TIPRA which further increase the percentage of payments due under each of the 

two special rules enacted by TIPRA described above. 

REASONS FOR CHANGE

The Committee believes it is appropriate to adjust the corporate 

estimated tax payments. 

EXPLANATION OF PROVISION

The provision makes two modifications to the corporate estimated tax payment rules. 

First, in case of a corporation with assets of at least $1 billion, 

the payments due in July, August, and September, 2013, are increased by 13 percent points of the payment otherwise due and the 

next required payment shall be reduced accordingly. 

Second, in case of a corporation with assets of at least $1 billion, 

the increased payments due in July, August, and September, 2012 

under the special rules in TIPRA and subsequent legislation are repealed. In effect the general rule is applied (i.e., such corporations 

are required to make quarterly estimated tax payments based on 

their income tax liability.) 

EFFECTIVE DATE

The provision is effective on the date of enactment. 


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IV. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d)(2) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of the revenue provisions of the 

bill, H.R. 5720, as reported. 

The bill is estimated to have the following effects on Federal 

budget receipts for fiscal years 2008–2018: 


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B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES BUDGET AUTHORITY

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee states that the bill involves no new or increased budget authority. The Committee further states that the revenue-reducing tax provisions involve increased tax expenditures. (See amounts in table in Part IV.A., 

above.) 

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, requiring a cost estimate prepared by 

the CBO, the following statement by CBO is provided. 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, April 24, 2008. 

Hon. CHARLES B. RANGEL, 

Chairman, Committee on Ways and Means, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 5720, the Housing Assistance Tax Act of 2008. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Zachary Epstein. 

Sincerely, 

ROBERT A. SUNSHINE

(For Peter R. Orszag, Director). 

Enclosure. 

H.R. 5720—Housing Assistance Tax Act of 2008 

Summary: H.R. 5720 would amend tax law relating to a variety 

of housing matters, such as the low-income housing credit, tax-exempt housing bonds, and refundable credits for first-time home 

buyers. The Joint Committee on Taxation (JCT) and the Congressional Budget Office estimate that enacting H.R. 5720 would decrease revenues by $0.6 billion in 2008 and increase revenues by 

$3.9 billion over the 2008–2018 period. CBO and JCT estimate that 

enacting the bill would increase direct spending by $3.9 billion over 

the 2008–2018 period. On net, the bill would reduce budget deficits 

(or increase surpluses) by a total of $279 million over the 2008–

2013 period and $18 million over the 2008–2018 period. 

JCT has reviewed the bill and determined that it contains no 

intergovernmental mandates as defined in the Unfunded Mandates 

Reform Act (UMRA). JCT has also determined that the bill contains two private-sector mandates: the adjustment of rules governing the reporting of information by brokers and the delay in implementing worldwide allocation of interest expense until 2010. 

JCT estimates that the costs required to comply with the mandates 

would exceed the annual threshold established by UMRA ($136 

million in 2008, adjusted annually for inflation) in each of the next 

five years (2009 through 2013). 


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Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 5720 is shown in the following table. The costs 

of this legislation fall within budget functions 600 (income security) 

and 900 (net interest). 


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By fiscal year, in millions of dollars— 

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008–2013 

CHANGES IN REVENUES 

Refundable Credit for First-Time Homebuyers .. ¥419 ¥5,241 ¥1,636 1,147 1,421 1,261 1,101 941 721 354 138 ¥3,467 

Repeal Certain Alternative Minimum Tax Limitations ........................................................... ¥68 ¥137 ¥206 ¥207 ¥206 ¥203 ¥203 ¥204 ¥206 ¥208 ¥210 ¥1,026 

Rules for Mortgage Bonds ................................ ¥22 ¥90 ¥146 ¥154 ¥153 ¥148 ¥141 ¥135 ¥129 ¥125 ¥125 ¥712 

Increased Cap for LIHTC ................................... ¥1 ¥34 ¥74 ¥109 ¥119 ¥119 ¥119 ¥119 ¥119 ¥119 ¥119 ¥456 

Brokers’ Reporting Rules ................................... 0 0 0 34 214 465 794 1,286 1,611 1,737 1,840 713 

Delay in Worldwide Interest Allocation Rules ... 0 1,029 1,774 375 0 0 0 0 0 0 0 3,178 Corporate Estimated Tax Payment Due in 2013 0 0 0 0 ¥9,934 17,296 ¥7,362 0 0 0 0 7,362 

Other Provisions ................................................ ¥65 ¥1,100 ¥23 ¥15 ¥73 ¥123 ¥152 ¥189 ¥227 ¥267 ¥307 ¥1,403 

Total Changes in Revenues ..................... ¥575 ¥5,573 ¥311 1,071 ¥8,850 18,429 ¥6,082 1,580 1,651 1,372 1,217 4,189 

CHANGES IN DIRECT SPENDING 

Refundable Credit for First-Time Homebuyers: 

Estimated Budget Authority ..................... 210 2,621 949 0 0 0 0 0 0 0 0 3,780 Estimated Outlays .................................... 210 2,621 949 0 0 0 0 0 0 0 0 3,780 

Treatment of Guaranteed Bonds: 

Estimated Budget Authority ..................... 0 ¥52 91 69 22 0 0 0 0 0 0 130 Estimated Outlays .................................... 0 ¥52 83 60 34 5 0 0 0 0 0 130 

Total Changes in Direct Spending: 

Estimated Budget Authority ..................... 210 2,569 1,040 69 22 0 0 0 0 0 0 3,910 Estimated Outlays .................................... 210 2,569 1,032 60 34 5 0 0 0 0 0 3,910 

NET CHANGE IN THE BUDGET DEFICIT OR SURPLUS 

Net Change in the Budget Deficit or Surplus 1 ¥785 ¥8,142 ¥1,343 1,011 ¥8,884 18,424 ¥6,082 1,580 1,651 1,372 1,217 279 

Sources: Congressional Budget Office and Joint Committee on Taxation. Note: LIHTC = low-income housing tax credit. 1 Negative numbers indicate increases in deficits (or decreases in surpluses); positive numbers indicate decreases in deficits (or increases in surpluses). 


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Basis of the estimate: JCT estimated the effects of H.R. 5720 on 

revenues, with the exception of one provision. CBO estimated effects on direct spending and revenues from the provision that 

would modify the treatment of certain bonds guaranteed by the 

Federal Home Loan Banks. For this estimate, JCT and CBO assume the bill will be enacted by June 1, 2008. 

Revenues 

The effects on revenues would be attributable to a number of provisions. This section describes several of those provisions that have 

significant effects. 

Refundable Credit for Certain First-Time Homebuyers. For certain taxpayers who have not had ownership interest in a principal 

residence within the past three years, H.R. 5720 would allow such 

persons, upon purchasing a home, to claim a refundable tax credit 

of up to $7,500. The home must be purchased between April 8, 

2008, and April 1, 2009, and the amount of the credit would be 

paid back in higher tax liability over a 15-year period beginning 

two years after the home purchase. JCT estimates that enacting 

this provision would decrease revenues by $3.5 billion over the 

2008–2013 period and by $211 million over the 2008–2018 period. 

The provision also would affect direct spending (see the ‘‘Direct 

Spending’’ section). 

Repeal of Certain Alternative Minimum Tax Limitations. Under 

current law, the low-income housing credit and the rehabilitation 

credit, which provide incentives for investment in low-income housing and reconstruction of certain types of buildings, may not be 

claimed against a taxpayer’s alternative minimum tax (AMT) liability. H.R. 5720 would allow those credits to offset the AMT. In addition, the bill would exclude interest on tax-exempt housing bonds 

from the AMT. JCT estimates that this provision would reduce revenues by $2.1 billion over the 2008–2018 period. 

Mortgage Revenue Bonds and Multifamily Housing Bonds. The bill would authorize state housing authorities to issue a total of $10 

billion in additional private-activity bonds, to be used as mortgage 

revenue bonds and multifamily bonds (which finance multifamily 

housing projects). Those bonds, which would have to be issued by 

the end of 2010, could be used to refinance subprime mortgage 

loans. Additionally, the interest earned on such mortgage revenue 

bonds would be exempt from the alternative minimum tax. JCT estimates that enacting those provisions would decrease revenues by 

$1.4 billion over the 2008–2018 period. 

Increase Volume Cap for Low-Income Housing Credit. Certain 

owners of low-income housing projects may claim a credit against 

their taxable income if they receive a low-income housing credit allocation from their state or local housing credit agency. Each state 

is provided with an annual ceiling on its authority to allocate such 

credits. Under the bill, the state ceilings would be raised for calendar years 2008 and 2009. JCT estimates that this provision 

would decrease revenues by $1.1 billion over the 2008–2018 period. 

Broker Reporting of Customers’ Basis in Securities Transactions. 

The bill would adjust the rules and requirements imposed on brokers for the reporting of their customers’ adjusted basis in certain 

financial securities. A customer’s basis in a security, such as stock 

in a corporation, is a figure used to calculate the gain or loss on 


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the sale of a security. For many securities, the adjusted basis is the 

cost incurred to acquire the security. Under H.R. 5720, brokers involved in the sale of certain types of securities would be required 

to file information returns with the IRS that include their customers’ adjusted basis in the applicable security. This additional information reporting would be necessary for certain types of securities generally acquired after December 31, 2009. JCT estimates 

that enacting these provisions would increase revenues by $8.0 billion over the 2008–2018 period. 

Delay the Application of Worldwide Interest Allocation. The bill 

would delay until 2010 the effective date of a provision enacted in 

the American Jobs Creation Act of 2004 that, starting in 2009, allows businesses to use an alternative method for allocating their 

interest expenses between the United States and foreign sources. 

Additionally, the bill would require a phase-in of the alternative allocation in the first tax year in which the new rules apply. JCT estimates that the changes would increase revenues by $3.2 billion 

over the 2009–2011 period. 

Other Provisions. H.R. 5720 would shift revenues out of 2012 and 

2014 and into 2013 by adjusting the portion of corporate estimated 

tax payments due in July through September of 2012 and 2013. 

JCT estimates that this change would reduce revenues by $9.9 billion in 2012, increase them by $17.3 billion in 2013, and reduce 

them by $7.4 billion in 2014. The bill would also modify the tax 

rules applicable to real estate investment trusts. JCT estimates 

that this and other provisions would decrease revenues by $2.5 billion over the 2008–2018 period. 

Direct spending 

Refundable Credit for First-Time Homebuyers. As discussed 

above, the bill would allow certain persons, upon purchasing a 

home, to receive a refundable tax credit for up to $7,500. JCT estimates that the provision would increase outlays from the refundable credit by $3.8 billion over the 2008–2010 period. 

Modify Treatment of Certain Guaranteed Bonds. Under the bill, 

interest on certain bonds guaranteed by Federal Home Loan Banks 

(FHLBs) before January 1, 2011, would be excluded from gross income for purposes of federal income taxes. CBO estimates that enacting this provision would increase direct spending by $130 million over the 2009–2013 period. 

CBO expects that authorizing the FHLBs to guarantee certain 

tax-exempt debt would increase their profitability by allowing them 

to provide new services on favorable terms. Any additional income 

earned by the FHLBs would be subject to statutory fees that are 

spent for an Affordable Housing Program (AHP) and for a portion 

of the interest due on bonds issued by the Resolution Funding Corporation (REFCORP). Based on JCT’s projections of that additional 

income, CBO estimates that the FHLBs would have to set aside 

$128 million for the AHP; that amount would appear as both a revenue and an outlay on the federal budget over the 2009–2013 period. (The FHLBs are government sponsored enterprises, not government agencies; most of their activities are not reflected in the 

federal budget.) 

Changes in the FHLBs’ payments on REFCORP bonds affect direct spending because any amounts not paid by the banks are paid 


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by the U.S. Treasury. The effect on direct spending for the 

REFCORP bonds is projected to be small—$2 million over the fiveyear period—because CBO’s baseline projections anticipate that the 

FHLBs will have satisfied their interest obligation by the end of 

2010, so any additional payments in 2009 (which would reduce the 

amount paid by the Treasury by an estimated $55 million) would 

be offset by lower contributions in 2010 (which would increase 

Treasury payments by $57 million). 

Intergovernmental and private-sector impact: JCT has reviewed 

the bill and determined that it contains no intergovernmental mandates as defined in UMRA. JCT has also determined that the bill 

contains two private-sector mandates as defined in UMRA. The bill 

would require that brokers report their customers’ basis in securities transactions, and it would also delay and limit the implementation of worldwide interest allocation. JCT estimates the costs required to comply with the mandates would exceed the annual 

threshold established by UMRA ($136 million in 2008, adjusted annually for inflation) in each of the next five years. 

Estimate prepared by: Federal Revenues: Zachary Epstein; Federal Spending: Kathleen Gramp. 

Estimate approved by: G. Thomas Woodward, Assistant Director 

for Tax Analysis; Peter H. Fontaine, Assistant Director for Budget 

Analysis. 

D. MACROECONOMIC IMPACT ANALYSIS

In compliance with clause 3(h)(2) of rule XIII of the Rules of the 

House of Representatives, the following statement is made by the 

Joint Committee on Taxation with respect to the provisions of the 

bill amending the Internal Revenue Code of 1986: the effects of the 

bill on economic activity are so small as to be incalculable within 

the context of a model of the aggregate economy. 

E. PAY-GO RULE

In compliance with clause 10 of rule XXI of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of title X of the bill, H.R. 5720, 

as reported: the provisions of the bill affecting revenues have the 

net effect of not increasing the deficit or reducing the surplus for 

either: (1) the period comprising the current fiscal year and the five 

fiscal years beginning with the fiscal year that ends in the following calendar year; and (2) the period comprising the current fiscal year and the ten fiscal years beginning with the fiscal year that 

ends in the following calendar year. 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE 

RULES OF THE HOUSE 

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives (relating to oversight findings), the Committee advises that it is appropriate and timely to enact the provisions of the bill as reported. 


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B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

With respect to clause 3(c)(4) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that the bill contains no measure that authorizes funding, so no statement of general performance goals and objectives for which any measure authorizes funding is required. 

C. CONSTITUTIONAL AUTHORITY STATEMENT

With respect to clause 3(d)(1) of rule XIII of the Rules of the 

House of Representatives (relating to Constitutional Authority), the 

Committee states that the Committee’s action in reporting this bill 

is derived from Article I of the Constitution, Section 8 (‘‘The Congress shall have Power To lay and collect Taxes, Duties, Imposts 

and Excises. . . ’’), and from the 16th Amendment to the Constitution. 

Information Relating to Unfunded Mandates 

This information is provided in accordance with section 423 of 

the Unfunded Mandates Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the following tax provisions 

of the reported bill contain Federal private sector mandates within 

the meaning of Public Law No. 104–4, the Unfunded Mandates Reform Act of 1995: (1) broker reporting of customers’ basis in securities transactions (sec. 301 of the bill); and (2) delay for one year 

implementation of worldwide interest allocation and apply 22% 

limitation on the first year of worldwide interest allocation (sec. 

302 of the bill). The costs required to comply with each Federal private sector mandate generally are no greater than the aggregate 

estimated budget effects of the provision. 

The Committee has determined that the revenue provisions of 

the bill do not impose a Federal intergovernmental mandate on 

State, local, or tribal governments. 

D. APPLICABILITY OF HOUSE RULE XXI 5(b) 

Clause 5 of rule XXI of the Rules of the House of Representatives 

provides, in part, that ‘‘A bill or joint resolution, amendment, or 

conference report carrying a Federal income tax rate increase may 

not be considered as passed or agreed to unless so determined by 

a vote of not less than three-fifths of the Members voting, a 

quorum being present.’’ The Committee has carefully reviewed the 

provisions of the bill, and states that the provisions of the bill do 

not involve any Federal income tax rate increases within the meaning of the rule. 

E. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (the ‘‘IRS Reform Act’’) requires the Joint 

Committee on Taxation (in consultation with the Internal Revenue 

Service and the Department of the Treasury) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House 

Committee on Ways and Means, or any committee of conference if 

the legislation includes a provision that directly or indirectly 


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amends the Internal Revenue Code and has widespread applicability to individuals or small businesses. 

The staff of the Joint Committee on Taxation has determined 

that a complexity analysis is not required under section 4022(b) of 

the IRS Reform Act because the bill contains no provisions that 

amend the Code and that have ‘‘widespread applicability’’ to individuals or small businesses. 

F. LIMITED TAX BENEFITS

Pursuant to clause 9 of rule XXI of the Rules of the House of 

Representatives, the Ways and Means Committee has determined 

that the title X of the bill as reported contains no congressional 

earmarks, limited tax benefits, or limited tariff benefits within the 

meaning of that rule. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS 

REPORTED 

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

INTERNAL REVENUE CODE OF 1986 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 

Subchapter A—Determination of Tax Liability 

* * * * * * * 

PART IV—CREDITS AGAINST TAX 

* * * * * * * 

Subpart A—Nonrefundable Personal Credits 

* * * * * * * 

SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX 

LIABILITY. 

(a) * * * 

(b) REGULAR TAX LIABILITY.—For purposes of this part—

(1) * * * 

(2) EXCEPTION FOR CERTAIN TAXES.—For purposes of paragraph (1), any tax imposed by any of the following provisions 

shall not be treated as tax imposed by this chapter: 


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(A) * * * 

* * * * * * * 

(U) section 223(f)(4) (relating to additional tax on health 

savings account distributions not used for qualified medical expenses), øand¿ 

(V) subsections (a)(1)(B)(i) and (b)(4)(A) of section 409A 

(relating to interest and additional tax with respect to certain deferred compensation)ø.¿, and 

(W) section 36(f) (relating to recapture of homebuyer credit). 

* * * * * * * 

Subpart C—Refundable Credits 

Sec. 31. Tax withheld on wages. 

* * * * * * * 

Sec. 36. First-time homebuyer credit. 

Sec. ø36¿ 37. Overpayments of tax. 

* * * * * * * 

SEC. 36. FIRST-TIME HOMEBUYER CREDIT. 

(a) ALLOWANCE OF CREDIT.—In the case of an individual who is 

a first-time homebuyer of a principal residence in the United States 

during a taxable year, there shall be allowed as a credit against the 

tax imposed by this subtitle for such taxable year an amount equal 

to 10 percent of the purchase price of the residence. 

(b) LIMITATIONS.— (1) DOLLAR LIMITATION.— (A) IN GENERAL.—Except as otherwise provided in this 

paragraph, the credit allowed under subsection (a) shall 

not exceed $7,500. 

(B) MARRIED INDIVIDUALS FILING SEPARATELY.—In the 

case of a married individual filing a separate return, subparagraph (A) shall be applied by substituting ‘‘$3,750’’ for 

‘‘$7,500’’. 

(C) OTHER INDIVIDUALS.—If two or more individuals who 

are not married purchase a principal residence, the amount 

of the credit allowed under subsection (a) shall be allocated 

among such individuals in such manner as the Secretary 

may prescribe, except that the total amount of the credits 

allowed to all such individuals shall not exceed $7,500. 

(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.—

(A) IN GENERAL.—The amount allowable as a credit 

under subsection (a) (determined without regard to this 

paragraph) for the taxable year shall be reduced (but not 

below zero) by the amount which bears the same ratio to 

the amount which is so allowable as—

(i) the excess (if any) of—

(I) the taxpayer’s modified adjusted gross income 

for such taxable year, over 

(II) $70,000 ($140,000 in the case of a joint return), bears to 

(ii) $20,000. 


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(B) MODIFIED ADJUSTED GROSS INCOME.—For purposes of 

subparagraph (A), the term ‘‘modified adjusted gross income’’ means the adjusted gross income of the taxpayer for 

the taxable year increased by any amount excluded from 

gross income under section 911, 931, or 933. 

(c) DEFINITIONS.—For purposes of this section—

(1) FIRST-TIME HOMEBUYER.—The term ‘‘first-time homebuyer’’ means any individual if such individual (and if married, such individual’s spouse) had no present ownership interest in a principal residence during the 3-year period ending on 

the date of the purchase of the principal residence to which this 

section applies. 

(2) PRINCIPAL RESIDENCE.—The term ‘‘principal residence’’

has the same meaning as when used in section 121. 

(3) PURCHASE.—

(A) IN GENERAL.—The term ‘‘purchase’’ means any acquisition, but only if—

(i) the property is not acquired from a person related 

to the person acquiring it, and 

(ii) the basis of the property in the hands of the person acquiring it is not determined—

(I) in whole or in part by reference to the adjusted basis of such property in the hands of the 

person from whom acquired, or 

(II) under section 1014(a) (relating to property 

acquired from a decedent). 

(B) CONSTRUCTION.—A residence which is constructed by 

the taxpayer shall be treated as purchased by the taxpayer 

on the date the taxpayer first occupies such residence. 

(4) PURCHASE PRICE.—The term ‘‘purchase price’’ means the 

adjusted basis of the principal residence on the date such residence is purchased. 

(5) RELATED PERSONS.—A person shall be treated as related 

to another person if the relationship between such persons 

would result in the disallowance of losses under section 267 or 

707(b) (but, in applying section 267(b) and (c) for purposes of 

this section, paragraph (4) of section 267(c) shall be treated as 

providing that the family of an individual shall include only 

his spouse, ancestors, and lineal descendants). 

(d) EXCEPTIONS.—No credit under subsection (a) shall be allowed 

to any taxpayer for any taxable year with respect to the purchase 

of a residence if—

(1) a credit under section 1400C (relating to first-time homebuyer in the District of Columbia) is allowable to the taxpayer 

(or the taxpayer’s spouse) for such taxable year or any prior taxable year, 

(2) the residence is financed by the proceeds of a qualified 

mortgage issue the interest on which is exempt from tax under 

section 103, 

(3) the taxpayer is a nonresident alien, or 

(4) the taxpayer disposes of such residence (or such residence 

ceases to be the principal residence of the taxpayer (and, if married, the taxpayer’s spouse)) before the close of such taxable 

year. 


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(e) REPORTING.—If the Secretary requires information reporting 

under section 6045 by a person described in subsection (e)(2) thereof 

to verify the eligibility of taxpayers for the credit allowable by this 

section, the exception provided by section 6045(e) shall not apply. 

(f) RECAPTURE OF CREDIT.— (1) IN GENERAL.—Except as otherwise provided in this subsection, if a credit under subsection (a) is allowed to a taxpayer, 

the tax imposed by this chapter shall be increased by 62⁄3 percent of the amount of such credit for each taxable year in the 

recapture period. 

(2) ACCELERATION OF RECAPTURE.—If a taxpayer disposes of 

the principal residence with respect to which a credit was allowed under subsection (a) (or such residence ceases to be the 

principal residence of the taxpayer (and, if married, the taxpayer’s spouse)) before the end of the recapture period— 

(A) the tax imposed by this chapter for the taxable year 

of such disposition or cessation, shall be increased by the 

excess of the amount of the credit allowed over the amounts 

of tax imposed by paragraph (1) for preceding taxable 

years, and 

(B) paragraph (1) shall not apply with respect to such 

credit for such taxable year or any subsequent taxable year. 

(3) LIMITATION BASED ON GAIN.—In the case of the sale of the 

principal residence to a person who is not related to the taxpayer, the increase in tax determined under paragraph (2) shall 

not exceed the amount of gain (if any) on such sale. Solely for 

purposes of the preceding sentence, the adjusted basis of such 

residence shall be reduced by the amount of the credit allowed 

under subsection (a) to the extent not previously recaptured 

under paragraph (1). 

(4) EXCEPTIONS.— (A) DEATH OF TAXPAYER.—Paragraphs (1) and (2) shall 

not apply to any taxable year ending after the date of the 

taxpayer’s death. 

(B) INVOLUNTARY CONVERSION.—Paragraph (2) shall not 

apply in the case of a residence which is compulsorily or involuntarily converted (within the meaning of section 

1033(a)) if the taxpayer acquires a new principal residence 

during the 2-year period beginning on the date of the disposition or cessation referred to in paragraph (2). Paragraph (2) shall apply to such new principal residence during the recapture period in the same manner as if such new 

principal residence were the converted residence. 

(C) TRANSFERS BETWEEN SPOUSES OR INCIDENT TO DIVORCE.—In the case of a transfer of a residence to which 

section 1041(a) applies— 

(i) paragraph (2) shall not apply to such transfer, 

and 

(ii) in the case of taxable years ending after such 

transfer, paragraphs (1) and (2) shall apply to the 

transferee in the same manner as if such transferee 

were the transferor (and shall not apply to the transferor). 

(5) JOINT RETURNS.—In the case of a credit allowed under 

subsection (a) with respect to a joint return, half of such credit 


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shall be treated as having been allowed to each individual filing such return for purposes of this subsection. 

(6) RECAPTURE PERIOD.—For purposes of this subsection, the 

term ‘‘recapture period’’ means the 15 taxable years beginning 

with the second taxable year following the taxable year in 

which the purchase of the principal residence for which a credit 

is allowed under subsection (a) was made. 

(g) APPLICATION OF SECTION.—This section shall only apply to a 

principal residence purchased by the taxpayer on or after April 9, 

2008, and before April 1, 2009. 

SEC. ø36.¿ 37. OVERPAYMENTS OF TAX. 

For credit against the tax imposed by this subtitle for overpayments of tax, see section 6401. 

* * * * * * * 

Subpart D—Business Related Credits 

* * * * * * * 

SEC. 38. GENERAL BUSINESS CREDIT. 

(a) * * * 

* * * * * * * 

(c) LIMITATION BASED ON AMOUNT OF TAX.—

(1) * * * 

* * * * * * * 

(4) SPECIAL RULES FOR SPECIFIED CREDITS.— (A) * * * 

(B) SPECIFIED CREDITS.—For purposes of this subsection, 

the term ‘‘specified credits’’ means— (i) * * * 

(ii) the credit determined under section 42 to the extent attributable to buildings placed in service after December 31, 2007, 

ø(ii)¿ (iii) the credit determined under section 45 to 

the extent that such credit is attributable to electricity 

or refined coal produced— (I) * * * 

* * * * * * * 

ø(iii)¿ (iv) the credit determined under section 45B, 

øand¿ 

(v) the credit determined under section 47 to the extent attributable to qualified rehabilitation expenditures properly taken into account for periods after December 31, 2007, and 

ø(iv)¿ (vi) the credit determined under section 51. 

* * * * * * * 

SEC. 42. LOW-INCOME HOUSING CREDIT. 

(a) * * * 

ø(b) APPLICABLE PERCENTAGE: 70 PERCENT PRESENT VALUE

CREDIT FOR CERTAIN NEW BUILDINGS; 30 PERCENT PRESENT VALUE

CREDIT FOR CERTAIN OTHER BUILDINGS.—For purposes of this section—


wwoods2 on PRODPC68 with REPORTS
88 

ø(1) BUILDING PLACED IN SERVICE DURING 1987.—In the case 

of any qualified low-income building placed in service by the 

taxpayer during 1987, the term ‘‘applicable percentage’’

means—

ø(A) 9 percent for new buildings which are not federally 

subsidized for the taxable year, or 

ø(B) 4 percent for—

ø(i) new buildings which are federally subsidized for 

the taxable year, and 

ø(ii) existing buildings. 

ø(2) BUILDINGS PLACED IN SERVICE AFTER 1987.—

ø(A) IN GENERAL.—In the case of any qualified low-income building placed in service by the taxpayer after 1987, 

the term ‘‘applicable percentage’’ means the appropriate 

percentage prescribed by the Secretary for the earlier of—

ø(i) the month in which such building is placed in 

service, or 

ø(ii) at the election of the taxpayer—

ø(I) the month in which the taxpayer and the 

housing credit agency enter into an agreement 

with respect to such building (which is binding on 

such agency, the taxpayer, and all successors in 

interest) as to the housing credit dollar amount to 

be allocated to such building, or 

ø(II) in the case of any building to which subsection (h)(4)(B) applies, the month in which the 

tax-exempt obligations are issued. 

A month may be elected under clause (ii) only if the election is made not later than the 5th day after the close of 

such month. Such an election, once made, shall be irrevocable. 

ø(B) METHOD OF PRESCRIBING PERCENTAGES.—The percentages prescribed by the Secretary for any month shall 

be percentages which will yield over a 10-year period 

amounts of credit under subsection (a) which have a 

present value equal to—

ø(i) 70 percent of the qualified basis of a building described in paragraph (1)(A), and 

ø(ii) 30 percent of the qualified basis of a building 

described in paragraph (1)(B). 

ø(C) METHOD OF DISCOUNTING.—The present value 

under subparagraph (B) shall be determined—

ø(i) as of the last day of the 1st year of the 10-year 

period referred to in subparagraph (B), 

ø(ii) by using a discount rate equal to 72 percent of 

the average of the annual Federal mid-term rate and 

the annual Federal long-term rate applicable under 

section 1274(d)(1) to the month applicable under 

clause (i) or (ii) of subparagraph (A) and compounded 

annually, and 

ø(iii) by assuming that the credit allowable under 

this section for any year is received on the last day of 

such year. 

ø(3) CROSS REFERENCES.—


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89 

ø(A) For treatment of certain rehabilitation expenditures 

as separate new buildings, see subsection (e). 

ø(B) For determination of applicable percentage for increases in qualified basis after the 1st year of the credit 

period, see subsection (f)(3). 

ø(C) For authority of housing credit agency to limit applicable percentage and qualified basis which may be 

taken into account under this section with respect to any 

building, see subsection (h)(7).¿ 

(b) APPLICABLE PERCENTAGE.—For purposes of this section— (1) IN GENERAL.—The term ‘‘applicable percentage’’ means, 

with respect to any building, the appropriate percentage prescribed by the Secretary for the earlier of— (A) the month in which such building is placed in service, or 

(B) at the election of the taxpayer— (i) the month in which the taxpayer and the housing 

credit agency enter into an agreement with respect to 

such building (which is binding on such agency, the 

taxpayer, and all successors in interest) as to the housing credit dollar amount to be allocated to such building, or 

(ii) in the case of any building to which subsection 

(h)(4)(B) applies, the month in which the tax-exempt 

obligations are issued. 

A month may be elected under clause (ii) only if the election is 

made not later than the 5th day after the close of such month. 

Such an election, once made, shall be irrevocable. 

(2) METHOD OF PRESCRIBING PERCENTAGES.—

(A) IN GENERAL.—For purposes of paragraph (1), the percentages prescribed by the Secretary for any month shall 

be—

(i) in the case of any building which is not federally 

subsidized for the taxable year, the greater of— (I) the average percentage determined under subclause (II) for months in the preceding calendar 

year, or 

(II) the percentage which will yield over a 10- 

year period amounts of credit under subsection (a) 

which have a present value equal to 70 percent of 

the qualified basis of such building, and 

(ii) in the case of any other building, the percentage 

which will yield over a 10-year period amounts of credit under subsection (a) which have a present value 

equal to 30 percent of the qualified basis of such building. 

(B) METHOD OF DISCOUNTING.—The present value under 

subparagraph (A) shall be determined—

(i) as of the last day of the 1st year of the 10-year period referred to in subparagraph (A), 

(ii) by using a discount rate equal to 72 percent of 

the average of the annual Federal mid-term rate and 

the annual Federal long-term rate applicable under 

section 1274(d)(1) to the month applicable under subparagraph (A) and compounded annually, and 


wwoods2 on PRODPC68 with REPORTS
90 

(iii) by assuming that the credit allowable under this 

section for any year is received on the last day of such 

year. 

(3) CROSS REFERENCES.— (A) For treatment of certain rehabilitation expenditures 

as separate buildings, see subsection (e). 

(B) For determination of applicable percentage for increases in qualified basis after the 1st year of the credit period, see subsection (f)(3). 

(C) For authority of housing credit agency to limit applicable percentage and qualified basis which may be taken 

into account under this section with respect to any building, see subsection (h)(7). 

(c) QUALIFIED BASIS; QUALIFIED LOW-INCOME BUILDING.—For 

purposes of this section—

(1) * * * 

(2) QUALIFIED LOW-INCOME BUILDING.—The term ‘‘qualified 

low-income building’’ means any building—

(A) which is part of a qualified low-income housing 

project at all times during the period—

(i) beginning on the 1st day in the compliance period 

on which such building is part of such a project, and 

(ii) ending on the last day of the compliance period 

with respect to such building, and 

(B) to which the amendments made by section 201(a) of 

the Tax Reform Act of 1986 apply. 

øSuch term does not include any building with respect to 

which moderate rehabilitation assistance is provided, at any 

time during the compliance period, under section 8(e)(2) 1 of 

the United States Housing Act of 1937 (other than assistance 

under the McKinney-Vento Homeless Assistance Act (as in effect on the date of the enactment of this sentence)).¿ 

* * * * * * * 

(d) ELIGIBLE BASIS.—For purposes of this section—

(1) * * * 

(2) EXISTING BUILDINGS.—

(A) * * * 

(B) REQUIREMENTS.—A building meets the requirements 

of this subparagraph if—

(i) * * * 

(ii) there is a period of at least 10 years between the 

date of its acquisition by the taxpayer and øthe later 

of—

ø(I) the date the building was last placed in 

service, or 

ø(II) the date of the most recent nonqualified 

substantial improvement of the building,¿ the date 

the building was last placed in service, 

* * * * * * * 

(D) SPECIAL RULES FOR SUBPARAGRAPH (B).—

ø(i) NONQUALIFIED SUBSTANTIAL IMPROVEMENT.—For 

purposes of subparagraph (B)(ii)—

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wwoods2 on PRODPC68 with REPORTS
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provement if section 167(k) (as in effect on the day 

before the date of the enactment of the Revenue 

Reconciliation Act of 1990) was elected with respect to such improvement or section 168 (as in effect on the day before the date of the enactment 

of the Tax Reform Act of 1986) applied to such improvement. 

ø(II) DATE OF SUBSTANTIAL IMPROVEMENT.—The 

date of a substantial improvement is the last day 

of the 24-month period referred to in subclause 

(III). 

ø(III) SUBSTANTIAL IMPROVEMENT.—The term 

‘‘substantial improvement’’ means the improvements added to capital account with respect to the 

building during any 24-month period, but only if 

the sum of the amounts added to such account 

during such period equals or exceeds 25 percent of 

the adjusted basis of the building (determined 

without regard to paragraphs (2) and (3) of section 

1016(a)) as of the 1st day of such period.¿ 

ø(ii)¿ (i) SPECIAL RULES FOR CERTAIN TRANSFERS.—

For purposes of determining under subparagraph 

(B)(ii) when a building was last placed in service, 

there shall not be taken into account any placement in 

service—

(I) * * * 

* * * * * * * 

ø(iii) RELATED PERSON, ETC.— ø(I) APPLICATION OF SECTION 179.—For purposes 

of subparagraph (B)(i), section 179(d) shall be applied by substituting ‘‘10 percent’’ for ‘‘50 percent’’ in section 2267(b) and 707(b) and in section 

179(d)(7).¿ 

ø(II)¿ (ii) RELATED PERSON.—For purposes of subparagraph (B)(iii), a person (hereinafter in this subclause referred to as the ‘‘related person’’) is related to 

any person if the related person bears a relationship 

to such person specified in section 267(b) or 707(b)(1), 

or the related person and such person are engaged in 

trades or businesses under common control (within the 

meaning of subsections (a) and (b) of section 52). øFor 

purposes of the preceding sentence, in applying section 

267(b) or 707(b)(1), ‘‘10 percent’’ shall be substituted 

for ‘‘50 percent’’.¿ 

* * * * * * * 

(4) SPECIAL RULES RELATING TO DETERMINATION OF ADJUSTED

BASIS.—For purposes of this subsection—

(A) * * * 

* * * * * * * 

(C) INCLUSION OF BASIS OF PROPERTY USED TO PROVIDE

SERVICES FOR CERTAIN NONTENANTS.— (i) * * * 


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(ii) LIMITATION.—The increase in the adjusted basis 

of any building which is taken into account by reason 

of clause (i) shall not exceed ø10 percent of the eligible 

basis of the qualified low-income housing project of 

which it is a part. For purposes of¿ the sum of— (I) 15 percent of so much of the eligible basis of 

the qualified low-income housing project of which 

it is a part as does not exceed $5,000,000, plus 

(II) 10 percent of so much of the eligible basis of 

such project as is not taken into account under 

subclause (I). 

For purposes of the preceding sentence, all community 

service facilities which are part of the same qualified 

low-income housing project shall be treated as one facility. 

* * * * * * * 

(5) SPECIAL RULES FOR DETERMINING ELIGIBLE BASIS.— ø(A) ELIGIBLE BASIS REDUCED BY FEDERAL GRANTS.—If, 

during any taxable year of the compliance period, a grant 

is made with respect to any building or the operation 

thereof and any portion of such grant is funded with Federal funds (whether or not includible in gross income), the 

eligible basis of such building for such taxable year and all 

succeeding taxable years shall be reduced by the portion of 

such grant which is so funded. 

ø(B) ELIGIBLE BASIS NOT TO INCLUDE EXPENDITURES

WHERE SECTION 167(K) SELECTED.—The eligible basis of any 

building shall not include any portion of its adjusted basis 

which is attributable to amounts with respect to which an 

election is made under section 167(k) (as in effect on the 

day before the date of the enactment of the Revenue Reconciliation Act of 1990).¿ 

(A) FEDERAL GRANTS NOT TAKEN INTO ACCOUNT IN DETERMINING ELIGIBLE BASIS.—The eligible basis of a building shall not include any costs financed with the proceeds 

of a Federally funded grant. 

ø(C)¿ (B) INCREASE IN CREDIT FOR BUILDINGS IN HIGH

COST AREAS.—

(i) * * * 

* * * * * * * 

(v) BUILDINGS DESIGNATED BY STATE HOUSING CREDIT AGENCY.—Any building which is designated by the 

State housing credit agency as requiring the increase 

in credit under this subparagraph in order for such 

building to be financially feasible as part of a qualified 

low-income housing project shall be treated for purposes of this subparagraph as located in a difficult development area which is designated for purposes of this 

subparagraph. The preceding sentence shall not apply 

to any building if paragraph (1) of subsection (h) does 

not apply to any portion of the eligible basis of such 

building by reason of paragraph (4) of such subsection. 

(e) REHABILITATION EXPENDITURES TREATED AS SEPARATE NEW

BUILDING.—


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(1) * * * 

* * * * * * * 

(3) MINIMUM EXPENDITURES TO QUALIFY.—

(A) IN GENERAL.—Paragraph (1) shall apply to rehabilitation expenditures with respect to any building only if—

(i) * * * 

(ii) the amount of such expenditures during any 24- 

month period meets the requirements of whichever of 

the following subclauses requires the greater amount 

of such expenditures: 

(I) The requirement of this subclause is met if 

such amount is not less than ø10 percent¿ 20 percent of the adjusted basis of the building (determined as of the 1st day of such period and without regard to paragraphs (2) and (3) of section 

1016(a)). 

(II) The requirement of this subclause is met if 

the qualified basis attributable to such amount, 

when divided by the number of low-income units 

in the building, is ø$3,000¿ $6,000 or more. 

(B) EXCEPTION FROM 10 PERCENT REHABILITATION.—In 

the case of a building acquired by the taxpayer from a governmental unit, at the election of the taxpayer, subparagraph (A)(ii)(I) shall not apply and the credit under this 

section for such rehabilitation expenditures shall be determined using the percentage applicable under øsubsection 

(b)(2)(B)(ii)¿ subsection (b)(2)(A)(ii). 

* * * * * * * 

(D) INFLATION ADJUSTMENT.—In the case of any expenditures which are treated under paragraph (4) as placed in 

service during any calendar year after 2009, the $6,000 

amount in subparagraph (A)(ii)(II) shall be increased by an 

amount equal to—

(i) such dollar amount, multiplied by 

(ii) the cost-of-living adjustment determined under 

section 1(f)(3) for such calendar year by substituting 

‘‘calendar year 2008’’ for ‘‘calendar year 1992’’ in subparagraph (B) thereof. 

Any increase under the preceding sentence which is not a 

multiple of $100 shall be rounded to the nearest multiple 

of $100. 

(f) DEFINITION AND SPECIAL RULES RELATING TO CREDIT PERIOD.—

(1) * * * 

* * * * * * * 

(5) CREDIT PERIOD FOR EXISTING BUILDINGS NOT TO BEGIN BEFORE REHABILITATION CREDIT ALLOWED.—

(A) * * * 

(B) ACQUISITION CREDIT ALLOWED FOR CERTAIN BUILDINGS NOT ALLOWED A REHABILITATION CREDIT.—

(i) * * * 

(ii) BUILDING DESCRIBED.—A building is described in 

this clause if—


wwoods2 on PRODPC68 with REPORTS
94 

(I) * * * 

(II) a credit would be allowed for rehabilitation 

expenditures with respect to such building if subsection (e)(3)(A)(ii)(I) did not apply and øif subsection (e)(3)(A)(ii)(II) were applied by substituting 

‘‘$2,000’’ for ‘‘$3,000’’.¿ if the dollar amount in effect under subsection (e)(3)(A)(ii)(II) were twothirds of such amount. 

* * * * * * * 

(h) LIMITATION ON AGGREGATE CREDIT ALLOWABLE WITH RESPECT

TO PROJECTS LOCATED IN A STATE.—

(1) CREDIT MAY NOT EXCEED CREDIT AMOUNT ALLOCATED TO

BUILDING.—

(A) * * * 

* * * * * * * 

(E) EXCEPTION WHERE 10 PERCENT OF COST INCURRED.—

(i) * * * 

(ii) QUALIFIED BUILDING.—For purposes of clause (i), 

the term ‘‘qualified building’’ means any building 

which is part of a project if the taxpayer’s basis in 

such project ø(as of the later of the date which is 6 

months after the date that the allocation was made or 

the close of the calendar year in which the allocation 

is made)¿ (as of the date which is 1 year after the date 

that the allocation was made) is more than 10 percent 

of the taxpayer’s reasonably expected basis in such 

project (as of the close of the second calendar year referred to in clause (i)). Such term does not include any 

existing building unless a credit is allowable under 

subsection (e) for rehabilitation expenditures paid or 

incurred by the taxpayer with respect to such building 

for a taxable year ending during the second calendar 

year referred to in clause (i) or the prior taxable year. 

* * * * * * * 

(3) HOUSING CREDIT DOLLAR AMOUNT FOR AGENCIES.—

(A) * * * 

* * * * * * * 

(I) INCREASE IN STATE HOUSING CREDIT CEILING FOR 2008

AND 2009.—In the case of calendar years 2008 and 2009, the 

dollar amount in effect under subparagraph (C)(ii)(I) for 

such calendar year (after any increase under subparagraph 

(H)) shall be increased by $0.20. 

(4) CREDIT FOR BUILDINGS FINANCED BY TAX-EXEMPT BONDS

SUBJECT TO VOLUME CAP NOT TAKEN INTO ACCOUNT.—

(A) IN GENERAL.—Paragraph (1) shall not apply to the 

portion of any credit allowable under subsection (a) which 

is attributable to eligible basis financed by any obligation 

the interest on which is exempt from tax under section 103 

if—

(i) * * * 

(ii) principal payments on such financing are applied 

within a reasonable period to redeem obligations the 

proceeds of which were used to provide such financing 


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or such financing is refunded as described in section 

146(i)(6). 

* * * * * * * 

(i) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— (1) * * * 

(2) DETERMINATION OF WHETHER BUILDING IS FEDERALLY

SUBSIDIZED.— (A) IN GENERAL.—Except as otherwise provided in this 

paragraph, for purposes of subsection (b)(1), a ønew building¿ building shall be treated as federally subsidized for 

any taxable year if, at any time during such taxable year 

or any prior taxable year, there is or was outstanding any 

obligation the interest on which is exempt from tax under 

section 103ø, or any below market Federal loan,¿ the proceeds of which are or were used (directly or indirectly) 

with respect to such building or the operation thereof. 

(B) ELECTION TO REDUCE ELIGIBLE BASIS BY øBALANCE

OF LOAN OR¿ PROCEEDS OF OBLIGATIONS.—A øloan or¿ taxexempt obligation shall not be taken into account under 

subparagraph (A) if the taxpayer elects to exclude from the 

eligible basis of the building for purposes of øsubsection 

(d)— ø(i) in the case of a loan, the principal amount of 

such loan, and 

ø(ii) in the case of a tax-exempt obligation, the proceeds of such obligation.¿ subsection (d) the proceeds of 

such obligation. 

(C) SPECIAL RULE FOR SUBSIDIZED CONSTRUCTION FI- NANCING.—Subparagraph (A) shall not apply to any tax-exempt obligation øor below market Federal loan¿ used to 

provide construction financing for any building if— (i) such obligation øor loan (when issued or made)¿ 

(when issued) identified the building for which øthe 

proceeds of such obligation or loan¿ the proceeds of 

such obligation would be used, and 

(ii) such obligation is redeemedø, and such loan is 

repaid,¿ before such building is placed in service. 

ø(D) BELOW MARKET FEDERAL LOAN.—For purposes of 

this paragraph, the term ‘‘below market Federal loan’’ means any loan funded in whole or in part with Federal 

funds if the interest rate payable on such loan is less than 

the applicable Federal rate in effect under section 

1274(d)(1) (as of the date on which the loan was made). 

Such term shall not include any loan which would be a 

below market Federal loan solely by reason of assistance 

provided under section 106, 107, or 108 of the Housing and 

Community Development Act of 1974 (as in effect on the 

date of the enactment of this sentence). 

ø(E) BUILDINGS RECEIVING HOME ASSISTANCE OR NATIVE

AMERICAN HOUSING ASSISTANCE.— ø(i) IN GENERAL.—Assistance provided under the 

HOME Investment Partnerships Act (as in effect on 

the date of the enactment of this subparagraph or the 

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wwoods2 on PRODPC68 with REPORTS
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mination Act of 1996 (25 U.S.C. 4101 et seq.) (as in effect on October 1, 1997)) with respect to any building 

shall not be taken into account under subparagraph 

(D) if 40 percent or more of the residential units in the 

building are occupied by individuals whose income is 

50 percent or less of area median gross income. Subsection (d)(5)(C) shall not apply to any building to 

which the preceding sentence applies. 

ø(ii) SPECIAL RULE FOR CERTAIN HIGH-COST HOUSING

AREAS.—In the case of a building located in a city described in section 142(d)(6), clause (i) shall be applied 

by substituting ‘‘25 percent’’ for ‘‘40 percent’’.¿ 

(3) LOW-INCOME UNIT.—

(A) * * * 

* * * * * * * 

(D) CERTAIN STUDENTS NOT TO DISQUALIFY UNIT.—A unit 

shall not fail to be treated as a low-income unit merely because it is occupied—

(i) by an individual who is—

(I) a student and receiving assistance under 

title IV of the Social Security Act, øor¿ 

(II) a student who was previously under the care 

and placement responsibility of the State agency 

responsible for administering a plan under part B 

or part E of title IV of the Social Security Act, or 

ø(II)¿ (III) enrolled in a job training program receiving assistance under the Job Training Partnership Act or under other similar Federal, State, 

or local laws, or 

* * * * * * * 

(8) TREATMENT OF RURAL PROJECTS.—For purposes of this 

section, in the case of any project for residential rental property 

located in a rural area (as defined in section 520 of the Housing 

Act of 1949), any income limitation measured by reference to 

area median gross income shall be measured by reference to the 

greater of area median gross income or national non-metropolitan median income. The preceding sentence shall not apply 

with respect to any building if paragraph (1) of section 42(h) 

does not apply by reason of paragraph (4) thereof to any portion 

of the credit determined under this section with respect to such 

building. 

* * * * * * * 

(j) RECAPTURE OF CREDIT.—

(1) * * * 

* * * * * * * 

ø(6) NO RECAPTURE ON DISPOSITION OF BUILDING (OR INTEREST THEREIN) WHERE BOND POSTED.—In the case of a disposition of a building or an interest therein, the taxpayer shall be 

discharged from liability for any additional tax under this subsection by reason of such disposition if—

ø(A) the taxpayer furnishes to the Secretary a bond in 

an amount satifactory to the Secretary and for the period 

required by the Secretary, and 


wwoods2 on PRODPC68 with REPORTS
97 

ø(B) it is reasonably expected that such building will 

continue to be operated as a qualified low-income building 

for the remaining compliance period with respect to such 

building.¿ 

(6) NO RECAPTURE ON DISPOSITION OF BUILDING WHICH CON- TINUES IN QUALIFIED USE.— (A) IN GENERAL.—The increase in tax under this subsection shall not apply solely by reason of the disposition of 

a building (or an interest therein) if it is reasonably expected that such building will continue to be operated as a 

qualified low-income building for the remaining compliance 

period with respect to such building. 

(B) STATUTE OF LIMITATIONS.—If a building (or an interest therein) is disposed of during any taxable year and 

there is any reduction in the qualified basis of such building which results in an increase in tax under this subsection for such taxable or any subsequent taxable year, 

then—

(i) the statutory period for the assessment of any deficiency with respect to such increase in tax shall not expire before the expiration of 3 years from the date the 

Secretary is notified by the taxpayer (in such manner 

as the Secretary may prescribe) of such reduction in 

qualified basis, and 

(ii) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment. 

* * * * * * * 

(m) RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.— (1) PLANS FOR ALLOCATION OF CREDIT AMONG PROJECTS.— (A) * * * 

* * * * * * * 

(C) CERTAIN SELECTION CRITERIA MUST BE USED.—The 

selection criteria set forth in a qualified allocation plan 

must include—

(i) * * * 

* * * * * * * 

(vii) tenant populations of individuals with children, 

øand¿ 

(viii) projects intended for eventual tenant 

ownershipø.¿, 

(ix) the energy efficiency of the project, and 

(x) the historic nature of the project. 

* * * * * * * 

Subpart E—Rules for Computing Investment Credit 

* * * * * * * 

SEC. 47. REHABILITATION CREDIT. 

(a) * * * 

* * * * * * * 

(c) DEFINITIONS.—For purposes of this section—


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(1) * * * 

(2) QUALIFIED REHABILITATION EXPENDITURE DEFINED.— (A) * * * 

(B) CERTAIN EXPENDITURES NOT INCLUDED.—The term ‘‘qualified rehabilitation expenditure’’ does not include— (i) * * * 

* * * * * * * 

(v) TAX-EXEMPT USE PROPERTY.—

(I) IN GENERAL.—Any expenditure in connection 

with the rehabilitation of a building which is allocable to the portion of such property which is (or 

may reasonably be expected to be) tax-exempt use 

property (within the meaning of øsection 168(h)¿ 

section 168(h), except that ‘‘50 percent’’ shall be 

substituted for ‘‘35 percent’’ in paragraph (1)(B)(iii) 

thereof). 

* * * * * * * 

PART VI—ALTERNATIVE MINIMUM TAX 

* * * * * * * 

SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME. 

(a) * * * 

* * * * * * * 

(g) ADJUSTMENTS BASED ON ADJUSTED CURRENT EARNINGS.—

(1) * * * 

* * * * * * * 

(4) ADJUSTMENTS.—In determining adjusted current earnings, the following adjustments shall apply: 

(A) * * * 

(B) INCLUSION OF ITEMS INCLUDED FOR PURPOSES OF

COMPUTING EARNINGS AND PROFITS.— (i) * * * 

* * * * * * * 

(iii) TAX EXEMPT INTEREST ON CERTAIN HOUSING

BONDS.—Clause (i) shall not apply in the case of any 

interest on a bond to which section 57(a)(5)(C)(iii) applies. 

* * * * * * * 

SEC. 57. ITEMS OF TAX PREFERENCE. 

(a) GENERAL RULE.—For purposes of this part, the items of tax 

preference determined under this section are— (1) * * * 

* * * * * * * 

(5) TAX-EXEMPT INTEREST.— (A) * * * 

* * * * * * * 

(C) SPECIFIED PRIVATE ACTIVITY BONDS.—


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(i) * * * 

* * * * * * * 

(iii) EXCEPTION FOR CERTAIN HOUSING BONDS.—For 

purposes of clause (i), the term ‘‘private activity bond’’ shall not include any bond issued after the date of the 

enactment of this clause if such bond is— (I) an exempt facility bond issued as part of an 

issue 95 percent or more of the net proceeds of 

which are to be used to provide qualified residential rental projects (as defined in section 142(d)), 

(II) a qualified mortgage bond (as defined in section 143(a)), or 

(III) a qualified veterans’ mortgage bond (as defined in section 143(b)). 

The preceding sentence shall not apply to any refunding bond unless such preceding sentence applied to the 

refunded bond (or in the case of a series of refundings, 

the original bond). 

ø(iii)¿ (iv) EXCEPTION FOR REFUNDINGS.—For purposes of clause (i), the term ‘‘private activity bond’’ shall not include any refunding bond (whether a current or advance refunding) if the refunded bond (or in 

the case of a series of refundings, the original bond) 

was issued before August 8, 1986. 

ø(iv)¿ (v) CERTAIN BONDS ISSUED BEFORE SEPTEMBER

1, 1986.—For purposes of this subparagraph, a bond 

issued before September 1, 1986, shall be treated as 

issued before August 8, 1986, unless such bond would 

be a private activity bond if— (I) * * * 

* * * * * * * 

Subchapter B—Computation of Taxable Income 

* * * * * * * 

PART I—DEFINITION OF GROSS INCOME, ADJUSTED 

GROSS INCOME, TAXABLE INCOME, ETC 

* * * * * * * 

SEC. 63. TAXABLE INCOME DEFINED. 

(a) * * * 

* * * * * * * 

(c) STANDARD DEDUCTION.—For purposes of this subtitle—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the term ‘‘standard deduction’’ means the sum of—

(A) the basic standard deduction, øand¿ 

(B) the additional standard deductionø.¿, and 

(C) in the case of any taxable year beginning in 2008, the 

real property tax deduction. 

* * * * * * * 

(7) REAL PROPERTY TAX DEDUCTION.—For purposes of paragraph (1), the real property tax deduction is the lesser of—


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(A) the amount allowable as a deduction under this 

chapter for State and local taxes described in section 

164(a)(1), or 

(B) $350 ($700 in the case of a joint return). 

Any taxes taken into account under section 62(a) shall not be 

taken into account under this paragraph. 

* * * * * * * 

PART IV—TAX EXEMPTION REQUIREMENTS FOR STATE 

AND LOCAL BONDS 

* * * * * * * 

Subpart A—Private Activity Bonds 

* * * * * * * 

SEC. 142. EXEMPT FACILITY BOND. 

(a) * * * 

* * * * * * * 

(d) QUALIFIED RESIDENTIAL RENTAL PROJECT.—For purposes of 

this section—

(1) * * * 

(2) DEFINITIONS AND SPECIAL RULES.—For purposes of this 

subsection—

(A) * * * 

* * * * * * * 

(C) STUDENTS.—Rules similar to the rules of 42(i)(3)(D) 

shall apply for purposes of this subsection. 

(D) SINGLE-ROOM OCCUPANCY UNITS.—A unit shall not 

fail to be treated as a residential unit merely because such 

unit is a single-room occupancy unit (within the meaning 

of section 42). 

(E) HOLD HARMLESS FOR REDUCTIONS IN AREA MEDIAN

GROSS INCOME.—

(i) IN GENERAL.—Any determination of area median 

gross income under subparagraph (B) with respect to 

any project for any calendar year after 2008 shall not 

be less than the area median gross income determined 

under such subparagraph with respect to such project 

for the calendar year preceding the calendar year for 

which such determination is made. 

(ii) SPECIAL RULE FOR CERTAIN CENSUS CHANGES.—

In the case of a HUD hold harmless impacted project, 

the area median gross income with respect to such 

project for any calendar year after 2008 (hereafter in 

this clause referred to as the current calendar year) 

shall be the greater of the amount determined without 

regard to this clause or the sum of—

(I) the area median gross income determined 

under the HUD hold harmless policy with respect 

to such project for calendar year 2008, plus 

(II) any increase in the area median gross income determined under subparagraph (B) (determined without regard to the HUD hold harmless 


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policy and this subparagraph) with respect to such 

project for the current calendar year over the area 

median gross income (as so determined) with respect to such project for calendar year 2008. 

(iii) HUD HOLD HARMLESS POLICY.—The term ‘‘HUD 

hold harmless policy’’ means the regulations under 

which a policy similar to the rules of clause (i) applied 

to prevent a change in the method of determining area 

median gross income from resulting in a reduction in 

the area median gross income determined with respect 

to certain projects in calendar years 2007 and 2008. 

(iv) HUD HOLD HARMLESS IMPACTED PROJECT.—The 

term ‘‘HUD hold harmless impacted project’’ means 

any project with respect to which area median gross income was determined under subparagraph (B) for calendar year 2007 or 2008 if such determination would 

have been less but for the HUD hold harmless policy. 

(3) CURRENT INCOME DETERMINATIONS.—For purposes of this 

subsection—

(A) IN GENERAL.—The determination of whether the income of a resident of a unit in a project exceeds the applicable income limit shall be made at least annually on the 

basis of the current income of the resident. The preceding 

sentence shall not apply with respect to any project for any 

year if during such year no residential unit in the project 

is occupied by a new resident whose income exceeds the applicable income limit. 

* * * * * * * 

(C) EXCEPTION FOR PROJECTS WITH RESPECT TO WHICH

AFFORDABLE HOUSING CREDIT IS ALLOWED.—In the case of 

a project with respect to which credit is allowed under section 42, the second sentence of subparagraph (B) shall be 

applied by substituting ‘‘building (within the meaning of 

section 42)’’ for ‘‘project’’. 

* * * * * * * 

SEC. 143. MORTGAGE REVENUE BONDS: QUALIFIED MORTGAGE BOND 

AND QUALIFIED VETERANS’ MORTGAGE BOND. 

(a) * * * 

* * * * * * * 

(k) OTHER DEFINITIONS AND SPECIAL RULES.—For purposes of 

this section—

(1) * * * 

* * * * * * * 

(12) SPECIAL RULES FOR SUBPRIME REFINANCINGS.—

(A) IN GENERAL.—Notwithstanding the requirements of 

subsection (i)(1), the proceeds of a qualified mortgage issue 

may be used to refinance a mortgage on a residence which 

was originally financed by the mortgagor through a qualified subprime loan. 

(B) SPECIAL RULES.—In applying subparagraph (A) to 

any refinancing—


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(i) subsection (a)(2)(D)(i) shall be applied by substituting ‘‘12-month period’’ for ‘‘42-month period’’ each 

place it appears, 

(ii) subsection (d) (relating to 3-year requirement) 

shall not apply, and 

(iii) subsection (e) (relating to purchase price requirement) shall be applied by using the market value of the 

residence at the time of refinancing in lieu of the acquisition cost. 

(C) QUALIFIED SUBPRIME LOAN.—The term ‘‘qualified 

subprime loan’’ means an adjustable rate single-family residential mortgage loan made after December 31, 2001, and 

before January 1, 2008, that the bond issuer determines 

would be reasonably likely to cause financial hardship to 

the borrower if not refinanced. 

(D) TERMINATION.—This paragraph shall not apply to 

any bonds issued after December 31, 2010. 

* * * * * * * 

SEC. 146. VOLUME CAP. 

(a) * * * 

* * * * * * * 

(d) STATE CEILING.—For purposes of this section— (1) * * * 

* * * * * * * 

(5) INCREASE AND SET ASIDE FOR HOUSING BONDS FOR 2008.—

(A) INCREASE FOR 2008.—In the case of calendar year 

2008, the State ceiling for each State shall be increased by 

an amount equal to $10,000,000,000 multiplied by a fraction—

(i) the numerator of which is the population of such 

State, and 

(ii) the denominator of which is the total population 

of all States. 

(B) SET ASIDE.—

(i) IN GENERAL.—Any amount of the State ceiling for 

any State which is attributable to an increase under 

this paragraph shall be allocated solely for one or more 

qualified housing issues. 

(ii) QUALIFIED HOUSING ISSUE.—For purposes of this 

paragraph, the term ‘‘qualified housing issue’’ means—

(I) an issue described in section 142(a)(7) (relating to qualified residential rental projects), or 

(II) a qualified mortgage issue (determined by 

substituting ‘‘12-month period’’ for ‘‘42-month period’’ each place it appears in section 

143(a)(2)(D)(i)). 

* * * * * * * 

(f) ELECTIVE CARRYFORWARD OF UNUSED LIMITATION FOR SPECIFIED PURPOSE.—

(1) * * * 

* * * * * * * 


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(6) SPECIAL RULES FOR INCREASED VOLUME CAP UNDER SUB- SECTION (d)(5).—No amount which is attributable to the increase under subsection (d)(5) may be used— (A) for any issue other than a qualified housing issue (as 

defined in subsection (d)(5)), or 

(B) to issue any bond after calendar year 2010. 

* * * * * * * 

(i) TREATMENT OF REFUNDING ISSUES.—For purposes of the volume cap imposed by this section—

(1) * * * 

* * * * * * * 

(6) TREATMENT OF CERTAIN RESIDENTIAL RENTAL PROJECT

BONDS AS REFUNDING BONDS IRRESPECTIVE OF OBLIGOR.—

(A) IN GENERAL.—If, during the 6-month period beginning on the date of a repayment of a loan financed by an 

issue 95 percent or more of the net proceeds of which are 

used to provide projects described in section 142(d), such 

repayment is used to provide a new loan for any project so 

described, any bond which is issued to refinance such issue 

shall be treated as a refunding issue to the extent the principal amount of such refunding issue does not exceed the 

principal amount of the bonds refunded. 

(B) LIMITATIONS.—Subparagraph (A) shall apply to only 

one refunding of the original issue and only if—

(i) the refunding issue is issued not later than 4 

years after the date on which the original issue was 

issued, 

(ii) the latest maturity date of any bond of the refunding issue is not later than 34 years after the date 

on which the refunded bond was issued, and 

(iii) the refunding issue is approved in accordance 

with section 147(f) before the issuance of the refunding 

issue. 

* * * * * * * 

Subpart B—Requirements Applicable to All State and Local 

Bonds 

* * * * * * * 

SEC. 149. BONDS MUST BE REGISTERED TO BE TAX EXEMPT; OTHER 

REQUIREMENTS. 

(a) * * * 

(b) FEDERALLY GUARANTEED BOND IS NOT TAX EXEMPT.—

(1) * * * 

* * * * * * * 

(3) EXCEPTIONS.—

(A) CERTAIN INSURANCE PROGRAMS.—A bond shall not be 

treated as federally guaranteed by reason of—

(i) * * * 

(ii) any guarantee of student loans and any guarantee by the Student Loan Marketing Association to 

finance student loans, øor¿ 


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(iii) any guarantee by the Bonneville Power Authority pursuant to the Northwest Power Act (16 U.S.C. 

839d) as in effect on the date of the enactment of the 

Tax Reform Act of 1984ø.¿, or 

(iv) any guarantee by a Federal home loan bank 

made in connection with the original issuance of a 

bond during the period beginning on the date of the enactment of this Act and ending on December 31, 2010 

(or a renewal or extension of a guarantee so made). 

* * * * * * * 

(E) SAFETY AND SOUNDNESS REQUIREMENTS FOR FEDERAL

HOME LOAN BANKS.—Clause (iv) of subparagraph (A) shall 

not apply to any guarantee by a Federal home loan bank 

unless such bank meets safety and soundness collateral requirements for such guarantees which are at least as stringent as such requirements which apply under regulations 

applicable to such guarantees by Federal home loan banks 

as in effect on April 9, 2008. 

* * * * * * * 

Subchapter M—Regulated Investment Companies 

and Real Estate Investment Trusts 

* * * * * * * 

PART II—REAL ESTATE INVESTMENT TRUSTS 

* * * * * * * 

SEC. 856. DEFINITION OF REAL ESTATE INVESTMENT TRUST. 

(a) * * * 

* * * * * * * 

(c) LIMITATIONS.—A corporation, trust, or association shall not be 

considered a real estate investment trust for any taxable year unless—

(1) * * * 

(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) * * * 

* * * * * * * 

(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); øand¿ 

* * * * * * * 

(I) passive foreign exchange gains; and 

(J) any other item of income or gain as determined by the 

Secretary; 


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(3) at least 75 percent of its gross income (excluding gross income from prohibited transactions) is derived from— (A) * * * 

* * * * * * * 

(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); øand¿ 

(I) qualified temporary investment income; øand¿ 

(J) real estate foreign exchange gains; and 

(K) any other item of income or gain as determined by the 

Secretary; and 

(4) at the close of each quarter of the taxable year—

(A) * * * 

(B)(i) * * * 

(ii) not more than ø20 percent¿ 25 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) * * * 

* * * * * * * 

(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 (including a discrepancy caused solely by 

the change in the foreign currency exchange rate used to value a foreign asset) 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) * * * 

* * * * * * * 

ø(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 


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incurred or to be incurred by the trust to acquire or carry 

real estate assets.¿ 

(G) TREATMENT OF CERTAIN HEDGING INSTRUMENTS.— Except to the extent as determined by the Secretary— (i) 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 paragraphs (2) and (3) to 

the extent that the transaction hedges any indebtedness 

incurred or to be incurred by the trust to acquire or 

carry real estate assets, and 

(ii) any income of a real estate investment trust from 

a transaction entered into by the trust primarily to 

manage risk of currency fluctuations with respect to 

any item described in paragraph (2) or (3), including 

gain from the termination of such a transaction, shall 

not constitute gross income under paragraphs (2) and 

(3), but only if such transaction is clearly identified as 

such before the close of the day on which it was acquired, originated, or entered into (or such other time 

as the Secretary may prescribe). 

(H) SECRETARIAL AUTHORITY TO EXCLUDE OTHER ITEMS

OF INCOME.—The Secretary is authorized to determine 

whether any item of income or gain which does not otherwise qualify under paragraph (2) or (3) may be considered 

as not constituting gross income solely for purposes of this 

part. 

(I) CASH.—The term ‘‘cash’’ includes foreign currency if 

the real estate investment trust or its qualified business 

unit (as defined in section 989) uses such foreign currency 

as its functional currency (as defined in section 985(b)). 

* * * * * * * 

(d) RENTS FROM REAL PROPERTY DEFINED.—

(1) * * * 

* * * * * * * 

(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) * * * 

ø(B) EXCEPTION FOR CERTAIN LODGING FACILITIES.—The 

requirements of this subparagraph are met with respect to 

an interest in real property which is a qualified lodging facility leased by the trust to a taxable REIT subsidiary of 

the trust if the property is operated on behalf of such subsidiary by a person who is an eligible independent contractor.¿ 

(B) EXCEPTION FOR CERTAIN LODGING FACILITIES AND

HEALTH CARE PROPERTY.—The requirements of this subparagraph are met with respect to an interest in real propVerDate Aug 31 2005 04:25 Apr 26, 2008 Jkt 069006 PO 00000 Frm 00106 Fmt 6659 Sfmt 6603 E:\HR\OC\HR606.XXX HR606

wwoods2 on PRODPC68 with REPORTS
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erty which is a qualified lodging facility or a qualified 

health care property (as defined in subsection (e)(6)(D)(i)) 

leased by the trust to a taxable REIT subsidiary of the trust 

if the property is operated on behalf of such subsidiary by 

a person who is an eligible independent contractor. For 

purposes of this section, a taxable REIT subsidiary is not 

considered to be operating or managing a qualified health 

care property or qualified lodging facility solely because it 

directly or indirectly possesses a license, permit or similar 

instrument enabling it to do so. 

(9) ELIGIBLE INDEPENDENT CONTRACTOR.—For purposes of 

paragraph (8)(B)— ø(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. 

ø(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: 

ø(i) The taxable REIT subsidiary bears the expenses 

for the operation of the facility pursuant to the management agreement or other similar service contract. 

ø(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. 

ø(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—

ø(I) January 1, 1999, or 

ø(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.¿ 

(A) IN GENERAL.—The term ‘‘eligible independent contractor’’ means, with respect to any qualified lodging facility or qualified health care property (as defined in subsection (e)(6)(D)(i)), 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 such qualified lodging facility or qualified health care property, such contractor (or any related 

person) is actively engaged in the trade or business of operating qualified lodging facilities or qualified health care 

properties, respectively, for any person who is not a related 


wwoods2 on PRODPC68 with REPORTS
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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 or qualified health care property 

(as so defined) by reason of the following: 

(i) The taxable REIT subsidiary bears the expenses 

for the operation of such qualified lodging facility or 

qualified health care property pursuant to the management agreement or other similar service contract. 

(ii) The taxable REIT subsidiary receives the revenues from the operation of such qualified lodging facility or qualified health care property, 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 or qualified health care property. 

* * * * * * * 

(l) TAXABLE REIT SUBSIDIARY.—For purposes of this part—

(1) * * * 

* * * * * * * 

(3) EXCEPTIONS.—The term ‘‘taxable REIT subsidiary’’ shall 

not include—

(A) * * * 

* * * * * * * 

Subparagraph (B) shall not apply to rights provided to an eligible independent contractor to operate or manage a lodging facility or a health care facility if such rights are held by such 

corporation as a franchisee, licensee, or in a similar capacity 

and such lodging facility or health care facility is either owned 

by such corporation or is leased to such corporation from the 

real estate investment trust. 

* * * * * * * 

(n) RULES REGARDING FOREIGN CURRENCY TRANSACTIONS.—With 

respect to any taxable year—

(1) REAL ESTATE FOREIGN EXCHANGE GAINS.—For purposes of 

subsection (c)(3)(J), the term ‘‘real estate foreign exchange 

gains’’ means—

(A) foreign currency gains (as defined in section 

988(b)(1)) which are attributable to—

(i) any item described in subsection (c)(3) (other than 

in subparagraph (J) thereof), 

(ii) the acquisition or ownership of obligations secured by mortgages on real property or on interests in 


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real property (other than foreign currency gains attributable to any item described in clause (i)), or 

(iii) becoming or being the obligor under obligations 

secured by mortgages on real property or on interests 

in real property (other than foreign currency gains attributable to any item described in clause (i)), 

(B) gains described in section 987 attributable to a qualified business unit (as defined by section 989) of the real estate investment trust, but only if such qualified business 

unit meets the requirements under— (i) subsection (c)(3) (without regard to subparagraph 

(J) thereof) for the taxable year, and 

(ii) subsection (c)(4)(A) at the close of each quarter 

that the real estate investment trust has directly or indirectly held the qualified business unit, and 

(C) any other foreign currency gains as determined by the 

Secretary. 

(2) PASSIVE FOREIGN EXCHANGE GAINS.—For purposes of subsection (c)(2)(I), the term ‘‘passive foreign exchange gains’’ means—

(A) real estate foreign exchange gains, 

(B) foreign currency gains (as defined in section 

988(b)(1)) which are not described in subparagraph (A) and 

which are attributable to any item described in subsection 

(c)(2) (other than in subparagraph (I) thereof), and 

(C) any other foreign currency gains as determined by the 

Secretary. 

* * * * * * * 

SEC. 857. TAXATION OF REAL ESTATE INVESTMENT TRUSTS AND 

THEIR BENEFICIARIES. 

(a) * * * 

(b) METHOD OF TAXATION OF REAL ESTATE INVESTMENT TRUSTS

AND HOLDERS OF SHARES OR CERTIFICATES OF BENEFICIAL INTEREST.—

(1) * * * 

* * * * * * * 

(4) INCOME FROM FORECLOSURE PROPERTY.—

(A) * * * 

(B) NET INCOME FROM FORECLOSURE PROPERTY.—For 

purposes of this part, the term ‘‘net income from foreclosure property’’ means the excess of—

ø(i) gain from the sale or other disposition of foreclosure property described in section 1221(a)(1) and 

the gross income for the taxable year derived from 

foreclosure property (as defined in section 856(e)), but 

only to the extent such gross income is not described 

in subparagraph (A), (B), (C), (D), (E), or (G) of section 

856(c)(3), over¿ 

(i) gain (including any foreign currency gain, as defined in section 988(b)(1)) from the sale or other disposition of foreclosure property described in section 

1221(a)(1) and the gross income for the taxable year 

derived from foreclosure property (as defined in section 

856(e)), but only to the extent such gross income is not 


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described in (or, in the case of foreign currency gain, 

not attributable to gross income described in) section 

856(c)(3) other than subparagraph (F) thereof, over 

* * * * * * * 

(6) INCOME FROM PROHIBITED TRANSACTIONS.— (A) IMPOSITION OF TAX.—There is hereby imposed for 

each taxable year of every real estate investment trust a 

tax equal to 100 percent of the net income derived from 

prohibited transactions. 

(B) DEFINITIONS.—For purposes of this part— ø(i) the term ‘‘net income derived from prohibited 

transactions’’ means the excess of the gain from prohibited transactions over the deductions allowed by 

this chapter which are directly connected with prohibited transactions;¿ 

(i) the term ‘‘net income derived from prohibited 

transactions’’ means the excess of the gain (including 

any foreign currency gain, as defined in section 

988(b)(1)) from prohibited transactions over the deductions (including any foreign currency loss, as defined 

in section 988(b)(2)) allowed by this chapter which are 

directly connected with prohibited transactions; 

* * * * * * * 

(C) CERTAIN SALES NOT TO CONSTITUTE PROHIBITED

TRANSACTIONS.—For purposes of this part, the term ‘‘prohibited transaction’’ does not include a sale of property 

which is a øreal estate asset as defined in section 

856(c)(5)(B) if¿ real estate asset (as defined in section 

856(c)(5)(B)) and which is described in section 1221(a)(1) 

if— (i) the trust has held the property for not less than 

ø4 years¿ 2 years; 

(ii) aggregate expenditures made by the trust, or 

any partner of the trust, during the ø4-year period¿ 2- 

year period preceding the date of sale which are includible in the basis of the property do not exceed 30 

percent of the net selling price of the property; 

(iii) (I) during the taxable year the trust does not 

make more than 7 sales of property (other than sales 

of foreclosure property or sales to which section 1033 

applies), or (II) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) 

of property (other than sales of foreclosure property or 

sales to which section 1033 applies) sold during the 

taxable year does not exceed 10 percent of the aggregate bases (as so determined) of all of the assets of the 

trust as of the beginning of the taxable yearø;¿, or 

(III) the fair market value of property (other than sales 

of foreclosure property or sales to which section 1033 

applies) sold during the taxable year does not exceed 10 

percent of the fair market value of all of the assets of 

the trust as of the beginning of the taxable year; 

(iv) in the case of property, which consists of land or 

improvements, not acquired through foreclosure (or 


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deed in lieu of foreclosure), or lease termination, the 

trust has held the property for not less than ø4 years¿ 

2 years for production of rental income; and 

* * * * * * * 

(D) CERTAIN SALES NOT TO CONSTITUTE PROHIBITED

TRANSACTIONS.—For purposes of this part, the term ‘‘prohibited transaction’’ does not include a sale of property 

which is a øreal estate asset (as defined in section 

856(c)(5)(B)) if¿ real estate asset (as defined in section 

856(c)(5)(B)) and which is described in section 1221(a)(1) 

if—

(i) the trust held the property for not less than ø4 

years¿ 2 years in connection with the trade or business of producing timber, 

(ii) the aggregate expenditures made by the trust, or 

a partner of the trust, during the ø4-year period¿ 2- 

year period preceding the date of sale which—

(I) * * * 

* * * * * * * 

(iii) the aggregate expenditures made by the trust, 

or a partner of the trust, during the ø4-year period¿ 

2-year period preceding the date of sale which—

(I) * * * 

* * * * * * * 

(iv)(I) * * * 

(II) the aggregate adjusted bases (as determined for 

purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales 

to which section 1033 applies) sold during the taxable 

year does not exceed 10 percent of the aggregate bases 

(as so determined) of all of the assets of the trust as 

of the beginning of the taxable year, or 

(III) the fair market value of property (other than 

sales of foreclosure property or sales to which section 

1033 applies) sold during the taxable year does not exceed 10 percent of the fair market value of all of the assets of the trust as of the beginning of the taxable year, 

* * * * * * * 

Subchapter N—Tax Based on Income From 

Sources Within or Without the United States 

* * * * * * * 

PART I—SOURCE RULES AND OTHER GENERAL RULES 

RELATING TO FOREIGN INCOME 

* * * * * * * 

SEC. 864. DEFINITIONS AND SPECIAL RULES. 

(a) * * * 

* * * * * * * 


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(f) ELECTION TO ALLOCATE INTEREST, ETC. ON WORLDWIDE

BASIS.—For purposes of this subchapter, at the election of the 

worldwide affiliated group— (1) * * * 

* * * * * * * 

(5) ELECTION TO EXPAND FINANCIAL INSTITUTION GROUP OF

WORLDWIDE GROUP.—

(A) * * * 

* * * * * * * 

(D) ELECTION.—An election under this paragraph with 

respect to any financial institution group may be made 

only by the common parent of the pre-election worldwide 

affiliated group and may be made only for the first taxable 

year beginning after øDecember 31, 2008¿ December 31, 

2009, in which such affiliated group includes 1 or more financial corporations. Such an election, once made, shall 

apply to all financial corporations which are members of 

the electing financial institution group for such taxable 

year and all subsequent years unless revoked with the consent of the Secretary. 

* * * * * * * 

(6) ELECTION.—An election to have this subsection apply 

with respect to any worldwide affiliated group may be made 

only by the common parent of the domestic affiliated group referred to in paragraph (1)(C) and may be made only for the 

first taxable year beginning after øDecember 31, 2008¿ December 31, 2009, in which a worldwide affiliated group exists 

which includes such affiliated group and at least 1 foreign corporation. Such an election, once made, shall apply to such common parent and all other corporations which are members of 

such worldwide affiliated group for such taxable year and all 

subsequent years unless revoked with the consent of the Secretary. 

* * * * * * * 

(7) TRANSITION.—In the case of the first taxable year to which 

this subsection applies, the increase (if any) in the amount of 

the interest expense allocable to sources within the United 

States by reason of the application of this subsection shall be 

78 percent of the amount of such increase determined without 

regard to this paragraph. 

* * * * * * * 

Subchapter O—Gain or Loss on Disposition of 

Property 

* * * * * * * 

PART II—BASIS RULES OF GENERAL APPLICATION 

* * * * * * * 

SEC. 1012. BASIS OF PROPERTY-COST. 

øThe basis of property¿ 


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113 

(a) IN GENERAL.—The basis of property shall be the cost of such 

property, except as otherwise provided in this subchapter and subchapters C (relating to corporate distributions and adjustments), K 

(relating to partners and partnerships), and P (relating to capital 

gains and losses). øThe cost of real property¿ 

(b) SPECIAL RULE FOR APPORTIONED REAL ESTATE TAXES.—The 

cost of real property shall not include any amount in respect of real 

property taxes which are treated under section 164(d) as imposed 

on the taxpayer. 

(c) DETERMINATIONS BY ACCOUNT.— (1) IN GENERAL.—In the case of the sale, exchange, or other 

disposition of a specified security on or after the applicable 

date, the conventions prescribed by regulations under this section shall be applied on an account by account basis. 

(2) APPLICATION TO OPEN-END FUNDS.—

(A) IN GENERAL.—Except as provided in subparagraph 

(B), any stock in an open-end fund acquired before January 

1, 2011, shall be treated as a separate account from any 

such stock acquired on or after such date. 

(B) ELECTION BY OPEN-END FUND FOR TREATMENT AS SIN- GLE ACCOUNT.—If an open-end fund elects to have this subparagraph apply with respect to one or more of its stockholders—

(i) subparagraph (A) shall not apply with respect to 

any stock in such fund held by such stockholders, and 

(ii) all stock in such fund which is held by such 

stockholders shall be treated as covered securities described in section 6045(g)(3) without regard to the date 

of the acquisition of such stock. 

A rule similar to the rule of the preceding sentence shall 

apply with respect to a broker holding stock in an open-end 

fund as a nominee. 

(3) DEFINITIONS.—For purposes of this section— (A) OPEN-END FUND.—The term ‘‘open-end fund’’ means a 

regulated investment company (as defined in section 851) 

which is offering for sale or has outstanding any redeemable security of which it is the issuer. Any stock which is 

traded on an established securities exchange shall not be 

treated as stock in an open-end fund. 

(B) SPECIFIED SECURITY; APPLICABLE DATE.—The terms 

‘‘specified security’’ and ‘‘applicable date’’ shall have the 

meaning given such terms in section 6045(g). 

(d) AVERAGE BASIS FOR STOCK ACQUIRED PURSUANT TO A DIVIDEND REINVESTMENT PLAN.—

(1) IN GENERAL.—In the case of any stock acquired after December 31, 2010, in connection with a dividend reinvestment 

plan, the basis of such stock while held as part of such plan 

shall be determined using one of the methods which may be 

used for determining the basis of stock in an open-end fund. 

(2) TREATMENT AFTER TRANSFER.—In the case of the transfer 

to another account of stock to which paragraph (1) applies, such 

stock shall have a cost basis in such other account equal to its 

basis in the dividend reinvestment plan immediately before 

such transfer (properly adjusted for any fees or other charges 

taken into account in connection with such transfer). 


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114 

(3) SEPARATE ACCOUNTS; ELECTION FOR TREATMENT AS SIN- GLE ACCOUNT.—Rules similar to the rules of subsection (c)(2) 

shall apply for purposes of this subsection. 

(4) DIVIDEND REINVESTMENT PLAN.—For purposes of this subsection—

(A) IN GENERAL.—The term ‘‘dividend reinvestment plan’’ means any arrangement under which dividends on any 

stock are reinvested in stock identical to the stock with respect to which the dividends are paid. 

(B) INITIAL STOCK ACQUISITION TREATED AS ACQUIRED IN

CONNECTION WITH PLAN.—Stock shall be treated as acquired in connection with a dividend reinvestment plan if 

such stock is acquired pursuant to such plan or if the dividends paid on such stock are subject to such plan. 

* * * * * * * 

CHAPTER 3—WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS 

* * * * * * * 

Subchapter A—Nonresident Aliens and Foreign 

Corporations 

* * * * * * * 

SEC. 1445. WITHHOLDING OF TAX ON DISPOSITIONS OF UNITED 

STATES REAL PROPERTY INTERESTS. 

(a) * * * 

(b) EXEMPTIONS.— (1) * * * 

* * * * * * * 

ø(7) SPECIAL RULES FOR PARAGRAPHS (2) AND (3).—Paragraph 

(2) or (3) (as the case may be) shall not apply to any disposition— ø(A) if—

ø(i) the transferee has actual knowledge that the affidavit referred to in such paragraph is false, or 

ø(ii) the transferee receives a notice (as described in 

subsection (d)) from a transferor’s agent or a transferee’s agent that such affidavit is false, or 

ø(B) if the Secretary by regulations requires the transferee to furnish a copy of such affidavit to the Secretary 

and the transferee fails to furnish a copy of such affidavit 

to the Secretary at such time and in such manner as required by such regulations.¿ 

(7) SPECIAL RULES FOR PARAGRAPHS (2), (3), AND (9).—Paragraph (2), (3), or (9) (as the case may be) shall not apply to any 

disposition— (A) if—

(i) the transferee or qualified substitute has actual 

knowledge that the affidavit referred to in such paraVerDate Aug 31 2005 04:25 Apr 26, 2008 Jkt 069006 PO 00000 Frm 00114 Fmt 6659 Sfmt 6603 E:\HR\OC\HR606.XXX HR606

wwoods2 on PRODPC68 with REPORTS
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graph, or the statement referred to in paragraph 

(9)(A)(ii), is false, or 

(ii) the transferee or qualified substitute receives a 

notice (as described in subsection (d)) from a transferor’s agent, transferee’s agent, or qualified substitute 

that such affidavit or statement is false, or 

(B) if the Secretary by regulations requires the transferee 

or qualified substitute to furnish a copy of such affidavit or 

statement to the Secretary and the transferee or qualified 

substitute fails to furnish a copy of such affidavit or statement to the Secretary at such time and in such manner as 

required by such regulations. 

* * * * * * * 

(9) ALTERNATIVE PROCEDURE FOR FURNISHING NONFOREIGN

AFFIDAVIT.—For purposes of paragraphs (2) and (7)—

(A) IN GENERAL.—Paragraph (2) shall be treated as applying to a transaction if, in connection with a disposition 

of a United States real property interest—

(i) the affidavit specified in paragraph (2) is furnished to a qualified substitute, and 

(ii) the qualified substitute furnishes a statement to 

the transferee stating, under penalty of perjury, that 

the qualified substitute has such affidavit in his possession. 

(B) REGULATIONS.—The Secretary shall prescribe such 

regulations as may be necessary or appropriate to carry out 

this paragraph. 

* * * * * * * 

(d) LIABILITY OF TRANSFEROR’S AGENTS øOR TRANSFEREE’S

AGENTS¿, TRANSFEREE’S AGENTS, OR QUALIFIED SUBSTITUTES.—

ø(1) NOTICE OF FALSE AFFIDAVIT; FOREIGN CORPORATIONS.—

If—

ø(A) the transferor furnishes the transferee an affidavit 

described in paragraph (2) of subsection (b) or a domestic 

corporation furnishes the transferee an affidavit described 

in paragraph (3) of subsection (b), and 

ø(B) in the case of—

ø(i) any transferor’s agent—

ø(I) such agent has actual knowledge that such 

affidavit is false, or 

ø(II) in the case of an affidavit described in subsection (b)(2) furnished by a corporation, such corporation is a foreign corporation, or 

ø(ii) any transferee’s agent, such agent has actual 

knowledge that such affidavit is false,such agent shall 

so notify the transferee at such time and in such manner as the Secretary shall require by regulations. 

ø(2) FAILURE TO FURNISH NOTICE.—

ø(A) IN GENERAL.—If any transferor’s agent or transferee’s agent is required by paragraph (1) to furnish notice, 

but fails to furnish such notice at such time or times and 

in such manner as may be required by regulations, such 

agent shall have the same duty to deduct and withhold 


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that the transferee would have had if such agent had complied with paragraph (1). 

ø(B) LIABILITY LIMITED TO AMOUNT OF COMPENSATION.—

An agent’s liability under subparagraph (A) shall be limited to the amount of compensation the agent derives from 

the transaction.¿ 

(1) NOTICE OF FALSE AFFIDAVIT; FOREIGN CORPORATIONS.—

If—

(A) the transferor furnishes the transferee or qualified 

substitute an affidavit described in paragraph (2) of subsection (b) or a domestic corporation furnishes the transferee an affidavit described in paragraph (3) of subsection 

(b), and 

(B) in the case of—

(i) any transferor’s agent—

(I) such agent has actual knowledge that such 

affidavit is false, or 

(II) in the case of an affidavit described in subsection (b)(2) furnished by a corporation, such corporation is a foreign corporation, or 

(ii) any transferee’s agent or qualified substitute, 

such agent or substitute has actual knowledge that 

such affidavit is false, 

such agent or qualified substitute shall so notify the transferee at such time and in such manner as the Secretary 

shall require by regulations. 

(2) FAILURE TO FURNISH NOTICE.—

(A) IN GENERAL.—If any transferor’s agent, transferee’s 

agent, or qualified substitute is required by paragraph (1) 

to furnish notice, but fails to furnish such notice at such 

time or times and in such manner as may be required by 

regulations, such agent or substitute shall have the same 

duty to deduct and withhold that the transferee would have 

had if such agent or substitute had complied with paragraph (1). 

(B) LIABILITY LIMITED TO AMOUNT OF COMPENSATION.—

An agent’s or substitute’s liability under subparagraph (A) 

shall be limited to the amount of compensation the agent 

or substitute derives from the transaction. 

* * * * * * * 

(f) DEFINITIONS.—For purposes of this section—

(1) * * * 

* * * * * * * 

(6) QUALIFIED SUBSTITUTE.—The term ‘‘qualified substitute’’

means, with respect to a disposition of a United States real 

property interest—

(A) the person (including any attorney or title company) 

responsible for closing the transaction, other than the 

transferor’s agent, and 

(B) the transferee’s agent. 

* * * * * * * 


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Subtitle B—Procedure and Administration 

* * * * * * * 

CHAPTER 61—INFORMATION AND RETURNS 

* * * * * * * 

Subchapter A—Returns and Records 

* * * * * * * 

PART III—INFORMATION RETURNS 

* * * * * * * 

Subpart B—Information Concerning Transactions with 

Other Persons 

Sec. 6041. Information at source. 

* * * * * * * 

Sec. 6045A. Information required in connection with transfers of covered securities 

to brokers. 

Sec. 6045B. Returns relating to actions affecting basis of specified securities. 

* * * * * * * 

SEC. 6045. RETURNS OF BROKERS. 

(a) * * * 

(b) STATEMENTS TO BE FURNISHED TO CUSTOMERS.—Every person 

required to make a return under subsection (a) shall furnish to 

each customer whose name is required to be set forth in such return a written statement showing—

(1) the name, address, and phone number of the information 

contact of the person required to make such return, and 

(2) the information required to be shown on such return with 

respect to such customer. 

The written statement required under the preceding sentence 

shall be furnished to the customer on or before øJanuary 31¿ February 15 of the year following the calendar year for which the return under subsection (a) was required to be made. In the case of 

a consolidated reporting statement (as defined in regulations) with 

respect to any account, any statement which would otherwise be required to be furnished on or before January 31 of a calendar year 

with respect to any item reportable to the taxpayer shall instead be 

required to be furnished on or before February 15 of such calendar 

year if furnished with such consolidated reporting statement. 

* * * * * * * 

(d) STATEMENTS REQUIRED IN CASE OF CERTAIN SUBSTITUTE PAYMENTS.—If any broker—

(1) transfers securities of a customer for use in a short sale 

or similar transaction, and 

(2) receives (on behalf of the customer) a payment in lieu 

of—

(A) a dividend, 

(B) tax-exempt interest, or 


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(C) such other items as the Secretary may prescribe by 

regulations, 

during the period such short sale or similar transaction is 

open, the broker shall furnish such customer a written statement (øat such time and¿ in the manner as the Secretary shall 

prescribe by regulations) identifying such payment as being in 

lieu of the dividend, tax-exempt interest, or such other item. 

The written statement required under the preceding sentence 

shall be furnished on or before February 15 of the year following the calendar year in which the payment was made. The 

Secretary may prescribe regulations which require the broker 

to make a return which includes the information contained in 

such written statement. 

* * * * * * * 

(g) ADDITIONAL INFORMATION REQUIRED IN THE CASE OF SECURI- TIES TRANSACTIONS, ETC.— (1) IN GENERAL.—If a broker is otherwise required to make a 

return under subsection (a) with respect to the gross proceeds 

of the sale of a covered security, the broker shall include in such 

return the information described in paragraph (2). 

(2) ADDITIONAL INFORMATION REQUIRED.— (A) IN GENERAL.—The information required under paragraph (1) to be shown on a return with respect to a covered 

security of a customer shall include the customer’s adjusted 

basis in such security and whether any gain or loss with 

respect to such security is long-term or short-term (within 

the meaning of section 1222). 

(B) DETERMINATION OF ADJUSTED BASIS.—For purposes 

of subparagraph (A)— (i) IN GENERAL.—The customer’s adjusted basis shall 

be determined— (I) in the case of any security (other than any 

stock for which an average basis method is permissible under section 1012), in accordance with the 

first-in first-out method unless the customer notifies the broker by means of making an adequate 

identification of the stock sold or transferred, and 

(II) in the case of any stock for which an average 

basis method is permissible under section 1012, in 

accordance with the broker’s default method unless 

the customer notifies the broker that he elects another acceptable method under section 1012 with 

respect to the account in which such stock is held. 

(ii) EXCEPTION FOR WASH SALES.—Except as otherwise provided by the Secretary, the customer’s adjusted 

basis shall be determined without regard to section 

1091 (relating to loss from wash sales of stock or securities) unless the transactions occur in the same account with respect to identical securities. 

(3) COVERED SECURITY.—For purposes of this subsection— (A) IN GENERAL.—The term ‘‘covered security’’ means any 

specified security acquired on or after the applicable date 

if such security— (i) was acquired through a transaction in the account in which such security is held, or 


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(ii) was transferred to such account from an account 

in which such security was a covered security, but only 

if the broker received a statement under section 6045A 

with respect to the transfer. 

(B) SPECIFIED SECURITY.—The term ‘‘specified security’’

means—

(i) any share of stock in a corporation, 

(ii) any note, bond, debenture, or other evidence of indebtedness, 

(iii) any commodity, or contract or derivative with respect to such commodity, if the Secretary determines 

that adjusted basis reporting is appropriate for purposes of this subsection, and 

(iv) any other financial instrument with respect to 

which the Secretary determines that adjusted basis reporting is appropriate for purposes of this subsection. 

(C) APPLICABLE DATE.—The term ‘‘applicable date’’

means—

(i) January 1, 2010, in the case of any specified security which is stock in a corporation (other than any 

stock described in clause (ii)), 

(ii) January 1, 2011, in the case of any stock for 

which an average basis method is permissible under 

section 1012, and 

(iii) January 1, 2012, or such later date determined 

by the Secretary in the case of any other specified security. 

(4) TREATMENT OF S CORPORATIONS.—In the case of the sale 

of a covered security acquired by an S corporation (other than 

a financial institution) after December 31, 2011, such S corporation shall be treated in the same manner as a partnership 

for purposes of this section. 

(5) SPECIAL RULES FOR SHORT SALES.—In the case of a short 

sale, reporting under this section shall be made for the year in 

which such sale is closed. 

(h) APPLICATION TO OPTIONS ON SECURITIES.—

(1) EXERCISE OF OPTION.—For purposes of this section, if a 

covered security is acquired or disposed of pursuant to the exercise of an option that was granted or acquired in the same account as the covered security, the amount received with respect 

to the grant or paid with respect to the acquisition of such option shall be treated as an adjustment to gross proceeds or as 

an adjustment to basis, as the case may be. 

(2) LAPSE OR CLOSING TRANSACTION.—In the case of the lapse 

(or closing transaction (as defined in section 1234(b)(2)(A))) of 

an option on a specified security or the exercise of a cash-settled 

option on a specified security, reporting under subsections (a) 

and (g) with respect to such option shall be made for the calendar year which includes the date of such lapse, closing transaction, or exercise. 

(3) PROSPECTIVE APPLICATION.—Paragraphs (1) and (2) shall 

not apply to any option which is granted or acquired before 

January 1, 2012. 


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(4) DEFINITIONS.—For purposes of this subsection, the terms ‘‘covered security’’ and ‘‘specified security’’ shall have the meanings given such terms in subsection (g)(3). 

SEC. 6045A. INFORMATION REQUIRED IN CONNECTION WITH TRANSFERS OF COVERED SECURITIES TO BROKERS. 

(a) FURNISHING OF INFORMATION.—Every applicable person which 

transfers to a broker (as defined in section 6045(c)(1)) a security 

which is a covered security (as defined in section 6045(g)(3)) in the 

hands of such applicable person shall furnish to such broker a written statement in such manner and setting forth such information as 

the Secretary may by regulations prescribe for purposes of enabling 

such broker to meet the requirements of section 6045(g). 

(b) APPLICABLE PERSON.—For purposes of subsection (a), the term ‘‘applicable person’’ means— (1) any broker (as defined in section 6045(c)(1)), and 

(2) any other person as provided by the Secretary in regulations. 

(c) TIME FOR FURNISHING STATEMENT.—Except as otherwise provided by the Secretary, any statement required by subsection (a) 

shall be furnished not later than 15 days after the date of the transfer described in such subsection. 

SEC. 6045B. RETURNS RELATING TO ACTIONS AFFECTING BASIS OF 

SPECIFIED SECURITIES. 

(a) IN GENERAL.—According to the forms or regulations prescribed by the Secretary, any issuer of a specified security shall 

make a return setting forth— (1) a description of any organizational action which affects 

the basis of such specified security of such issuer, 

(2) the quantitative effect on the basis of such specified security resulting from such action, and 

(3) such other information as the Secretary may prescribe. 

(b) TIME FOR FILING RETURN.—Any return required by subsection 

(a) shall be filed not later than the earlier of— (1) 45 days after the date of the action described in subsection 

(a), or 

(2) January 15 of the year following the calendar year during 

which such action occurred. 

(c) STATEMENTS TO BE FURNISHED TO HOLDERS OF SPECIFIED

SECURITIES OR THEIR NOMINEES.—According to the forms or regulations prescribed by the Secretary, every person required to make 

a return under subsection (a) with respect to a specified security 

shall furnish to the nominee with respect to the specified security (or 

certificate holder if there is no nominee) a written statement showing—

(1) the name, address, and phone number of the information 

contact of the person required to make such return, 

(2) the information required to be shown on such return with 

respect to such security, and 

(3) such other information as the Secretary may prescribe. 

The written statement required under the preceding sentence shall 

be furnished to the holder on or before January 15 of the year following the calendar year during which the action described in subsection (a) occurred. 

(d) SPECIFIED SECURITY.—For purposes of this section, the term 

‘‘specified security’’ has the meaning given such term by section 


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6045(g)(3)(B). No return shall be required under this section with 

respect to actions described in subsection (a) with respect to a specified security which occur before the applicable date (as defined in 

section 6045(g)(3)(C)) with respect to such security. 

(e) PUBLIC REPORTING IN LIEU OF RETURN.—The Secretary may 

waive the requirements under subsections (a) and (c) with respect to 

a specified security, if the person required to make the return under 

subsection (a) makes publicly available, in such form and manner 

as the Secretary determines necessary to carry out the purposes of 

this section— (1) the name, address, phone number, and email address of 

the information contact of such person, and 

(2) the information described in paragraphs (1), (2), and (3) 

of subsection (a). 

* * * * * * * 

Subtitle F—Procedure and Administration 

* * * * * * * 

CHAPTER 63—ASSESSMENT 

* * * * * * * 

Subchapter B—Deficiency Procedures in the Case 

of Income, Estate, Gift, and Certain Excise Taxes 

* * * * * * * 

SEC. 6211. DEFINITION OF A DEFICIENCY. 

(a) * * * 

(b) RULES FOR APPLICATION OF SUBSECTION (a).—For purposes of 

this section.—

(1) * * * 

* * * * * * * 

(4) FOR PURPOSES OF SUBSECTION (a).— (A) any excess of the sum of the credits allowable under 

sections 24(d), 32, ø34, 53(e), and 6428¿ 34, 35, 36, 53(e), 

and 6428 over the tax imposed by subtitle A (determined 

without regard to such credits), and 

* * * * * * * 

CHAPTER 68—ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES 

* * * * * * * 

Subchapter B—Assessable Penalties 

* * * * * * * 


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PART II—FAILURE TO COMPLY WITH CERTAIN 

INFORMATION REPORTING REQUIREMENTS 

* * * * * * * 

SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES. 

(a) * * * 

* * * * * * * 

(d) DEFINITIONS.—For purposes of this part—

(1) INFORMATION RETURN.—

(A) * * * 

(B) any return required by—

(i) * * * 

* * * * * * * 

(iv) section 6045B(a) (relating to returns relating to 

actions affecting basis of specified securities), 

ø(iv)¿ (v) section 6050H(a) or (h)(1) (relating to 

mortgage interest received in trade or business from 

individuals), 

ø(v)¿ (vi) section 6050I(a) or (g)(1) (relating to cash 

received in trade or business, etc.), 

ø(vi)¿ (vii) section 6050J(a) (relating to foreclosures 

and abandonments of security), 

ø(vii)¿ (viii) section 6050K(a) (relating to exchanges 

of certain partnership interests), 

ø(viii)¿ (ix) section 6050L(a) (relating to returns relating to certain dispositions of donated property), 

ø(ix)¿ (x) section 6050P (relating to returns relating 

to the cancellation of indebtedness by certain financial 

entities), 

ø(x)¿ (xi) section 6050Q (relating to certain longterm care benefits), 

ø(xi)¿ (xii) section 6050S (relating to returns relating to payments for qualified tuition and related expenses), 

ø(xii)¿ (xiii) section 6050T (relating to returns relating to credit for health insurance costs of eligible individuals), 

ø(xiii)¿ (xiv) section 6052(a) (relating to reporting 

payment of wages in the form of group-life insurance), 

ø(xiv)¿ (xv) section 6050V (relating to returns relating to applicable insurance contracts in which certain 

exempt organizations hold interests), 

ø(xv)¿ (xvi) section 6053(c)(1) (relating to reporting 

with respect to certain tips), 

ø(xvi)¿ (xvii) subsection (b) or (e) of section 1060 (relating to reporting requirements of transferors and 

transferees in certain asset acquisitions), 

ø(xvii)¿ (xviii) section 4101(d) (relating to information reporting with respect to fuels taxes), 

ø(xviii)¿ (xix) subparagraph (C) of section 338(h)(10) 

(relating to information required to be furnished to the 

Secretary in case of elective recognition of gain or 

loss), 


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ø(xix)¿ (xx) section 264(f)(5)(A)(iv) (relating to reporting with respect to certain life insurance and annuity contracts), or 

ø(xx)¿ (xxi) section 6050U (relating to charges or 

payments for qualified long-term care insurance contracts under combined arrangements), and 

ø(xxi)¿ (xxii) section 6039(a) (relating to returns required with respect to certain options), and 

* * * * * * * 

(2) PAYEE STATEMENT.—The term ‘‘payee statement’’ means 

any statement required to be furnished under— (A) * * * 

* * * * * * * 

(I) section 6045A (relating to information required in connection with transfers of covered securities to brokers), 

(J) subsections (c) and (e) of section 6045B (relating to returns relating to actions affecting basis of specified securities), 

ø(I)¿ (K) section 6049(c) (relating to returns regarding 

payments of interest), 

ø(J)¿ (L) section 6050A(b) (relating to reporting requirements of certain fishing boat operators), 

ø(K)¿ (M) section 6050H(d) or (h)(2) relating to returns 

relating to mortgage interest received in trade or business 

from individuals), 

ø(L)¿ (N) section 6050I(e) or paragraph (4) or (5) of section 6050I(g) (relating to cash received in trade or business, etc.), 

ø(M)¿ (O) section 6050J(e) (relating to returns relating 

to foreclosures and abandonments of security), 

ø(N)¿ (P) section 6050K(b) (relating to returns relating 

to exchanges of certain partnership interests), 

ø(O)¿ (Q) section 6050L(c) (relating to returns relating to 

certain dispositions of donated property), 

ø(P)¿ (R) section 6050N(b) (relating to returns regarding 

payments of royalties), 

ø(Q)¿ (S) section 6050P(d) (relating to returns relating to 

the cancellation of indebtedness by certain financial entities), 

ø(R)¿ (T) section 6050Q (relating to certain long-term 

care benefits), 

ø(S)¿ (U) section 6050R(c) (relating to returns relating to 

certain purchases of fish), 

ø(T)¿ (V) section 6051 (relating to receipts for employees), 

ø(U)¿ (W) section 6052(b) (relating to returns regarding 

payment of wages in the form of group-term life insurance), 

ø(V)¿ (X) section 6053(b) or (c) (relating to reports of 

tips), 

ø(W)¿ (Y) section 6048(b)(1)(B) (relating to foreign trust 

reporting requirements), 

ø(X)¿ (Z) section 408(i) (relating to reports with respect 

to individual retirement plans) to any person other than 


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the Secretary with respect to the amount of payments 

made to such person, 

ø(Y)¿ (AA) section 6047(d) (relating to reports by plan 

administrators) to any person other than the Secretary 

with respect to the amount of payments made to such person, 

ø(Z)¿ (BB) section 6050S(d) (relating to returns relating 

to qualified tuition and related expenses), 

ø(AA)¿ (CC) section 264(f)(5)(A)(iv) (relating to reporting 

with respect to certain life insurance and annuity contracts), 

ø(BB)¿ (DD) section 6050T (relating to returns relating 

to credit for health insurance costs of eligible individuals) 

ø(CC)¿ (EE) section 6050U (relating to charges or payments for qualified long-term care insurance contracts 

under combined arrangements). 

* * * * * * * 

TITLE 31, UNITED STATES CODE 

* * * * * * * 

SUBTITLE II—THE BUDGET PROCESS 

* * * * * * * 

CHAPTER 13—APPROPRIATIONS 

* * * * * * * 

SUBCHAPTER II—TRUST FUNDS AND REFUNDS 

* * * * * * * 

§ 1324. Refund of internal revenue collections 

(a) * * * 

(b) Disbursements may be made from the appropriation made by 

this section only for—

(1) * * * 

(2) refunds due from credit provisions of the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.) enacted before January 

1, 1978, or enacted by the Taxpayer Relief Act of 1997, or from 

section 35, 36, or 6428 or 53(e) of such Code. 

* * * * * * * 

TAX INCREASE PREVENTION AND RECONCILIATION 

ACT OF 2005 

SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES. 

Notwithstanding section 6655 of the Internal Revenue Code of 

1986—


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(1) in the case of a corporation with assets of not less than $1,000,000,000 (determined as of the end of the preceding taxable year)— (A) * * * 

(B) the amount of any required installment of corporate 

estimated tax which is otherwise due in July, August, or 

September of 2012 shall be ø115.75 percent¿ 100 percent 

of such amount, 

* * * * * * * 

Æ 


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