I 

108TH CONGRESS 

1ST SESSION H. R. 1890

To amend the Internal Revenue Code of 1986 to simplify certain provisions 

applicable to real estate investment trusts. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 30, 2003

Mr. MCCRERY (for himself, Mr. CARDIN, Mr. SHAW, Mr. RANGEL, Mr. 

HOUGHTON, Mr. STARK, Mr. HERGER, Mr. MATSUI, Mr. CAMP, Mr. 

KLECZKA, Mr. RAMSTAD, Mr. LEWIS of Georgia, Mr. SAM JOHNSON of 

Texas, Mr. NEAL of Massachusetts, Ms. DUNN, Mr. BECERRA, Mr. 

PORTMAN, Mr. POMEROY, Mr. ENGLISH, Mr. SANDLIN, Mr. HAYWORTH, 

Mrs. JONES of Ohio, Mr. WELLER, Mr. MCINNIS, Mr. FOLEY, Mr. CANTOR, and Mr. LEVIN) introduced the following bill; which was referred 

to the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to simplify 

certain provisions applicable to real estate investment trusts.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Real Estate Invest5 ment Trust Improvement Act of 2003’’. 
2

•HR 1890 IH 

1 SEC. 2. AMENDMENT OF 1986 CODE. 

2 Except as otherwise expressly provided, whenever in 

3 the Act an amendment or repeal is expressed in terms of 

4 an amendment to, or repeal of, a section or other provi5 sion, the reference shall be considered to be made to a 

6 section or other provision of the Internal Revenue Code 

7 of 1986. 

8 TITLE I—REIT CORRECTIONS 

9 SEC. 101. REVISIONS TO REIT ASSET TEST. 

10 (a) EXPANSION OF STRAIGHT DEBT SAFE HAR11 BOR.—Section 856 (defining real estate investment trust) 

12 is amended—

13 (1) in subsection (c) by striking paragraph (7), 

14 and 

15 (2) by adding at the end the following new sub16 section: 

17 ‘‘(m) SAFE HARBOR IN APPLYING SUBSECTION

18 (c)(4).—

19 ‘‘(1) IN GENERAL.—In applying subclause (III) 

20 of subsection (c)(4)(B)(iii), except as otherwise de21 termined by the Secretary in regulations, the fol22 lowing shall not be considered securities held by the 

23 trust: 

24 ‘‘(A) Straight debt securities of an issuer 

25 which meet the requirements of paragraph (2). 
3

•HR 1890 IH 

1 ‘‘(B) Any loan to an individual or an es2 tate. 

3 ‘‘(C) Any section 467 rental agreement (as 

4 defined in section 467(d)), other than with a 

5 person described in subsection (d)(2)(B). 

6 ‘‘(D) Any obligation to pay rents from real 

7 property (as defined in subsection (d)(1)). 

8 ‘‘(E) Any security issued by a State or any 

9 political subdivision thereof, the District of Co10 lumbia, a foreign government or any political 

11 subdivision thereof, or the Commonwealth of 

12 Puerto Rico, but only if the determination of 

13 any payment received or accrued under such se14 curity does not depend in whole or in part on 

15 the profits of any entity not described in this 

16 subparagraph or payments on any obligation 

17 issued by such an entity, 

18 ‘‘(F) Any security issued by a real estate 

19 investment trust. 

20 ‘‘(G) Any other arrangement as deter21 mined by the Secretary. 

22 ‘‘(2) SPECIAL RULES RELATING TO STRAIGHT

23 DEBT SECURITIES.—

24 ‘‘(A) IN GENERAL.—For purposes of para25 graph (1)(A), securities meet the requirements 
4

•HR 1890 IH 

1 of this paragraph if such securities are straight 

2 debt, as defined in section 1361(c)(5) (without 

3 regard to subparagraph (B)(iii) thereof). 

4 ‘‘(B) SPECIAL RULES RELATING TO CER5 TAIN CONTINGENCIES.—For purposes of sub6 paragraph (A), any interest or principal shall 

7 not be treated as failing to satisfy section 

8 1361(c)(5)(B)(i) solely by reason of the fact 

9 that the time of payment of such interest or 

10 principal is subject to a contingency, but only 

11 if—

12 ‘‘(i) any such contingency does not 

13 have the effect of changing the effective 

14 yield to maturity, as determined under sec15 tion 1272, other than a change in the an16 nual yield to maturity which either—

17 ‘‘(I) does not exceed the greater 

of 1 18 ⁄4 of 1 percent or 5 percent of the 

19 annual yield to maturity, or 

20 ‘‘(II) results solely from a default 

21 or the exercise of a prepayment right 

22 by the issuer of the debt, or 

23 ‘‘(ii) neither the aggregate issue price 

24 nor the aggregate face amount of the 

25 issuer’s debt instruments held by the trust
5

•HR 1890 IH 

1 exceeds $1,000,000 and not more than 12 

2 months of unaccrued interest can be re3 quired to be prepaid thereunder. 

4 ‘‘(C) SPECIAL RULES RELATING TO COR5 PORATE OR PARTNERSHIP ISSUERS.—In the 

6 case of an issuer which is a corporation or a 

7 partnership, securities that otherwise would be 

8 described in paragraph (1)(A) shall be consid9 ered not to be so described if the trust holding 

10 such securities and any of its controlled taxable 

11 REIT subsidiaries (as defined in subsection 

12 (d)(8)(A)(iv)) hold any securities of the issuer 

13 which—

14 ‘‘(i) are not described in paragraph 

15 (1) (prior to the application of paragraph 

16 (1)(C)), and 

17 ‘‘(ii) have an aggregate value greater 

18 than 1 percent of the issuer’s outstanding 

19 securities. 

20 ‘‘(3) LOOK-THROUGH RULE FOR PARTNERSHIP

21 SECURITIES.—

22 ‘‘(A) IN GENERAL.—For purposes of ap23 plying subclause (III) of subsection 

24 (c)(4)(B)(iii)—
6

•HR 1890 IH 

1 ‘‘(i) a trust’s interest as a partner in 

2 a partnership (as defined in section 

3 7701(a)(2)) shall not be considered a secu4 rity, and 

5 ‘‘(ii) the trust shall be deemed to own 

6 its proportionate share of each of the as7 sets of the partnership. 

8 ‘‘(B) DETERMINATION OF TRUST’S INTER9 EST IN PARTNERSHIP ASSETS.—For purposes 

10 of subparagraph (A), with respect to any tax11 able year beginning after the date of the enact12 ment of this subparagraph—

13 ‘‘(i) the trust’s interest in the partner14 ship assets shall be the trust’s propor15 tionate interest in any securities issued by 

16 the partnership (determined without re17 gard to subparagraph (A)(i) and para18 graph (4), but not including securities de19 scribed in paragraph (1)), and 

20 ‘‘(ii) the value of any debt instrument 

21 shall be the adjusted issue price thereof, as 

22 defined in section 1272(a)(4). 

23 ‘‘(4) CERTAIN PARTNERSHIP DEBT INSTRU24 MENTS NOT TREATED AS A SECURITY.—For pur-
7

•HR 1890 IH 

1 poses of applying subclause (III) of subsection 

2 (c)(4)(B)(iii)—

3 ‘‘(A) any debt instrument issued by a part4 nership and not described in paragraph (1) 

5 shall not be considered a security to the extent 

6 of the trust’s interest as a partner in the part7 nership, and 

8 ‘‘(B) any debt instrument issued by a part9 nership and not described in paragraph (1) 

10 shall not be considered a security if at least 75 

11 percent of the partnership’s gross income (ex12 cluding gross income from prohibited trans13 actions) is derived from sources referred to in 

14 subsection (c)(3). 

15 ‘‘(5) SECRETARIAL GUIDANCE.—The Secretary 

16 is authorized to provide guidance (including through 

17 the issuance of a written determination, as defined 

18 in section 6110(b)) that an arrangement shall not be 

19 considered a security held by the trust for purposes 

20 of applying subclause (III) of subsection 

21 (c)(4)(B)(iii) notwithstanding that such arrangement 

22 otherwise could be considered a security under sub23 paragraph (F) of subsection (c)(5).’’. 
8

•HR 1890 IH 

1 SEC. 102. CLARIFICATION OF APPLICATION OF LIMITED 

2 RENTAL EXCEPTION. 

3 Subparagraph (A) of section 856(d)(8) (relating to 

4 special rules for taxable REIT subsidiaries) is amended 

5 to read as follows: 

6 ‘‘(A) LIMITED RENTAL EXCEPTION.—

7 ‘‘(i) IN GENERAL.—The requirements 

8 of this subparagraph are met with respect 

9 to any property if at least 90 percent of 

10 the leased space of the property is rented 

11 to persons other than taxable REIT sub12 sidiaries of such trust and other than per13 sons described in paragraph (2)(B). 

14 ‘‘(ii) RENTS MUST BE SUBSTANTIALLY

15 COMPARABLE.—Clause (i) shall apply only 

16 to the extent that the amounts paid to the 

17 trust as rents from real property (as de18 fined in paragraph (1) without regard to 

19 paragraph (2)(B)) from such property are 

20 substantially comparable to such rents paid 

21 by the other tenants of the trust’s property 

22 for comparable space. 

23 ‘‘(iii) TIMES FOR TESTING RENT COM24 PARABILITY.—The substantial com25 parability requirement of clause (ii) shall 

26 be treated as met with respect to a lease
9

•HR 1890 IH 

1 to a taxable REIT subsidiary of the trust 

2 if such requirement is met under the terms 

3 of the lease—

4 ‘‘(I) at the time such lease is en5 tered into, 

6 ‘‘(II) at the time of each exten7 sion of the lease, including a failure to 

8 exercise a right to terminate, and 

9 ‘‘(III) at the time of any modi10 fication of the lease between the trust 

11 and the taxable REIT subsidiary if 

12 the rent under such lease is effectively 

13 increased pursuant to such modifica14 tion. 

15 With respect to subclause (III), if the tax16 able REIT subsidiary of the trust is a con17 trolled taxable REIT subsidiary of the 

18 trust, the term ‘rents from real property’ 

19 shall not in any event include rent under 

20 such lease to the extent of the increase in 

21 such rent on account of such modification. 

22 ‘‘(iv) CONTROLLED TAXABLE REIT

23 SUBSIDIARY.—For purposes of clause (iii), 

24 the term ‘controlled taxable REIT sub25 sidiary’ means, with respect to any real es-
10

•HR 1890 IH 

1 tate investment trust, any taxable REIT 

2 subsidiary of such trust if such trust owns 

3 directly or indirectly—

4 ‘‘(I) stock possessing more than 

5 50 percent of the total voting power 

6 of the outstanding stock of such sub7 sidiary, or 

8 ‘‘(II) stock having a value of 

9 more than 50 percent of the total 

10 value of the outstanding stock of such 

11 subsidiary. 

12 ‘‘(v) CONTINUING QUALIFICATION

13 BASED ON THIRD PARTY ACTIONS.—If the 

14 requirements of clause (i) are met at a 

15 time referred to in clause (iii), such re16 quirements shall continue to be treated as 

17 met so long as there is no increase in the 

18 space leased to any taxable REIT sub19 sidiary of such trust or to any person de20 scribed in paragraph (2)(B). 

21 ‘‘(vi) CORRECTION PERIOD.—If there 

22 is an increase referred to in clause (v) dur23 ing any calendar quarter with respect to 

24 any property, the requirements of clause 

25 (iii) shall be treated as met during the 
11

•HR 1890 IH 

1 quarter and the succeeding quarter if such 

2 requirements are met at the close of such 

3 succeeding quarter.’’. 

4 SEC. 103. DELETION OF CUSTOMARY SERVICES EXCEPTION. 

5 Subparagraph (B) of section 857(b)(7) (relating to 

6 redetermined rents) is amended by striking clause (ii) and 

7 by redesignating clauses (iii), (iv), (v), (vi), and (vii) as 

8 clauses (ii), (iii), (iv), (v), and (vi), respectively. 

9 SEC. 104. CONFORMITY WITH GENERAL HEDGING DEFINI10 TION. 

11 (a) DEFINITION.—Subparagraph (G) of section 

12 856(c)(5) (relating to treatment of certain hedging instru13 ments) is amended to read as follows: 

14 ‘‘(G) TREATMENT OF CERTAIN HEDGING

15 INSTRUMENTS.—Except to the extent provided 

16 by regulations, any income of a real estate in17 vestment trust from a hedging transaction (as 

18 defined in clause (ii) or (iii) of section 

19 1221(b)(2)(A)) which is clearly identified pur20 suant to section 1221(a)(7), including gain 

21 from the sale or disposition of such a trans22 action, shall not constitute gross income under 

23 paragraph (2) to the extent that the transaction 

24 hedges any indebtedness incurred or to be in-
12

•HR 1890 IH 

1 curred by the trust to acquire or carry real es2 tate assets.’’. 

3 SEC. 105. CONFORMITY WITH REGULATED INVESTMENT 

4 COMPANY RULES. 

5 Clause (i) of section 857(b)(5)(A) (relating to imposi6 tion of tax in case of failure to meet certain requirements) 

7 is amended by striking ‘‘90 percent’’ and inserting ‘‘95 

8 percent’’. 

9 SEC. 106. PROHIBITED TRANSACTIONS PROVISIONS. 

10 (a) EXPANSION OF PROHIBITED TRANSACTION SAFE

11 HARBOR.—Section 857(b)(6) (relating to income from 

12 prohibited transactions) is amended by redesignating sub13 paragraphs (D) and (E) as subparagraphs (E) and (F), 

14 respectively, and by inserting after subparagraph (C) the 

15 following new subparagraph: 

16 ‘‘(D) CERTAIN SALES NOT TO CONSTITUTE

17 PROHIBITED TRANSACTIONS.—For purposes of 

18 this part, the term ‘prohibited transaction’ does 

19 not include a sale of property which is a real es20 tate asset (as defined in section 856(c)(5)(B)) 

21 if—

22 ‘‘(i) the trust held the property for 

23 not less than 4 years in connection with 

24 the trade or business of producing timber, 
13

•HR 1890 IH 

1 ‘‘(ii) the aggregate expenditures made 

2 by the trust, or a partner of the trust, dur3 ing the 4-year period preceding the date of 

4 sale which—

5 ‘‘(I) are includible in the basis of 

6 the property (other than timberland 

7 acquisition expenditures), and 

8 ‘‘(II) are directly related to oper9 ation of the property for the produc10 tion of timber or for the preservation 

11 of the property for use as timberland, 

12 do not exceed 30 percent of the net selling 

13 price of the property, 

14 ‘‘(iii) the aggregate expenditures made 

15 by the trust, or a partner of the trust, dur16 ing the 4-year period preceding the date of 

17 sale which—

18 ‘‘(I) are includible in the basis of 

19 the property (other than timberland 

20 acquisition expenditures), and 

21 ‘‘(II) are not directly related to 

22 operation of the property for the pro23 duction of timber, or for the preserva24 tion of the property for use as 
14

•HR 1890 IH 

1 timberland, do not exceed 5 percent of 

2 the net selling price of the property, 

3 ‘‘(iv)(I) during the taxable year the 

4 trust does not make more than 7 sales of 

5 property (other than sales of foreclosure 

6 property or sales to which section 1033 ap7 plies), or 

8 ‘‘(II) the aggregate adjusted bases (as 

9 determined for purposes of computing 

10 earnings and profits) of property (other 

11 than sales of foreclosure property or sales 

12 to which section 1033 applies) sold during 

13 the taxable year does not exceed 10 per14 cent of the aggregate bases (as so deter15 mined) of all of the assets of the trust as 

16 of the beginning of the taxable year, 

17 ‘‘(v) in the case that the requirement 

18 of clause (iv)(I) is not satisfied, substan19 tially all of the marketing expenditures 

20 with respect to the property were made 

21 through an independent contractor (as de22 fined in section 856(d)(3)) from whom the 

23 trust itself does not derive or receive any 

24 income, and 
15

•HR 1890 IH 

1 ‘‘(vi) the sales price of the property 

2 sold by the trust to its taxable REIT sub3 sidiary is not based in whole or in part on 

4 the income or profits of the subsidiary or 

5 the income or profits that the subsidiary 

6 derives from the sale or operation of such 

7 property.’’. 

8 SEC. 107. EFFECTIVE DATES. 

9 (a) IN GENERAL.—Except as provided in subsection 

10 (b), the amendments made by this title shall apply to tax11 able years beginning after December 31, 2000. 

12 (b) SECTIONS 103 THROUGH 106.—The amend13 ments made by sections 103, 104, 105 and 106 shall apply 

14 to taxable years beginning after the date of the enactment 

15 of this Act. 

16 TITLE II—FIRPTA CORRECTION 

17 SEC. 201. MODIFICATION OF THE TREATMENT OF CERTAIN 

18 REIT DISTRIBUTIONS ATTRIBUTABLE TO 

19 GAIN FROM SALES OR EXCHANGES OF 

20 UNITED STATES REAL PROPERTY INTERESTS. 

21 (a) IN GENERAL.—Paragraph (1) of section 897(h) 

22 (relating to look-through of distributions) is amended by 

23 inserting before the period at the end the following: ‘‘, ex24 cept that any distribution by a REIT with respect to any 

25 class of stock which is regularly traded on an established 
16

•HR 1890 IH 

1 securities market located in the Unites States shall not 

2 be treated as gain recognized from the sale or exchange 

3 of a United States real property interest if the shareholder 

4 did not own more than 5 percent of such class of stock 

5 during the taxable year.’’. 

6 (b) EFFECTIVE DATE.—The amendment made by 

7 this section shall apply to taxable years beginning after 

8 the date of the enactment of this Act. 

9 TITLE III—REIT SAVINGS 

10 PROVISIONS 

11 SEC. 301. REVISIONS TO REIT PROVISIONS. 

12 (a) RULES OF APPLICATION FOR FAILURE TO SAT13 ISFY SECTION 856(c)(4).—Section 856(c) (relating to def14 inition of real estate investment trust), as amended by sec15 tion 101, is amended by inserting after paragraph (6) the 

16 following new paragraph: 

17 ‘‘(7) RULES OF APPLICATION FOR FAILURE TO

18 SATISFY PARAGRAPH (4).—

19 ‘‘(A) DE MINIMIS FAILURE.—A corpora20 tion, trust, or association that fails to meet the 

21 requirements of paragraph (4)(B)(iii) for a par22 ticular quarter shall nevertheless be considered 

23 to have satisfied the requirements of such para24 graph for such quarter if—
17

•HR 1890 IH 

1 ‘‘(i) such failure is due to the owner2 ship of assets the total value of which does 

3 not exceed the lesser of—

4 ‘‘(I) 1 percent of the total value 

5 of the trust’s assets at the end of the 

6 quarter for which such measurement 

7 is done, and 

8 ‘‘(II) $10,000,000, and 

9 ‘‘(ii)(I) the corporation, trust, or asso10 ciation, following the identification of such 

11 failure, disposes of assets in order to meet 

12 the requirements of such paragraph within 

13 6 months after the last day of the quarter 

14 in which the corporation, trust or associa15 tion’s identification of the failure to satisfy 

16 the requirements of such paragraph oc17 curred or such other time period prescribed 

18 by the Secretary and in the manner pre19 scribed by the Secretary, or 

20 ‘‘(II) the requirements of such para21 graph are otherwise met within the time 

22 period specified in subclause (I). 

23 ‘‘(B) FAILURES EXCEEDING DE MINIMIS

24 AMOUNT.—A corporation, trust, or association 

25 that fails to meet the requirements of para-
18

•HR 1890 IH 

1 graph (4) for a particular quarter shall never2 theless be considered to have satisfied the re3 quirements of such paragraph for such quarter 

4 if—

5 ‘‘(i) such failure involves the owner6 ship of assets the total value of which ex7 ceeds the de minimis standard described in 

8 subparagraph (A)(i) at the end of the 

9 quarter for which such measurement is 

10 done, 

11 ‘‘(ii) following the corporation, trust, 

12 or association’s identification of the failure 

13 to satisfy the requirements of such para14 graph for a particular quarter, a descrip15 tion of each asset that causes the corpora16 tion, trust, or association to fail to satisfy 

17 the requirements of such paragraph at the 

18 close of such quarter of any taxable year is 

19 set forth in a schedule for such quarter 

20 filed in accordance with regulations pre21 scribed by the Secretary, 

22 ‘‘(iii) the failure to meet the require23 ments of such paragraph for a particular 

24 quarter is due to reasonable cause and not 

25 due to willful neglect,
19

•HR 1890 IH 

1 ‘‘(iv) the corporation, trust, or asso2 ciation pays a tax computed under sub3 paragraph (C), and 

4 ‘‘(v)(I) the corporation, trust, or asso5 ciation disposes of the assets set forth on 

6 the schedule specified in clause (ii) within 

7 6 months after the last day of the quarter 

8 in which the corporation, trust or associa9 tion’s identification of the failure to satisfy 

10 the requirements of such paragraph oc11 curred or such other time period prescribed 

12 by the Secretary and in the manner pre13 scribed by the Secretary, or 

14 ‘‘(II) the requirements of such para15 graph are otherwise met within the time 

16 period specified in subclause (I). 

17 ‘‘(C) TAX.—For purposes of subparagraph 

18 (B)(iv)—

19 ‘‘(i) TAX IMPOSED.—If a corporation, 

20 trust, or association elects the application 

21 of this subparagraph, there is hereby im22 posed a tax on the failure described in sub23 paragraph (B) of such corporation, trust, 

24 or association. Such tax shall be paid by 

25 the corporation, trust, or association. 
20

•HR 1890 IH 

1 ‘‘(ii) TAX COMPUTED.—The amount 

2 of the tax imposed by clause (i) shall be 

3 the greater of—

4 ‘‘(I) $50,000, or 

5 ‘‘(II) the amount determined 

6 (pursuant to regulations promulgated 

7 by the Secretary) by multiplying the 

8 net income generated by the assets 

9 described in the schedule specified in 

10 subparagraph (B)(ii) for the period 

11 specified in clause (iii) by the highest 

12 rate of tax specified in section 11. 

13 ‘‘(iii) PERIOD.—For purposes of 

14 clause (ii)(II), the period described in this 

15 clause is the period beginning on the first 

16 date that the failure to satisfy the require17 ments of such paragraph (4) occurs as a 

18 result of the ownership of such assets and 

19 ending on the earlier of the date on which 

20 the trust disposes of such assets or the end 

21 of the first quarter when there is no longer 

22 a failure to satisfy such paragraph (4). 

23 ‘‘(iv) ADMINISTRATIVE PROVISIONS.—

24 For purposes of subtitle F, the taxes im25 posed by this subparagraph shall be treat-
21

•HR 1890 IH 

1 ed as excise taxes with respect to which the 

2 deficiency procedures of such subtitle 

3 apply.’’. 

4 (b) MODIFICATION OF RULES OF APPLICATION FOR

5 FAILURE TO SATISFY SECTIONS 856(c)(2) OR

6 856(c)(3).—Paragraph (6) of section 856(c) (relating to 

7 definition of real estate investment trust) is amended by 

8 striking subparagraphs (A) and (B), by redesignating sub9 paragraph (C) as subparagraph (B), and by inserting be10 fore subparagraph (B) (as so redesignated) the following 

11 new subparagraph: 

12 ‘‘(A) following the corporation, trust, or 

13 association’s identification of the failure to meet 

14 the requirements of paragraph (2) or (3), or of 

15 both such paragraphs, for any taxable year, a 

16 description of each item of its gross income de17 scribed in such paragraphs is set forth in a 

18 schedule for such taxable year filed in accord19 ance with regulations prescribed by the Sec20 retary, and’’. 

21 (c) REASONABLE CAUSE EXCEPTION TO LOSS OF

22 REIT STATUS IF FAILURE TO SATISFY REQUIRE23 MENTS.—Subsection (g) of section 856 (relating to termi24 nation of election) is amended—
22

•HR 1890 IH 

1 (1) in paragraph (1) by inserting before the pe2 riod at the end of the first sentence the following: 

3 ‘‘unless paragraph (5) applies’’, and 

4 (2) by adding at the end the following new 

5 paragraph: 

6 ‘‘(5) ENTITIES TO WHICH PARAGRAPH AP7 PLIES.—This paragraph applies to a corporation, 

8 trust, or association—

9 ‘‘(A) which is not a real estate investment 

10 trust to which the provisions of this part apply 

11 for the taxable year due to one or more failures 

12 to comply with one or more of the provisions of 

13 this part (other than subsection (c)(6) or (c)(7) 

14 of section 856), 

15 ‘‘(B) such failures are due to reasonable 

16 cause and not due to willful neglect, and 

17 ‘‘(C) if such corporation, trust, or associa18 tion pays (as prescribed by the Secretary in 

19 regulations and in the same manner as tax) a 

20 penalty of $50,000 for each failure to satisfy a 

21 provision of this part due to reasonable cause 

22 and not willful neglect.’’. 

23 (d) DEDUCTION OF TAX PAID FROM AMOUNT RE24 QUIRED TO BE DISTRIBUTED.—Subparagraph (E) of sec25 tion 857(b)(2) is amended by striking ‘‘(7)’’ and inserting 
23

•HR 1890 IH 

1 ‘‘(7) of this subsection, section 856(c)(7)(B)(iii), and sec2 tion 856(g)(1).’’. 

3 (e) EXPANSION OF DEFICIENCY DIVIDEND PROCE4 DURE.—Subsection (e) of section 860 is amended by strik5 ing ‘‘or’’ at the end of paragraph (2), by striking the pe6 riod at the end of paragraph (3) and inserting ‘‘; or’’, and 

7 by adding at the end the following new paragraph: 

8 ‘‘(4) a statement by the taxpayer attached to its 

9 amendment or supplement to a return of tax for the 

10 relevant tax year.’’. 

11 (f) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years beginning after 

13 date of enactment.

Æ