II 

112TH CONGRESS 

1ST SESSION S. 1616 

To amend the Internal Revenue Code of 1986 to exempt certain stock of 

real estate investment trusts from the tax on foreign investments in 

United States real property interests, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 22, 2011 

Mr. MENENDEZ (for himself and Mr. ENZI) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to exempt 

certain stock of real estate investment trusts from the 

tax on foreign investments in United States real property 

interests, and for other purposes. 

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 and Jobs Act of 2011’’. 


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1 SEC. 2. EXCEPTION FROM FIRPTA FOR CERTAIN STOCK OF 

2 REAL ESTATE INVESTMENT TRUSTS. 

3 (a) IN GENERAL.—Paragraph (3) of section 897(c) 

4 of the Internal Revenue Code of 1986 is amended— 

5 (1) by striking all that precedes ‘‘If any class’’ 

6 and inserting the following: 

7 ‘‘(3) EXCEPTIONS FOR CERTAIN STOCK.— 

8 ‘‘(A) EXCEPTION FOR STOCK REGULARLY

9 TRADED ON ESTABLISHED SECURITIES MAR10 KETS.—’’, 

11 (2) by inserting before the period the following: 

12 ‘‘. In the case of any class of stock of a real estate 

13 investment trust, the preceding sentence shall be ap14 plied by substituting ‘10 percent’ for ‘5 percent’ ’’, 

15 and 

16 (3) by adding at the end the following new sub17 paragraph: 

18 ‘‘(B) EXCEPTION FOR CERTAIN STOCK IN

19 REAL ESTATE INVESTMENT TRUSTS.— 

20 ‘‘(i) IN GENERAL.—Stock of a real es21 tate investment trust held by a qualified 

22 shareholder shall not be treated as a 

23 United States real property interest except 

24 to the extent that an investor in the quali25 fied shareholder (other than an investor 

26 that is a qualified shareholder) holds (diVerDate Mar 15 2010 18:50 Sep 26, 2011 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1616.IS S1616

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1 rectly or indirectly through the qualified 

2 shareholder) more than 10 percent of the 

3 stock of such real estate investment trust. 

4 ‘‘(ii) QUALIFIED SHAREHOLDER.— 

5 For purposes of this subparagraph, the 

6 term ‘qualified shareholder’ means an enti7 ty— 

8 ‘‘(I) that is eligible for benefits of 

9 a comprehensive income tax treaty 

10 with the United States which includes 

11 an exchange of information program, 

12 ‘‘(II) that is a qualified collective 

13 investment vehicle, 

14 ‘‘(III) whose principal class of in15 terests is listed and regularly traded 

16 on one or more recognized stock ex17 changes (as defined in such com18 prehensive income tax treaty), and 

19 ‘‘(IV) that maintains records on 

20 the identity of each person who, at 

21 any time during the qualified share22 holder’s taxable year, is the direct 

23 owner of more than 10 percent of the 

24 class of interest described in clause 

25 (III). 


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1 ‘‘(iii) QUALIFIED COLLECTIVE IN2 VESTMENT VEHICLE.—For purposes of 

3 this subparagraph, the term ‘qualified col4 lective investment vehicle’ means an entity 

5 that— 

6 ‘‘(I) would be eligible for a re7 duced rate of withholding under such 

8 comprehensive income tax treaty with 

9 respect to ordinary dividends paid by 

10 a real estate investment trust, even if 

11 such entity holds more than 10 per12 cent of the stock of such real estate 

13 investment trust, 

14 ‘‘(II) would be classified as a 

15 United States real property holding 

16 corporation (determined without re17 gard to this paragraph) at any time 

18 during the 5-year period ending on 

19 the date of disposition of or distribu20 tion with respect to the entity’s inter21 ests in a real estate investment trust, 

22 or 

23 ‘‘(III) is designated as such by 

24 the Secretary and is either— 


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1 ‘‘(aa) fiscally transparent 

2 within the meaning of section 

3 894, or 

4 ‘‘(bb) required to include 

5 dividends in its gross income, but 

6 is entitled to a deduction for dis7 tributions to its investors.’’. 

8 (b) DISTRIBUTIONS BY REAL ESTATE INVESTMENT

9 TRUSTS.—Paragraph (1) of section 897(h) of the Internal 

10 Revenue Code of 1986 is amended— 

11 (1) by striking ‘‘Any distribution’’ and inserting 

12 the following: 

13 ‘‘(A) IN GENERAL.—Except as provided in 

14 subparagraph (B), any distribution’’, 

15 (2) by inserting ‘‘(10 percent in the case of 

16 stock of a real estate investment trust)’’ after ‘‘5 

17 percent of such class of stock’’, 

18 (3) by inserting ‘‘, and any distribution to a 

19 qualified shareholder (as defined in subsection 

20 (c)(3)(B)(ii)) shall not be treated as gain recognized 

21 from the sale or exchange of a United States real 

22 property interest to the extent that the stock of the 

23 real estate investment trust held by such qualified 

24 shareholder is not treated as a United States real 


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1 property interest under subsection (c)(3)(B)’’ before 

2 the period at the end of the second sentence, and 

3 (4) by adding at the end the following new sub4 paragraph: 

5 ‘‘(B) SPECIAL RULE.—Subparagraph (A) 

6 shall not apply to distributions which are treat7 ed as a sale or exchange of stock or property 

8 pursuant to section 301(c)(3), 302, or 331.’’. 

9 (c) DEFINITION.—Paragraph (4) of section 897(h) of 

10 the Internal Revenue Code of 1986 is amended by adding 

11 at the end of subparagraph (B) the following: ‘‘In deter12 mining whether a qualified investment entity is domesti13 cally controlled, any stock in the qualified investment enti14 ty held by another qualified investment entity shall be 

15 treated as held by a foreign person unless such other 

16 qualified investment entity is domestically controlled. In 

17 making such a determination, a qualified investment enti18 ty shall be permitted to presume that stock held by a hold19 er of less than 5 percent of a class of stock regularly trad20 ed on an established securities market in the United 

21 States is held by United States persons throughout the 

22 testing period except to the extent that the qualified in23 vestment entity has actual knowledge regarding stock 

24 ownership.’’. 


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1 (d) CONFORMING AMENDMENT.—Subparagraph (C) 

2 of section 897(c)(6) of the Internal Revenue Code of 1986 

3 is amended— 

4 (1) by striking ‘‘more than 5 percent’’ and in5 serting ‘‘more than 5 or 10 percent, whichever is ap6 plicable,’’, and 

7 (2) by striking ‘‘substituting ‘5 percent’ for ‘50 

8 percent’)’’ and inserting ‘‘substituting ‘5 percent or 

9 10 percent, whichever is applicable’ for ‘50 per10 cent’)’’. 

11 (e) EFFECTIVE DATES.— 

12 (1) IN GENERAL.—The amendments made by 

13 subsection (a) shall apply to dispositions on and 

14 after the date of the enactment of this Act. 

15 (2) DISTRIBUTIONS.—The amendments made 

16 by subsection (b) shall apply to any distribution by 

17 a real estate investment trust on or after the date 

18 of the enactment of this Act which is treated as a 

19 deduction for a taxable year of such trust ending 

20 after such date. 

21 (3) DEFINITIONS.—The amendments made by 

22 subsections (c) and (d) shall take effect on the date 

23 of the enactment of this Act. 


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1 SEC. 3. UNITED STATES REAL PROPERTY INTEREST. 

2 (a) UNITED STATES REAL PROPERTY INTEREST.— 

3 Subparagraph (B) of section 897(c)(1) of the Internal 

4 Revenue Code of 1986 is amended by striking all that pre5 cedes ‘‘(i) as of the date of the disposition’’ and inserting 

6 the following: 

7 ‘‘(B) EXCLUSION FOR INTEREST IN CER8 TAIN CORPORATIONS.—The term ‘United States 

9 real property interest’ does not include any in10 terest in a corporation (other than a qualified 

11 investment entity (as defined in subsection 

12 (h)(4)(A)(i)) if—’’. 

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

14 this section shall take effect on the date of the enactment 

15 of this Act. 

Æ 


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