I

106TH CONGRESS

1ST SESSION H. R. 1616

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

applicable to real estate investment trusts.

IN THE HOUSE OF REPRESENTATIVES

APRIL 28 1999

Mr. THOMAS (for himself, Mr. CARDIN, Mr. BACHUS, Mr. FOLEY, Mr.

ENGLISH, Mr. MCCRERY, Mr. SAM JOHNSON of Texas, Mr. DAVIS of Virginia, Mr. FORD, Mrs. THURMAN, Mr. MORAN of Virginia, Mr. WELLER,

Mr. FROST, Mr. CRANE, Mr. HULSHOF, Mr. RAMSTAD, Ms. DUNN, Mr.

NEAL of Massachusetts, Mr. HERGER, Mr. STARK, Mr. REYES, Mr.

HAYWORTH, Mr. LEVIN, Mr. TANNER, Mr. CAMP, Mrs. JOHNSON of Connecticut, Mr. MCDERMOTT, Mr. BECERRA, Mr. MCNULTY, Mr.

PORTMAN, Mr. SHAW, and Mr. HOUGHTON) 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 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Real Estate Investment Trust Modernization Act of

6 1999’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment

4 to, or repeal of, a section or other provision, the reference

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986.

7 TITLE I—TREATMENT OF IN8 COME AND SERVICES PRO9 VIDED BY TAXABLE REIT SUB10 SIDIARIES

11 SEC. 101. MODIFICATIONS TO ASSET DIVERSIFICATION

12 TEST.

13 Subparagraph (B) of section 856(c)(4) is amended

14 to read as follows:

15 ‘‘(B)(i) not more than 25 percent of the

16 value of its total assets is represented by securi17 ties (other than those includible under subpara18 graph (A)), and

19 ‘‘(ii) except with respect to a taxable REIT

20 subsidiary and securities includible under sub21 paragraph (A)—

22 ‘‘(I) not more than 5 percent of the

23 value of its total assets is represented by

24 securities of any 1 issuer,
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1 ‘‘(II) the trust does not hold securities

2 possessing more than 10 percent of the

3 total voting power of the outstanding secu4 rities of any 1 issuer, and

5 ‘‘(III) the trust does not hold securi6 ties having a value of more than 10 per7 cent of the total value of the outstanding

8 securities of any 1 issuer.’’

9 SEC. 102. TREATMENT OF INCOME AND SERVICES PRO10 VIDED BY TAXABLE REIT SUBSIDIARIES.

11 (a) INCOME FROM TAXABLE REIT SUBSIDIARIES

12 NOT TREATED AS IMPERMISSIBLE TENANT SERVICE IN13 COME.—Clause (i) of section 856(d)(7)(C) (relating to ex14 ceptions to impermissible tenant service income) is amend15 ed by inserting ‘‘or through a taxable REIT subsidiary

16 of such trust’’ after ‘‘income’’.

17 (b) CERTAIN INCOME FROM TAXABLE REIT SUB18 SIDIARIES NOT EXCLUDED FROM RENTS FROM REAL

19 PROPERTY.—

20 (1) IN GENERAL.—Subsection (d) of section

21 856 (relating to rents from real property defined) is

22 amended by adding at the end the following new

23 paragraphs:

24 ‘‘(8) SPECIAL RULE FOR TAXABLE REIT SUB25 SIDIARIES.—For purposes of this subsection,
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1 amounts paid to a real estate investment trust by a

2 taxable REIT subsidiary of such trust shall not be

3 excluded from rents from real property by reason of

4 paragraph (2)(B) if the requirements of subpara5 graph (A) or (B) are met.

6 ‘‘(A) LIMITED RENTAL EXCEPTION.—The

7 requirements of this subparagraph are met with

8 respect to any property if at least 90 percent of

9 the leased space of the property is rented to

10 persons other than taxable REIT subsidiaries of

11 such trust and other than persons described in

12 section 856(d)(2)(B). The preceding sentence

13 shall apply only to the extent that the amounts

14 paid to the trust as rents from real property (as

15 defined in paragraph (1) without regard to

16 paragraph (2)(B)) from such property are sub17 stantially comparable to such rents made by the

18 other tenants of the trust’s property for com19 parable space.

20 ‘‘(B) EXCEPTION FOR CERTAIN LODGING

21 FACILITIES.—The requirements of this subpara22 graph are met with respect to an interest in

23 real property which is a qualified lodging facil24 ity leased by the trust to a taxable REIT sub25 sidiary of the trust if the property is operated
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1 on behalf of such subsidiary by a person who is

2 an eligible independent contractor.

3 ‘‘(9) ELIGIBLE INDEPENDENT CONTRACTOR.—

4 For purposes of paragraph (8)(B)—

5 ‘‘(A) IN GENERAL.—The term ‘eligible

6 independent contractor’ means, with respect to

7 any qualified lodging facility, any independent

8 contractor if, at the time such contractor enters

9 into a management agreement or other similar

10 service contract with the taxable REIT sub11 sidiary to operate the facility, such contractor

12 (or any related person) is actively engaged in

13 the trade or business of operating qualified

14 lodging facilities for any person who is not a re15 lated person with respect to the real estate in16 vestment trust or the taxable REIT subsidiary.

17 ‘‘(B) SPECIAL RULES.—Solely for purposes

18 of this paragraph and paragraph (8)(B), a per19 son shall not fail to be treated as an inde20 pendent contractor with respect to any qualified

21 lodging facility by reason of any of the fol22 lowing:

23 ‘‘(i) The taxable REIT subsidiary

24 bears the expenses for the operation of the
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1 facility pursuant to the management agree2 ment or other similar service contract.

3 ‘‘(ii) The taxable REIT subsidiary re4 ceives the revenues from the operation of

5 such facility, net of expenses for such oper6 ation and fees payable to the operator pur7 suant to such agreement or contract.

8 ‘‘(iii) The real estate investment trust

9 receives income from such person with re10 spect to another property that is attrib11 utable to a lease of such other property to

12 such person that was in effect as on the

13 later of—

14 ‘‘(I) January 1, 1999, or

15 ‘‘(II) the earliest date that any

16 taxable REIT subsidiary of such trust

17 entered into a management agreement

18 or other similar service contract with

19 such person with respect to such

20 qualified lodging facility.

21 ‘‘(C) RENEWALS, ETC., OF EXISTING

22 LEASES.—For purposes of subparagraph

23 (B)(iii)—

24 ‘‘(i) a lease shall be treated as in ef25 fect on January 1, 1999, without regard to
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1 its renewal after such date, so long as such

2 renewal is pursuant to the terms of such

3 lease as in effect on whichever of the dates

4 under subparagraph (B)(iii) is the latest,

5 and

6 ‘‘(ii) a lease of a property entered into

7 after whichever of the dates under sub8 paragraph (B)(iii) is the latest shall be

9 treated as in effect on such date if—

10 ‘‘(I) on such date, a lease of such

11 property from the trust was in effect,

12 and

13 ‘‘(II) under the terms of the new

14 lease, such trust receives a substan15 tially similar or lesser benefit in com16 parison to the lease referred to in sub17 clause (I).

18 ‘‘(D) QUALIFIED LODGING FACILITY.—For

19 purposes of this paragraph—

20 ‘‘(i) IN GENERAL.—The term ‘quali21 fied lodging facility’ means any lodging fa22 cility unless wagering activities are con23 ducted at or in connection with such facil24 ity by any person who is engaged in the

25 business of accepting wagers and who is le-
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1 gally authorized to engage in such business

2 at or in connection with such facility.

3 ‘‘(ii) LODGING FACILITY.—The term

4 ‘lodging facility’ means a hotel, motel, or

5 other establishment more than one-half of

6 the dwelling units in which are used on a

7 transient basis.

8 ‘‘(iii) CUSTOMARY AMENITIES AND FA9 CILITIES.—The term ‘lodging facility’ in10 cludes customary amenities and facilities

11 operated as part of, or associated with, the

12 lodging facility so long as such amenities

13 and facilities are customary for other prop14 erties of a comparable size and class owned

15 by other owners unrelated to such real es16 tate investment trust.

17 ‘‘(E) OPERATE INCLUDES MANAGE.—Ref18 erences in this paragraph to operating a prop19 erty shall be treated as including a reference to

20 managing the property.

21 ‘‘(F) RELATED PERSON.—Persons shall be

22 treated as related to each other if such persons

23 are treated as a single employer under sub24 section (a) or (b) of section 52.’’.
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1 (2) CONFORMING AMENDMENT.—Subparagraph

2 (B) of section 856(d)(2) is amended by inserting

3 ‘‘except as provided in paragraph (8),’’ after ‘‘(B)’’.

4 SEC. 103. TAXABLE REIT SUBSIDIARY.

5 (a) IN GENERAL.—Section 856 is amended by adding

6 at the end the following new subsection:

7 ‘‘(l) TAXABLE REIT SUBSIDIARY.—For purposes of

8 this part—

9 ‘‘(1) IN GENERAL.—The term ‘taxable REIT

10 subsidiary’ means, with respect to a real estate in11 vestment trust, a corporation (other than a real es12 tate investment trust) if—

13 ‘‘(A) such trust directly or indirectly owns

14 stock in such corporation, and

15 ‘‘(B) such trust and such corporation joint16 ly elect that such corporation shall be treated as

17 a taxable REIT subsidiary of such trust for

18 purposes of this part.

19 Such an election, once made, shall be irrevocable un20 less both such trust and corporation consent to its

21 revocation. Such election, and any revocation there22 of, may be made without the consent of the Sec23 retary.

24 ‘‘(2) 35 PERCENT OWNERSHIP IN ANOTHER

25 TAXABLE REIT SUBSIDIARY.—The term ‘taxable
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1 REIT subsidiary’ includes, with respect to any real

2 estate investment trust, any corporation (other than

3 a real estate investment trust) with respect to which

4 a taxable REIT subsidiary of such trust owns di5 rectly or indirectly—

6 ‘‘(A) securities possessing more than 35

7 percent of the total voting power of the out8 standing securities of such corporation, or

9 ‘‘(B) securities having a value of more

10 than 35 percent of the total value of the out11 standing securities of such corporation.

12 The preceding sentence shall not apply to a qualified

13 REIT subsidiary (as defined in subsection (i)(2)).

14 ‘‘(3) EXCEPTIONS.—The term ‘taxable REIT

15 subsidiary’ shall not include—

16 ‘‘(A) any corporation which directly or in17 directly operates or manages a lodging facility

18 or a health care facility, and

19 ‘‘(B) any corporation which directly or in20 directly provides to any other person (under a

21 franchise, license, or otherwise) rights to any

22 brand name under which any lodging facility or

23 health care facility is operated.

24 Subparagraph (B) shall not apply to rights provided

25 to an eligible independent contractor to operate or
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1 manage a lodging facility if such rights are held by

2 such corporation as a franchisee, licensee, or in a

3 similar capacity and such lodging facility is either

4 owned by such corporation or is leased to such cor5 poration from the real estate investment trust.

6 ‘‘(4) DEFINITIONS.—For purposes of paragraph

7 (3)—

8 ‘‘(A) LODGING FACILITY.—The term ‘lodg9 ing facility’ has the meaning given to such term

10 by paragraph (9)(D)(ii).

11 ‘‘(B) HEALTH CARE FACILITY.—The term

12 ‘health care facility’ has the meaning given to

13 such term by subsection (e)(6)(D)(ii).’’.

14 (b) CONFORMING AMENDMENT.—Paragraph (2) of

15 section 856(i) is amended by adding at the end the fol16 lowing new sentence: ‘‘Such term shall not include a tax17 able REIT subsidiary.’’

18 SEC. 104. LIMITATION ON EARNINGS STRIPPING.

19 Paragraph (3) of section 163(j) (relating to limitation

20 on deduction for interest on certain indebtedness) is

21 amended by striking ‘‘and’’ at the end of subparagraph

22 (A), by striking the period at the end of subparagraph

23 (B) and inserting ‘‘, and’’, and by adding at the end the

24 following new subparagraph:
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1 ‘‘(C) any interest paid or accrued (directly

2 or indirectly) by a taxable REIT subsidiary (as

3 defined in section 856(l)) of a real estate invest4 ment trust to such trust.’’.

5 SEC. 105. 100 PERCENT TAX ON IMPROPERLY ALLOCATED

6 AMOUNTS.

7 (a) IN GENERAL.—Subsection (b) of section 857 (re8 lating to method of taxation of real estate investment

9 trusts and holders of shares or certificates of beneficial

10 interest) is amended by redesignating paragraphs (7) and

11 (8) as paragraphs (8) and (9), respectively, and by insert12 ing after paragraph (6) the following new paragraph:

13 ‘‘(7) INCOME FROM REDETERMINED RENTS, RE14 DETERMINED DEDUCTIONS, AND EXCESS INTER15 EST.—

16 ‘‘(A) IMPOSITION OF TAX.—There is here17 by imposed for each taxable year of the real es18 tate investment trust a tax equal to 100 percent

19 of redetermined rents, redetermined deductions,

20 and excess interest.

21 ‘‘(B) REDETERMINED RENTS.—

22 ‘‘(i) IN GENERAL.—The term ‘redeter23 mined rents’ means rents from real prop24 erty (as defined in subsection 856(d)) the

25 amount of which would (but for subpara-
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1 graph (E)) be reduced on distribution, ap2 portionment, or allocation under section

3 482 to clearly reflect income as a result of

4 services furnished or rendered by a taxable

5 REIT subsidiary of the real estate invest6 ment trust to a tenant of such trust.

7 ‘‘(ii) EXCEPTION FOR CERTAIN SERV8 ICES.—Clause (i) shall not apply to

9 amounts received directly or indirectly by a

10 real estate investment trust for services de11 scribed in paragraph (1)(B) or (7)(C)(i) of

12 section 856(d).

13 ‘‘(iii) EXCEPTION FOR DE MINIMIS

14 AMOUNTS.—Clause (i) shall not apply to

15 amounts described in section 856(d)(7)(A)

16 with respect to a property to the extent

17 such amounts do not exceed the one per18 cent threshold described in section

19 856(d)(7)(B) with respect to such prop20 erty.

21 ‘‘(iv) EXCEPTION FOR COMPARABLY

22 PRICED SERVICES.—Clause (i) shall not

23 apply to any service rendered by a taxable

24 REIT subsidiary of a real estate invest25 ment trust to a tenant of such trust if—
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1 ‘‘(I) such subsidiary renders a

2 significant amount of similar services

3 to persons other than such trust and

4 tenants of such trust who are unre5 lated (within the meaning of section

6 856(d)(8)(F)) to such subsidiary,

7 trust, and tenants, but

8 ‘‘(II) only to the extent the

9 charge for such service so rendered is

10 substantially comparable to the charge

11 for the similar services rendered to

12 persons referred to in subclause (I).

13 ‘‘(v) EXCEPTION FOR CERTAIN SEPA14 RATELY CHARGED SERVICES.—Clause (i)

15 shall not apply to any service rendered by

16 a taxable REIT subsidiary of a real estate

17 investment trust to a tenant of such trust

18 if—

19 ‘‘(I) the rents paid to the trust

20 by tenants (leasing at least 25 percent

21 of the net leasable space in the trust’s

22 property) who are not receiving such

23 service from such subsidiary are sub24 stantially comparable to the rents

25 paid by tenants leasing comparable
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1 space who are receiving such service

2 from such subsidiary, and

3 ‘‘(II) the charge for such service

4 from such subsidiary is separately

5 stated.

6 ‘‘(vi) EXCEPTION FOR CERTAIN SERV7 ICES BASED ON SUBSIDIARY’S INCOME

8 FROM THE SERVICES.—Clause (i) shall not

9 apply to any service rendered by a taxable

10 REIT subsidiary of a real estate invest11 ment trust to a tenant of such trust if the

12 gross income of such subsidiary from such

13 service is not less than 150 percent of such

14 subsidiary’s direct cost in furnishing or

15 rendering the service.

16 ‘‘(vii) EXCEPTIONS GRANTED BY SEC17 RETARY.—The Secretary may waive the

18 tax otherwise imposed by subparagraph

19 (A) if the trust establishes to the satisfac20 tion of the Secretary that rents charged to

21 tenants were established on an arms’

22 length basis even though a taxable REIT

23 subsidiary of the trust provided services to

24 such tenants.
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1 ‘‘(viii) NO INFERENCE WITH RESPECT

2 TO RENTS NOT WITHIN EXCEPTIONS.—In

3 determining whether rents are subject to

4 reduction upon distribution, apportion5 ment, or allocation under section 482 for

6 purposes of subparagraph (B), the fact

7 that rents from real property do not meet

8 the requirements of clauses (ii) through

9 (vii) shall not be taken into account; and

10 such determination, in the case of rents

11 not meeting such requirements, shall be

12 made as if such clauses had not been en13 acted.

14 ‘‘(ix) NO INFERENCE AS TO WHETHER

15 REDETERMINED RENT IS RENT FROM REAL

16 PROPERTY.—Rent received by a real estate

17 investment trust shall not fail to qualify as

18 rents from real property under section

19 856(d) by reason of the fact that all or any

20 portion of such rent is determined to be re21 determined rent.

22 ‘‘(C) REDETERMINED DEDUCTIONS.—The

23 term ‘redetermined deductions’ means deduc24 tions (other than redetermined rents) of a tax25 able REIT subsidiary of a real estate invest-
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1 ment trust if the amount of such deductions

2 would (but for subparagraph (E)) be increased

3 on distribution, apportionment, or allocation

4 under section 482 to clearly reflect income as

5 between such subsidiary and such trust.

6 ‘‘(D) EXCESS INTEREST.—The term ‘ex7 cess interest’ means any deductions for interest

8 payments by a taxable REIT subsidiary of a

9 real estate investment trust to such trust to the

10 extent that the interest payments are in excess

11 of a rate that is commercially reasonable.

12 ‘‘(E) COORDINATION WITH SECTION 482.—

13 The imposition of tax under subparagraph (A)

14 shall be in lieu of any distribution, apportion15 ment, or allocation under section 482.

16 ‘‘(F) REGULATORY AUTHORITY.—The Sec17 retary shall prescribe such regulations as may

18 be necessary or appropriate to carry out the

19 purposes of this paragraph. Until the Secretary

20 prescribes such regulations, real estate invest21 ment trusts and their taxable REIT subsidi22 aries may base their allocations on any reason23 able method.’’.

24 (b) AMOUNT SUBJECT TO TAX NOT REQUIRED TO

25 BE DISTRIBUTED.—Subparagraph (E) of section
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1 857(b)(2) (relating to real estate investment trust taxable

2 income) is amended by striking ‘‘paragraph (5)’’ and in3 serting ‘‘paragraphs (5) and (7)’’.

4 SEC. 106. EFFECTIVE DATE.

5 (a) IN GENERAL.—The amendments made by this

6 title shall apply to taxable years beginning after the date

7 of enactment of this Act.

8 (b) TRANSITIONAL RULES RELATED TO SECTION

9 101.—

10 (1) EXISTING ARRANGEMENTS.—

11 (A) IN GENERAL.—Except as otherwise

12 provided in this paragraph, the amendment

13 made by section 101 shall not apply to a real

14 estate investment trust with respect to—

15 (i) securities of a corporation held di16 rectly or indirectly by such trust on April

17 28, 1999,

18 (ii) securities received by such trust

19 (or a successor) in exchange for, or with

20 respect to, securities described in clause (i)

21 in a transaction in which gain or loss is

22 not recognized, and

23 (iii) securities acquired directly or in24 directly by such trust as part of a reorga25 nization (as defined in section 368(a)(1) of
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1 the Internal Revenue Code of 1986) with

2 respect to such trust if such securities are

3 described in clause (i) or (ii) with respect

4 to any other real estate investment trust.

5 (B) NEW TRADE OR BUSINESS OR SUB6 STANTIAL NEW ASSETS.—Subparagraph (A)

7 shall cease to apply to securities of a corpora8 tion as of the first day after April 28, 1999, on

9 which such corporation engages in a substantial

10 new line of business, or acquires any substantial

11 asset, other than—

12 (i) pursuant to a binding contract in

13 effect on such date and at all times there14 after before the acquisition of such asset,

15 (ii) in a transaction in which gain or

16 loss is not recognized by reason of section

17 1031 or 1033 of the Internal Revenue

18 Code of 1986, or

19 (iii) in a reorganization (as so de20 fined) with another corporation the securi21 ties of which are described in paragraph

22 (1)(A) of this subsection.

23 (2) TAX-FREE CONVERSION.—If—

24 (A) at the time of an election for a cor25 poration to become a taxable REIT subsidiary,
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1 the amendment made by section 101 does not

2 apply to such corporation by reason of para3 graph (1), and

4 (B) such election first takes effect during

5 the 3-year period beginning on the date of the

6 enactment of this Act,

7 such election shall be treated as a reorganization

8 qualifying under section 368(a)(1)(A) of such Code.

9 TITLE II—HEALTH CARE REITS

10 SEC. 201. HEALTH CARE REITS.

11 (a) SPECIAL FORECLOSURE RULE FOR HEALTH

12 CARE PROPERTIES.—Subsection (e) of section 856 (relat13 ing to special rules for foreclosure property) is amended

14 by adding at the end the following new paragraph:

15 ‘‘(6) SPECIAL RULE FOR QUALIFIED HEALTH

16 CARE PROPERTIES.—For purposes of this

17 subsection—

18 ‘‘(A) ACQUISITION AT EXPIRATION OF

19 LEASE.—The term ‘foreclosure property’ shall

20 include any qualified health care property ac21 quired by a real estate investment trust as the

22 result of the termination of a lease of such

23 property (other than a termination by reason of

24 a default, or the imminence of a default, on the

25 lease).
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1 ‘‘(B) GRACE PERIOD.—In the case of a

2 qualified health care property which is fore3 closure property solely by reason of subpara4 graph (A), in lieu of applying paragraphs (2)

5 and (3)—

6 ‘‘(i) the qualified health care property

7 shall cease to be foreclosure property as of

8 the close of the second taxable year after

9 the taxable year in which such trust ac10 quired such property, and

11 ‘‘(ii) if the real estate investment

12 trust establishes to the satisfaction of the

13 Secretary that an extension of the grace

14 period in clause (i) is necessary to the or15 derly leasing or liquidation of the trust’s

16 interest in such qualified health care prop17 erty, the Secretary may grant 1 or more

18 extensions of the grace period for such

19 qualified health care property.

20 Any such extension shall not extend the grace

21 period beyond the close of the 6th year after

22 the taxable year in which such trust acquired

23 such qualified health care property.

24 ‘‘(C) INCOME FROM INDEPENDENT CON25 TRACTORS.—For purposes of applying para-
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1 graph (4)(C) with respect to qualified health

2 care property which is foreclosure property by

3 reason of subparagraph (A) or paragraph (1),

4 income derived or received by the trust from an

5 independent contractor shall be disregarded to

6 the extent such income is attributable to—

7 ‘‘(i) any lease of property in effect on

8 the date the real estate investment trust

9 acquired the qualified health care property

10 (without regard to its renewal after such

11 date so long as such renewal is pursuant to

12 the terms of such lease as in effect on such

13 date), or

14 ‘‘(ii) any lease of property entered

15 into after such date if—

16 ‘‘(I) on such date, a lease of such

17 property from the trust was in effect,

18 and

19 ‘‘(II) under the terms of the new

20 lease, such trust receives a substan21 tially similar or lesser benefit in com22 parison to the lease referred to in sub23 clause (I).

24 ‘‘(D) QUALIFIED HEALTH CARE PROP25 ERTY.—
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1 ‘‘(i) IN GENERAL.—The term ‘quali2 fied health care property’ means any real

3 property (including interests therein), and

4 any personal property incident to such real

5 property, which—

6 ‘‘(I) is a health care facility, or

7 ‘‘(II) is necessary or incidental to

8 the use of a health care facility.

9 ‘‘(ii) HEALTH CARE FACILITY.—For

10 purposes of clause (i), the term ‘health

11 care facility’ means a hospital, nursing fa12 cility, assisted living facility, congregate

13 care facility, qualified continuing care facil14 ity (as defined in section 7872(g)(4)), or

15 other licensed facility which extends med16 ical or nursing or ancillary services to pa17 tients and which, immediately before the

18 termination, expiration, default, or breach

19 of the lease of or mortgage secured by

20 such facility, was operated by a provider of

21 such services which was eligible for partici22 pation in the medicare program under title

23 XVIII of the Social Security Act with re24 spect to such facility.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 the date of enactment of this Act.

4 TITLE III—CONFORMITY WITH

5 REGULATED INVESTMENT

6 COMPANY RULES

7 SEC. 301. CONFORMITY WITH REGULATED INVESTMENT

8 COMPANY RULES.

9 (a) DISTRIBUTION REQUIREMENT.—Clauses (i) and

10 (ii) of section 857(a)(1)(A) (relating to requirements ap11 plicable to real estate investment trusts) are each amended

12 by striking ‘‘95 percent (90 percent for taxable years be13 ginning before January 1, 1980)’’ and inserting ‘‘90 per14 cent’’.

15 (b) IMPOSITION OF TAX.—Clause (i) of section

16 857(b)(5)(A) (relating to imposition of tax in case of fail17 ure to meet certain requirements) is amended by striking

18 ‘‘95 percent (90 percent in the case of taxable years begin19 ning before January 1, 1980)’’ and inserting ‘‘90 per20 cent’’.

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to taxable years beginning after

23 the date of enactment of this Act.
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1 TITLE IV—CLARIFICATION OF

2 DEFINITION OF INDE3 PENDENT CONTRACTOR

4 SEC. 401. CLARIFICATION OF DEFINITION OF INDE5 PENDENT CONTRACTOR.

6 (a) IN GENERAL.—Paragraph (3) of section 856(d)

7 (relating to independent contractor defined) is amended

8 by adding at the end the following flush sentence:

9 ‘‘In the event that any class of stock of either the

10 real estate investment trust or such person is regu11 larly traded on an established securities market, only

12 persons who own, directly or indirectly, more than 5

13 percent of such class of stock shall be taken into ac14 count as owning any of the stock of such class for

15 purposes of applying the 35 percent limitation set

16 forth in subparagraph (B) (but all of the out17 standing stock of such class shall be considered out18 standing in order to compute the denominator for

19 purpose of determining the applicable percentage of

20 ownership).’’

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

22 this section shall apply to taxable years beginning after

23 the date of the enactment of this Act.
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1 TITLE V—MODIFICATION OF

2 EARNINGS AND PROFITS RULES

3 SEC. 501. MODIFICATION OF EARNINGS AND PROFITS

4 RULES.

5 (a) RULES FOR DETERMINING WHETHER REGU6 LATED INVESTMENT COMPANY HAS EARNINGS AND

7 PROFITS FROM NON-RIC YEAR.—Subsection (c) of sec8 tion 852 is amended by adding at the end the following

9 new paragraph:

10 ‘‘(3) DISTRIBUTIONS TO MEET REQUIREMENTS

11 OF SUBSECTION (a)(2)(B).—Any distribution which

12 is made in order to comply with the requirements of

13 subsection (a)(2)(B)—

14 ‘‘(A) shall be treated for purposes of this

15 subsection and subsection (a)(2)(B) as made

16 from the earliest earnings and profits accumu17 lated in any taxable year to which the provi18 sions of this part did not apply rather than the

19 most recently accumulated earnings and profits,

20 and

21 ‘‘(B) to the extent treated under subpara22 graph (A) as made from accumulated earnings

23 and profits, shall not be treated as a distribu24 tion for purposes of subsection (b)(2)(D) and

25 section 855.’’.
27

•HR 1616 IH

1 (b) CLARIFICATION OF APPLICATION OF REIT

2 SPILLOVER DIVIDEND RULES TO DISTRIBUTIONS TO

3 MEET QUALIFICATION REQUIREMENT.—Subparagraph

4 (B) of section 857(d)(3) is amended by inserting before

5 the period ‘‘and section 858’’.

6 (c) APPLICATION OF DEFICIENCY DIVIDEND PROCE7 DURES.—Paragraph (1) of section 852(e) is amended by

8 adding at the end the following new sentence: ‘‘If the de9 termination under subparagraph (A) is solely as a result

10 of the failure to meet the requirements of subsection

11 (a)(2), the preceding sentence shall also apply for pur12 poses of applying subsection (a)(2) to the non-RIC year.’’

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years beginning before,

15 on, or after the date of the enactment of this Act.

Æ