I 

113TH CONGRESS 

2D SESSION H. R. 5487 

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 HOUSE OF REPRESENTATIVES 

SEPTEMBER 16, 2014 

Mr. BRADY of Texas (for himself and Mr. CROWLEY) 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 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 2014’’. 


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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 more 


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1 than 10 percent of the stock of such real 

2 estate investment trust (determined by ap3 plying the constructive ownership rules of 

4 section 897(c)(6)(C)). 

5 ‘‘(ii) QUALIFIED SHAREHOLDER.— 

6 For purposes of this subparagraph, the 

7 term ‘qualified shareholder’ means an enti8 ty— 

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

10 a comprehensive income tax treaty 

11 with the United States which includes 

12 an exchange of information program, 

13 ‘‘(II) that is a qualified collective 

14 investment vehicle, 

15 ‘‘(III) whose principal class of in16 terests is listed and regularly traded 

17 on one or more recognized stock ex18 changes (as defined in such com19 prehensive income tax treaty), and 

20 ‘‘(IV) that maintains records on 

21 the identity of each person who, at 

22 any time during the qualified share23 holder’s taxable year, is the direct 

24 owner of 5 percent or more of the 


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1 class of interest described in clause 

2 (III). 

3 ‘‘(iii) QUALIFIED COLLECTIVE IN4 VESTMENT VEHICLE.—For purposes of 

5 this subparagraph, the term ‘qualified col6 lective investment vehicle’ means an entity 

7 that— 

8 ‘‘(I) would be eligible for a re9 duced rate of withholding under such 

10 comprehensive income tax treaty with 

11 respect to ordinary dividends paid by 

12 a real estate investment trust, even if 

13 such entity holds more than 10 per14 cent of the stock of such real estate 

15 investment trust, or 

16 ‘‘(II) is designated as a qualified 

17 collective investment vehicle by the 

18 Secretary and is either— 

19 ‘‘(aa) fiscally transparent 

20 within the meaning of section 

21 894, or 

22 ‘‘(bb) required to include 

23 dividends in its gross income, but 

24 is entitled to a deduction for dis25 tributions to its investors.’’. 


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1 (b) DISTRIBUTIONS BY REAL ESTATE INVESTMENT

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

3 Revenue Code of 1986 is amended— 

4 (1) by inserting ‘‘(10 percent in the case of 

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

6 percent of such class of stock’’, and 

7 (2) by inserting ‘‘, and any distribution to a 

8 qualified shareholder (as defined in subsection 

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

10 from the sale or exchange of a United States real 

11 property interest to the extent that the stock of the 

12 real estate investment trust held by such qualified 

13 shareholder is not treated as a United States real 

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

15 the period at the end of the second sentence. 

16 (c) DEFINITION.—Subparagraph (B) of section 

17 897(h)(4) of the Internal Revenue Code of 1986 is amend18 ed by adding at the end the following: ‘‘In determining 

19 whether a qualified investment entity is domestically con20 trolled— 

21 ‘‘(i) a qualified investment entity shall 

22 be permitted to presume that stock held by 

23 a holder of less than 5 percent of a class 

24 of stock regularly traded on an established 

25 securities market in the United States is 


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1 held by United States persons throughout 

2 the testing period except to the extent that 

3 the qualified investment entity has actual 

4 knowledge regarding stock ownership, 

5 ‘‘(ii) any stock in the qualified invest6 ment entity held by another qualified in7 vestment entity— 

8 ‘‘(I) any class of stock of which 

9 is regularly traded on an established 

10 stock exchange, or 

11 ‘‘(II) which is a regulated invest12 ment company which issues redeem13 able securities (within the meaning of 

14 section 2 of the Investment Company 

15 Act of 1940), 

16 shall be treated as held by a foreign person 

17 unless such other qualified investment enti18 ty is domestically controlled (as determined 

19 under this subparagraph) in which case 

20 such stock shall be treated as held by a 

21 United States person, and 

22 ‘‘(iii) any stock in the qualified invest23 ment entity held by any other qualified in24 vestment entity not described in subclause 

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1 ed as held by a United States person to 

2 the extent that the stock of such other 

3 qualified investment entity is (or is treated 

4 under this subparagraph as) held by a 

5 United States person.’’. 

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

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

8 is amended— 

9 (1) by striking ‘‘more than 5 percent’’ and in10 serting ‘‘more than 5 or 10 percent, whichever is ap11 plicable,’’, and 

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

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

14 10 percent, whichever is applicable’ for ‘50 per15 cent’)’’. 

16 (e) EFFECTIVE DATES.— 

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

18 subsection (a) shall apply to dispositions on and 

19 after the date of the enactment of this Act. 

20 (2) DISTRIBUTIONS.—The amendments made 

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

22 a real estate investment trust on or after the date 

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

24 deduction for a taxable year of such trust ending 

25 after such date. 


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1 (3) DEFINITIONS.—The amendments made by 

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

3 of the enactment of this Act. 

4 SEC. 3. UNITED STATES REAL PROPERTY INTEREST. 

5 (a) UNITED STATES REAL PROPERTY INTEREST.— 

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

7 Revenue Code of 1986 is amended by striking all that pre8 cedes ‘‘(i) as of the date of the disposition’’ and inserting 

9 the following: 

10 ‘‘(B) EXCLUSION FOR INTEREST IN CER11 TAIN CORPORATIONS.—The term ‘United States 

12 real property interest’ does not include any in13 terest in a corporation (other than a qualified 

14 investment entity (as defined in subsection 

15 (h)(4)(A)(i)) if—’’. 

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

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

18 of this Act. 

19 SEC. 4. REQUIRED NOTIFICATION OF FIRPTA STATUS. 

20 (a) IN GENERAL.—Section 6039C of the Internal 

21 Revenue Code of 1986 is amended by redesignating sub22 section (d) as subsection (e) and by inserting after sub23 section (c) the following new subsection: 

24 ‘‘(d) REQUIRED NOTIFICATION OF STATUS AS

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1 TION; PRESUMPTION OF FOREIGN CONTROL FOR QUALI2 FIED INVESTMENT ENTITIES.— 

3 ‘‘(1) REQUIRED NOTIFICATION OF STATUS AS

4 UNITED STATES REAL PROPERTY HOLDING COR5 PORATION.—Any United States real property hold6 ing corporation (as defined in section 897(c)(2)) is 

7 hereby required to make its status as a United 

8 States real property holding corporation readily ac9 cessible, and in the case of a publicly traded cor10 poration, publicly available. Under regulations pre11 scribed by the Secretary, such notifications may in12 clude disclosure of such status on Form 1099s sent 

13 to shareholders, in annual reports, on websites, and, 

14 in the case of privately held corporations, on stock 

15 certificates. 

16 ‘‘(2) PRESUMPTION OF FOREIGN CONTROL OF

17 QUALIFIED INVESTMENT ENTITIES.—In the absence 

18 of disclosure to the contrary (in such form and man19 ner as the Secretary may prescribe), any qualified 

20 investment entity (as defined in section 

21 897(h)(4)(A)) will be presumed for purposes of sec22 tion 897 to be foreign controlled. 

23 ‘‘(3) PENALTY FOR FAILURE TO MAKE NOTIFI24 CATION OF STATUS.—The penalty provided under 

25 section 6721 shall apply to any failure to comply 


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1 with the requirements of paragraph (1), with the fol2 lowing modifications— 

3 ‘‘(A) in the case of a corporation other 

4 than a corporation which meets the gross re5 ceipts test of section 6721(d)(2), the minimum 

6 penalty imposed under such section shall be 

7 equal to the maximum penalty provided under 

8 section 6721(a)(1), 

9 ‘‘(B) in the case of a corporation which 

10 holds United States real estate with a gross fair 

11 market value of at least $1,000,000,000— 

12 ‘‘(i) the minimum penalty imposed 

13 under such section shall be equal to 

14 $5,000,000, and 

15 ‘‘(ii) in the case of an intentional fail16 ure, the minimum penalty imposed under 

17 such section shall be the greater of the 

18 penalty provided under section 6721(e) or 

19 $10,000,000.’’. 

20 (b) EFFECTIVE DATE.—The amendments made by 

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

22 of this Act. 


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1 SEC. 5. REQUIRE FIRPTA WITHHOLDING BY BROKERS ON 

2 SALES BY SHAREHOLDERS OWNING A MORE 

3 THAN 5 PERCENT INTEREST. 

4 (a) IN GENERAL.—Section 1445(e) of the Internal 

5 Revenue Code of 1986 is amended by redesignating para6 graph (7) as paragraph (8) and by inserting after para7 graph (6) the following new paragraph: 

8 ‘‘(7) BROKER WITHHOLDING OBLIGATION ON

9 CERTAIN DISPOSITIONS OF NONDOMESTICALLY CON10 TROLLED UNITED STATES REAL PROPERTY HOLDING

11 CORPORATIONS.— 

12 ‘‘(A) IN GENERAL.—In the case of any dis13 position of an interest in a United States real 

14 property holding corporation (as defined in sec15 tion 897(c)(2)) involving a broker (as defined in 

16 section 6045(c)), such broker shall be required 

17 to deduct and withhold a tax equal to 10 per18 cent of the amount realized on the disposition. 

19 ‘‘(B) EXCEPTIONS.— 

20 ‘‘(i) DOMESTIC QUALIFIED INVEST21 MENT ENTITIES AND REAL ESTATE IN22 VESTMENT TRUSTS.—Subparagraph (A) 

23 shall not apply to sales of stock of a do24 mestically controlled qualified investment 

25 entity (as defined in section 897(h)(4)) or 

26 stock of a real estate investment trust that 


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1 is not treated as a United States real prop2 erty interest pursuant to section 

3 897(c)(3)(B). 

4 ‘‘(ii) GREATER THAN 5 PERCENT IN5 TEREST IN UNITED STATES REAL PROP6 ERTY HOLDING CORPORATION.—Subpara7 graph (A) shall not apply if the transferee 

8 held a greater than 5 percent interest (or 

9 in the case of the disposition of any class 

10 of stock of a real estate investment trust 

11 that is regularly traded on an established 

12 securities market, a greater than 10 per13 cent interest) in the United States real 

14 property holding corporation. In deter15 mining whether that threshold is met, bro16 kers are permitted to rely on public state17 ments made by public companies, including 

18 statements related to the status of the 

19 company as a United States real property 

20 holding corporation or as a domestically 

21 controlled qualified investment entity. 

22 ‘‘(iii) LACK OF BROKER KNOWL23 EDGE.—Subparagraph (A) shall apply only 

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1 sonably should have known) of their with2 holding obligation.’’. 

3 (b) CONFORMING AMENDMENT.—Section 1445(b)(6) 

4 of the Internal Revenue Code of 1986 is amended by strik5 ing ‘‘This paragraph’’ and inserting ‘‘Except as provided 

6 in subsection (e)(7), this paragraph’’. 

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

8 this section shall apply to dispositions after the date of 

9 the enactment of this Act. 

10 SEC. 6. INTERESTS IN RICS AND REITS NOT EXCLUDED 

11 FROM DEFINITION OF UNITED STATES REAL 

12 PROPERTY INTERESTS. 

13 (a) IN GENERAL.—Section 897(c)(1)(B) of the Inter14 nal Revenue Code of 1986 is amended by striking ‘‘and’’ 

15 at the end of clause (i), by striking the period at the end 

16 of clause (ii)(II) and inserting ‘‘, and’’, and by adding at 

17 the end the following new clause: 

18 ‘‘(iii) neither such corporation nor any 

19 predecessor of such corporation was a reg20 ulated investment company or a real estate 

21 investment company at any time during 

22 the period described in subparagraph 

23 (A)(ii).’’. 


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

2 this section shall apply to dispositions after the date of 

3 the enactment of this Act. 

4 SEC. 7. DIVIDENDS DERIVED FROM RICS AND REITS INELI5 GIBLE FOR DEDUCTION FOR UNITED STATES 

6 SOURCE PORTION OF DIVIDENDS FROM CER7 TAIN FOREIGN CORPORATIONS. 

8 (a) IN GENERAL.—Section 245(a) of the Internal 

9 Revenue Code of 1986 is amended by adding at the end 

10 the following new paragraph: 

11 ‘‘(12) DIVIDENDS DERIVED FROM RICS AND

12 REITS INELIGIBLE FOR DEDUCTION.—Regulated in13 vestment companies and real estate investment 

14 trusts shall not be treated as domestic corporations 

15 for purposes of paragraph (5)(B).’’. 

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

17 this section shall apply to dividends received from regu18 lated investment companies and real estate investment 

19 trusts on or after the date of the enactment of this Act. 

Æ 


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