Retail Revitalization Act of 2023

To amend the Internal Revenue Code of 1986 to modify the treatment of certain rents received by real estate investment trusts from related parties. 1. Short title This Act may be cited as the Retail Revitalization Act of 2023 2. Modification of treatment of certain rents received by real estate investment trust from related parties (a) Special rule for distressed tenants (1) In general Section 856(d) (10) Special rule for distressed tenants (A) In general Except as otherwise provided by the Secretary, in the case of a real estate investment trust which makes a qualified acquisition of a qualified tenant during the 4-year period beginning on the date of the enactment of this paragraph, paragraph (2)(B) shall be applied with respect to such tenant by substituting 50 percent 10 percent (B) Qualified acquisition For purposes of this paragraph— (i) In general The term qualified acquisition (ii) Cash flow insolvency For purposes of clause (i), a qualified tenant shall be treated as having cash flow insolvency following a reasonable determination by the real estate investment trust, based upon an examination of the facts and circumstances, that such tenant’s revenue is insufficient to cover its debt service payments based on such tenant’s applicable financial statement (as defined in section 451(b)(3)). (C) Qualified tenant For purposes of this paragraph— (i) In general The term qualified tenant (ii) Renewals, etc., of existing leases For purposes of clause (i), a lease shall be treated as in effect on the date of the enactment of this paragraph if the conditions of paragraph (9)(C) are satisfied. (iii) Successors The term qualified tenant (D) Limitation on period for which treatment applies With respect to any qualified acquisition, subparagraph (A) shall apply only to amounts received or accrued during the 7-taxable-year period beginning with the taxable year which includes the date of such acquisition. (E) Coordination with certain other provisions For purposes of clauses (i) and (v) of paragraph (8)(A), whether a person is described in paragraph (2)(B) shall be determined after application of subparagraph (A) of this paragraph. . (2) Conforming amendment Section 856(d)(2)(B) of such Code is amended by striking paragraph (8) paragraphs (8) and (10) (3) Effective date The amendments made by this subsection shall apply to qualified acquisitions (as defined in section 856(d)(10)(B) (b) Increase in percentage of ownership at which rents are generally disqualified (1) In general Section 856(d)(2)(B) of such Code is amended by striking 10 percent 30 percent (2) Effective date The amendment made by this subsection shall apply to taxable years ending after the date of the enactment of this Act. (c) Increase in percentage of ownership at which constructive ownership rules begin To apply (1) In general Section 856(d)(5) of such Code is amended— (A) by striking 10 percent 30 percent (B) by striking 25 percent 30 percent (2) Effective date The amendments made by this subsection shall apply to taxable years ending after the date of the enactment of this Act. (d) Limitation on application of constructive ownership rules (1) In general Section 856(d)(5) of such Code is amended by striking and , and (C) except as otherwise provided by the Secretary, stock, assets, and net profits constructively owned by a partnership, estate, trust, or corporation by reason of the application of section 318(a)(3) (after application of subparagraphs (A) and (B)) shall not be considered as owned by it for purposes of again applying such section in order to make another person the constructive owner of such stock, assets, or net profits. Subparagraph (C) shall not prevent any person from being the constructive owner of stock, assets, or net profits of any person as the result of any other application of section 318(a) (as modified by this paragraph). . (2) No inference Nothing in the amendments made by paragraph (1) shall be construed to create any inference with respect to the proper application of section 318 (3) Effective date The amendments made by this subsection shall apply to taxable years ending after the date of the enactment of this Act. (e) Modification of rental exception for taxable REIT subsidiaries (1) In general Section 856(d)(8)(A)(i) of such Code is amended to read as follows: (i) In general The requirements of this subparagraph are met with respect to any property if— (I) not more than 30 percent of the leasable space of such property is rented to taxable REIT subsidiaries and other persons described in paragraph (2)(B) (determined without regard to paragraph (10)), and (II) not more than 50 percent of the leasable space of such property is rented to taxable REIT subsidiaries and other persons described in paragraph (2)(B) (determined after the application of paragraph (10)). . (2) Effective date The amendment made by this subsection shall apply to taxable years ending after the date of the enactment of this Act.

Summary: Retail Revitalization Act of 2023 This bill amends tax rules for real estate investment trusts (REITs). It increases (1) the share of equity investments a distressed retail tenant may receive from a REIT from 10% to 50%, and (2) the equity share for regular tenants from 10% to 30%. The bill also allows taxable REIT subsidiaries to accept equity in a retail tenant's businesses as a form of rent, subject to certain restrictions.