Real Estate Investment and Jobs Act of 2014

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. Short title This Act may be cited as the Real Estate Investment and Jobs Act of 2014 2. Exception from FIRPTA for certain stock of real estate investment trusts (a) In general Paragraph (3) of section 897(c) (1) by striking all that precedes If any class (3) Exceptions for certain stock (A) Exception for stock regularly traded on established securities markets , (2) by inserting before the period the following: . In the case of any class of stock of a real estate investment trust, the preceding sentence shall be applied by substituting 10 percent 5 percent (3) by adding at the end the following new subparagraph: (B) Exception for certain stock in real estate investment trusts (i) In general Stock of a real estate investment trust held by a qualified shareholder shall not be treated as a United States real property interest except to the extent that an investor in the qualified shareholder (other than an investor that is a qualified shareholder) holds more than 10 percent of the stock of such real estate investment trust (determined by applying the constructive ownership rules of section 897(c)(6)(C)). (ii) Qualified shareholder For purposes of this subparagraph, the term qualified shareholder (I) that is eligible for benefits of a comprehensive income tax treaty with the United States which includes an exchange of information program, (II) that is a qualified collective investment vehicle, (III) whose principal class of interests is listed and regularly traded on one or more recognized stock exchanges (as defined in such comprehensive income tax treaty), and (IV) that maintains records on the identity of each person who, at any time during the qualified shareholder’s taxable year, is the direct owner of 5 percent or more of the class of interest described in clause (III). (iii) Qualified collective investment vehicle For purposes of this subparagraph, the term qualified collective investment vehicle (I) would be eligible for a reduced rate of withholding under such comprehensive income tax treaty with respect to ordinary dividends paid by a real estate investment trust, even if such entity holds more than 10 percent of the stock of such real estate investment trust, or (II) is designated as a qualified collective investment vehicle by the Secretary and is either— (aa) fiscally transparent within the meaning of section 894, or (bb) required to include dividends in its gross income, but is entitled to a deduction for distributions to its investors. . (b) Distributions by real estate investment trusts Paragraph (1) of section 897(h) (1) by inserting (10 percent in the case of stock of a real estate investment trust) 5 percent of such class of stock (2) by inserting , and any distribution to a qualified shareholder (as defined in subsection (c)(3)(B)(ii)) shall not be treated as gain recognized from the sale or exchange of a United States real property interest to the extent that the stock of the real estate investment trust held by such qualified shareholder is not treated as a United States real property interest under subsection (c)(3)(B) (c) Definition Subparagraph (B) of section 897(h)(4) In determining whether a qualified investment entity is domestically controlled— (i) a qualified investment entity shall be permitted to presume that stock held by a holder of less than 5 percent of a class of stock regularly traded on an established securities market in the United States is held by United States persons throughout the testing period except to the extent that the qualified investment entity has actual knowledge regarding stock ownership, (ii) any stock in the qualified investment entity held by another qualified investment entity— (I) any class of stock of which is regularly traded on an established stock exchange, or (II) which is a regulated investment company which issues redeemable securities (within the meaning of section 2 of the Investment Company Act of 1940), shall be treated as held by a foreign person unless such other qualified investment entity is domestically controlled (as determined under this subparagraph) in which case such stock shall be treated as held by a United States person, and (iii) any stock in the qualified investment entity held by any other qualified investment entity not described in subclause (I) or (II) of clause (ii) shall only be treated as held by a United States person to the extent that the stock of such other qualified investment entity is (or is treated under this subparagraph as) held by a United States person. . (d) Conforming amendment Subparagraph (C) of section 897(c)(6) (1) by striking more than 5 percent more than 5 or 10 percent, whichever is applicable, (2) by striking substituting 5 percent 50 percent substituting 5 percent or 10 percent, whichever is applicable 50 percent (e) Effective dates (1) In general The amendments made by subsection (a) shall apply to dispositions on and after the date of the enactment of this Act. (2) Distributions The amendments made by subsection (b) shall apply to any distribution by a real estate investment trust on or after the date of the enactment of this Act which is treated as a deduction for a taxable year of such trust ending after such date. (3) Definitions The amendments made by subsections (c) and (d) shall take effect on the date of the enactment of this Act. 3. United States real property interest (a) United States real property interest Subparagraph (B) of section 897(c)(1) (i) as of the date of the disposition (B) Exclusion for interest in certain corporations The term United States real property interest . (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 4. Required notification of FIRPTA status (a) In general Section 6039C (d) Required notification of status as United States real property holding corporation; presumption of foreign control for qualified investment entities (1) Required notification of status as United States real property holding corporation Any United States real property holding corporation (as defined in section 897(c)(2)) is hereby required to make its status as a United States real property holding corporation readily accessible, and in the case of a publicly traded corporation, publicly available. Under regulations prescribed by the Secretary, such notifications may include disclosure of such status on Form 1099s sent to shareholders, in annual reports, on websites, and, in the case of privately held corporations, on stock certificates. (2) Presumption of foreign control of qualified investment entities In the absence of disclosure to the contrary (in such form and manner as the Secretary may prescribe), any qualified investment entity (as defined in section 897(h)(4)(A)) will be presumed for purposes of section 897 to be foreign controlled. (3) Penalty for failure to make notification of status The penalty provided under section 6721 shall apply to any failure to comply with the requirements of paragraph (1), with the following modifications— (A) in the case of a corporation other than a corporation which meets the gross receipts test of section 6721(d)(2), the minimum penalty imposed under such section shall be equal to the maximum penalty provided under section 6721(a)(1), (B) in the case of a corporation which holds United States real estate with a gross fair market value of at least $1,000,000,000— (i) the minimum penalty imposed under such section shall be equal to $5,000,000, and (ii) in the case of an intentional failure, the minimum penalty imposed under such section shall be the greater of the penalty provided under section 6721(e) or $10,000,000. . (b) Effective date The amendments made by this section shall take effect on the date of the enactment of this Act. 5. Require FIRPTA withholding by brokers on sales by shareholders owning a more than 5 percent interest (a) In general Section 1445(e) (7) Broker withholding obligation on certain dispositions of nondomestically controlled United States real property holding corporations (A) In general In the case of any disposition of an interest in a United States real property holding corporation (as defined in section 897(c)(2)) involving a broker (as defined in section 6045(c)), such broker shall be required to deduct and withhold a tax equal to 10 percent of the amount realized on the disposition. (B) Exceptions (i) Domestic qualified investment entities and real estate investment trusts Subparagraph (A) shall not apply to sales of stock of a domestically controlled qualified investment entity (as defined in section 897(h)(4)) or stock of a real estate investment trust that is not treated as a United States real property interest pursuant to section 897(c)(3)(B). (ii) Greater than 5 percent interest in United States real property holding corporation Subparagraph (A) shall not apply if the transferee held a greater than 5 percent interest (or in the case of the disposition of any class of stock of a real estate investment trust that is regularly traded on an established securities market, a greater than 10 percent interest) in the United States real property holding corporation. In determining whether that threshold is met, brokers are permitted to rely on public statements made by public companies, including statements related to the status of the company as a United States real property holding corporation or as a domestically controlled qualified investment entity. (iii) Lack of broker knowledge Subparagraph (A) shall apply only if the broker had actual knowledge (or reasonably should have known) of their withholding obligation. . (b) Conforming amendment Section 1445(b)(6) This paragraph Except as provided in subsection (e)(7), this paragraph (c) Effective date The amendments made by this section shall apply to dispositions after the date of the enactment of this Act. 6. Interests in RICs and REITs not excluded from definition of United States real property interests (a) In general Section 897(c)(1)(B) and , and (iii) neither such corporation nor any predecessor of such corporation was a regulated investment company or a real estate investment company at any time during the period described in subparagraph (A)(ii). . (b) Effective date The amendment made by this section shall apply to dispositions after the date of the enactment of this Act. 7. Dividends derived from RICs and REITs ineligible for deduction for United States source portion of dividends from certain foreign corporations (a) In general Section 245(a) (12) Dividends derived from RICs and REITs ineligible for deduction Regulated investment companies and real estate investment trusts shall not be treated as domestic corporations for purposes of paragraph (5)(B). . (b) Effective date The amendment made by this section shall apply to dividends received from regulated investment companies and real estate investment trusts on or after the date of the enactment of this Act.

Summary: Real Estate Investment and Jobs Act of 2014 - Amends the Internal Revenue Code to: (1) increase from 5% to 10% the allowable ownership interest in real estate investment trust (REIT) stock for purposes of tax exemptions allowed by the Foreign Investment in Real Property Tax Act (FIRPTA) relating to foreign investment in U.S. real property interests; (2) require a U.S. real property holding corporation to make its status readily accessible and publicly available; (3) require brokers who sell an interest in a U.S. real property holding corporation to deduct and withhold 10% on the amount realized from the sale, with specified exceptions; (4) include regulated investment companies (RICs) and real estate investment companies (REITs) in the definition of U.S. real property interests; and (5) deny dividends derived from RICs and REITs a tax deduction for the U.S. source portion of dividends from certain foreign corporations.