H. R. 2488—115 
described in paragraph (1)(B) or (7)(C)(i) of section 
856(d). 
‘‘(iii) EXCEPTION
FOR
DE
MINIMIS
AMOUNTS.— 
Clause (i) shall not apply to amounts described in 
section 856(d)(7)(A) with respect to a property to the 
extent such amounts do not exceed the one percent 
threshold described in section 856(d)(7)(B) with respect 
to such property. 
‘‘(iv) EXCEPTION
FOR
COMPARABLY
PRICED
SERV-
ICES.—Clause (i) shall not apply to any service ren-
dered by a taxable REIT subsidiary of a real estate 
investment trust to a tenant of such trust if— 
‘‘(I) such subsidiary renders a significant 
amount of similar services to persons other than 
such trust and tenants of such trust who are unre-
lated (within the meaning of section 856(d)(8)(F)) 
to such subsidiary, trust, and tenants, but 
‘‘(II) only to the extent the charge for such 
service so rendered is substantially comparable to 
the charge for the similar services rendered to 
persons referred to in subclause (I). 
‘‘(v) EXCEPTION FOR CERTAIN SEPARATELY CHARGED 
SERVICES.—Clause (i) shall not apply to any service 
rendered by a taxable REIT subsidiary of a real estate 
investment trust to a tenant of such trust if— 
‘‘(I) the rents paid to the trust by tenants 
(leasing at least 25 percent of the net leasable 
space in the trust’s property) who are not receiving 
such service from such subsidiary are substantially 
comparable to the rents paid by tenants leasing 
comparable space who are receiving such service 
from such subsidiary, and 
‘‘(II) the charge for such service from such 
subsidiary is separately stated. 
‘‘(vi) EXCEPTION FOR CERTAIN SERVICES BASED ON 
SUBSIDIARY’S INCOME FROM THE SERVICES.—Clause (i) 
shall not apply to any service rendered by a taxable 
REIT subsidiary of a real estate investment trust to 
a tenant of such trust if the gross income of such 
subsidiary from such service is not less than 150 per-
cent of such subsidiary’s direct cost in furnishing or 
rendering the service. 
‘‘(vii) EXCEPTIONS
GRANTED
BY
SECRETARY.—The 
Secretary may waive the tax otherwise imposed by 
subparagraph (A) if the trust establishes to the satis-
faction of the Secretary that rents charged to tenants 
were established on an arms’ length basis even though 
a taxable REIT subsidiary of the trust provided serv-
ices to such tenants. 
‘‘(C) REDETERMINED DEDUCTIONS.—The term ‘redeter-
mined deductions’ means deductions (other than redeter-
mined rents) of a taxable REIT subsidiary of a real estate 
investment trust if the amount of such deductions would 
(but for subparagraph (E)) be decreased on distribution, 
apportionment, or allocation under section 482 to clearly 
reflect income as between such subsidiary and such trust. 
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H. R. 2488—116 
‘‘(D) EXCESS
INTEREST.—The term ‘excess interest’ 
means any deductions for interest payments by a taxable 
REIT subsidiary of a real estate investment trust to such 
trust to the extent that the interest payments are in excess 
of a rate that is commercially reasonable. 
‘‘(E) COORDINATION WITH SECTION 482.—The imposition 
of tax under subparagraph (A) shall be in lieu of any 
distribution, apportionment, or allocation under section 
482. 
‘‘(F) REGULATORY AUTHORITY.—The Secretary shall pre-
scribe such regulations as may be necessary or appropriate 
to carry out the purposes of this paragraph. Until the 
Secretary prescribes such regulations, real estate invest-
ment trusts and their taxable REIT subsidiaries may base 
their allocations on any reasonable method.’’. 
(b) AMOUNT SUBJECT TO TAX NOT REQUIRED TO BE DISTRIB-
UTED.—Subparagraph (E) of section 857(b)(2) (relating to real estate 
investment trust taxable income) is amended by striking ‘‘paragraph 
(5)’’ and inserting ‘‘paragraphs (5) and (7)’’. 
SEC. 1116. EFFECTIVE DATE. 
(a) IN GENERAL.—The amendments made by this part shall 
apply to taxable years beginning after December 31, 2000. 
(b) TRANSITIONAL RULES RELATED TO SECTION 1111.— 
(1) EXISTING ARRANGEMENTS.— 
(A) IN GENERAL.—Except as otherwise provided in this 
paragraph, the amendment made by section 1111 shall 
not apply to a real estate investment trust with respect 
to— 
(i) securities of a corporation held directly or 
indirectly by such trust on July 12, 1999, 
(ii) securities of a corporation held by an entity 
on July 12, 1999, if such trust acquires control of 
such entity pursuant to a written binding contract 
in effect on such date and at all times thereafter before 
such acquisition, 
(iii) securities received by such trust (or a suc-
cessor) in exchange for, or with respect to, securities 
described in clause (i) or (ii) in a transaction in which 
gain or loss is not recognized, and 
(iv) securities acquired directly or indirectly by 
such trust as part of a reorganization (as defined in 
section 368(a)(1) of the Internal Revenue Code of 1986) 
with respect to such trust if such securities are 
described in clause (i), (ii), or (iii) with respect to 
any other real estate investment trust. 
(B) NEW
TRADE
OR
BUSINESS
OR
SUBSTANTIAL
NEW 
ASSETS.—Subparagraph (A) shall cease to apply to securi-
ties of a corporation as of the first day after July 12, 
1999, on which such corporation engages in a substantial 
new line of business, or acquires any substantial asset, 
other than— 
(i) pursuant to a binding contract in effect on such 
date and at all times thereafter before the acquisition 
of such asset, 
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H. R. 2488—117 
(ii) in a transaction in which gain or loss is not 
recognized by reason of section 1031 or 1033 of the 
Internal Revenue Code of 1986, or 
(iii) in a reorganization (as so defined) with another 
corporation the securities of which are described in 
paragraph (1)(A) of this subsection. 
(C) LIMITATION ON TRANSITION RULES.—Subparagraph 
(A) shall cease to apply to securities of a corporation held, 
acquired, or received, directly or indirectly, by a real estate 
investment trust as of the first day after July 12, 1999, 
on which such trust acquires any additional securities of 
such corporation other than— 
(i) pursuant to a binding contract in effect on July 
12, 1999, and at all times thereafter, or 
(ii) in a reorganization (as so defined) with another 
corporation the securities of which are described in 
paragraph (1)(A) of this subsection. 
(2) TAX-FREE CONVERSION.—If— 
(A) at the time of an election for a corporation to 
become a taxable REIT subsidiary, the amendment made 
by section 1021 does not apply to such corporation by 
reason of paragraph (1), and 
(B) such election first takes effect before January 1, 
2004, 
such election shall be treated as a reorganization qualifying 
under section 368(a)(1)(A) of such Code. 
PART II—HEALTH CARE REITS 
SEC. 1121. HEALTH CARE REITS. 
(a) SPECIAL FORECLOSURE RULE
FOR HEALTH CARE PROP-
ERTIES.—Subsection (e) of section 856 (relating to special rules 
for foreclosure property) is amended by adding at the end the 
following new paragraph: 
‘‘(6) SPECIAL
RULE
FOR
QUALIFIED
HEALTH
CARE
PROP-
ERTIES.—For purposes of this subsection— 
‘‘(A) ACQUISITION AT EXPIRATION OF LEASE.—The term 
‘foreclosure property’ shall include any qualified health care 
property acquired by a real estate investment trust as 
the result of the termination of a lease of such property 
(other than a termination by reason of a default, or the 
imminence of a default, on the lease). 
‘‘(B) GRACE PERIOD.—In the case of a qualified health 
care property which is foreclosure property solely by reason 
of subparagraph (A), in lieu of applying paragraphs (2) 
and (3)— 
‘‘(i) the qualified health care property shall cease 
to be foreclosure property as of the close of the second 
taxable year after the taxable year in which such trust 
acquired such property, and 
‘‘(ii) if the real estate investment trust establishes 
to the satisfaction of the Secretary that an extension 
of the grace period in clause (i) is necessary to the 
orderly leasing or liquidation of the trust’s interest 
in such qualified health care property, the Secretary 
may grant one or more extensions of the grace period 
for such qualified health care property. 
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H. R. 2488—118 
Any such extension shall not extend the grace period 
beyond the close of the 6th year after the taxable year 
in which such trust acquired such qualified health care 
property. 
‘‘(C) INCOME FROM INDEPENDENT CONTRACTORS.—For 
purposes of applying paragraph (4)(C) with respect to quali-
fied health care property which is foreclosure property by 
reason of subparagraph (A) or paragraph (1), income 
derived or received by the trust from an independent con-
tractor shall be disregarded to the extent such income 
is attributable to— 
‘‘(i) any lease of property in effect on the date 
the real estate investment trust acquired the qualified 
health care property (without regard to its renewal 
after such date so long as such renewal is pursuant 
to the terms of such lease as in effect on such date), 
or 
‘‘(ii) any lease of property entered into after such 
date if— 
‘‘(I) on such date, a lease of such property 
from the trust was in effect, and 
‘‘(II) under the terms of the new lease, such 
trust receives a substantially similar or lesser ben-
efit in comparison to the lease referred to in sub-
clause (I). 
‘‘(D) QUALIFIED HEALTH CARE PROPERTY.— 
‘‘(i) IN GENERAL.—The term ‘qualified health care 
property’ means any real property (including interests 
therein), and any personal property incident to such 
real property, which— 
‘‘(I) is a health care facility, or 
‘‘(II) is necessary or incidental to the use of 
a health care facility. 
‘‘(ii) HEALTH
CARE
FACILITY.—For purposes of 
clause (i), the term ‘health care facility’ means a hos-
pital, nursing facility, assisted living facility, con-
gregate care facility, qualified continuing care facility 
(as defined in section 7872(g)(4)), or other licensed 
facility which extends medical or nursing or ancillary 
services to patients and which, immediately before the 
termination, expiration, default, or breach of the lease 
of or mortgage secured by such facility, was operated 
by a provider of such services which was eligible for 
participation in the medicare program under title XVIII 
of the Social Security Act with respect to such facility.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to taxable years beginning after December 31, 2000. 
PART III—CONFORMITY WITH REGULATED 
INVESTMENT COMPANY RULES 
SEC. 1131. CONFORMITY WITH REGULATED INVESTMENT COMPANY 
RULES. 
(a) DISTRIBUTION REQUIREMENT.—Clauses (i) and (ii) of section 
857(a)(1)(A) (relating to requirements applicable to real estate 
investment trusts) are each amended by striking ‘‘95 percent (90 
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