quarter and the succeeding quarter if such 
requirements are met at the close of such 
succeeding quarter.’’. 
SEC. 103. DELETION OF CUSTOMARY SERVICES EXCEPTION. 
Subparagraph (B) of section 857(b)(7) (relating to 
redetermined rents) is amended by striking clause (ii) and 
by redesignating clauses (iii), (iv), (v), (vi), and (vii) as 
clauses (ii), (iii), (iv), (v), and (vi), respectively. 
SEC. 104. CONFORMITY WITH GENERAL HEDGING DEFINI-
TION. 
(a) DEFINITION.—Subparagraph (G) of section 
856(c)(5) (relating to treatment of certain hedging instru-
ments) is amended to read as follows: 
‘‘(G) TREATMENT OF CERTAIN HEDGING 
INSTRUMENTS.—Except to the extent provided 
by regulations, any income of a real estate in-
vestment trust from a hedging transaction (as 
defined in clause (ii) or (iii) of section 
1221(b)(2)(A)) which is clearly identified pur-
suant to section 1221(a)(7), including gain 
from the sale or disposition of such a trans-
action, shall not constitute gross income under 
paragraph (2) to the extent that the transaction 
hedges any indebtedness incurred or to be in-
curred by the trust to acquire or carry real es-
tate assets.’’. 
SEC. 105. CONFORMITY WITH REGULATED INVESTMENT 
COMPANY RULES. 
Clause (i) of section 857(b)(5)(A) (relating to imposi-
tion of tax in case of failure to meet certain requirements) 
is amended by striking ‘‘90 percent’’ and inserting ‘‘95 
percent’’. 
SEC. 106. PROHIBITED TRANSACTIONS PROVISIONS. 
(a) EXPANSION OF PROHIBITED TRANSACTION SAFE 
HARBOR.—Section 857(b)(6) (relating to income from 
prohibited transactions) is amended by redesignating sub-
paragraphs (D) and (E) as subparagraphs (E) and (F), 
respectively, and by inserting after subparagraph (C) the 
following new subparagraph: 
‘‘(D) CERTAIN SALES NOT TO CONSTITUTE 
PROHIBITED TRANSACTIONS.—For purposes of 
this part, the term ‘prohibited transaction’ does 
not include a sale of property which is a real es-
tate asset (as defined in section 856(c)(5)(B)) 
if—
‘‘(i) the trust held the property for 
not less than 4 years in connection with 
the trade or business of producing timber,
‘‘(ii) the aggregate expenditures made 
by the trust, or a partner of the trust, dur-
ing the 4-year period preceding the date of 
sale which—
‘‘(I) are includible in the basis of 
the property (other than timberland 
acquisition expenditures), and 
‘‘(II) are directly related to oper-
ation of the property for the produc-
tion of timber or for the preservation 
of the property for use as timberland, 
do not exceed 30 percent of the net selling 
price of the property, 
‘‘(iii) the aggregate expenditures made 
by the trust, or a partner of the trust, dur-
ing the 4-year period preceding the date of 
sale which—
‘‘(I) are includible in the basis of 
the property (other than timberland 
acquisition expenditures), and 
‘‘(II) are not directly related to 
operation of the property for the pro-
duction of timber, or for the preserva-
tion of the property for use as
timberland, do not exceed 5 percent of 
the net selling price of the property, 
‘‘(iv)(I) during the taxable year the 
trust does not make more than 7 sales of 
property (other than sales of foreclosure 
property or sales to which section 1033 ap-
plies), or 
‘‘(II) the aggregate adjusted bases (as 
determined for purposes of computing 
earnings and profits) of property (other 
than sales of foreclosure property or sales 
to which section 1033 applies) sold during 
the taxable year does not exceed 10 per-
cent of the aggregate bases (as so deter-
mined) of all of the assets of the trust as 
of the beginning of the taxable year, 
‘‘(v) in the case that the requirement 
of clause (iv)(I) is not satisfied, substan-
tially all of the marketing expenditures 
with respect to the property were made 
through an independent contractor (as de-
fined in section 856(d)(3)) from whom the 
trust itself does not derive or receive any 
income, and
‘‘(vi) the sales price of the property 
sold by the trust to its taxable REIT sub-
sidiary is not based in whole or in part on 
the income or profits of the subsidiary or 
the income or profits that the subsidiary 
derives from the sale or operation of such 
property.’’. 
SEC. 107. EFFECTIVE DATES. 
(a) IN GENERAL.—Except as provided in subsection 
(b), the amendments made by this title shall apply to tax-
able years beginning after December 31, 2000. 
(b) SECTIONS 103 THROUGH 106.—The amend-
ments made by sections 103, 104, 105 and 106 shall apply 
to taxable years beginning after the date of the enactment 
of this Act. 
TITLE II—FIRPTA CORRECTION 
SEC. 201. MODIFICATION OF THE TREATMENT OF CERTAIN 
REIT 
DISTRIBUTIONS 
ATTRIBUTABLE 
TO 
GAIN 
FROM 
SALES 
OR 
EXCHANGES 
OF 
UNITED STATES REAL PROPERTY INTERESTS. 
(a) IN GENERAL.—Paragraph (1) of section 897(h) 
(relating to look-through of distributions) is amended by 
inserting before the period at the end the following: ‘‘, ex-
cept that any distribution by a REIT with respect to any 
class of stock which is regularly traded on an established