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SEC. 285. IMPROVEMENTS RELATED TO REAL ESTATE IN-
VESTMENT TRUSTS. 
(a) EXPANSION
OF STRAIGHT DEBT SAFE HAR-
BOR.—Section 856 (defining real estate investment trust) 
is amended—
(1) in subsection (c) by striking paragraph (7), 
and 
(2) by adding at the end the following new sub-
section: 
‘‘(m) SAFE HARBOR
IN APPLYING SUBSECTION 
(c)(4).—
‘‘(1) IN GENERAL.—In applying subclause (III) 
of subsection (c)(4)(B)(iii), except as otherwise de-
termined by the Secretary in regulations, the fol-
lowing shall not be considered securities held by the 
trust: 
‘‘(A) Straight debt securities of an issuer 
which meet the requirements of paragraph (2). 
‘‘(B) Any loan to an individual or an es-
tate. 
‘‘(C) Any section 467 rental agreement (as 
defined in section 467(d)), other than with a 
person described in subsection (d)(2)(B). 
‘‘(D) Any obligation to pay rents from real 
property (as defined in subsection (d)(1)).
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‘‘(E) Any security issued by a State or any 
political subdivision thereof, the District of Co-
lumbia, a foreign government or any political 
subdivision thereof, or the Commonwealth of 
Puerto Rico, but only if the determination of 
any payment received or accrued under such se-
curity does not depend in whole or in part on 
the profits of any entity not described in this 
subparagraph or payments on any obligation 
issued by such an entity, 
‘‘(F) Any security issued by a real estate 
investment trust. 
‘‘(G) Any other arrangement as deter-
mined by the Secretary. 
‘‘(2) SPECIAL RULES RELATING TO STRAIGHT 
DEBT SECURITIES.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(A), securities meet the requirements 
of this paragraph if such securities are straight 
debt, as defined in section 1361(c)(5) (without 
regard to subparagraph (B)(iii) thereof). 
‘‘(B) SPECIAL RULES RELATING TO CER-
TAIN
CONTINGENCIES.—For purposes of sub-
paragraph (A), any interest or principal shall 
not be treated as failing to satisfy section
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1361(c)(5)(B)(i) solely by reason of the fact 
that—
‘‘(i) the time of payment of such in-
terest or principal is subject to a contin-
gency, but only if—
‘‘(I) any such contingency does 
not have the effect of changing the ef-
fective yield to maturity, as deter-
mined under section 1272, other than 
a change in the annual yield to matu-
rity which does not exceed the greater 
of 1⁄4 of 1 percent or 5 percent of the 
annual yield to maturity, or 
‘‘(II) neither the aggregate issue price 
nor the aggregate face amount of the 
issuer’s debt instruments held by the trust 
exceeds $1,000,000 and not more than 12 
months of unaccrued interest can be re-
quired to be prepaid thereunder, or 
‘‘(ii) the time or amount of payment 
is subject to a contingency upon a default 
or the exercise of a prepayment right by 
the issuer of the debt, but only if such con-
tingency is consistent with customary com-
mercial practice.
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‘‘(C) SPECIAL RULES RELATING TO COR-
PORATE
OR
PARTNERSHIP
ISSUERS.—In the 
case of an issuer which is a corporation or a 
partnership, securities that otherwise would be 
described in paragraph (1)(A) shall be consid-
ered not to be so described if the trust holding 
such securities and any of its controlled taxable 
REIT subsidiaries (as defined in subsection 
(d)(8)(A)(iv)) hold any securities of the issuer 
which—
‘‘(i) are not described in paragraph 
(1) (prior to the application of this sub-
paragraph), and 
‘‘(ii) have an aggregate value greater 
than 1 percent of the issuer’s outstanding 
securities determined without regard to 
paragraph (3)(A)(i). 
‘‘(3) LOOK-THROUGH RULE FOR PARTNERSHIP 
SECURITIES.—
‘‘(A) IN GENERAL.—For purposes of ap-
plying 
subclause 
(III) 
of 
subsection 
(c)(4)(B)(iii)—
‘‘(i) a trust’s interest as a partner in 
a partnership (as defined in section
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7701(a)(2)) shall not be considered a secu-
rity, and 
‘‘(ii) the trust shall be deemed to own 
its proportionate share of each of the as-
sets of the partnership. 
‘‘(B) DETERMINATION OF TRUST’S INTER-
EST IN PARTNERSHIP ASSETS.—For purposes 
of subparagraph (A), with respect to any tax-
able year beginning after the date of the enact-
ment of this subparagraph—
‘‘(i) the trust’s interest in the partner-
ship assets shall be the trust’s propor-
tionate interest in any securities issued by 
the partnership (determined without re-
gard to subparagraph (A)(i) and para-
graph (4), but not including securities de-
scribed in paragraph (1)), and 
‘‘(ii) the value of any debt instrument 
shall be the adjusted issue price thereof, as 
defined in section 1272(a)(4). 
‘‘(4) CERTAIN
PARTNERSHIP
DEBT
INSTRU-
MENTS NOT TREATED AS A SECURITY.—For pur-
poses of applying subclause (III) of subsection 
(c)(4)(B)(iii)—
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‘‘(A) any debt instrument issued by a part-
nership and not described in paragraph (1) 
shall not be considered a security to the extent 
of the trust’s interest as a partner in the part-
nership, and 
‘‘(B) any debt instrument issued by a part-
nership and not described in paragraph (1) 
shall not be considered a security if at least 75 
percent of the partnership’s gross income (ex-
cluding gross income from prohibited trans-
actions) is derived from sources referred to in 
subsection (c)(3). 
‘‘(5) SECRETARIAL GUIDANCE.—The Secretary 
is authorized to provide guidance (including through 
the issuance of a written determination, as defined 
in section 6110(b)) that an arrangement shall not be 
considered a security held by the trust for purposes 
of 
applying 
subclause 
(III) 
of 
subsection 
(c)(4)(B)(iii) notwithstanding that such arrangement 
otherwise could be considered a security under sub-
paragraph (F) of subsection (c)(5).’’. 
(b) CLARIFICATION OF APPLICATION OF LIMITED 
RENTAL
EXCEPTION.—Subparagraph (A) of section 
856(d)(8) (relating to special rules for taxable REIT sub-
sidiaries) is amended to read as follows:
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‘‘(A) LIMITED RENTAL EXCEPTION.—
‘‘(i) IN GENERAL.—The requirements 
of this subparagraph are met with respect 
to any property if at least 90 percent of 
the leased space of the property is rented 
to persons other than taxable REIT sub-
sidiaries of such trust and other than per-
sons described in paragraph (2)(B). 
‘‘(ii) RENTS MUST BE SUBSTANTIALLY 
COMPARABLE.—Clause (i) shall apply only 
to the extent that the amounts paid to the 
trust as rents from real property (as de-
fined in paragraph (1) without regard to 
paragraph (2)(B)) from such property are 
substantially comparable to such rents paid 
by the other tenants of the trust’s property 
for comparable space. 
‘‘(iii) TIMES FOR TESTING RENT COM-
PARABILITY.—The 
substantial 
com-
parability requirement of clause (ii) shall 
be treated as met with respect to a lease 
to a taxable REIT subsidiary of the trust 
if such requirement is met under the terms 
of the lease—
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‘‘(I) at the time such lease is en-
tered into, 
‘‘(II) at the time of each exten-
sion of the lease, including a failure to 
exercise a right to terminate, and 
‘‘(III) at the time of any modi-
fication of the lease between the trust 
and the taxable REIT subsidiary if 
the rent under such lease is effectively 
increased pursuant to such modifica-
tion. 
With respect to subclause (III), if the tax-
able REIT subsidiary of the trust is a con-
trolled taxable REIT subsidiary of the 
trust, the term ‘rents from real property’ 
shall not in any event include rent under 
such lease to the extent of the increase in 
such rent on account of such modification. 
‘‘(iv) CONTROLLED
TAXABLE
REIT 
SUBSIDIARY.—For purposes of clause (iii), 
the term ‘controlled taxable REIT sub-
sidiary’ means, with respect to any real es-
tate investment trust, any taxable REIT 
subsidiary of such trust if such trust owns 
directly or indirectly—
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‘‘(I) stock possessing more than 
50 percent of the total voting power 
of the outstanding stock of such sub-
sidiary, or 
‘‘(II) stock having a value of 
more than 50 percent of the total 
value of the outstanding stock of such 
subsidiary. 
‘‘(v) 
CONTINUING
QUALIFICATION 
BASED ON THIRD PARTY ACTIONS.—If the 
requirements of clause (i) are met at a 
time referred to in clause (iii), such re-
quirements shall continue to be treated as 
met so long as there is no increase in the 
space leased to any taxable REIT sub-
sidiary of such trust or to any person de-
scribed in paragraph (2)(B). 
‘‘(vi) CORRECTION PERIOD.—If there 
is an increase referred to in clause (v) dur-
ing any calendar quarter with respect to 
any property, the requirements of clause 
(iii) shall be treated as met during the 
quarter and the succeeding quarter if such 
requirements are met at the close of such 
succeeding quarter.’’.
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(c) DELETION
OF CUSTOMARY SERVICES EXCEP-
TION.—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. 
(d) CONFORMITY WITH GENERAL HEDGING DEFINI-
TION.—Subparagraph (G) of section 856(c)(5) (relating 
to treatment of certain hedging instruments) 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.’’. 
(e) CONFORMITY WITH REGULATED INVESTMENT 
COMPANY RULES.—Clause (i) of section 857(b)(5)(A) (re-
lating to imposition of tax in case of failure to meet certain
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requirements) is amended by striking ‘‘90 percent’’ and 
inserting ‘‘95 percent’’. 
(f) SAVINGS PROVISIONS.—
(1) RULES OF APPLICATION FOR FAILURE TO 
SATISFY SECTION 856(c)(4).—Section 856(c) (relat-
ing to definition of real estate investment trust) is 
amended by inserting after paragraph (6) the fol-
lowing new paragraph: 
‘‘(7) RULES OF APPLICATION FOR FAILURE TO 
SATISFY PARAGRAPH (4).—
‘‘(A) DE
MINIMIS
FAILURE.—A corpora-
tion, trust, or association that fails to meet the 
requirements of paragraph (4)(B)(iii) for a par-
ticular quarter shall nevertheless be considered 
to have satisfied the requirements of such para-
graph for such quarter if—
‘‘(i) such failure is due to the owner-
ship of assets the total value of which does 
not exceed the lesser of—
‘‘(I) 1 percent of the total value 
of the trust’s assets at the end of the 
quarter for which such measurement 
is done, and 
‘‘(II) $10,000,000, and
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‘‘(ii)(I) the corporation, trust, or asso-
ciation, following the identification of such 
failure, disposes of assets in order to meet 
the requirements of such paragraph within 
6 months after the last day of the quarter 
in which the corporation, trust or associa-
tion’s identification of the failure to satisfy 
the requirements of such paragraph oc-
curred or such other time period prescribed 
by the Secretary and in the manner pre-
scribed by the Secretary, or 
‘‘(II) the requirements of such para-
graph are otherwise met within the time 
period specified in subclause (I). 
‘‘(B) FAILURES
EXCEEDING
DE
MINIMIS 
AMOUNT.—A corporation, trust, or association 
that fails to meet the requirements of para-
graph (4) for a particular quarter shall never-
theless be considered to have satisfied the re-
quirements of such paragraph for such quarter 
if—
‘‘(i) such failure involves the owner-
ship of assets the total value of which ex-
ceeds the de minimis standard described in 
subparagraph (A)(i) at the end of the
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quarter for which such measurement is 
done, 
‘‘(ii) following the corporation, trust, 
or association’s identification of the failure 
to satisfy the requirements of such para-
graph for a particular quarter, a descrip-
tion of each asset that causes the corpora-
tion, trust, or association to fail to satisfy 
the requirements of such paragraph at the 
close of such quarter of any taxable year is 
set forth in a schedule for such quarter 
filed in accordance with regulations pre-
scribed by the Secretary, 
‘‘(iii) the failure to meet the require-
ments of such paragraph for a particular 
quarter is due to reasonable cause and not 
due to willful neglect,
‘‘(iv) the corporation, trust, or asso-
ciation pays a tax computed under sub-
paragraph (C), and 
‘‘(v)(I) the corporation, trust, or asso-
ciation disposes of the assets set forth on 
the schedule specified in clause (ii) within 
6 months after the last day of the quarter 
in which the corporation, trust or associa-
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tion’s identification of the failure to satisfy 
the requirements of such paragraph oc-
curred or such other time period prescribed 
by the Secretary and in the manner pre-
scribed by the Secretary, or 
‘‘(II) the requirements of such para-
graph are otherwise met within the time 
period specified in subclause (I). 
‘‘(C) TAX.—For purposes of subparagraph 
(B)(iv)—
‘‘(i) TAX IMPOSED.—If a corporation, 
trust, or association elects the application 
of this subparagraph, there is hereby im-
posed a tax on the failure described in sub-
paragraph (B) of such corporation, trust, 
or association. Such tax shall be paid by 
the corporation, trust, or association. 
‘‘(ii) TAX
COMPUTED.—The amount 
of the tax imposed by clause (i) shall be 
the greater of—
‘‘(I) $50,000, or 
‘‘(II) the amount determined 
(pursuant to regulations promulgated 
by the Secretary) by multiplying the 
net income generated by the assets
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described in the schedule specified in 
subparagraph (B)(ii) for the period 
specified in clause (iii) by the highest 
rate of tax specified in section 11. 
‘‘(iii) 
PERIOD.—For 
purposes 
of 
clause (ii)(II), the period described in this 
clause is the period beginning on the first 
date that the failure to satisfy the require-
ments of such paragraph (4) occurs as a 
result of the ownership of such assets and 
ending on the earlier of the date on which 
the trust disposes of such assets or the end 
of the first quarter when there is no longer 
a failure to satisfy such paragraph (4). 
‘‘(iv) ADMINISTRATIVE PROVISIONS.—
For purposes of subtitle F, the taxes im-
posed by this subparagraph shall be treat-
ed as excise taxes with respect to which the 
deficiency procedures of such subtitle 
apply.’’. 
(2) MODIFICATION OF RULES OF APPLICATION 
FOR FAILURE TO SATISFY SECTIONS 856(c)(2) OR 
856(c)(3).—Paragraph (6) of section 856(c) (relat-
ing to definition of real estate investment trust) is 
amended by striking subparagraphs (A) and (B), by
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redesignating subparagraph (C) as subparagraph 
(B), and by inserting before subparagraph (B) (as 
so redesignated) the following new subparagraph: 
‘‘(A) following the corporation, trust, or 
association’s identification of the failure to meet 
the requirements of paragraph (2) or (3), or of 
both such paragraphs, for any taxable year, a 
description of each item of its gross income de-
scribed in such paragraphs is set forth in a 
schedule for such taxable year filed in accord-
ance with regulations prescribed by the Sec-
retary, and’’. 
(3) REASONABLE CAUSE EXCEPTION TO LOSS 
OF REIT STATUS IF FAILURE TO SATISFY REQUIRE-
MENTS.—Subsection (g) of section 856 (relating to 
termination of election) is amended—
(A) in paragraph (1) by inserting before 
the period at the end of the first sentence the 
following: ‘‘unless paragraph (5) applies’’, and 
(B) by adding at the end the following new 
paragraph: 
‘‘(5) ENTITIES
TO
WHICH
PARAGRAPH
AP-
PLIES.—This paragraph applies to a corporation, 
trust, or association—
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‘‘(A) which is not a real estate investment 
trust to which the provisions of this part apply 
for the taxable year due to one or more failures 
to comply with one or more of the provisions of 
this part (other than subsection (c)(6) or (c)(7) 
of section 856), 
‘‘(B) such failures are due to reasonable 
cause and not due to willful neglect, and 
‘‘(C) if such corporation, trust, or associa-
tion pays (as prescribed by the Secretary in 
regulations and in the same manner as tax) a 
penalty of $50,000 for each failure to satisfy a 
provision of this part due to reasonable cause 
and not willful neglect.’’. 
(4) DEDUCTION OF TAX PAID FROM AMOUNT 
REQUIRED TO BE DISTRIBUTED.—Subparagraph (E) 
of section 857(b)(2) is amended by striking ‘‘(7)’’ 
and inserting ‘‘(7) of this subsection, section 
856(c)(7)(B)(iii), and section 856(g)(1).’’. 
(5) EXPANSION OF DEFICIENCY DIVIDEND PRO-
CEDURE.—Subsection (e) of section 860 is amended 
by striking ‘‘or’’ at the end of paragraph (2), by 
striking the period at the end of paragraph (3) and 
inserting ‘‘; or’’, and by adding at the end the fol-
lowing new paragraph:
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‘‘(4) a statement by the taxpayer attached to its 
amendment or supplement to a return of tax for the 
relevant tax year.’’. 
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to taxable years beginning after Decem-
ber 31, 2000. 
(2) SUBPARAGRAPHS (c) THROUGH (f).—The 
amendments made by subsections (c), (d), (e), and 
(f) shall apply to taxable years beginning after the 
date of the enactment of this Act. 
SEC. 286. TREATMENT OF CERTAIN DIVIDENDS OF REGU-
LATED INVESTMENT COMPANIES. 
(a) TREATMENT OF CERTAIN DIVIDENDS.—
(1) NONRESIDENT ALIEN INDIVIDUALS.—Sec-
tion 871 (relating to tax on nonresident alien indi-
viduals) is amended by redesignating subsection (k) 
as subsection (l) and by inserting after subsection (j) 
the following new subsection: 
‘‘(k) EXEMPTION FOR CERTAIN DIVIDENDS OF REG-
ULATED INVESTMENT COMPANIES.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), no tax shall be imposed
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under paragraph (1)(A) of subsection (a) on 
any interest-related dividend received from a 
regulated investment company. 
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A) 
shall not apply—
‘‘(i) to any interest-related dividend 
received from a regulated investment com-
pany by a person to the extent such divi-
dend is attributable to interest (other than 
interest described in subparagraph (E) (i) 
or (iii)) received by such company on in-
debtedness issued by such person or by any 
corporation or partnership with respect to 
which such person is a 10-percent share-
holder, 
‘‘(ii) to any interest-related dividend 
with respect to stock of a regulated invest-
ment company unless the person who 
would otherwise be required to deduct and 
withhold tax from such dividend under 
chapter 3 receives a statement (which 
meets requirements similar to the require-
ments of subsection (h)(5)) that the bene-
ficial owner of such stock is not a United 
States person, and
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‘‘(iii) to any interest-related dividend 
paid to any person within a foreign coun-
try (or any interest-related dividend pay-
ment addressed to, or for the account of, 
persons within such foreign country) dur-
ing any period described in subsection 
(h)(6) with respect to such country. 
Clause (iii) shall not apply to any dividend with 
respect to any stock which was acquired on or 
before the date of the publication of the Sec-
retary’s determination under subsection (h)(6). 
‘‘(C) INTEREST-RELATED DIVIDEND.—For 
purposes of this paragraph, an interest-related 
dividend is any dividend (or part thereof) which 
is designated by the regulated investment com-
pany as an interest-related dividend in a writ-
ten notice mailed to its shareholders not later 
than 60 days after the close of its taxable year. 
If the aggregate amount so designated with re-
spect to a taxable year of the company (includ-
ing amounts so designated with respect to divi-
dends paid after the close of the taxable year 
described in section 855) is greater than the 
qualified net interest income of the company for 
such taxable year, the portion of each distribu-
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tion which shall be an interest-related dividend 
shall be only that portion of the amounts so 
designated which such qualified net interest in-
come bears to the aggregate amount so des-
ignated. 
‘‘(D) 
QUALIFIED
NET
INTEREST
IN-
COME.—For purposes of subparagraph (C), the 
term ‘qualified net interest income’ means the 
qualified interest income of the regulated in-
vestment company reduced by the deductions 
properly allocable to such income. 
‘‘(E) QUALIFIED INTEREST INCOME.—For 
purposes of subparagraph (D), the term ‘quali-
fied interest income’ means the sum of the fol-
lowing amounts derived by the regulated invest-
ment company from sources within the United 
States: 
‘‘(i) Any amount includible in gross 
income as original issue discount (within 
the meaning of section 1273) on an obliga-
tion payable 183 days or less from the date 
of original issue (without regard to the pe-
riod held by the company). 
‘‘(ii) Any interest includible in gross 
income (including amounts recognized as
133
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taxes paid or accrued in a taxable year be-
ginning on or after such date, and 
‘‘(ii) the Secretary may by regulations 
provide for the allocation of any carryback 
of taxes with respect to income to such a 
taxable year for purposes of allocating such 
income among the separate categories in 
effect for such taxable year.’’. 
(7) Section 904(j)(3)(A)(i) is amended by strik-
ing ‘‘subsection (d)(2)(A)’’ and inserting ‘‘subsection 
(d)(2)(B)’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 304. LOOK-THRU RULES TO APPLY TO DIVIDENDS 
FROM NONCONTROLLED SECTION 902 COR-
PORATIONS. 
(a) IN GENERAL.—Section 904(d)(4) (relating to 
look-thru rules apply to dividends from noncontrolled sec-
tion 902 corporations) is amended to read as follows: 
‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM 
NONCONTROLLED SECTION 902 CORPORATIONS.—
‘‘(A) IN GENERAL.—For purposes of this 
subsection, any dividend from a noncontrolled 
section 902 corporation with respect to the tax-
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SEC. 402. EXTENSION OF RESEARCH CREDIT. 
(a) EXTENSION.—
(1) IN GENERAL.—Section 41(h)(1)(B) (relat-
ing to termination) is amended by striking ‘‘June 
30, 2004’’ and inserting ‘‘December 31, 2005’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
45C(b)(1)(D) is amended by striking ‘‘June 30, 
2004’’ and inserting ‘‘December 31, 2005’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to amounts paid or incurred 
after the date of the enactment of this Act. 
SEC. 403. EXTENSION OF CREDIT FOR ELECTRICITY PRO-
DUCED 
FROM 
CERTAIN 
RENEWABLE 
RE-
SOURCES. 
(a) IN GENERAL.—Subparagraphs (A) and (B) of 
section 45(c)(3) (defining qualified facility) are both 
amended by striking ‘‘2004’’ and inserting ‘‘2006’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to electricity produced and sold 
after December 31, 2003. 
SEC. 404. INDIAN EMPLOYMENT TAX CREDIT. 
Section 45A(f) (relating to termination) is amended 
by striking ‘‘December 31, 2004’’ and inserting ‘‘Decem-
ber 31, 2005’’.