H. R. 2488—185 
SEC. 1334. CREDIT FOR CLINICAL TESTING RESEARCH EXPENSES 
ATTRIBUTABLE 
TO 
CERTAIN 
QUALIFIED 
ACADEMIC 
INSTITUTIONS INCLUDING TEACHING HOSPITALS. 
(a) IN GENERAL.—Subpart D of part IV of subchapter A of 
chapter 1 (relating to business related credits) is amended by 
inserting after section 41 the following: 
‘‘SEC. 41A. CREDIT FOR MEDICAL INNOVATION EXPENSES. 
‘‘(a) GENERAL RULE.—For purposes of section 38, the medical 
innovation credit determined under this section for the taxable 
year shall be an amount equal to 40 percent of the excess (if 
any) of— 
‘‘(1) the qualified medical innovation expenses for the tax-
able year, over 
‘‘(2) the medical innovation base period amount. 
‘‘(b) QUALIFIED MEDICAL INNOVATION EXPENSES.—For purposes 
of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified medical innovation 
expenses’ means the amounts which are paid or incurred by 
the taxpayer during the taxable year directly or indirectly 
to any qualified academic institution for clinical testing research 
activities. 
‘‘(2) CLINICAL TESTING RESEARCH ACTIVITIES.— 
‘‘(A) IN GENERAL.—The term ‘clinical testing research 
activities’ means human clinical testing conducted at any 
qualified academic institution in the development of any 
product, which occurs before— 
‘‘(i) the date on which an application with respect 
to such product is approved under section 505(b), 506, 
or 507 of the Federal Food, Drug, and Cosmetic Act 
(as in effect on the date of the enactment of this 
section), 
‘‘(ii) the date on which a license for such product 
is issued under section 351 of the Public Health Service 
Act (as so in effect), or 
‘‘(iii) the date classification or approval of such 
product which is a device intended for human use 
is given under section 513, 514, or 515 of the Federal 
Food, Drug, and Cosmetic Act (as so in effect). 
‘‘(B) PRODUCT.—The term ‘product’ means any drug, 
biologic, or medical device. 
‘‘(3) QUALIFIED ACADEMIC INSTITUTION.—The term ‘qualified 
academic institution’ means any of the following institutions: 
‘‘(A) EDUCATIONAL INSTITUTION.—A qualified organiza-
tion described in section 170(b)(1)(A)(iii) which is owned 
by, or affiliated with, an institution of higher education 
(as defined in section 3304(f )). 
‘‘(B) TEACHING HOSPITAL.—A teaching hospital which— 
‘‘(i) is publicly supported or owned by an organiza-
tion described in section 501(c)(3), and 
‘‘(ii) is affiliated with an organization meeting the 
requirements of subparagraph (A). 
‘‘(C) FOUNDATION.—A medical research organization 
described in section 501(c)(3) (other than a private founda-
tion) which is affiliated with, or owned by— 
‘‘(i) an organization meeting the requirements of 
subparagraph (A), or 
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H. R. 2488—186 
‘‘(ii) a teaching hospital meeting the requirements 
of subparagraph (B). 
‘‘(D) CHARITABLE RESEARCH HOSPITAL.—A hospital that 
is designated as a cancer center by the National Cancer 
Institute. 
‘‘(4) EXCLUSION FOR AMOUNTS FUNDED BY GRANTS, ETC.— 
The term ‘qualified medical innovation expenses’ shall not 
include any amount to the extent such amount is funded by 
any grant, contract, or otherwise by another person (or any 
governmental entity). 
‘‘(c) MEDICAL INNOVATION BASE PERIOD AMOUNT.—For purposes 
of this section, the term ‘medical innovation base period amount’ 
means the average annual qualified medical innovation expenses 
paid by the taxpayer during the 3-taxable year period ending with 
the taxable year immediately preceding the first taxable year of 
the taxpayer beginning after December 31, 1998. 
‘‘(d) SPECIAL RULES.— 
‘‘(1) LIMITATION ON FOREIGN TESTING.—No credit shall be 
allowed under this section with respect to any clinical testing 
research activities conducted outside the United States. 
‘‘(2) CERTAIN RULES MADE APPLICABLE.—Rules similar to 
the rules of subsections (f ) and (g) of section 41 shall apply 
for purposes of this section. 
‘‘(3) ELECTION.—This section shall apply to any taxpayer 
for any taxable year only if such taxpayer elects to have this 
section apply for such taxable year. 
‘‘(4) COORDINATION WITH CREDIT FOR INCREASING RESEARCH 
EXPENDITURES
AND
WITH
CREDIT
FOR
CLINICAL
TESTING 
EXPENSES FOR CERTAIN DRUGS FOR RARE DISEASES.—Any quali-
fied medical innovation expense for a taxable year to which 
an election under this section applies shall not be taken into 
account for purposes of determining the credit allowable under 
section 41 or 45C for such taxable year.’’. 
(b) CREDIT TO BE PART OF GENERAL BUSINESS CREDIT.— 
(1) IN GENERAL.—Section 38(b) (relating to current year 
business credits) is amended by striking ‘‘plus’’ at the end 
of paragraph (11), by striking the period at the end of paragraph 
(12) and inserting ‘‘, plus’’, and by adding at the end the 
following: 
‘‘(13) the medical innovation expenses credit determined 
under section 41A(a).’’. 
(2) TRANSITION RULE.—Section 39(d) is amended by adding 
at the end the following new paragraph: 
‘‘(9) NO CARRYBACK OF SECTION 41A CREDIT BEFORE ENACT-
MENT.—No portion of the unused business credit for any taxable 
year which is attributable to the medical innovation credit 
determined under section 41A may be carried back to a taxable 
year beginning before January 1, 1999.’’. 
(c) DENIAL
OF DOUBLE BENEFIT.—Section 280C is amended 
by adding at the end the following new subsection: 
‘‘(d) CREDIT FOR INCREASING MEDICAL INNOVATION EXPENSES.— 
‘‘(1) IN GENERAL.—No deduction shall be allowed for that 
portion of the qualified medical innovation expenses (as defined 
in section 41A(b)) otherwise allowable as a deduction for the 
taxable year which is equal to the amount of the credit deter-
mined for such taxable year under section 41A(a). 
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H. R. 2488—187 
‘‘(2) CERTAIN RULES TO APPLY.—Rules similar to the rules 
of paragraphs (2), (3), and (4) of subsection (c) shall apply 
for purposes of this subsection.’’. 
(d) DEDUCTION
FOR UNUSED PORTION
OF CREDIT.—Section 
196(c) (defining qualified business credits) is amended by redesig-
nating paragraphs (5) through (8) as paragraphs (6) through (9), 
respectively, and by inserting after paragraph (4) the following 
new paragraph: 
‘‘(5) the medical innovation expenses credit determined 
under section 41A(a) (other than such credit determined under 
the rules of section 280C(d)(2)),’’. 
(e) CLERICAL AMENDMENT.—The table of sections for subpart 
D of part IV of subchapter A of chapter 1 is amended by adding 
after the item relating to section 41 the following: 
‘‘Sec. 41A. Credit for medical innovation expenses.’’. 
(f ) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 1998. 
SEC. 1335. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES 
WITHOUT REDUCING PATRONAGE DIVIDENDS. 
(a) IN GENERAL.—Subsection (a) of section 1388 (relating to 
patronage dividend defined) is amended by adding at the end the 
following: ‘‘For purposes of paragraph (3), net earnings shall not 
be reduced by amounts paid during the year as dividends on capital 
stock or other proprietary capital interests of the organization to 
the extent that the articles of incorporation or bylaws of such 
organization or other contract with patrons provide that such divi-
dends are in addition to amounts otherwise payable to patrons 
which are derived from business done with or for patrons during 
the taxable year.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to distributions in taxable years beginning after the 
date of the enactment of this Act. 
Subtitle E—Tax Court Provisions 
SEC. 1341. TAX COURT FILING FEE IN ALL CASES COMMENCED BY 
FILING PETITION. 
(a) IN GENERAL.—Section 7451 (relating to fee for filing a 
Tax Court petition) is amended by striking all that follows ‘‘petition’’ 
and inserting a period. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall take effect on the date of the enactment of this Act. 
SEC. 1342. EXPANDED USE OF TAX COURT PRACTICE FEE. 
Subsection (b) of section 7475 (relating to use of fees) is 
amended by inserting before the period at the end ‘‘and to provide 
services to pro se taxpayers’’. 
SEC. 1343. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY 
DOCTRINE OF EQUITABLE RECOUPMENT. 
(a) CONFIRMATION
OF AUTHORITY
OF TAX COURT TO APPLY 
DOCTRINE OF EQUITABLE RECOUPMENT.—Subsection (b) of section 
6214 (relating to jurisdiction over other years and quarters) is 
amended by adding at the end the following new sentence: ‘‘Notwith-
standing the preceding sentence, the Tax Court may apply the 
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H. R. 2488—188 
doctrine of equitable recoupment to the same extent that it is 
available in civil tax cases before the district courts of the United 
States and the United States Court of Federal Claims.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall apply to any action or proceeding in the Tax Court with 
respect to which a decision has not become final (as determined 
under section 7481 of the Internal Revenue Code of 1986) as of 
the date of the enactment of this Act. 
TITLE XIV—EXTENSIONS OF EXPIRING 
PROVISIONS 
SEC. 1401. RESEARCH CREDIT. 
(a) EXTENSION.— 
(1) IN GENERAL.—Paragraph (1) of section 41(h) (relating 
to termination) is amended— 
(A) by striking ‘‘June 30, 1999’’ and inserting ‘‘June 
30, 2004’’, and 
(B) by striking the material following subparagraph 
(B). 
(2) TECHNICAL AMENDMENT.—Subparagraph (D) of section 
45C(b)(1) is amended by striking ‘‘June 30, 1999’’ and inserting 
‘‘June 30, 2004’’. 
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to amounts paid or incurred after June 
30, 1999. 
(b) INCREASE
IN PERCENTAGES UNDER ALTERNATIVE INCRE-
MENTAL CREDIT.— 
(1) IN GENERAL.—Subparagraph (A) of section 41(c)(4) is 
amended— 
(A) by striking ‘‘1.65 percent’’ and inserting ‘‘2.65 per-
cent’’, 
(B) by striking ‘‘2.2 percent’’ and inserting ‘‘3.2 per-
cent’’, and 
(C) by striking ‘‘2.75 percent’’ and inserting ‘‘3.75 per-
cent’’. 
(2) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to taxable years beginning after June 30, 
1999. 
SEC. 1402. SUBPART F EXEMPTION FOR ACTIVE FINANCING INCOME. 
(a) IN GENERAL.—Sections 953(e)(10) and 954(h)(9) are each 
amended— 
(1) by striking ‘‘the first taxable year’’ and inserting ‘‘tax-
able years’’, and 
(2) by striking ‘‘January 1, 2000’’ and inserting ‘‘January 
1, 2005’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to taxable years beginning after December 31, 1999. 
SEC. 1403. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR 
MARGINAL PRODUCTION. 
(a) IN GENERAL.—Subparagraph (H) of section 613A(c)(6) is 
amended by striking ‘‘January 1, 2000’’ and inserting ‘‘January 
1, 2005’’. 
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H. R. 2488—189 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to taxable years beginning after December 31, 1999. 
SEC. 1404. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK 
CREDIT. 
(a) TEMPORARY EXTENSION.—Sections 51(c)(4)(B) and 51A(f ) 
(relating to termination) are each amended by striking ‘‘June 30, 
1999’’ and inserting ‘‘December 31, 2001’’. 
(b) CLARIFICATION OF FIRST YEAR OF EMPLOYMENT.—Paragraph 
(2) of section 51(i) is amended by striking ‘‘during which he was 
not a member of a targeted group’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to individuals who begin work for the employer after 
June 30, 1999. 
SEC. 1405. EXTENSION AND MODIFICATION OF CREDIT FOR PRO-
DUCING 
ELECTRICITY 
FROM 
CERTAIN 
RENEWABLE 
RESOURCES. 
(a) EXTENSION
AND
MODIFICATION
OF
PLACED-IN-SERVICE 
RULES.—Paragraph (3) of section 45(c) is amended to read as fol-
lows: 
‘‘(3) QUALIFIED FACILITY.— 
‘‘(A) WIND FACILITY.—In the case of a facility using 
wind to produce electricity, the term ‘qualified facility’ 
means any facility owned by the taxpayer which is origi-
nally placed in service after December 31, 1993, and before 
July 1, 2003. 
‘‘(B) CLOSED-LOOP BIOMASS FACILITY.—In the case of 
a facility using closed-loop biomass to produce electricity, 
the term ‘qualified facility’ means any facility owned by 
the taxpayer which is originally placed in service after 
December 31, 1992, and before July 1, 2003. 
‘‘(C) POULTRY WASTE FACILITY.—In the case of a facility 
using poultry waste to produce electricity, the term ‘quali-
fied facility’ means any facility of the taxpayer which is 
originally placed in service after December 31, 1999, and 
before July 1, 2003.’’. 
(b) EXPANSION OF QUALIFIED ENERGY RESOURCES.— 
(1) IN GENERAL.—Section 45(c)(1) (defining qualified energy 
resources) is amended by striking ‘‘and’’ at the end of subpara-
graph (A), by striking the period at the end of subparagraph 
(B) and inserting ‘‘, and’’, and by adding at the end the following 
new subparagraph: 
‘‘(C) poultry waste.’’. 
(2) DEFINITION.—Section 45(c) is amended by adding at 
the end the following new paragraph: 
‘‘(4) POULTRY
WASTE.—The term ‘poultry waste’ means 
poultry manure and litter, including wood shavings, straw, 
rice hulls, and other bedding material for the disposition of 
manure.’’. 
(c) SPECIAL RULES.—Section 45(d) (relating to definitions and 
special rules) is amended by adding at the end the following new 
paragraphs: 
‘‘(6) CREDIT
ELIGIBILITY
IN
THE
CASE
OF
GOVERNMENT- 
OWNED FACILITIES USING POULTRY WASTE.—In the case of a 
facility using poultry waste to produce electricity and owned 
by a governmental unit, the person eligible for the credit under 
subsection (a) is the lessor or the operator of such facility. 
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H. R. 2488—190 
‘‘(7) CREDIT NOT TO APPLY TO ELECTRICITY SOLD TO UTILITIES 
UNDER CERTAIN CONTRACTS.— 
‘‘(A) IN GENERAL.—The credit determined under sub-
section (a) shall not apply to electricity— 
‘‘(i) produced at a qualified facility described in 
paragraph (3)(A) which is placed in service by the 
taxpayer after June 30, 1999, and 
‘‘(ii) sold to a utility pursuant to a contract origi-
nally entered into before January 1, 1987 (whether 
or not amended or restated after that date). 
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply 
if— 
‘‘(i) the prices for energy and capacity from such 
facility are established pursuant to an amendment to 
the contract referred to in subparagraph (A)(ii); 
‘‘(ii) such amendment provides that the prices set 
forth in the contract which exceed avoided cost prices 
determined at the time of delivery shall apply only 
to annual quantities of electricity (prorated for partial 
years) which do not exceed the greater of— 
‘‘(I) the average annual quantity of electricity 
sold to the utility under the contract during cal-
endar years 1994, 1995, 1996, 1997, and 1998, 
or 
‘‘(II) the estimate of the annual electricity 
production set forth in the contract, or, if there 
is no such estimate, the greatest annual quantity 
of electricity sold to the utility under the contract 
in any of the calendar years 1996, 1997, or 1998; 
and 
‘‘(iii) such amendment provides that energy and 
capacity in excess of the limitation in clause (ii) may 
be— 
‘‘(I) sold to the utility only at prices that do 
not exceed avoided cost prices determined at the 
time of delivery, or 
‘‘(II) sold to a third party subject to a mutually 
agreed upon advance notice to the utility. 
For purposes of this subparagraph, avoided cost prices 
shall be determined as provided for in 18 CFR 292.304(d)(1) 
or any successor regulation.’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall take effect on the date of the enactment of this Act. 
TITLE XV—REVENUE OFFSETS 
SEC. 1501. RETURNS RELATING TO CANCELLATIONS OF INDEBTED-
NESS BY ORGANIZATIONS LENDING MONEY. 
(a) IN GENERAL.—Paragraph (2) of section 6050P(c) (relating 
to definitions and special rules) is amended by striking ‘‘and’’ at 
the end of subparagraph (B), by striking the period at the end 
of subparagraph (C) and inserting ‘‘, and’’, and by inserting after 
subparagraph (C) the following new subparagraph: 
‘‘(D) any organization a significant trade or business 
of which is the lending of money.’’. 
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H. R. 2488—191 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to discharges of indebtedness after December 31, 1999. 
SEC. 1502. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES. 
(a) IN GENERAL.—Chapter 77 (relating to miscellaneous provi-
sions) is amended by adding at the end the following new section: 
‘‘SEC. 7527. INTERNAL REVENUE SERVICE USER FEES. 
‘‘(a) GENERAL RULE.—The Secretary shall establish a program 
requiring the payment of user fees for— 
‘‘(1) requests to the Internal Revenue Service for ruling 
letters, opinion letters, and determination letters, and 
‘‘(2) other similar requests. 
‘‘(b) PROGRAM CRITERIA.— 
‘‘(1) IN GENERAL.—The fees charged under the program 
required by subsection (a)— 
‘‘(A) shall vary according to categories (or subcat-
egories) established by the Secretary, 
‘‘(B) shall be determined after taking into account the 
average time for (and difficulty of) complying with requests 
in each category (and subcategory), and 
‘‘(C) shall be payable in advance. 
‘‘(2) EXEMPTIONS, ETC.—The Secretary shall provide for 
such exemptions (and reduced fees) under such program as 
the Secretary determines to be appropriate. 
‘‘(3) AVERAGE FEE REQUIREMENT.—The average fee charged 
under the program required by subsection (a) shall not be 
less than the amount determined under the following table: 
‘‘Category: 
Average Fee: 
Employee plan ruling and opinion ..................................................
$250
Exempt organization ruling .............................................................
$350
Employee plan determination .........................................................
$300
Exempt organization determination ...............................................
$275
Chief counsel ruling .........................................................................
$200. 
‘‘(c) TERMINATION.—No fee shall be imposed under this section 
with respect to requests made after September 30, 2009.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) The table of sections for chapter 77 is amended by 
adding at the end the following new item: 
‘‘Sec. 7527. Internal Revenue Service user fees.’’. 
(2) Section 10511 of the Revenue Act of 1987 is repealed. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to requests made after the date of the enactment of 
this Act. 
SEC. 1503. LIMITATIONS ON WELFARE BENEFIT FUNDS OF 10 OR MORE 
EMPLOYER PLANS. 
(a) 
BENEFITS
TO
WHICH
EXCEPTION
APPLIES.—Section 
419A(f )(6)(A) (relating to exception for 10 or more employer plans) 
is amended to read as follows: 
‘‘(A) IN GENERAL.—This subpart shall not apply to a 
welfare benefit fund which is part of a 10 or more employer 
plan if the only benefits provided through the fund are 
one or more of the following: 
‘‘(i) Medical benefits. 
‘‘(ii) Disability benefits. 
‘‘(iii) Group term life insurance benefits which do 
not provide directly or indirectly for any cash surrender 
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H. R. 2488—192 
value or other money that can be paid, assigned, bor-
rowed, or pledged for collateral for a loan. 
The preceding sentence shall not apply to any plan which 
maintains experience-rating arrangements with respect to 
individual employers.’’. 
(b) LIMITATION ON USE OF AMOUNTS FOR OTHER PURPOSES.— 
Section 4976(b) (defining disqualified benefit) is amended by adding 
at the end the following new paragraph: 
‘‘(5) SPECIAL
RULE
FOR
OR
MORE
EMPLOYER
PLANS 
EXEMPTED FROM PREFUNDING LIMITS.—For purposes of para-
graph (1)(C), if— 
‘‘(A) subpart D of part I of subchapter D of chapter 
1 does not apply by reason of section 419A(f )(6) to contribu-
tions to provide one or more welfare benefits through a 
welfare benefit fund under a 10 or more employer plan, 
and 
‘‘(B) any portion of the welfare benefit fund attributable 
to such contributions is used for a purpose other than 
that for which the contributions were made, 
then such portion shall be treated as reverting to the benefit 
of the employers maintaining the fund.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to contributions paid or accrued after June 9, 1999, 
in taxable years ending after such date. 
SEC. 1504. INCREASE IN ELECTIVE WITHHOLDING RATE FOR NONPERI-
ODIC DISTRIBUTIONS FROM DEFERRED COMPENSATION 
PLANS. 
(a) IN GENERAL.—Section 3405(b)(1) (relating to withholding) 
is amended by striking ‘‘10 percent’’ and inserting ‘‘15 percent’’. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to distributions after December 31, 2000. 
SEC. 1505. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS. 
(a) IN GENERAL.—Subsection (a) of section 856 (relating to 
definition of real estate investment trust) is amended by striking 
‘‘and’’ at the end of paragraph (6), by redesignating paragraph 
(7) as paragraph (8), and by inserting after paragraph (6) the 
following new paragraph: 
‘‘(7) which is not a controlled entity (as defined in sub-
section (l)); and’’. 
(b) CONTROLLED ENTITY.—Section 856 is amended by adding 
at the end the following new subsection: 
‘‘(l) CONTROLLED ENTITY.— 
‘‘(1) IN
GENERAL.—For purposes of subsection (a)(7), an 
entity is a controlled entity if, at any time during the taxable 
year, one person (other than a qualified entity)— 
‘‘(A) in the case of a corporation, owns stock— 
‘‘(i) possessing at least 50 percent of the total 
voting power of the stock of such corporation, or 
‘‘(ii) having a value equal to at least 50 percent 
of the total value of the stock of such corporation, 
or 
‘‘(B) in the case of a trust, owns beneficial interests 
in the trust which would meet the requirements of subpara-
graph (A) if such interests were stock. 
‘‘(2) QUALIFIED
ENTITY.—For purposes of paragraph (1), 
the term ‘qualified entity’ means— 
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H. R. 2488—193 
‘‘(A) any real estate investment trust, and 
‘‘(B) any partnership in which one real estate invest-
ment trust owns at least 50 percent of the capital and 
profits interests in the partnership. 
‘‘(3) ATTRIBUTION RULES.—For purposes of this paragraphs 
(1) and (2)— 
‘‘(A) IN GENERAL.—Rules similar to the rules of sub-
sections (d)(5) and (h)(3) shall apply; except that section 
318(a)(3)(C) shall not be applied under such rules to treat 
stock owned by a qualified entity as being owned by a 
person which is not a qualified entity. 
‘‘(B) STAPLED ENTITIES.—A group of entities which are 
stapled entities (as defined in section 269B(c)(2)) shall be 
treated as one person. 
‘‘(4) EXCEPTION FOR CERTAIN NEW REITS.— 
‘‘(A) IN GENERAL.—The term ‘controlled entity’ shall 
not include an incubator REIT. 
‘‘(B) INCUBATOR REIT.—A corporation shall be treated 
as an incubator REIT for any taxable year during the 
eligibility period if it meets all the following requirements 
for such year: 
‘‘(i) The corporation elects to be treated as an 
incubator REIT. 
‘‘(ii) The corporation has only voting common stock 
outstanding. 
‘‘(iii) Not more than 50 percent of the corporation’s 
real estate assets consist of mortgages. 
‘‘(iv) From not later than the beginning of the 
last half of the second taxable year, at least 10 percent 
of the corporation’s capital is provided by lenders or 
equity investors who are unrelated to the corporation’s 
largest shareholder. 
‘‘(v) The corporation annually increases the value 
of its real estate assets by at least 10 percent. 
‘‘(vi) The directors of the corporation adopt a reso-
lution setting forth an intent to engage in a going 
public transaction. 
No election may be made with respect to any REIT if 
an election under this subsection was in effect for any 
predecessor of such REIT. 
‘‘(C) ELIGIBILITY PERIOD.— 
‘‘(i) IN GENERAL.—The eligibility period (for which 
an incubator REIT election can be made) begins with 
the REIT’s second taxable year and ends at the close 
of the REIT’s third taxable year, except that the REIT 
may, subject to clauses (ii), (iii), and (iv), elect to extend 
such period for an additional 2 taxable years. 
‘‘(ii) GOING
PUBLIC
TRANSACTION.—A REIT may 
not elect to extend the eligibility period under clause 
(i) unless it enters into an agreement with the Sec-
retary that if it does not engage in a going public 
transaction by the end of the extended eligibility 
period, it shall pay Federal income taxes for the 2 
years of the extended eligibility period as if it had 
not made an incubator REIT election and had ceased 
to qualify as a REIT for those 2 taxable years. 
‘‘(iii) RETURNS, INTEREST, AND NOTICE.— 
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