I 
108TH CONGRESS 
1ST SESSION H. R. 1890
To amend the Internal Revenue Code of 1986 to simplify certain provisions 
applicable to real estate investment trusts. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 30, 2003
Mr. MCCRERY (for himself, Mr. CARDIN, Mr. SHAW, Mr. RANGEL, Mr. 
HOUGHTON, Mr. STARK, Mr. HERGER, Mr. MATSUI, Mr. CAMP, Mr. 
KLECZKA, Mr. RAMSTAD, Mr. LEWIS of Georgia, Mr. SAM JOHNSON of 
Texas, Mr. NEAL of Massachusetts, Ms. DUNN, Mr. BECERRA, Mr. 
PORTMAN, Mr. POMEROY, Mr. ENGLISH, Mr. SANDLIN, Mr. HAYWORTH, 
Mrs. JONES of Ohio, Mr. WELLER, Mr. MCINNIS, Mr. FOLEY, Mr. CAN-
TOR, and Mr. LEVIN) introduced the following bill; which was referred 
to the Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to simplify 
certain provisions applicable to real estate investment trusts.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Real Estate Invest-
ment Trust Improvement Act of 2003’’.
SEC. 2. AMENDMENT OF 1986 CODE. 
Except as otherwise expressly provided, whenever in 
the Act an amendment or repeal is expressed in terms of 
an amendment to, or repeal of, a section or other provi-
sion, the reference shall be considered to be made to a 
section or other provision of the Internal Revenue Code 
of 1986. 
TITLE I—REIT CORRECTIONS 
SEC. 101. REVISIONS TO REIT ASSET TEST. 
(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)). 
‘‘(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 
1361(c)(5)(B)(i) solely by reason of the fact 
that the time of payment of such interest or 
principal is subject to a contingency, but only 
if—
‘‘(i) any such contingency does not 
have the effect of changing the effective 
yield to maturity, as determined under sec-
tion 1272, other than a change in the an-
nual yield to maturity which either—
‘‘(I) does not exceed the greater 
of 1⁄4 of 1 percent or 5 percent of the 
annual yield to maturity, or 
‘‘(II) results solely from a default 
or the exercise of a prepayment right 
by the issuer of the debt, 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. 
‘‘(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 paragraph 
(1)(C)), and 
‘‘(ii) have an aggregate value greater 
than 1 percent of the issuer’s outstanding 
securities. 
‘‘(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 
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)—
‘‘(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).’’.
SEC. 102. CLARIFICATION OF APPLICATION OF LIMITED 
RENTAL EXCEPTION. 
Subparagraph (A) of section 856(d)(8) (relating to 
special rules for taxable REIT subsidiaries) is amended 
to read as follows: 
‘‘(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—
‘‘(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—
‘‘(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