the extent the interest thereon is excludable from 
gross income under section 116’’. 
(4) Subsection (c) of section 584 of such Code 
is amended by adding at the end thereof the fol-
lowing new sentence: ‘‘The proportionate share of 
each participant in the amount of interest received 
by the common trust fund and to which section 116 
applies shall be considered for purposes of such sec-
tion as having been received by such participant.’’. 
(5) Subsection (a) of section 643 of such Code 
is amended by redesignating paragraph (7) as para-
graph (8) and by inserting after paragraph (6) the 
following new paragraph: 
‘‘(7) INTEREST.—There shall be included the 
amount of any interest excluded from gross income 
pursuant to section 116.’’. 
(6) Section 854 of such Code is amended by 
adding at the end thereof the following new sub-
section: 
‘‘(c) TREATMENT UNDER SECTION 116 FOR OTHER 
DIVIDENDS AND TAXABLE INTEREST.— 
‘‘(1) IN
GENERAL.—For purposes of section 
116, in the case of any dividend (other than a divi-
dend described in subsection (a)) received from a 
regulated investment company which meets the re-
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quirements of section 852 for the taxable year in 
which it paid the dividend— 
‘‘(A) the entire amount of such dividend 
shall be treated as interest if the aggregate in-
terest received by such company during the tax-
able year equals or exceeds 75 percent of its 
gross income, 
‘‘(B) the entire amount of such dividend 
shall be treated as interest if the aggregate in-
terest received by such company during the tax-
able year equals or exceeds 75 percent of its 
gross income, or 
‘‘(C) if subparagraphs (A) and (B) do not 
apply, a portion of such dividend shall be treat-
ed as a dividend (and a portion of such divi-
dend shall be treated as interest) based on the 
portion of the company’s gross income which 
consists of aggregate dividends or aggregate in-
terest, as the case may be. 
For purposes of the preceding sentence, gross in-
come and aggregate interest received shall each be 
reduced by so much of the deduction allowable by 
section 163 for the taxable year as does not exceed 
aggregate interest received for the taxable year. 
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‘‘(2) NOTICE TO SHAREHOLDERS.—The amount 
of any distribution by a regulated investment com-
pany which may be taken into account as a dividend 
and as interest for purposes of the exclusion under 
section 116 shall not exceed the amount so des-
ignated by the company in a written notice to its 
shareholders mailed not later than 45 days after the 
close of its taxable year. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) The term ‘gross income’ does not in-
clude gain from the sale or other disposition of 
stock or securities. 
‘‘(B) The term ‘aggregate dividends re-
ceived’ includes only dividends described in sec-
tion 116(d). 
‘‘(C) The term ‘aggregate interest received’ 
includes only interest described in section 
116(c).’’. 
(7) Subsection (c) of section 857 of such Code 
is amended by adding at the end the following new 
paragraph: 
‘‘(3) TREATMENT AS INTEREST.— 
‘‘(A) IN GENERAL.—For purposes of sec-
tion 116, in the case of a dividend (other than 
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a capital gain dividend, as defined in subsection 
(b)(3)(C)) received from a real estate invest-
ment trust which meets the requirements of 
this part for the taxable year in which it paid 
the dividend— 
‘‘(i) such dividend shall be treated as 
interest if the aggregate interest received 
by the real estate investment trust for the 
taxable year equals or exceeds 75 percent 
of its gross income, or 
‘‘(ii) if clause (i) does not apply, the 
portion of such dividend which bears the 
same ratio to the amount of such dividend 
as the aggregate interest received bears to 
gross income shall be treated as interest. 
‘‘(B) ADJUSTMENTS
TO
GROSS
INCOME 
AND
AGGREGATE
INTEREST
RECEIVED.—For 
purposes of paragraph (2)— 
‘‘(i) gross income does not include the 
net capital gain, 
‘‘(ii) gross income and aggregate in-
terest received shall each be reduced by so 
much of the deduction allowable by section 
163 for the taxable year (other than for in-
terest on mortgages on real property 
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srobinson on DSKHWCL6B1PROD with BILLS
owned by the real estate investment trust) 
as does not exceed aggregate interest re-
ceived by the taxable year, and 
‘‘(iii) gross income shall be reduced by 
the sum of the taxes imposed by para-
graphs (4), (5), and (6) of section 857(b). 
‘‘(C) AGGREGATE INTEREST RECEIVED.— 
The term ‘aggregate interest received’ includes 
only interest described in section 116(c). 
‘‘(D) NOTICE
TO
SHAREHOLDERS.—The 
amount of any distribution by a real estate in-
vestment trust which may be taken into account 
as interest for purposes of the exclusion under 
section 116 shall not exceed the amount so des-
ignated by the trust in a written notice to its 
shareholders mailed not later than 45 days 
after the close of its taxable year.’’. 
(8) The heading for subsection (c) of section 
857 of such Code is amended by inserting ‘‘AND IN-
TEREST’’ after ‘‘DIVIDENDS’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
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SEC. 7. PRIORITIZE OBLIGATIONS ON THE DEBT HELD BY 
THE PUBLIC AND PAYMENT OF SOCIAL SECU-
RITY BENEFITS. 
In the event that the debt of the United States Gov-
ernment, as defined in section 3101 of title 31, United 
States Code, reaches the statutory limit, the authority of 
the Department of the Treasury provided in section 3123 
of title 31, United States Code, to pay with legal tender 
the principal and interest on debt held by the public and 
the authority of the Commissioner of Social Security to 
pay monthly old-age, survivors’, and disability insurance 
benefits under title II of the Social Security Act shall take 
priority over all other obligations incurred by the Govern-
ment of the United States. 
Æ 
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