H. R. 2488—106 
(6) Paragraphs (4)(A) and (4)(B) of section 4911(f ) are 
each amended by striking ‘‘limits of section 501(h)(1)’’ and 
inserting ‘‘limit of section 501(h)(1)’’. 
(7) Paragraph (8) of section 6033(b) (relating to certain 
organizations described in section 501(c)(3)) is amended by 
inserting ‘‘and’’ at the end of subparagraph (A) and by striking 
subparagraphs (C) and (D). 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999. 
SEC. 1009. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT 
ACCOUNTS FOR CHARITABLE PURPOSES. 
(a) IN GENERAL.—Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end 
the following new paragraph: 
‘‘(8) DISTRIBUTIONS FOR CHARITABLE PURPOSES.— 
‘‘(A) IN GENERAL.—In the case of a qualified charitable 
distribution from an individual retirement account to an 
organization described in section 170(c), no amount shall 
be includible in the gross income of the distributee. 
‘‘(B) QUALIFIED CHARITABLE DISTRIBUTION.—For pur-
poses of this paragraph, the term ‘qualified charitable dis-
tribution’ means any distribution from an individual retire-
ment account— 
‘‘(i) which is made on or after the date that the 
individual for whose benefit the account is maintained 
has attained age 701⁄2, and 
‘‘(ii) which is a charitable contribution (as defined 
in section 170(c)) made directly from the account to 
an organization or entity described in section 170(c). 
‘‘(C) DENIAL
OF
DEDUCTION.—The amount allowable 
as a deduction to the taxpayer for the taxable year under 
section 170 for qualified charitable distributions shall be 
reduced (but not below zero) by the sum of the amounts 
of the qualified charitable distributions during such year 
which (but for this paragraph) would have been includible 
in the gross income of the taxpayer for such year.’’. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 2002. 
TITLE XI—REAL ESTATE PROVISIONS 
Subtitle A—Improvements in Low-Income 
Housing Credit 
SEC. 1101. MODIFICATION OF STATE CEILING ON LOW-INCOME 
HOUSING CREDIT. 
(a) IN GENERAL.—Clauses (i) and (ii) of section 42(h)(3)(C) 
(relating to State housing credit ceiling) are amended to read as 
follows: 
‘‘(i) the unused State housing credit ceiling (if any) 
of such State for the preceding calendar year, 
‘‘(ii) the greater of— 
‘‘(I) the applicable amount under subpara-
graph (H) multiplied by the State population, or 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00106
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS
H. R. 2488—107 
‘‘(II) $2,000,000,’’. 
(b) APPLICABLE
AMOUNT.—Paragraph (3) of section 42(h) 
(relating to housing credit dollar amount for agencies) is amended 
by adding at the end the following new subparagraph: 
‘‘(H) APPLICABLE AMOUNT OF STATE CEILING.—For pur-
poses of subparagraph (C)(ii), the applicable amount shall 
be determined under the following table: 
‘‘For calendar year: 
The applicable amount is: 
2000 ............................................................................................. $1.35
2001 .............................................................................................
1.45
2002 .............................................................................................
1.55
2003 .............................................................................................
1.65
2004 and thereafter ................................................................... 1.75.’’.
(c) ADJUSTMENT OF STATE CEILING FOR INCREASES IN COST- 
OF-LIVING.—Paragraph (3) of section 42(h) (relating to housing 
credit dollar amount for agencies), as amended by subsection (c), 
is amended by adding at the end the following new subparagraph: 
‘‘(I) COST-OF-LIVING ADJUSTMENT.— 
‘‘(i) IN GENERAL.—In the case of a calendar year 
after 2004, the $2,000,000 in subparagraph (C) and 
the $1.75 amount in subparagraph (H) shall each be 
increased by an amount equal to— 
‘‘(I) such dollar amount, multiplied by 
‘‘(II) the cost-of-living adjustment determined 
under section 1(f )(3) for such calendar year by 
substituting ‘calendar year 2003’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(ii) ROUNDING.— 
‘‘(I) In the case of the amount in subparagraph 
(C), any increase under clause (i) which is not 
a multiple of $5,000 shall be rounded to the next 
lowest multiple of $5,000. 
‘‘(II) In the case of the amount in subpara-
graph (H), any increase under clause (i) which 
is not a multiple of 5 cents shall be rounded to 
the next lowest multiple of 5 cents.’’. 
(d) CONFORMING AMENDMENTS.— 
(1) Section 42(h)(3)(C), as amended by subsection (a), is 
amended— 
(A) by striking ‘‘clause (ii)’’ in the matter following 
clause (iv) and inserting ‘‘clause (i)’’, and 
(B) by striking ‘‘clauses (i)’’ in the matter following 
clause (iv) and inserting ‘‘clauses (ii)’’. 
(2) Section 42(h)(3)(D)(ii) is amended— 
(A) by striking ‘‘subparagraph (C)(ii)’’ and inserting 
‘‘subparagraph (C)(i)’’, and 
(B) by striking ‘‘clauses (i)’’ in subclause (II) and 
inserting ‘‘clauses (ii)’’. 
(e) EFFECTIVE DATE.—The amendments made by this section 
shall apply to calendar years after 2000 but shall not take effect 
if sections 1102 and 1103 do not take effect. 
SEC. 1102. MODIFICATION OF CRITERIA FOR ALLOCATING HOUSING 
CREDITS AMONG PROJECTS. 
(a) SELECTION CRITERIA.—Subparagraph (C) of section 42(m)(1) 
(relating to certain selection criteria must be used) is amended— 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00107
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS
H. R. 2488—108 
(1) by inserting ‘‘, including whether the project includes 
the use of existing housing as part of a community revitalization 
plan’’ before the comma at the end of clause (iii), and 
(2) by striking clauses (v), (vi), and (vii) and inserting 
the following new clauses: 
‘‘(v) tenant populations with special housing needs, 
‘‘(vi) public housing waiting lists, 
‘‘(vii) tenant populations of individuals with chil-
dren, and 
‘‘(viii) projects intended for eventual tenant owner-
ship.’’. 
(b) PREFERENCE
FOR COMMUNITY REVITALIZATION PROJECTS 
LOCATED
IN QUALIFIED CENSUS TRACTS.—Clause (ii) of section 
42(m)(1)(B) is amended by striking ‘‘and’’ at the end of subclause 
(I), by adding ‘‘and’’ at the end of subclause (II), and by inserting 
after subclause (II) the following new subclause: 
‘‘(III) projects which are located in qualified 
census tracts (as defined in subsection (d)(5)(C)) 
and the development of which contributes to a 
concerted community revitalization plan,’’. 
SEC. 1103. ADDITIONAL RESPONSIBILITIES OF HOUSING CREDIT AGEN-
CIES. 
(a) MARKET STUDY; PUBLIC DISCLOSURE
OF RATIONALE
FOR 
NOT FOLLOWING CREDIT ALLOCATION PRIORITIES.—Subparagraph 
(A) of section 42(m)(1) (relating to responsibilities of housing credit 
agencies) is amended by striking ‘‘and’’ at the end of clause (i), 
by striking the period at the end of clause (ii) and inserting a 
comma, and by adding at the end the following new clauses: 
‘‘(iii) a comprehensive market study of the housing 
needs of low-income individuals in the area to be served 
by the project is conducted before the credit allocation 
is made and at the developer’s expense by a disin-
terested party who is approved by such agency, and 
‘‘(iv) a written explanation is available to the gen-
eral public for any allocation of a housing credit dollar 
amount which is not made in accordance with estab-
lished priorities and selection criteria of the housing 
credit agency.’’. 
(b) SITE VISITS.—Clause (iii) of section 42(m)(1)(B) (relating 
to qualified allocation plan) is amended by inserting before the 
period ‘‘and in monitoring for noncompliance with habitability 
standards through regular site visits’’. 
SEC. 1104. MODIFICATIONS TO RULES RELATING TO BASIS OF 
BUILDING WHICH IS ELIGIBLE FOR CREDIT. 
(a) ADJUSTED
BASIS
TO
INCLUDE
PORTION
OF
CERTAIN 
BUILDINGS USED BY LOW-INCOME INDIVIDUALS WHO ARE NOT TEN-
ANTS AND BY PROJECT EMPLOYEES.—Paragraph (4) of section 42(d) 
(relating to special rules relating to determination of adjusted basis) 
is amended— 
(1) by striking ‘‘subparagraph (B)’’ in subparagraph (A) 
and inserting ‘‘subparagraphs (B) and (C)’’, 
(2) by redesignating subparagraph (C) as subparagraph 
(D), and 
(3) by inserting after subparagraph (B) the following new 
subparagraph: 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00108
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS
H. R. 2488—109 
‘‘(C) INCLUSION OF BASIS OF PROPERTY USED TO PROVIDE 
SERVICES FOR CERTAIN NONTENANTS.— 
‘‘(i) IN
GENERAL.—The adjusted basis of any 
building located in a qualified census tract (as defined 
in paragraph (5)(C)) shall be determined by taking 
into account the adjusted basis of property (of a char-
acter subject to the allowance for depreciation and 
not otherwise taken into account) used throughout the 
taxable year in providing any community service 
facility. 
‘‘(ii) LIMITATION.—The increase in the adjusted 
basis of any building which is taken into account by 
reason of clause (i) shall not exceed 10 percent of 
the eligible basis of the qualified low-income housing 
project of which it is a part. For purposes of the pre-
ceding sentence, all community service facilities which 
are part of the same qualified low-income housing 
project shall be treated as one facility. 
‘‘(iii) COMMUNITY SERVICE FACILITY.—For purposes 
of this subparagraph, the term ‘community service 
facility’ means any facility designed to serve primarily 
individuals whose income is 60 percent or less of area 
median income (within the meaning of subsection 
(g)(1)(B)).’’. 
(b) CERTAIN NATIVE AMERICAN HOUSING ASSISTANCE DIS-
REGARDED IN DETERMINING WHETHER BUILDING IS FEDERALLY SUB-
SIDIZED FOR PURPOSES OF THE LOW-INCOME HOUSING CREDIT.— 
Subparagraph (E) of section 42(i)(2) (relating to determination of 
whether building is federally subsidized) is amended— 
(1) in clause (i), by inserting ‘‘or the Native American 
Housing Assistance and Self-Determination Act of 1996 (25 
U.S.C. 4101 et seq.) (as in effect on October 1, 1997)’’ after 
‘‘this subparagraph)’’, and 
(2) in the subparagraph heading, by inserting ‘‘OR NATIVE 
AMERICAN HOUSING ASSISTANCE’’ after ‘‘HOME ASSISTANCE’’. 
SEC. 1105. OTHER MODIFICATIONS. 
(a) ALLOCATION
OF CREDIT LIMIT
TO CERTAIN BUILDINGS.— 
(1) The first sentence of section 42(h)(1)(E)(ii) is amended 
by striking ‘‘(as of’’ the first place it appears and inserting 
‘‘(as of the later of the date which is 6 months after the 
date that the allocation was made or’’. 
(2) The last sentence of section 42(h)(3)(C) is amended 
by striking ‘‘project which’’ and inserting ‘‘project which fails 
to meet the 10 percent test under paragraph (1)(E)(ii) on a 
date after the close of the calendar year in which the allocation 
was made or which’’. 
(b) DETERMINATION OF WHETHER BUILDINGS ARE LOCATED IN 
HIGH COST AREAS.—The first sentence of section 42(d)(5)(C)(ii)(I) 
is amended— 
(1) by inserting ‘‘either’’ before ‘‘in which 50 percent’’, and 
(2) by inserting before the period ‘‘or which has a poverty 
rate of at least 25 percent’’. 
SEC. 1106. CARRYFORWARD RULES. 
(a) IN GENERAL.—Clause (ii) of section 42(h)(3)(D) (relating 
to unused housing credit carryovers allocated among certain States) 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00109
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS
H. R. 2488—110 
is amended by striking ‘‘the excess’’ and all that follows and 
inserting ‘‘the excess (if any) of— 
‘‘(I) the unused State housing credit ceiling 
for the year preceding such year, over 
‘‘(II) the aggregate housing credit dollar 
amount allocated for such year.’’. 
(b) CONFORMING AMENDMENT.—The second sentence of section 
42(h)(3)(C) (relating to State housing credit ceiling) is amended 
by striking ‘‘clauses (i) and (iii)’’ and inserting ‘‘clauses (i) through 
(iv)’’. 
SEC. 1107. EFFECTIVE DATE. 
Except as otherwise provided in this subtitle, the amendments 
made by this subtitle shall apply to— 
(1) housing credit dollar amounts allocated after December 
31, 1999, and 
(2) buildings placed in service after such date to the extent 
paragraph (1) of section 42(h) of the Internal Revenue Code 
of 1986 does not apply to any building by reason of paragraph 
(4) thereof, but only with respect to bonds issued after such 
date. 
Subtitle B—Provisions Relating to Real 
Estate Investment Trusts 
PART I—TREATMENT OF INCOME AND SERV-
ICES PROVIDED BY TAXABLE REIT SUBSIDI-
ARIES 
SEC. 1111. MODIFICATIONS TO ASSET DIVERSIFICATION TEST. 
(a) IN GENERAL.—Subparagraph (B) of section 856(c)(4) is 
amended to read as follows: 
‘‘(B)(i) not more than 25 percent of the value of its 
total assets is represented by securities (other than those 
includible under subparagraph (A)), and 
‘‘(ii) except with respect to a taxable REIT subsidiary 
and securities includible under subparagraph (A)— 
‘‘(I) not more than 5 percent of the value of its 
total assets is represented by securities of any one 
issuer, 
‘‘(II) the trust does not hold securities possessing 
more than 10 percent of the total voting power of 
the outstanding securities of any one issuer, and 
‘‘(III) the trust does not hold securities having 
a value of more than 10 percent of the total value 
of the outstanding securities of any one issuer.’’. 
(b) EXCEPTION
FOR STRAIGHT DEBT SECURITIES.—Subsection 
(c) of section 856 is amended by adding at the end the following 
new paragraph: 
‘‘(7) STRAIGHT DEBT SAFE HARBOR IN APPLYING PARAGRAPH 
(4).—Securities of an issuer which are straight debt (as defined 
in section 1361(c)(5) without regard to subparagraph (B)(iii) 
thereof) shall not be taken into account in applying paragraph 
(4)(B)(ii)(III) if— 
‘‘(A) the issuer is an individual, or 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00110
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS
H. R. 2488—111 
‘‘(B) the only securities of such issuer which are held 
by the trust or a taxable REIT subsidiary of the trust 
are straight debt (as so defined), or 
‘‘(C) the issuer is a partnership and the trust holds 
at least a 20 percent profits interest in the partnership.’’. 
SEC. 1112. TREATMENT OF INCOME AND SERVICES PROVIDED BY TAX-
ABLE REIT SUBSIDIARIES. 
(a) INCOME FROM TAXABLE REIT SUBSIDIARIES NOT TREATED 
AS IMPERMISSIBLE TENANT SERVICE INCOME.—Clause (i) of section 
856(d)(7)(C) (relating to exceptions to impermissible tenant service 
income) is amended by inserting ‘‘or through a taxable REIT sub-
sidiary of such trust’’ after ‘‘income’’. 
(b) CERTAIN INCOME FROM TAXABLE REIT SUBSIDIARIES NOT 
EXCLUDED FROM RENTS FROM REAL PROPERTY.— 
(1) IN GENERAL.—Subsection (d) of section 856 (relating 
to rents from real property defined) is amended by adding 
at the end the following new paragraphs: 
‘‘(8) SPECIAL RULE FOR TAXABLE REIT SUBSIDIARIES.—For 
purposes of this subsection, amounts paid to a real estate 
investment trust by a taxable REIT subsidiary of such trust 
shall not be excluded from rents from real property by reason 
of paragraph (2)(B) if the requirements of either of the following 
subparagraphs are met: 
‘‘(A) LIMITED RENTAL EXCEPTION.—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 subsidiaries 
of such trust and other than persons described in section 
856(d)(2)(B). The preceding sentence shall apply only to 
the extent that the amounts paid to the trust as rents 
from real property (as defined in paragraph (1) without 
regard to paragraph (2)(B)) from such property are substan-
tially comparable to such rents made by the other tenants 
of the trust’s property for comparable space. 
‘‘(B) EXCEPTION
FOR
CERTAIN
LODGING
FACILITIES.— 
The requirements of this subparagraph are met with 
respect to an interest in real property which is a qualified 
lodging facility leased by the trust to a taxable REIT sub-
sidiary of the trust if the property is operated on behalf 
of such subsidiary by a person who is an eligible inde-
pendent contractor. 
‘‘(9) ELIGIBLE INDEPENDENT CONTRACTOR.—For purposes of 
paragraph (8)(B)— 
‘‘(A) IN
GENERAL.—The term ‘eligible independent 
contractor’ means, with respect to any qualified lodging 
facility, any independent contractor if, at the time such 
contractor enters into a management agreement or other 
similar service contract with the taxable REIT subsidiary 
to operate the facility, such contractor (or any related per-
son) is actively engaged in the trade or business of oper-
ating qualified lodging facilities for any person who is 
not a related person with respect to the real estate invest-
ment trust or the taxable REIT subsidiary. 
‘‘(B) SPECIAL RULES.—Solely for purposes of this para-
graph and paragraph (8)(B), a person shall not fail to 
be treated as an independent contractor with respect to 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00111
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS
H. R. 2488—112 
any qualified lodging facility by reason of any of the fol-
lowing: 
‘‘(i) The taxable REIT subsidiary bears the 
expenses for the operation of the facility pursuant to 
the management agreement or other similar service 
contract. 
‘‘(ii) The taxable REIT subsidiary receives the reve-
nues from the operation of such facility, net of expenses 
for such operation and fees payable to the operator 
pursuant to such agreement or contract. 
‘‘(iii) The real estate investment trust receives 
income from such person with respect to another prop-
erty that is attributable to a lease of such other prop-
erty to such person that was in effect as of the later 
of— 
‘‘(I) January 1, 1999, or 
‘‘(II) the earliest date that any taxable REIT 
subsidiary of such trust entered into a manage-
ment agreement or other similar service contract 
with such person with respect to such qualified 
lodging facility. 
‘‘(C) RENEWALS, ETC., OF EXISTING LEASES.—For pur-
poses of subparagraph (B)(iii)— 
‘‘(i) a lease shall be treated as in effect on January 
1, 1999, without regard to its renewal after such date, 
so long as such renewal is pursuant to the terms 
of such lease as in effect on whichever of the dates 
under subparagraph (B)(iii) is the latest, and 
‘‘(ii) a lease of a property entered into after which-
ever of the dates under subparagraph (B)(iii) is the 
latest shall be treated as in effect on such date if— 
‘‘(I) on such date, a lease of such property 
from the trust was in effect, and 
‘‘(II) under the terms of the new lease, such 
trust receives a substantially similar or lesser ben-
efit in comparison to the lease referred to in sub-
clause (I). 
‘‘(D) QUALIFIED
LODGING
FACILITY.—For purposes of 
this paragraph— 
‘‘(i) IN
GENERAL.—The term ‘qualified lodging 
facility’ means any lodging facility unless wagering 
activities are conducted at or in connection with such 
facility by any person who is engaged in the business 
of accepting wagers and who is legally authorized to 
engage in such business at or in connection with such 
facility. 
‘‘(ii) LODGING FACILITY.—The term ‘lodging facility’ 
means a hotel, motel, or other establishment more 
than one-half of the dwelling units in which are used 
on a transient basis. 
‘‘(iii) CUSTOMARY AMENITIES AND FACILITIES.—The 
term ‘lodging facility’ includes customary amenities 
and facilities operated as part of, or associated with, 
the lodging facility so long as such amenities and facili-
ties are customary for other properties of a comparable 
size and class owned by other owners unrelated to 
such real estate investment trust. 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00112
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS
H. R. 2488—113 
‘‘(E) OPERATE INCLUDES MANAGE.—References in this 
paragraph to operating a property shall be treated as 
including a reference to managing the property. 
‘‘(F) RELATED
PERSON.—Persons shall be treated as 
related to each other if such persons are treated as a 
single employer under subsection (a) or (b) of section 52.’’. 
(2) CONFORMING AMENDMENT.—Subparagraph (B) of section 
856(d)(2) is amended by inserting ‘‘except as provided in para-
graph (8),’’ after ‘‘(B)’’. 
(3) DETERMINING RENTS FROM REAL PROPERTY.— 
(A)(i) Paragraph (1) of section 856(d) is amended by 
striking ‘‘adjusted bases’’ each place it occurs and inserting 
‘‘fair market values’’. 
(ii) The amendment made by this subparagraph shall 
apply to taxable years beginning after December 31, 2000. 
(B)(i) Clause (i) of section 856(d)(2)(B) is amended by 
striking ‘‘number’’ and inserting ‘‘value’’. 
(ii) The amendment made by this subparagraph shall 
apply to amounts received or accrued in taxable years 
beginning after December 31, 2000, except for amounts 
paid pursuant to leases in effect on July 12, 1999, or 
pursuant to a binding contract in effect on such date and 
at all times thereafter. 
SEC. 1113. TAXABLE REIT SUBSIDIARY. 
(a) IN GENERAL.—Section 856 is amended by adding at the 
end the following new subsection: 
‘‘(l) TAXABLE REIT SUBSIDIARY.—For purposes of this part— 
‘‘(1) IN
GENERAL.—The term ‘taxable REIT subsidiary’ 
means, with respect to a real estate investment trust, a corpora-
tion (other than a real estate investment trust) if— 
‘‘(A) such trust directly or indirectly owns stock in 
such corporation, and 
‘‘(B) such trust and such corporation jointly elect that 
such corporation shall be treated as a taxable REIT sub-
sidiary of such trust for purposes of this part. 
Such an election, once made, shall be irrevocable unless both 
such trust and corporation consent to its revocation. Such elec-
tion, and any revocation thereof, may be made without the 
consent of the Secretary. 
‘‘(2) 35 PERCENT OWNERSHIP IN ANOTHER TAXABLE REIT SUB-
SIDIARY.—The term ‘taxable REIT subsidiary’ includes, with 
respect to any real estate investment trust, any corporation 
(other than a real estate investment trust) with respect to 
which a taxable REIT subsidiary of such trust owns directly 
or indirectly— 
‘‘(A) securities possessing more than 35 percent of the 
total voting power of the outstanding securities of such 
corporation, or 
‘‘(B) securities having a value of more than 35 percent 
of the total value of the outstanding securities of such 
corporation. 
The preceding sentence shall not apply to a qualified REIT 
subsidiary (as defined in subsection (i)(2)). The rule of section 
856(c)(7) shall apply for purposes of subparagraph (B). 
‘‘(3) EXCEPTIONS.—The term ‘taxable REIT subsidiary’ shall 
not include— 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00113
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS
H. R. 2488—114 
‘‘(A) any corporation which directly or indirectly oper-
ates or manages a lodging facility or a health care facility, 
and 
‘‘(B) any corporation which directly or indirectly pro-
vides to any other person (under a franchise, license, or 
otherwise) rights to any brand name under which any 
lodging facility or health care facility is operated. 
Subparagraph (B) shall not apply to rights provided to an 
eligible independent contractor to operate or manage a lodging 
facility if such rights are held by such corporation as a 
franchisee, licensee, or in a similar capacity and such lodging 
facility is either owned by such corporation or is leased to 
such corporation from the real estate investment trust. 
‘‘(4) DEFINITIONS.—For purposes of paragraph (3)— 
‘‘(A) LODGING FACILITY.—The term ‘lodging facility’ has 
the meaning given to such term by paragraph (9)(D)(ii). 
‘‘(B) HEALTH CARE FACILITY.—The term ‘health care 
facility’ has the meaning given to such term by subsection 
(e)(6)(D)(ii).’’. 
(b) CONFORMING AMENDMENT.—Paragraph (2) of section 856(i) 
is amended by adding at the end the following new sentence: 
‘‘Such term shall not include a taxable REIT subsidiary.’’. 
SEC. 1114. LIMITATION ON EARNINGS STRIPPING. 
Paragraph (3) of section 163( j) (relating to limitation on deduc-
tion for interest on certain indebtedness) is amended by striking 
‘‘and’’ at the end of subparagraph (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) any interest paid or accrued (directly or indirectly) 
by a taxable REIT subsidiary (as defined in section 856(l)) 
of a real estate investment trust to such trust.’’. 
SEC. 1115. 100 PERCENT TAX ON IMPROPERLY ALLOCATED AMOUNTS. 
(a) IN GENERAL.—Subsection (b) of section 857 (relating to 
method of taxation of real estate investment trusts and holders 
of shares or certificates of beneficial interest) is amended by redesig-
nating paragraphs (7) and (8) as paragraphs (8) and (9), respec-
tively, and by inserting after paragraph (6) the following new para-
graph: 
‘‘(7) INCOME FROM REDETERMINED RENTS, REDETERMINED 
DEDUCTIONS, AND EXCESS INTEREST.— 
‘‘(A) IMPOSITION OF TAX.—There is hereby imposed for 
each taxable year of the real estate investment trust a 
tax equal to 100 percent of redetermined rents, redeter-
mined deductions, and excess interest. 
‘‘(B) REDETERMINED RENTS.— 
‘‘(i) IN GENERAL.—The term ‘redetermined rents’ 
means rents from real property (as defined in sub-
section 856(d)) the amount of which would (but for 
subparagraph (E)) be reduced on distribution, appor-
tionment, or allocation under section 482 to clearly 
reflect income as a result of services furnished or ren-
dered by a taxable REIT subsidiary of the real estate 
investment trust to a tenant of such trust. 
‘‘(ii) EXCEPTION FOR CERTAIN SERVICES.—Clause (i) 
shall not apply to amounts received directly or 
indirectly by a real estate investment trust for services 
VerDate Aug 31 2005 
11:41 May 08, 2006
Jkt 049200
PO 00000
Frm 00114
Fmt 6655
Sfmt 6501
E:\PICKUP\H2488.ENR
H2488
erjones on PROD1PC71 with BILLS