come described in) section 856(c)(3) other 
than subparagraph (F) thereof, over’’. 
(b) NET
INCOME
FROM
PROHIBITED
TRANS-
ACTIONS.—Clause (i) of section 857(b)(6)(B) is amended 
to read as follows: 
‘‘(i) the term ‘net income derived from 
prohibited transactions’ means the excess 
of the gain (including any foreign currency 
gain, as defined in section 988(b)(1)) from 
prohibited transactions over the deductions 
(including any foreign currency loss, as de-
fined in section 988(b)(2)) allowed by this 
chapter which are directly connected with 
prohibited transactions;’’. 
TITLE II—TAXABLE REIT 
SUBSIDIARIES 
SEC. 201. CONFORMING TAXABLE REIT SUBSIDIARY ASSET 
TEST. 
Section 856(c)(4)(B)(ii) is amended by striking ‘‘20 
percent’’ and inserting ‘‘25 percent’’. 
TITLE III—DEALER SALES 
SEC. 301. HOLDING PERIOD UNDER SAFE HARBOR. 
Section 857(b)(6) (relating to income from prohibited 
transactions) is amended— 
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(1) by striking ‘‘4 years’’ in subparagraphs 
(C)(i), (C)(iv), and (D)(i) and inserting ‘‘2 years’’, 
(2) by striking ‘‘4-year period’’ in subpara-
graphs (C)(ii), (D)(ii), and (D)(iii) and inserting ‘‘2- 
year period’’, and 
(3) by striking ‘‘real estate asset’’and all that 
follows through ‘‘if’’ in the matter preceding clause 
(i) of subparagraphs (C) and (D), respectively, and 
inserting ‘‘real estate asset (as defined in section 
856(c)(5)(B)) and which is described in section 
1221(a)(1) if’’. 
SEC. 302. DETERMINING VALUE OF SALES UNDER SAFE 
HARBOR. 
Subparagraphs (C)(iii)(II) and (D)(iv)(II) of section 
857(b)(6) are each amended by striking ‘‘the aggregate 
adjusted bases’’ and all that follows through ‘‘the begin-
ning of the taxable year’’ and inserting ‘‘the fair market 
value of property (other than sales of foreclosure property 
or sales to which section 1033 applies) sold during the 
taxable year does not exceed 10 percent of the fair market 
value of all of the assets of the trust as of the beginning 
of the taxable year’’. 
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TITLE IV—HEALTH CARE REITS 
SEC. 401. CONFORMITY FOR HEALTH CARE FACILITIES. 
(a) RELATED PARTY RENTALS.—Subparagraph (B) 
of section 856(d)(8) (relating to special rule for taxable 
REIT subsidiaries) is amended to read as follows: 
‘‘(B) EXCEPTION FOR CERTAIN LODGING 
FACILITIES
AND
HEALTH
CARE
PROPERTY.— 
The requirements of this subparagraph are met 
with respect to an interest in real property 
which is a qualified lodging facility or a quali-
fied health care property (as defined in sub-
section (e)(6)(D)(i)) leased by the trust to a 
taxable REIT subsidiary of the trust if the 
property is operated on behalf of such sub-
sidiary by a person who is an eligible inde-
pendent contractor. For purposes of this sec-
tion, a taxable REIT subsidiary is not consid-
ered to be operating or managing a qualified 
health care property or qualified lodging facility 
solely because it directly or indirectly possesses 
a license, permit or similar instrument enabling 
it to do so.’’. 
(b) ELIGIBLE INDEPENDENT CONTRACTOR.—Sub-
paragraphs (A) and (B) of section 856(d)(9) (relating to 
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eligible independent contractor) are amended to read as 
follows: 
‘‘(A) IN
GENERAL.—The term ‘eligible 
independent contractor’ means, with respect to 
any qualified lodging facility or qualified health 
care 
property 
(as 
defined 
in 
subsection 
(e)(6)(D)(i)), any independent contractor if, at 
the time such contractor enters into a manage-
ment agreement or other similar service con-
tract with the taxable REIT subsidiary to oper-
ate such qualified lodging facility or qualified 
health care property, such contractor (or any 
related person) is actively engaged in the trade 
or business of operating qualified lodging facili-
ties or qualified health care properties, respec-
tively, for any person who is not a related per-
son with respect to the real estate investment 
trust or the taxable REIT subsidiary. 
‘‘(B) SPECIAL RULES.—Solely for purposes 
of this paragraph and paragraph (8)(B), a per-
son shall not fail to be treated as an inde-
pendent contractor with respect to any qualified 
lodging facility or qualified health care property 
(as so defined) by reason of the following: 
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‘‘(i) The taxable REIT subsidiary 
bears the expenses for the operation of 
such qualified lodging facility or qualified 
health care property pursuant to the man-
agement agreement or other similar service 
contract. 
‘‘(ii) The taxable REIT subsidiary re-
ceives the revenues from the operation of 
such qualified lodging facility or qualified 
health care property, net of expenses for 
such operation and fees payable to the op-
erator pursuant to such agreement or con-
tract. 
‘‘(iii) The real estate investment trust 
receives income from such person with re-
spect to another property that is attrib-
utable to a lease of such other property 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 management agreement 
or other similar service contract with 
such person with respect to such 
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qualified lodging facility or qualified 
health care property.’’. 
(c) TAXABLE REIT SUBSIDIARIES.—The last sen-
tence of section 856(l)(3) is amended— 
(1) by inserting ‘‘or a health care facility’’ after 
‘‘a lodging facility’’, and 
(2) by inserting ‘‘or health care facility’’ after 
‘‘such lodging facility’’. 
TITLE V—FOREIGN REITS 
SEC. 501. STOCK OF FOREIGN REITS AS REAL ESTATE AS-
SETS. 
(a) IN GENERAL.—The first sentence in section 
856(c)(5)(B) is amended by inserting ‘‘or in a qualified 
foreign REIT’’ after ‘‘this part’’. 
(b) QUALIFIED FOREIGN REIT.—Section 856(c) is 
amended by adding at the end the following new para-
graph: 
‘‘(8) QUALIFIED FOREIGN REIT.—For purposes 
of this subsection, the term ‘qualified foreign REIT’ 
means a corporation, trust, or association— 
‘‘(A) treated as a corporation under section 
7701(a)(3), 
‘‘(B) the shares or certificates of beneficial 
interests of which are regularly traded on an es-
tablished securities market, and 
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‘‘(C) which is organized in a country under 
rules that the Secretary determines meet the 
following criteria: 
‘‘(i) At least 75 percent of the entity’s 
assets must qualify as real estate assets 
(determined without regard to shares or 
transferable certificates of beneficial inter-
est in such entity), as determined at the 
close of the entity’s prior taxable year. 
‘‘(ii) The entity either receives a divi-
dends paid deduction comparable to section 
561 or is exempt from corporate level tax. 
‘‘(iii) The entity is required to dis-
tribute at least 85 percent of its annual 
taxable income (as computed in the juris-
diction in which it is organized) to the 
holders of its shares or certificates of bene-
ficial interest on an annual basis. 
In determining whether the rules of a country 
meet the criteria of a qualified foreign REIT, 
the Secretary shall take into account non-statu-
tory rules such as stock exchange listing re-
quirements as well as existing practices result-
ing from market preferences, and may take into 
account situations that in the judgment of the 
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Secretary present a significant opportunity for 
a foreign REIT to generate an amount of in-
come that is not compatible with the principles 
underlying section 856(c)(3).’’. 
SEC. 502. DIVIDENDS FROM FOREIGN REITS. 
Section 856(c)(3)(D) is amended by inserting ‘‘and 
in qualified foreign REITs’’ after ‘‘this part’’. 
TITLE VI—EFFECTIVE DATES 
SEC. 601 EFFECTIVE DATES. 
(a) IN GENERAL.—Except as otherwise provided in 
this section, the amendments made by this Act shall apply 
to taxable years beginning after the date of the enactment 
of this Act. 
(b) REIT INCOME TESTS.— 
(1) The amendment made by section 101(a) 
and (b) shall apply to gains and items of income rec-
ognized after the date of the enactment of this Act. 
(2) The amendment made by section 101(c) 
shall apply to transactions entered into after the 
date of the enactment of this Act. 
(3) The amendment made by section 101(d) 
shall apply after the date of the enactment of this 
Act. 
(c) CONFORMING FOREIGN CURRENCY REVISIONS.— 
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(1) The amendment made by section 103(a) 
shall apply to gains recognized after the date of the 
enactment of this Act. 
(2) The amendment made by section 103(b) 
shall apply to gains and deductions recognized after 
the date of the enactment of this Act. 
(d) DEALER SALES.—The amendments made by 
Title III shall apply to sales made after the date of the 
enactment of this Act. 
Æ 
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