235
(1) by striking ‘‘subparagraph (B)’’ in subpara-
graph (A) and inserting ‘‘subparagraphs (B) and
(C)’’,
(2) by redesignating subparagraph (C) as sub-
paragraph (D), and
(3) by inserting after subparagraph (B) the fol-
lowing new subparagraph:
‘‘(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 character subject to the allowance for de-
preciation and not otherwise taken into ac-
count) 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
236
of the preceding 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
FACIL-
ITY.—For purposes of this subparagraph,
the term ‘community service facility’
means any facility designed to serve pri-
marily individuals whose income is 60 per-
cent or less of area median income (within
the meaning of subsection (g)(1)(B)).’’.
(b) CERTAIN NATIVE AMERICAN HOUSING ASSIST-
ANCE DISREGARDED IN DETERMINING WHETHER BUILD-
ING IS FEDERALLY SUBSIDIZED 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-Determina-
tion Act of 1996 (25 U.S.C. 4101 et seq.) (as in ef-
fect on October 1, 1997)’’ after ‘‘this subpara-
graph)’’, and
(2) in the subparagraph heading, by inserting
‘‘OR NATIVE AMERICAN HOUSING ASSISTANCE’’ after
‘‘HOME ASSISTANCE’’.
237
SEC. 705. 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 ap-
pears 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. 706. CARRYFORWARD RULES.
(a) IN GENERAL.—Clause (ii) of section 42(h)(3)(D)
(relating to unused housing credit carryovers allocated
among certain States) is amended by striking ‘‘the excess’’
and all that follows and inserting ‘‘the excess (if any) of—
238
‘‘(I) the unused State housing
credit ceiling for the year preceding
such year, over
‘‘(II) the aggregate housing cred-
it dollar amount allocated for such
year.’’.
(b) CONFORMING AMENDMENT.—The second sen-
tence 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. 707. 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.
239
Subtitle B—Provisions Relating to
Real Estate Investment Trusts
PART I—TREATMENT OF INCOME AND SERVICES
PROVIDED BY TAXABLE REIT SUBSIDIARIES
SEC. 711. 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 securi-
ties (other than those includible under subpara-
graph (A)), and
‘‘(ii) except with respect to a taxable REIT
subsidiary and securities includible under sub-
paragraph (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 secu-
rities of any one issuer, and
‘‘(III) the trust does not hold securi-
ties having a value of more than 10 per-
240
cent 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 APPLY-
ING 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 para-
graph (4)(B)(ii)(III) if—
‘‘(A) the issuer is an individual, or
‘‘(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. 712. TREATMENT OF INCOME AND SERVICES PRO-
VIDED BY TAXABLE REIT SUBSIDIARIES.
(a) INCOME FROM TAXABLE REIT SUBSIDIARIES
NOT TREATED AS IMPERMISSIBLE TENANT SERVICE IN-
COME.—Clause (i) of section 856(d)(7)(C) (relating to ex-
ceptions to impermissible tenant service income) is amend-
241
ed by inserting ‘‘or through a taxable REIT subsidiary
of such trust’’ after ‘‘income’’.
(b) CERTAIN INCOME FROM TAXABLE REIT SUB-
SIDIARIES 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 SUB-
SIDIARIES.—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
244
‘‘(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
qualified lodging facility.
‘‘(C) RENEWALS, 
ETC., 
OF
EXISTING
LEASES.—For 
purposes 
of 
subparagraph
(B)(iii)—
‘‘(i) a lease shall be treated as in ef-
fect 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 whichever of the dates under sub-
paragraph (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 substan-
245
tially similar or lesser benefit in com-
parison to the lease referred to in sub-
clause (I).
‘‘(D) QUALIFIED LODGING FACILITY.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘quali-
fied lodging facility’ means any lodging fa-
cility unless wagering activities are con-
ducted at or in connection with such facil-
ity by any person who is engaged in the
business of accepting wagers and who is le-
gally 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 FA-
CILITIES.—The term ‘lodging facility’ in-
cludes customary amenities and facilities
operated as part of, or associated with, the
lodging facility so long as such amenities
and facilities are customary for other prop-
erties of a comparable size and class owned
246
by other owners unrelated to such real es-
tate investment trust.
‘‘(E) OPERATE INCLUDES MANAGE.—Ref-
erences in this paragraph to operating a prop-
erty 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 sub-
section (a) or (b) of section 52.’’.
(2) CONFORMING AMENDMENT.—Subparagraph
(B) of section 856(d)(2) is amended by inserting
‘‘except as provided in paragraph (8),’’ after ‘‘(B)’’.
(3) DETERMINING
RENTS
FROM
REAL
PROP-
ERTY.—
(A)(i) Paragraph (1) of section 856(d) is
amended by striking ‘‘adjusted bases’’ each
place it occurs and inserting ‘‘fair market val-
ues’’.
(ii) The amendment made by this subpara-
graph 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’’.
247
(ii) The amendment made by this subpara-
graph shall apply to amounts received or ac-
crued in taxable years beginning after Decem-
ber 31, 2000, except for amounts paid pursuant
to leases in effect on July 12, 1999, or pursu-
ant to a binding contract in effect on such date
and at all times thereafter.
SEC. 713. 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 in-
vestment trust, a corporation (other than a real es-
tate investment trust) if—
‘‘(A) such trust directly or indirectly owns
stock in such corporation, and
‘‘(B) such trust and such corporation joint-
ly elect that such corporation shall be treated as
a taxable REIT subsidiary of such trust for
purposes of this part.
Such an election, once made, shall be irrevocable un-
less both such trust and corporation consent to its
revocation. Such election, and any revocation there-
248
of, may be made without the consent of the Sec-
retary.
‘‘(2) 35
PERCENT
OWNERSHIP
IN
ANOTHER
TAXABLE
REIT
SUBSIDIARY.—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 di-
rectly or indirectly—
‘‘(A) securities possessing more than 35
percent of the total voting power of the out-
standing securities of such corporation, or
‘‘(B) securities having a value of more
than 35 percent of the total value of the out-
standing 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 pur-
poses of subparagraph (B).
‘‘(3) EXCEPTIONS.—The term ‘taxable REIT
subsidiary’ shall not include—
‘‘(A) any corporation which directly or in-
directly operates or manages a lodging facility
or a health care facility, and
250
SEC. 714. LIMITATION ON EARNINGS STRIPPING.
Paragraph (3) of section 163( j) (relating to limita-
tion on deduction 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 invest-
ment trust to such trust.’’.
SEC. 715. 100 PERCENT TAX ON IMPROPERLY ALLOCATED
AMOUNTS.
(a) IN GENERAL.—Subsection (b) of section 857 (re-
lating to method of taxation of real estate investment
trusts and holders of shares or certificates of beneficial
interest) is amended by redesignating paragraphs (7) and
(8) as paragraphs (8) and (9), respectively, and by insert-
ing after paragraph (6) the following new paragraph:
‘‘(7) INCOME FROM REDETERMINED RENTS, RE-
DETERMINED
DEDUCTIONS, AND
EXCESS
INTER-
EST.—
‘‘(A) IMPOSITION OF TAX.—There is here-
by imposed for each taxable year of the real es-
tate investment trust a tax equal to 100 percent
251
of redetermined rents, redetermined deductions,
and excess interest.
‘‘(B) REDETERMINED RENTS.—
‘‘(i) IN GENERAL.—The term ‘redeter-
mined rents’ means rents from real prop-
erty (as defined in subsection 856(d)) the
amount of which would (but for subpara-
graph (E)) be reduced on distribution, ap-
portionment, or allocation under section
482 to clearly reflect income as a result of
services furnished or rendered by a taxable
REIT subsidiary of the real estate invest-
ment trust to a tenant of such trust.
‘‘(ii) EXCEPTION FOR CERTAIN SERV-
ICES.—Clause (i) shall not apply to
amounts received directly or indirectly by a
real estate investment trust for services de-
scribed in paragraph (1)(B) or (7)(C)(i) of
section 856(d).
‘‘(iii) EXCEPTION
FOR
DE
MINIMIS
AMOUNTS.—Clause (i) shall not apply to
amounts described in section 856(d)(7)(A)
with respect to a property to the extent
such amounts do not exceed the one per-
cent 
threshold 
described 
in 
section
252
856(d)(7)(B) with respect to such prop-
erty.
‘‘(iv) EXCEPTION
FOR
COMPARABLY
PRICED
SERVICES.—Clause (i) shall not
apply to any service rendered by a taxable
REIT subsidiary of a real estate invest-
ment trust to a tenant of such trust if—
‘‘(I) such subsidiary renders a
significant amount of similar services
to persons other than such trust and
tenants of such trust who are unre-
lated (within the meaning of section
856(d)(8)(F)) to such subsidiary,
trust, and tenants, but
‘‘(II) only to the extent the
charge for such service so rendered is
substantially comparable to the charge
for the similar services rendered to
persons referred to in subclause (I).
‘‘(v) EXCEPTION FOR CERTAIN SEPA-
RATELY
CHARGED
SERVICES.—Clause (i)
shall not apply to any service rendered by
a taxable REIT subsidiary of a real estate
investment trust to a tenant of such trust
if—
253
‘‘(I) the rents paid to the trust
by tenants (leasing at least 25 percent
of the net leasable space in the trust’s
property) who are not receiving such
service from such subsidiary are sub-
stantially comparable to the rents
paid by tenants leasing comparable
space who are receiving such service
from such subsidiary, and
‘‘(II) the charge for such service
from such subsidiary is separately
stated.
‘‘(vi) EXCEPTION FOR CERTAIN SERV-
ICES
BASED
ON
SUBSIDIARY’S
INCOME
FROM THE SERVICES.—Clause (i) shall not
apply to any service rendered by a taxable
REIT subsidiary of a real estate invest-
ment trust to a tenant of such trust if the
gross income of such subsidiary from such
service is not less than 150 percent of such
subsidiary’s direct cost in furnishing or
rendering the service.
‘‘(vii) EXCEPTIONS GRANTED BY SEC-
RETARY.—The Secretary may waive the
tax otherwise imposed by subparagraph
254
(A) if the trust establishes to the satisfac-
tion of the Secretary that rents charged to
tenants were established on an arms’
length basis even though a taxable REIT
subsidiary of the trust provided services to
such tenants.
‘‘(C) REDETERMINED DEDUCTIONS.—The
term ‘redetermined deductions’ means deduc-
tions (other than redetermined rents) of a tax-
able REIT subsidiary of a real estate invest-
ment trust if the amount of such deductions
would (but for subparagraph (E)) be decreased
on distribution, apportionment, or allocation
under section 482 to clearly reflect income as
between such subsidiary and such trust.
‘‘(D) EXCESS INTEREST.—The term ‘ex-
cess interest’ means any deductions for interest
payments by a taxable REIT subsidiary of a
real estate investment trust to such trust to the
extent that the interest payments are in excess
of a rate that is commercially reasonable.
‘‘(E) COORDINATION WITH SECTION 482.—
The imposition of tax under subparagraph (A)
shall be in lieu of any distribution, apportion-
ment, or allocation under section 482.
255
‘‘(F) REGULATORY AUTHORITY.—The Sec-
retary shall prescribe such regulations as may
be necessary or appropriate to carry out the
purposes of this paragraph. Until the Secretary
prescribes such regulations, real estate invest-
ment trusts and their taxable REIT subsidi-
aries may base their allocations on any reason-
able method.’’.
(b) AMOUNT SUBJECT TO TAX NOT REQUIRED TO
BE
DISTRIBUTED.—Subparagraph 
(E) 
of 
section
857(b)(2) (relating to real estate investment trust taxable
income) is amended by striking ‘‘paragraph (5)’’ and in-
serting ‘‘paragraphs (5) and (7)’’.
SEC. 716. EFFECTIVE DATE.
(a) IN GENERAL.—The amendments made by this
part shall apply to taxable years beginning after December
31, 2000.
(b) TRANSITIONAL RULES RELATED TO SECTION
711.—
(1) EXISTING ARRANGEMENTS.—
(A) IN
GENERAL.—Except as otherwise
provided in this paragraph, the amendment
made by section 711 shall not apply to a real
estate investment trust with respect to—
256
(i) securities of a corporation held di-
rectly or indirectly by such trust on July
12, 1999,
(ii) securities of a corporation held by
an entity on July 12, 1999, if such trust
acquires control of such entity pursuant to
a written binding contract in effect on such
date and at all times thereafter before such
acquisition,
(iii) securities received by such trust
(or a successor) in exchange for, or with
respect to, securities described in clause (i)
or (ii) in a transaction in which gain or
loss is not recognized, and
(iv) securities acquired directly or in-
directly by such trust as part of a reorga-
nization (as defined in section 368(a)(1) of
the Internal Revenue Code of 1986) with
respect to such trust if such securities are
described in clause (i), (ii), or (iii) with re-
spect to any other real estate investment
trust.
(B) NEW TRADE OR BUSINESS OR SUB-
STANTIAL
NEW
ASSETS.—Subparagraph (A)
shall cease to apply to securities of a corpora-
257
tion as of the first day after July 12, 1999,
on which such corporation engages in a sub-
stantial new line of business, or acquires any
substantial asset, other than—
(i) pursuant to a binding contract in
effect on such date and at all times there-
after before the acquisition of such asset,
(ii) in a transaction in which gain or
loss is not recognized by reason of section
1031 or 1033 of the Internal Revenue
Code of 1986, or
(iii) in a reorganization (as so de-
fined) with another corporation the securi-
ties of which are described in paragraph
(1)(A) of this subsection.
(C) LIMITATION ON TRANSITION RULES.—
Subparagraph (A) shall cease to apply to secu-
rities of a corporation held, acquired, or re-
ceived, directly or indirectly, by a real estate in-
vestment trust as of the first day after July 12,
1999, on which such trust acquires any addi-
tional securities of such corporation other
than—
258
(i) pursuant to a binding contract in
effect on July 12, 1999, and at all times
thereafter, or
(ii) in a reorganization (as so defined)
with another corporation the securities of
which are described in paragraph (1)(A) of
this subsection.
(2) TAX-FREE CONVERSION.—If—
(A) at the time of an election for a cor-
poration to become a taxable REIT subsidiary,
the amendment made by section 1021 does not
apply to such corporation by reason of para-
graph (1), and
(B) such election first takes effect before
January 1, 2004,
such election shall be treated as a reorganization
qualifying under section 368(a)(1)(A) of such Code.
PART II—HEALTH CARE REITS
SEC. 721. HEALTH CARE REITS.
(a) SPECIAL FORECLOSURE RULE
FOR HEALTH
CARE PROPERTIES.—Subsection (e) of section 856 (relat-
ing to special rules for foreclosure property) is amended
by adding at the end the following new paragraph:
259
‘‘(6) SPECIAL RULE FOR QUALIFIED HEALTH
CARE
PROPERTIES.—For 
purposes 
of 
this
subsection—
‘‘(A) ACQUISITION
AT
EXPIRATION
OF
LEASE.—The term ‘foreclosure property’ shall
include any qualified health care property ac-
quired by a real estate investment trust as the
result of the termination of a lease of such
property (other than a termination by reason of
a default, or the imminence of a default, on the
lease).
‘‘(B) GRACE PERIOD.—In the case of a
qualified health care property which is fore-
closure property solely by reason of subpara-
graph (A), in lieu of applying paragraphs (2)
and (3)—
‘‘(i) the qualified health care property
shall cease to be foreclosure property as of
the close of the second taxable year after
the taxable year in which such trust ac-
quired such property, and
‘‘(ii) if the real estate investment
trust establishes to the satisfaction of the
Secretary that an extension of the grace
period in clause (i) is necessary to the or-
260
derly leasing or liquidation of the trust’s
interest in such qualified health care prop-
erty, the Secretary may grant one or more
extensions of the grace period for such
qualified health care property.
Any such extension shall not extend the grace
period beyond the close of the 6th year after
the taxable year in which such trust acquired
such qualified health care property.
‘‘(C) INCOME
FROM
INDEPENDENT
CON-
TRACTORS.—For purposes of applying para-
graph (4)(C) with respect to qualified health
care property which is foreclosure property by
reason of subparagraph (A) or paragraph (1),
income derived or received by the trust from an
independent contractor shall be disregarded to
the extent such income is attributable to—
‘‘(i) any lease of property in effect on
the date the real estate investment trust
acquired the qualified health care property
(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 such
date), or
261
‘‘(ii) any lease of property entered
into after 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 substan-
tially similar or lesser benefit in com-
parison to the lease referred to in sub-
clause (I).
‘‘(D) QUALIFIED
HEALTH
CARE
PROP-
ERTY.—
‘‘(i) IN GENERAL.—The term ‘quali-
fied health care property’ means any real
property (including interests therein), and
any personal property incident to such real
property, which—
‘‘(I) is a health care facility, or
‘‘(II) is necessary or incidental to
the use of a health care facility.
‘‘(ii) HEALTH
CARE
FACILITY.—For
purposes of clause (i), the term ‘health
care facility’ means a hospital, nursing fa-
cility, assisted living facility, congregate
care facility, qualified continuing care facil-