I 108th CONGRESS 2d Session H. R. 3829 IN THE HOUSE OF REPRESENTATIVES February 25, 2004 Mr. Cantor 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 provide that interests in certain domestically controlled investment partnerships are not treated as United States real property interests.

1.

Certain domestically controlled investment partnership interests not treated as United States real property interests

(a)

In general

Paragraph (1) of section 897(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: (C)

Exclusion of domestically controlled investment partnerships

(i)

In general

The term United States real property interest does not include any interest in or owned by an investment partnership (as defined by section 731(c)(3)(C)(i)) if at all times during the testing period— (I)less than 50 percent in value of the capital or profits interests in such partnership is held directly or indirectly by foreign persons, (II)no single foreign person owns directly or indirectly more than 10 percent of the capital or profits interests in such partnership, and (III)the adjusted basis of its United States real property interests does not exceed 10 percent of the adjusted basis of its assets. (ii)

Special rule for pension trusts

In determining the ownership of the capital or profits in a partnership, any interest held by a pension trust shall be treated as held directly by its beneficiaries in proportion to their actuarial interests in such trust and shall not be treated as held by such trust. (iii)

Testing period

For purposes of this subparagraph, the term testing period means the shorter of— (I)the 5-year period ending on the date of the disposition or of the distribution, as the case by be, or (II)the period during which the partnership was in existence.For purposes of clause (i)(III), except as provided in regulations, the testing period shall not commence until the date which is 36 months after the partnership came into existence.. (b)

Withholding tax

Section 1445(b) of such Code is amended— (1)in paragraph (1), by striking or (6) and inserting (6), or (8), and (2)by adding at the end the following new paragraph: (8)

Domestically controlled investment partnerships

This paragraph applies if the disposition is of an interest in or owned by a domestically controlled investment partnership that is not a United States real property interest by reason of section 897(c)(1)(C).. (c)

Effective date

The amendments made by this section shall apply to dispositions on or after the date of the enactment of this Act.