[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2002 Introduced in Senate (IS)]
110th CONGRESS
1st Session
S. 2002
To amend the Internal Revenue Code of 1986 to simplify certain
provisions applicable to real estate investment trusts, and for other
purposes.
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IN THE SENATE OF THE UNITED STATES
August 3, 2007
Mr. Hatch (for himself, Mr. Salazar, Mr. Smith, and Mr. Kerry)
introduced the following bill; which was read twice and referred to the
Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to simplify certain
provisions applicable to real estate investment trusts, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``REIT Investment Diversification and
Empowerment Act of 2007''.
SEC. 2. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in the Act an
amendment or repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be considered to
be made to a section or other provision of the Internal Revenue Code of
1986.
TITLE I--FOREIGN CURRENCY AND OTHER QUALIFIED ACTIVITIES
SEC. 101. REVISIONS TO REIT INCOME TESTS.
(a) Addition of Permissible Income Categories.--Section 856(c)
(relating to limitations) is amended--
(1) by striking ``and'' at the end of paragraph (2)(G) and
by inserting after paragraph (2)(H) the following new
subparagraphs:
``(I) passive foreign exchange gains; and
``(J) any other item of income or gain as
determined by the Secretary;'', and
(2) by striking ``and'' at the end of paragraphs (3)(H) and
(3)(I) and by inserting after paragraph (3)(I) the following
new subparagraphs:
``(J) real estate foreign exchange gains; and
``(K) any other item of income or gain as
determined by the Secretary; and''.
(b) Rules Regarding Foreign Currency Transactions.--Section 856
(defining real estate investment trust) is amended by adding at the end
the following new subsection:
``(n) Rules Regarding Foreign Currency Transactions.--With respect
to any taxable year--
``(1) Real estate foreign exchange gains.--For purposes of
subsection (c)(3)(J), the term `real estate foreign exchange
gains' means--
``(A) foreign currency gains (as defined in section
988(b)(1)) which are attributable to--
``(i) any item described in subsection
(c)(3) (other than in subparagraph (J)
thereof),
``(ii) the acquisition or ownership of
obligations secured by mortgages on real
property or on interests in real property
(other than foreign currency gains attributable
to any item described in clause (i)), or
``(iii) becoming or being the obligor under
obligations secured by mortgages on real
property or on interests in real property
(other than foreign currency gains attributable
to any item described in clause (i)),
``(B) gains described in section 987 attributable
to a qualified business unit (as defined by section
989) of the real estate investment trust, but only if
such qualified business unit meets the requirements
under--
``(i) subsection (c)(3) (without regard to
subparagraph (J) thereof) for the taxable year,
and
``(ii) subsection (c)(4)(A) at the close of
each quarter that the real estate investment
trust has directly or indirectly held the
qualified business unit, and
``(C) any other foreign currency gains as
determined by the Secretary.
``(2) Passive foreign exchange gains.--For purposes of
subsection (c)(2)(I), the term `passive foreign exchange gains'
means--
``(A) real estate foreign exchange gains,
``(B) foreign currency gains (as defined in section
988(b)(1)) which are not described in subparagraph (A)
and which are attributable to any item described in
subsection (c)(2) (other than in subparagraph (I)
thereof), and
``(C) any other foreign currency gains as
determined by the Secretary.''.
(c) Addition to REIT Hedging Rule.--Subparagraph (G) of section
856(c)(5) is amended to read as follows:
``(G) Treatment of certain hedging instruments.--
Except to the extent as determined by the Secretary--
``(i) any income of a real estate
investment trust from a hedging transaction (as
defined in clause (ii) or (iii) of section
1221(b)(2)(A)) which is clearly identified
pursuant to section 1221(a)(7), including gain
from the sale or disposition of such a
transaction, shall not constitute gross income
under paragraphs (2) and (3) to the extent that
the transaction hedges any indebtedness
incurred or to be incurred by the trust to
acquire or carry real estate assets, and
``(ii) any income of a real estate
investment trust from a transaction entered
into by the trust primarily to manage risk of
currency fluctuations with respect to any item
described in paragraph (2) or (3), including
gain from the termination of such a
transaction, shall not constitute gross income
under paragraphs (2) and (3), but only if such
transaction is clearly identified as such
before the close of the day on which it was
acquired, originated, or entered into (or such
other time as the Secretary may prescribe).''.
(d) Authority to Exclude Items of Income From REIT Income Tests.--
Section 856(c)(5) is amended by adding at the end the following new
subparagraph:
``(H) Secretarial authority to exclude other items
of income.--The Secretary is authorized to determine
whether any item of income or gain which does not
otherwise qualify under paragraph (2) or (3) may be
considered as not constituting gross income solely for
purposes of this part.''.
SEC. 102. REVISIONS TO REIT ASSET TESTS.
(a) Clarification of Valuation Test.--The first sentence in the
matter following section 856(c)(4)(B)(iii)(III) is amended by inserting
``(including a discrepancy caused solely by the change in the foreign
currency exchange rate used to value a foreign asset)'' after ``such
requirements''.
(b) Clarification of Permissible Asset Category.--Section
856(c)(5), as amended by section 101(d), is amended by adding at the
end the following new subparagraph:
``(I) Cash.--The term `cash' includes foreign
currency if the real estate investment trust or its
qualified business unit (as defined in section 989)
uses such foreign currency as its functional currency
(as defined in section 985(b)).''.
SEC. 103. CONFORMING FOREIGN CURRENCY REVISIONS.
(a) Net Income From Foreclosure Property.--Clause (i) of section
857(b)(4)(B) is amended to read as follows:
``(i) gain (including any foreign currency
gain, as defined in section 988(b)(1)) from the
sale or other disposition of foreclosure
property described in section 1221(a)(1) and
the gross income for the taxable year derived
from foreclosure property (as defined in
section 856(e)), but only to the extent such
gross income is not described in (or, in the
case of foreign currency gain, not attributable
to gross income described in) section 856(c)(3)
other than subparagraph (F) thereof, over''.
(b) Net Income From Prohibited Transactions.--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
defined 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--
(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 subparagraphs (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.
Section 857(b)(6) is amended--
(1) by striking the semicolon at the end of subparagraph
(C)(iii) and inserting ``, or (III) 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;'',
and
(2) by adding ``or'' at the end of subclause (II) of
subparagraph (D)(iv) and by adding at the end of such
subparagraph the following new subclause:
``(III) 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,''.
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 qualified health care property (as defined in
subsection (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 subsidiary by a person who
is an eligible independent contractor. For purposes of
this section, a taxable REIT subsidiary is not
considered 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.--Subparagraphs (A) and (B) of
section 856(d)(9) (relating to 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 management agreement or other similar service
contract with the taxable REIT subsidiary to operate
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 facilities or qualified
health care properties, respectively, for any person
who is not a related person 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 person shall not fail
to be treated as an independent contractor with respect
to any qualified lodging facility or qualified health
care property (as so defined) by reason of the
following:
``(i) The taxable REIT subsidiary bears the
expenses for the operation of such qualified
lodging facility or qualified health care
property pursuant to the management agreement
or other similar service contract.
``(ii) The taxable REIT subsidiary receives
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 operator
pursuant to such agreement or contract.
``(iii) The real estate investment trust
receives income from such person with respect
to another property that is attributable 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
qualified lodging facility or qualified
health care property.''.
(c) Taxable Reit Subsidiaries.--The last sentence 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 ASSETS.
(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 paragraph:
``(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
established securities market, and
``(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
interest in such entity), as determined at the
close of the entity's prior taxable year.
``(ii) The entity either receives a
dividends paid deduction comparable to section
561 or is exempt from corporate level tax.
``(iii) The entity is required to
distribute at least 85 percent of its annual
taxable income (as computed in the jurisdiction
in which it is organized) to the holders of its
shares or certificates of beneficial 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-statutory rules such as
stock exchange listing requirements as well as existing
practices resulting from market preferences, and may
take into account situations that in the judgment of
the Secretary present a significant opportunity for a
foreign REIT to generate an amount of income 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 recognized 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.--
(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.
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