Treatment of foreign investments in United States real property

(a)

Interest in domestic corporation not a United States real property interest

Subsection (c) of section 897 of the Internal Revenue Code of 1986 is amended to read as follows:

(c)

United States real property interest

For purposes of this section— (1)

In general

The term United States real property interest means an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the Virgin Islands. (2)

Other special rules

(A)

Interest in real property

The term interest in real property includes fee ownership and co-ownership of land or improvements thereon, leaseholds of land or improvements thereon, options to acquire land or improvements thereon, and options to acquire leaseholds of land or improvements thereon. (B)

Real property includes associated personal property

The term real property includes movable walls, furnishings, and other personal property associated with the use of the real property.

(b)

Rules for certain investment entities

Section 897(h) of such Code is amended to read as follows:

(h)

Special rules for certain investment entities

For purposes of this section— (1)

Look-through of distributions

Any distribution by a qualified investment entity to a nonresident alien individual or a foreign corporation shall, to the extent attributable to gain from sales or exchanges by the qualified investment entity (including as a result of sales or exchanges by a lower-tier qualified investment entity) of United States real property interests, be included in such foreign person’s gross income as an ordinary dividend from the qualified investment entity. (2)

Liquidating distributions

In the event of a liquidating distribution, the lesser of— (A)gain recognized under section 331, or (B)the amount that would be treated as an ordinary dividend pursuant to paragraph (1),

shall be treated as an ordinary dividend.

(3)

Partnerships

For purposes of this paragraph, a qualified investment entity shall be deemed to own its proportionate share of each of the assets of any partnership (as defined in section 7701(a)(2)) in which the qualified investment entity has an interest as a partner. (4)

Qualified investment entity

The term qualified investment entity means any real estate investment trust and any regulated investment company.

(c)

Repeal of the election by a foreign corporation To be treated as a domestic corporation

Section 897 of such Code is amended by striking subsection (i). (d)

Conforming amendments

(1)Section 852(b)(3)(E) of such Code is amended by striking to which section 897 does not apply by reason of the second sentence of section 897(h)(1) and inserting described in section 897(h)(1). (2)Section 857(b)(3)(F) of such Code is amended by striking In the case of a shareholder of a real estate investment trust to whom section 897 does not apply by reason of the second sentence of section 897(h)(1) and inserting In the case of a distribution described in section 897(h)(1) to a shareholder of a real estate investment trust. (3)Section 871(k)(2)(E) of such Code is amended by striking to which section 897 does not apply by reason of the second sentence of section 897(h)(1) and inserting described in section 897(h)(1). (4)Section 884(d)(2) of such Code is amended by striking subparagraph (C) and redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), respectively. (5)(A)Section 1445(b) of such Code is amended by striking paragraphs (3), (6), and (8) and by redesignating paragraphs (4), (5), (7), and (9) as paragraphs (3), (4), (5), and (6), respectively. (B)Section 1445(d)(1)(A) of such Code is amended by striking or a domestic corporation furnishes the transferee an affidavit described in paragraph (3) of subsection (b). (C)Section 1445(e) of such Code is amended by striking paragraphs (3) and (6) and by redesignating paragraphs (4), (5), and (7) as paragraphs (3), (4), and (5), respectively. (6)Paragraphs (1) and (2) of section 6039C(d) of such Code are amended to read as follows:

(1)to the United States, in the case of any interest in real property located in the United States, and (2)to the Virgin Islands, in the case of any interest in real property located in the Virgin Islands.

(e)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2009.