Exception from FIRPTA for certain stock of real estate investment trusts

(a)

In general

Paragraph (3) of section 897(c) of the Internal Revenue Code of 1986 is amended to read as follows:

(3)

Exceptions for certain stock dispositions

(A)

Stock regularly traded on established securities markets

If any class of stock of a corporation is regularly traded on an established securities market, stock of such class shall be treated as a United States real property interest only in the case of a person who, at some time during the shorter of the periods described in paragraph (1)(A)(ii), held more than 5 percent of such class of stock. In the case of any class of stock of a real estate investment trust, the preceding sentence shall be applied by substituting 10 percent for 5 percent. (B)

Certain stock in real estate investment trusts

(i)

In general

Stock of a real estate investment trust held by a qualified shareholder shall not be treated as a United States real property interest except to the extent that an investor in the qualified shareholder holds (directly or indirectly through the qualified shareholder) more than 10 percent of the stock of such real estate investment trust. (ii)

Qualified shareholder

For purposes of this subparagraph, the term qualified shareholder means a shareholder— (I)which would be eligible for a reduced rate of withholding under any income tax treaty of the United States with respect to ordinary dividends paid by a real estate investment trust even if such shareholder holds more than 10 percent of the stock of such real estate investment trust, and (II)whose principal class of interests is listed and regularly traded on one or more recognized stock exchanges (as defined in the relevant income tax treaty referred to in subclause (I)).

(b)

Distributions of real estate investment trusts

Paragraph (1) of section 897(h) of such Code is amended to read as follows:

(1)

Look-through of distributions

(A)

In general

Except as provided in subparagraph (B), any distribution by a qualified investment entity to a nonresident alien individual, a foreign corporation, or other qualified investment entity shall, to the extent attributable to gain from sales or exchanges by the qualified investment entity of United States real property interests, be treated as gain recognized by such nonresident alien individual, foreign corporation, or other qualified investment entity from the sale or exchange of a United States real property interest. Notwithstanding the preceding sentence— (i)any distribution by a qualified investment entity to a nonresident alien individual or a foreign corporation with respect to any class of stock which is regularly traded on an established securities market located in the United States shall not be treated as gain recognized from the sale or exchange of a United States real property interest if such individual or corporation did not own more than 5 percent of such class of stock (10 percent in the case of stock of a real estate investment trust) at any time during the 1-year period ending on the date of such distribution, and (ii)any distribution to a qualified shareholder (as defined in subsection (c)(3)(B)(ii)) shall not be treated as gain recognized from the sale or exchange of a United States real property interest to the extent that the stock of the real estate investment trust held by such qualified shareholder is not treated as a United States real property interest under subsection (c)(3)(B). (B)

Special rule

Subparagraph (A) shall not apply to distributions which are treated as a sale or exchange of stock or property pursuant to section 301(c)(3), 302, or 331.

(c)

Definition of domestically controlled

Subparagraph (B) of section 897(h)(4) of such Code is amended by adding at the end the following: In determining whether a qualified investment entity is domestically controlled, any stock in the qualified investment entity held by another qualified investment entity shall be treated as held by a foreign person unless such qualified investment entity is domestically controlled. In making such determination a qualified investment entity shall be permitted to presume that stock held by a holder of less than 5 percent of a class of stock traded on an established securities market in the United States is held by United States persons throughout the testing period except to the extent that the qualified investment entity has actual knowledge regarding stock ownership.. (d)

Conforming amendment

Subparagraph (C) of section 897(c)(6) of such Code is amended— (1)by striking more than 5 percent and inserting more than 5 or 10 percent, whichever is applicable,, and (2)by striking substituting 5 percent for 50 percent and inserting substituting 5 percent or 10 percent, whichever is applicable for 50 percent. (e)

Effective date

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