[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5746 Introduced in House (IH)]

112th CONGRESS
  2d Session
                                H. R. 5746

  To amend the Internal Revenue Code of 1986 to modify certain rules 
  applicable to real estate investment trusts, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 15, 2012

   Mr. Tiberi (for himself, Mr. Neal, Mr. Sam Johnson of Texas, Mr. 
 Rangel, Mr. Nunes, Mr. Stark, Mr. Reichert, Mr. Lewis of Georgia, Mr. 
Roskam, Mr. Blumenauer, Mr. Gerlach, Mr. Kind, Mr. Schock, Mr. Crowley, 
Ms. Jenkins, and Mr. Paulsen) 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 modify certain rules 
  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; ETC.

    (a) Short Title.--This Act may be cited as the ``Update and 
Streamline REIT Act of 2012'' or the ``US REIT Act of 2012''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this 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.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.
    TITLE I--UPDATE OF PROHIBITED TRANSACTION AND RELATED PROVISIONS

Sec. 101. Prohibited transaction safe harbors.
Sec. 102. Treatment of taxable REIT subsidiaries.
            TITLE II--PREFERENTIAL AND DESIGNATED DIVIDENDS

Sec. 201. Repeal of preferential dividend rule for publicly offered 
                            REITs.
Sec. 202. Authority for alternative remedies to address certain 
                            failures.
Sec. 203. Treatment of interest-related dividends of specified REITs.
Sec. 204. Limitations on designation of dividends.
   TITLE III--UPDATE AND MODIFICATION OF REIT INCOME AND ASSET TESTS

Sec. 301. Debt instruments of publicly offered REITs and mortgages 
                            treated as real estate assets.
Sec. 302. Asset and income test clarification regarding ancillary 
                            personal property.
Sec. 303. Special rules for treatment of timber gains made permanent.
Sec. 304. Treatment of mineral royalty income as qualifying income.
Sec. 305. Hedging provisions.
    TITLE IV--EARNINGS AND PROFITS OF REAL ESTATE INVESTMENT TRUSTS

Sec. 401. Modification of real estate investment trust earnings and 
                            profits calculation to avoid duplicate 
                            taxation.

    TITLE I--UPDATE OF PROHIBITED TRANSACTION AND RELATED PROVISIONS

SEC. 101. PROHIBITED TRANSACTION SAFE HARBORS.

    (a) Alternative 3-Year Averaging Test for Percentage of Assets That 
Can Be Sold Annually.--
            (1) In general.--Clause (iii) of section 857(b)(6)C) is 
        amended by inserting before the semicolon at the end the 
        following: ``, or (IV) the trust satisfies the requirements of 
        subclause (II) applied by substituting `20 percent' for `10 
        percent' and the 3-year average adjusted bases percentage for 
        the taxable year (as defined in subparagraph (G)) does not 
        exceed 10 percent, or (V) the trust satisfies the requirements 
        of subclause (III) applied by substituting `20 percent' for `10 
        percent' and the 3-year average fair market value percentage 
        for the taxable year (as defined in subparagraph (H)) does not 
        exceed 10 percent''.
            (2) 3-year average adjusted bases and fair market value 
        percentages.--Paragraph (6) of section 857(b) is amended by 
        redesignating subparagraphs (G) and (H) as subparagraphs (I) 
        and (J), respectively, and by inserting after subparagraph (F) 
        the following new subparagraphs:
                    ``(G) 3-year average adjusted bases percentage.--
                The term `3-year average adjusted bases percentage' 
                means, with respect to any taxable year, the ratio 
                (expressed as a percentage) of--
                            ``(i) the aggregate adjusted bases (as 
                        determined for purposes of computing earnings 
                        and profits) of property (other than sales of 
                        foreclosure property or sales to which section 
                        1033 applies) sold during the 3 taxable year 
                        period ending with such taxable year, divided 
                        by
                            ``(ii) the sum of the aggregate adjusted 
                        bases (as so determined) of all of the assets 
                        of the trust as of the beginning of each of the 
                        3 taxable years which are part of the period 
                        referred to in clause (i).
                    ``(H) 3-year average fair market value 
                percentage.--The term `3-year average fair market value 
                percentage' means, with respect to any taxable year, 
                the ratio (expressed as a percentage) of--
                            ``(i) the fair market value of property 
                        (other than sales of foreclosure property or 
                        sales to which section 1033 applies) sold 
                        during the 3 taxable year period ending with 
                        such taxable year, divided by
                            ``(ii) the sum of the fair market value of 
                        all of the assets of the trust as of the 
                        beginning of each of the 3 taxable years which 
                        are part of the period referred to in clause 
                        (i).''.
            (3) Conforming amendments.--Clause (iv) of section 
        857(b)(6)(D) is amended by adding ``or'' at the end of 
        subclause (III) and by adding at the end the following new 
        subclauses:
                                    ``(IV) the trust satisfies the 
                                requirements of subclause (II) applied 
                                by substituting `20 percent' for `10 
                                percent' and the 3-year average 
                                adjusted bases percentage for the 
                                taxable year (as defined in 
                                subparagraph (G)) does not exceed 10 
                                percent, or
                                    ``(V) the trust satisfies the 
                                requirements of subclause (III) applied 
                                by substituting `20 percent' for `10 
                                percent' and the 3-year average fair 
                                market value percentage for the taxable 
                                year (as defined in subparagraph (H)) 
                                does not exceed 10 percent,''.
    (b) Application of Safe Harbors Independent of Determination 
Whether Real Estate Asset Is Inventory Property.--
            (1) In general.--Subparagraphs (C) and (D) of section 
        857(b)(6) are each amended by striking ``and which is described 
        in section 1221(a)(1)'' in the matter preceding clause (i).
            (2) No inference from safe harbors.--Subparagraph (F) of 
        section 857(b)(6) is amended to read as follows:
                    ``(F) No inference with respect to treatment as 
                inventory property.--The determination of whether 
                property is described in section 1221(a)(1) shall be 
                made without regard to this paragraph.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by subsection (a) 
        shall apply to taxable years beginning after the date of the 
        enactment of this Act.
            (2) Application of safe harbors.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by subsection (b) shall take 
                effect as if included in section 3051 of the Housing 
                Assistance Tax Act of 2008.
                    (B) Retroactive application of no inference not 
                applicable to certain timber property previously 
                treated as not inventory property.--The amendment made 
                by subsection (b)(2) shall not apply to any sale of 
                property to which section 857(b)(6)(G) of the Internal 
                Revenue Code of 1986 (as in effect on the day before 
                the date of the enactment of this Act) applies.

SEC. 102. TREATMENT OF TAXABLE REIT SUBSIDIARIES.

    (a) Taxable REIT Subsidiaries Treated in Same Manner as Independent 
Contractors for Certain Purposes.--
            (1) Marketing and development expenses under rental 
        property safe harbor.--Clause (v) of section 857(b)(6)(C) is 
        amended by inserting ``or by a taxable REIT subsidiary'' before 
        the period at the end.
            (2) Rule for marketing expenses under timber property safe 
        harbor reinstated and made permanent.--Clause (v) of section 
        857(b)(6)(D) is amended by striking ``, or, in the case of a 
        sale on or before the termination date,'' and inserting ``or 
        by''.
            (3) Foreclosure property grace period.--Subparagraph (C) of 
        section 856(e)(4) is amended by inserting ``or through a 
        taxable REIT subsidiary'' after ``receive any income''.
    (b) Tax on Redetermined TRS Service Income.--
            (1) In general.--Subparagraph (A) of section 857(b)(7) is 
        amended by striking ``and excess interest'' and inserting 
        ``excess interest, and redetermined TRS service income''.
            (2) Redetermined trs service income.--Paragraph (7) of 
        section 857(b) is amended by redesignating subparagraphs (E) 
        and (F) as subparagraphs (F) and (G), respectively, and 
        inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) Redetermined trs service income.--
                            ``(i) In general.--The term `redetermined 
                        TRS service income' means gross income of a 
                        taxable REIT subsidiary of a real estate 
                        investment trust attributable to services 
                        provided to, or on behalf of, such trust (less 
                        deductions properly allocable thereto) to the 
                        extent the amount of such income (less such 
                        deductions) would (but for subparagraph (F)) be 
                        increased on distribution, apportionment, or 
                        allocation under section 482.
                            ``(ii) Coordination with redetermined 
                        rents.--Clause (i) shall not apply with respect 
                        to gross income attributable to services 
                        furnished or rendered to a tenant of the real 
                        estate investment trust (or to deductions 
                        properly allocable thereto).''.
            (3) Conforming amendments.--Subparagraphs (B)(i) and (C) of 
        section 857(b)(7) are each amended by striking ``subparagraph 
        (E)'' and inserting ``subparagraph (F)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

            TITLE II--PREFERENTIAL AND DESIGNATED DIVIDENDS

SEC. 201. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR PUBLICLY OFFERED 
              REITS.

    (a) In General.--Subsection (c) of section 562 is amended by 
inserting ``or a publicly offered REIT (as defined in section 
856(c)(5)(K))'' after ``a publicly offered regulated investment company 
(as defined in section 67(c)(2)(B))''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions in taxable years beginning after the date of the 
enactment of this Act.

SEC. 202. AUTHORITY FOR ALTERNATIVE REMEDIES TO ADDRESS CERTAIN 
              FAILURES.

    (a) In General.--Subsection (e) of section 562 is amended--
            (1) by striking ``In the case of a real estate investment 
        trust'' and inserting the following:
            ``(1) Determination of earnings and profits for purposes of 
        dividends paid deduction.--In the case of a real estate 
        investment trust'', and
            (2) by adding at the end the following new paragraph:
            ``(2) Authority to provide alternative remedies for certain 
        failures.--In the case of a failure of a distribution by a real 
        estate investment trust to comply with the requirements of 
        subsection (c), the Secretary may provide an appropriate remedy 
        to cure such failure in lieu of not considering the 
        distribution to be a dividend for purposes of computing the 
        dividends paid deduction if--
                    ``(A) the Secretary determines that such failure is 
                inadvertent or is due to reasonable cause and not due 
                to willful neglect, or
                    ``(B) such failure is of a type of failure which 
                the Secretary has identified for purposes of this 
                paragraph as being described in subparagraph (A).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions in taxable years beginning after the date of the 
enactment of this Act.

SEC. 203. TREATMENT OF INTEREST-RELATED DIVIDENDS OF SPECIFIED REITS.

    (a) Nonresident Alien Individuals.--
            (1) In general.--Section 871 is amended by redesignating 
        subsection (n) as subsection (o) and by inserting after 
        subsection (m) the following new subsection:
    ``(n) Interest-Related Dividends of Specified REITs.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        tax shall be imposed under paragraph (1)(A) of subsection (a) 
        on any interest-related dividend received from a specified 
        REIT.
            ``(2) Exceptions.--Paragraph (1) shall not apply to any 
        dividend described in subsection (k)(1)(B) (determined by 
        treating the specified REIT as a regulated investment company).
            ``(3) Interest-related dividend.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `interest-related 
                dividend' means any dividend (or part thereof) which is 
                designated by the specified REIT as an interest-related 
                dividend in a written notice mailed to its shareholders 
                or holders of beneficial interests before the 
                expiration of 60 days after the close of its taxable 
                year.
                    ``(B) Excess reported amount.--If the aggregate 
                amount so designated with respect to a taxable year of 
                the trust (including amounts so designated with respect 
                to dividends paid after the close of the taxable year 
                described in section 858) is greater than the qualified 
                net interest income of the trust for such taxable year, 
                the portion of each distribution which shall be an 
                interest-related dividend shall be only that portion of 
                the amounts so designated which such qualified net 
                interest income bears to the aggregate amount so 
                designated.
                    ``(C) Qualified net interest income.--The term 
                `qualified net interest income' has the meaning given 
                such term by subsection (k)(1)(D) (determined by 
                treating the specified REIT as a regulated investment 
                company).
                    ``(D) Termination.--The term `interest-related 
                dividend' shall not include any dividend with respect 
                to any taxable year of the trust beginning after the 
                date set forth in clause (v) of subsection (k)(1)(C).
            ``(4) Specified reit.--For purposes of this subsection, the 
        term `specified REIT' means any publicly offered REIT (as 
        defined in section 856(c)(5)(K)) other than any real estate 
        investment trust with respect to which any foreign person owns 
        (within the meaning of section 856(d)(5)) 50 percent or more 
        (determined by vote or value) of the shares, or certificates of 
        beneficial interest, in such trust.''.
            (2) Conforming amendment.--Clause (iv) of section 
        871(k)(1)(E) is amended by striking ``another regulated 
        investment company'' and inserting ``a regulated investment 
        company or a specified REIT (as defined in subsection 
        (n)(4))''.
    (b) Foreign Corporations.--Section 881 is amended by redesignating 
subsection (f) as subsection (g) and by inserting after subsection (e) 
the following new subsection:
    ``(f) Tax Not To Apply to Interest-Related Dividends of Specified 
REITs.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        tax shall be imposed under paragraph (1) of subsection (a) on 
        any interest-related dividend (as defined in section 871(n)(3)) 
        received from a specified REIT (as defined in section 
        871(n)(4)).
            ``(2) Exceptions and special rules.--Rules similar to the 
        rules of subparagraphs (B) and (C) of subsection (e)(1) shall 
        apply for purposes of this subsection (determined by treating 
        the specified REIT as a regulated investment company).''.
    (c) Withholding.--
            (1) Nonresident aliens.--Paragraph (12) of section 1441(c) 
        is amended--
                    (A) by striking ``section 871(k)'' in subparagraph 
                (A) and inserting ``subsection (k) or (n) of section 
                871'',
                    (B) by inserting ``or real estate investment trust 
                (as the case may be)'' after ``regulated investment 
                company'' in subparagraph (B), and
                    (C) by striking ``regulated investment companies'' 
                in the heading thereof and inserting ``regulated 
                investment companies and real estate investment 
                trusts''.
            (2) Foreign corporations.--Subsection (a) of section 1442 
        is amended--
                    (A) by striking ``sections 871(a) and 871(k)'' and 
                inserting ``subsections (a), (k), and (n) of section 
                871'',
                    (B) by striking ``sections 881(a) and 881(e)'' and 
                inserting ``subsections (a), (e), and (f) of section 
                881'', and
                    (C) by inserting ``or real estate investment trust 
                (as the case may be)'' after ``regulated investment 
                company''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to distributions made after the date of the enactment of 
        this Act.
            (2) Transition rule.--In the case of a taxable year which 
        includes the date of the enactment of this Act, qualified net 
        interest income (as defined in section 871(n)(3)(C) of the 
        Internal Revenue Code of 1986, as added by this section) shall 
        be determined by taking into account only items properly 
        includible in gross income for the portion of such taxable year 
        after such date (and deductions properly allocable to such 
        income).

SEC. 204. LIMITATIONS ON DESIGNATION OF DIVIDENDS.

    (a) In General.--Section 857 is amended by redesignating subsection 
(g) as subsection (h) and by inserting after subsection (f) the 
following new subsection:
    ``(g) Limitations on Designation of Dividends.--
            ``(1) Overall limitation.--The aggregate amount of 
        dividends designated by a real estate investment trust under 
        section 857(b)(3)(C), section 857(c)(2)(A), and section 
        871(n)(3) with respect to any taxable year may not exceed the 
        dividends paid by such trust with respect to such year. For 
        purposes of the preceding sentence, dividends paid after the 
        close of the taxable year described in section 858 shall be 
        treated as paid with respect to such year.
            ``(2) Proportionality.--The Secretary may prescribe 
        regulations or other guidance requiring the proportionality of 
        the designation of particular types of dividends among shares 
        or beneficial interests of a real estate investment trust.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions in taxable years beginning after the date of the 
enactment of this Act.

   TITLE III--UPDATE AND MODIFICATION OF REIT INCOME AND ASSET TESTS

SEC. 301. DEBT INSTRUMENTS OF PUBLICLY OFFERED REITS AND MORTGAGES 
              TREATED AS REAL ESTATE ASSETS.

    (a) Debt Instruments of Publicly Offered REITs Treated as Real 
Estate Assets.--
            (1) In general.--Subparagraph (B) of section 856(c)(5) is 
        amended--
                    (A) by striking ``and shares'' and inserting ``, 
                shares'', and
                    (B) by inserting ``, and debt instruments issued by 
                publicly offered REITs'' before the period at the end 
                of the first sentence.
            (2) Income from nonqualified debt instruments of publicly 
        offered reits not qualified for purposes of satisfying the 75 
        percent gross income test.--Subparagraph (H) of section 
        856(c)(3) is amended by inserting ``(other than a nonqualified 
        publicly offered REIT debt instrument)'' after ``real estate 
        asset''.
            (3) 25 percent asset limitation on holding of nonqualified 
        debt instruments of publicly offered reits.--Subparagraph (B) 
        of section 856(c)(4) is amended by redesignating clause (iii) 
        as clause (iv) and by inserting after clause (ii) the following 
        new clause:
                            ``(iii) not more than 25 percent of the 
                        value of its total assets is represented by 
                        nonqualified publicly offered REIT debt 
                        instruments, and''.
            (4) Definitions related to debt instruments of publicly 
        offered reits.--Paragraph (5) of section 856(c) is amended by 
        adding at the end the following new subparagraph:
                    ``(L) Definitions related to debt instruments of 
                publicly offered reits.--
                            ``(i) Publicly offered reit.--The term 
                        `publicly offered REIT' means any real estate 
                        investment trust which meets the requirements 
                        of this part and which is required to file 
                        annual and periodic reports with the Securities 
                        and Exchange Commission under the Securities 
                        Exchange Act of 1934.
                            ``(ii) Nonqualified publicly offered reit 
                        debt instrument.--The term `nonqualified 
                        publicly offered REIT debt instrument' means 
                        any real estate asset which would cease to be a 
                        real estate asset if subparagraph (B) were 
                        applied without regard to the reference to 
                        `debt instruments issued by publicly offered 
                        REITs'.''.
    (b) Interests in Mortgages on Interests in Real Property Treated as 
Real Estate Assets.--Subparagraph (B) of section 856(c)(5) is amended 
by inserting ``or on interests in real property'' after ``interests in 
mortgages on real property''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 302. ASSET AND INCOME TEST CLARIFICATION REGARDING ANCILLARY 
              PERSONAL PROPERTY.

    (a) In General.--Subsection (c) of section 856 is amended by adding 
at the end the following new paragraph:
            ``(9) Special rules for certain personal property which is 
        ancillary to real property.--
                    ``(A) Certain personal property leased in 
                connection with real property.--Personal property shall 
                be treated as a real estate asset for purposes of 
                paragraph (4)(A) to the extent that rents attributable 
                to such personal property are treated as rents from 
                real property under subsection (d)(1)(C).
                    ``(B) Certain personal property mortgaged in 
                connection with real property.--In the case of an 
                obligation secured by a mortgage on both real property 
                and personal property, if the fair market value of such 
                personal property does not exceed 15 percent of the 
                total fair market value of all such property, such 
                personal property shall be treated as real property for 
                purposes of applying paragraphs (3)(B) and (4)(A). For 
                purposes of the preceding sentence, the fair market 
                value of all such property shall be determined in the 
                same manner as the fair market value of real property 
                is determined for purposes of apportioning interest 
                income between real property and personal property 
                under paragraph (3)(B).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 303. SPECIAL RULES FOR TREATMENT OF TIMBER GAINS MADE PERMANENT.

    (a) In General.--Subparagraph (H) of section 856(c)(5) is amended 
by striking clause (iii).
    (b) Clarification of Exemption From Prohibited Transaction Rules.--
Subclause (II) of section 856(c)(5)(H)(ii) is amended to read as 
follows:
                                    ``(II) Exemption from prohibited 
                                transaction rules.--For purposes of 
                                this part, income described in this 
                                subparagraph shall not be treated as 
                                gain from a prohibited transaction.''.
    (c) Conforming Amendments.--
            (1) Subclause (I) of section 856(c)(5)(H)(ii) is amended by 
        inserting ``Deemed sale of cut timber.--'' before ``For 
        purposes of''.
            (2) Subsection (c) of section 856, as amended by section 
        302, is amended by striking paragraph (8) and redesignating 
        paragraph (9) as paragraph (8).
            (3) Paragraph (6) of section 857(b), as amended by section 
        101(a), is amended by striking subparagraphs (I) and (J).
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 304. TREATMENT OF MINERAL ROYALTY INCOME AS QUALIFYING INCOME.

    (a) In General.--Subparagraph (I) of section 856(c)(2) is amended 
to read as follows:
                    ``(I) mineral royalty income (including oil and gas 
                royalties) from real property owned by a real estate 
                investment trust and held, or once held, in connection 
                with the trust's trade or business of generating rents 
                from real property or producing timber;''.
    (b) Conforming Amendment.--Paragraph (5) of section 856(c), as 
amended by section 301, is amended by striking subparagraph (I) and by 
redesignating subparagraphs (J), (K), and (L) as subparagraphs (I), 
(J), and (K), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 305. HEDGING PROVISIONS.

    (a) Modification To Permit the Termination of a Hedging Transaction 
Using an Additional Hedging Instrument.--Subparagraph (G) of section 
856(c)(5) is amended by striking ``and'' at the end of clause (i), by 
striking the period at the end of clause (ii) and inserting ``, and'', 
and by adding at the end the following new clause:
                            ``(iii) if--
                                    ``(I) a real estate investment 
                                trust enters into one or more positions 
                                described in clause (i) with respect to 
                                indebtedness described in clause (i) or 
                                one or more positions described in 
                                clause (ii) with respect to property 
                                which generates income or gain 
                                described in paragraph (2) or (3),
                                    ``(II) any portion of such 
                                indebtedness is extinguished or any 
                                portion of such property is disposed 
                                of, and
                                    ``(III) in connection with such 
                                extinguishment or disposition, such 
                                trust enters into one or more hedging 
                                transactions (as defined in clause (ii) 
                                or (iii) of section 1221(b)(2)(A)) with 
                                respect to any position referred to in 
                                subclause (I),
                        any income of such trust from any position 
                        referred to in subclause (I) and from any 
                        transaction referred to in subclause (III) 
                        (including gain from the termination of any 
                        such position or transaction) shall not 
                        constitute gross income under paragraphs (2) 
                        and (3) to the extent that such transaction 
                        hedges such position.''.
    (b) Identification Requirements.--
            (1) In general.--Subparagraph (G) of section 856(c)(5), as 
        amended by subsection (a), is amended by striking ``and'' at 
        the end of clause (ii), by striking the period at the end of 
        clause (iii) and inserting ``, and'', and by adding at the end 
        the following new clause:
                            ``(iv) clauses (i), (ii), and (iii) shall 
                        not apply with respect to any transaction 
                        unless such transaction satisfies the 
                        identification requirement described in section 
                        1221(a)(7) (determined after taking into 
                        account any curative provisions provided under 
                        the regulations referred to therein).''.
            (2) Conforming amendments.--Subparagraph (G) of section 
        856(c)(5) is amended--
                    (A) by striking ``which is clearly identified 
                pursuant to section 1221(a)(7)'' in clause (i), and
                    (B) by striking ``, 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)'' 
                in clause (ii).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

    TITLE IV--EARNINGS AND PROFITS OF REAL ESTATE INVESTMENT TRUSTS

SEC. 401. MODIFICATION OF REAL ESTATE INVESTMENT TRUST EARNINGS AND 
              PROFITS CALCULATION TO AVOID DUPLICATE TAXATION.

    (a) Earnings and Profits Not Increased by Amounts Allowed in 
Computing Taxable Income in Prior Years.--
            (1) In general.--Paragraph (1) of section 857(d) is amended 
        to read as follows:
            ``(1) In general.--The earnings and profits of a real 
        estate investment trust for any taxable year (but not its 
        accumulated earnings) shall not be reduced by any amount 
        which--
                    ``(A) is not allowable in computing its taxable 
                income for such taxable year, and
                    ``(B) was not allowable in computing its taxable 
                income for any prior taxable year.''.
            (2) Exception for purposes of determining dividends paid 
        deduction.--Paragraph (1) of section 562(e), as amended by 
        section 302, is amended--
                    (A) by striking ``deduction, the earnings'' and 
                inserting the following: ``deduction--
                    ``(A) the earnings'',
                    (B) by striking the period at the end and inserting 
                ``, and'', and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(B) section 857(d)(1) shall be applied without 
                regard to subparagraph (B) thereof.''.
            (3) Conforming amendments.--Subsection (d) of section 857 
        is amended by adding at the end the following new paragraphs:
            ``(4) Real estate investment trust.--For purposes of this 
        subsection, the term `real estate investment trust' includes a 
        domestic corporation, trust, or association which is a real 
        estate investment trust determined without regard to the 
        requirements of subsection (a).
            ``(5) Special rules for determining earnings and profits 
        for purposes of the deduction for dividends paid.--For special 
        rules for determining the earnings and profits of a real estate 
        investment trust for purposes of the deduction for dividends 
        paid, see section 562(e)(1).''.
    (b) Treatment of Gain on Sales of Real Property.--Subparagraph (A) 
of section 562(e)(1), as amended by section 202 and subsection (a), is 
amended to read as follows:
                    ``(A) the earnings and profits of such trust for 
                any taxable year (but not its accumulated earnings) 
                shall be increased by the amount of gain (if any) on 
                the sale or exchange of real property which is taken 
                into account in determining the taxable income of such 
                trust for such taxable year (and not otherwise taken 
                into account in determining such earnings and profits), 
                and''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
                                 <all>