1.
(a)This Act may be cited
as the Update and Streamline REIT Act
of 2012
or the US REIT Act of 2012
.
(b)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)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.
<enum>I</enum><header>Update of
prohibited transaction and related provisions</header>
<section id="HA311B012B899468C86D0F737B5EBDAC9"><enum>101.</enum><header>Prohibited
transaction safe harbors</header>
<subsection id="HAC55E5075FCE415C947F0AC7F5B4B223"><enum>(a)</enum><header>Alternative
3-Year averaging test for percentage of assets that can be sold
annually</header>
<paragraph id="HB7504940FC3D42C1887959BB486860FB"><enum>(1)</enum><header>In
general</header><text>Clause (iii) of section 857(b)(6)C) is amended by
inserting before the semicolon at the end the following: <quote>, or (IV) the
trust satisfies the requirements of subclause (II) applied by substituting
<quote>20 percent</quote> for <quote>10 percent</quote> 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 <quote>20 percent</quote> for <quote>10
percent</quote> and the 3-year average fair market value percentage for the
taxable year (as defined in subparagraph (H)) does not exceed 10
percent</quote>.</text>
</paragraph><paragraph id="HF90467BACED7429FA825E15B221B0AC7"><enum>(2)</enum><header>3-year average
adjusted bases and fair market value percentages</header><text display-inline="yes-display-inline">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:</text>
<quoted-block display-inline="no-display-inline" id="H8425FD4338C34966A9D908A5867E8F71" style="OLC">
<subparagraph id="H53C99407B1C84535BDD7274CFC2EA456"><enum>(G)</enum><header>3-year average
adjusted bases percentage</header><text display-inline="yes-display-inline">The
term <quote>3-year average adjusted bases percentage</quote> means, with
respect to any taxable year, the ratio (expressed as a percentage) of—</text>
<clause id="HE9E141911B704313BAD4BD0CC78E856A"><enum>(i)</enum><text display-inline="yes-display-inline">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</text>
</clause><clause id="HAE94C222816C4652A1C3C0CF9E8DCCEC"><enum>(ii)</enum><text display-inline="yes-display-inline">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).</text>
</clause></subparagraph><subparagraph id="H92F7A81CFB8B494BA79C1E0945393B04"><enum>(H)</enum><header>3-year average
fair market value percentage</header><text display-inline="yes-display-inline">The term <quote>3-year average fair market
value percentage</quote> means, with respect to any taxable year, the ratio
(expressed as a percentage) of—</text>
<clause id="HE7E6F857E6EA433484247466293C3C05"><enum>(i)</enum><text display-inline="yes-display-inline">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</text>
</clause><clause id="H0720522A087A46FA8E5684381F3D90AD"><enum>(ii)</enum><text>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).</text>
</clause></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="HAFEAF93D195049188D090AC8B519A262"><enum>(3)</enum><header>Conforming
amendments</header><text>Clause (iv) of section 857(b)(6)(D) is amended by
adding <quote>or</quote> at the end of subclause (III) and by adding at the end
the following new subclauses:</text>
<quoted-block display-inline="no-display-inline" id="H9FBD254006274D19A6A2EB80164FA9FC" style="OLC">
<subclause id="H92A4088162A64D5C9BBB5CFBD25394FA"><enum>(IV)</enum><text display-inline="yes-display-inline">the trust satisfies the requirements of
subclause (II) applied by substituting <quote>20 percent</quote> for <quote>10
percent</quote> and the 3-year average adjusted bases percentage for the
taxable year (as defined in subparagraph (G)) does not exceed 10 percent,
or</text>
</subclause><subclause id="H02005BBE9A3944E78B187E3ACFBDBFA5"><enum>(V)</enum><text>the trust
satisfies the requirements of subclause (III) applied by substituting <quote>20
percent</quote> for <quote>10 percent</quote> and the 3-year average fair
market value percentage for the taxable year (as defined in subparagraph (H))
does not exceed 10
percent,</text>
</subclause><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="H4996BCEE78DC49ADBD658094986D5591"><enum>(b)</enum><header>Application of
safe harbors independent of determination whether real estate asset is
inventory property</header>
<paragraph id="H0C63512CB22740C7BBB670BA0D927EB6"><enum>(1)</enum><header>In
general</header><text>Subparagraphs (C) and (D) of section 857(b)(6) are each
amended by striking <quote>and which is described in section 1221(a)(1)</quote>
in the matter preceding clause (i).</text>
</paragraph><paragraph id="H123CC461973743EFBC7840397FE2056D"><enum>(2)</enum><header>No inference
from safe harbors</header><text>Subparagraph (F) of section 857(b)(6) is
amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="HA7665D0AE440458E869C0840C993D31F" style="OLC">
<subparagraph id="HD44DB17E41FD413DA3BD612ED4E39D5B"><enum>(F)</enum><header>No inference
with respect to treatment as inventory property</header><text display-inline="yes-display-inline">The determination of whether property is
described in section 1221(a)(1) shall be made without regard to this
paragraph.</text>
</subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection display-inline="no-display-inline" id="H126C654054E94A05AD525001253F2DA5"><enum>(c)</enum><header>Effective
dates</header>
<paragraph id="H1C772BEAC3F240858312A2D24569C90E"><enum>(1)</enum><header>In
general</header><text>The amendments made by subsection (a) shall apply to
taxable years beginning after the date of the enactment of this Act.</text>
</paragraph><paragraph id="H52CF2F3422DB4214BC0CF04BEF3074A5"><enum>(2)</enum><header>Application of
safe harbors</header>
<subparagraph id="HB8D623E61C3A4927B101A3AE336EF100"><enum>(A)</enum><header>In
general</header><text display-inline="yes-display-inline">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.</text>
</subparagraph><subparagraph id="HD28FCBE0C70A4E69A714287819585F2D"><enum>(B)</enum><header>Retroactive
application of no inference not applicable to certain timber property
previously treated as not inventory property</header><text display-inline="yes-display-inline">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.</text>
</subparagraph></paragraph></subsection></section><section id="H8C38E06DD36B4446851AC50159DDAE83"><enum>102.</enum><header>Treatment of
taxable REIT subsidiaries</header>
<subsection id="H864F20F7736E4B9581F0F631599E4597"><enum>(a)</enum><header>Taxable REIT
subsidiaries treated in same manner as independent contractors for certain
purposes</header>
<paragraph id="H9841C43198C946899C2CF1D01D82BD82"><enum>(1)</enum><header>Marketing and
development expenses under rental property safe harbor</header><text display-inline="yes-display-inline">Clause (v) of section 857(b)(6)(C) is
amended by inserting <quote>or by a taxable REIT subsidiary</quote> before the
period at the end.</text>
</paragraph><paragraph id="H84D44695B2A54F8FB566F85149F1C277"><enum>(2)</enum><header>Rule for
marketing expenses under timber property safe harbor reinstated and made
permanent</header><text>Clause (v) of section 857(b)(6)(D) is amended by
striking <quote>, or, in the case of a sale on or before the termination
date,</quote> and inserting <quote>or by</quote> .</text>
</paragraph><paragraph id="H016DEBDAE9B44175A8965E84BF94B443"><enum>(3)</enum><header>Foreclosure
property grace period</header><text display-inline="yes-display-inline">Subparagraph (C) of section 856(e)(4) is
amended by inserting <quote>or through a taxable REIT subsidiary</quote> after
<quote>receive any income</quote>.</text>
</paragraph></subsection><subsection commented="no" id="H1BF21AFDE9374E0BABD8A8CF7DD6B5E1"><enum>(b)</enum><header>Tax on
redetermined TRS service income</header>
<paragraph id="H74ED75004FF14B0FAA47A0F12E453C41"><enum>(1)</enum><header>In
general</header><text>Subparagraph (A) of section 857(b)(7) is amended by
striking <quote>and excess interest</quote> and inserting <quote>excess
interest, and redetermined TRS service income</quote>.</text>
</paragraph><paragraph id="H0EB76771FF7D4433922FC232E6C26B23"><enum>(2)</enum><header>Redetermined TRS
service income</header><text>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:</text>
<quoted-block display-inline="no-display-inline" id="H9D5A71FE2AD84B15868DA1FD0FECF95B" style="OLC">
<subparagraph id="H5B5690A85492455482ECA56CDAB10AE4"><enum>(E)</enum><header>Redetermined TRS
service income</header>
<clause id="HA3BEE0B4F6DF4B998480FC11EAFAB881"><enum>(i)</enum><header>In
general</header><text>The term <quote>redetermined TRS service income</quote>
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.</text>
</clause><clause id="H580EFC36222C49F695302316D3226F17"><enum>(ii)</enum><header>Coordination
with redetermined rents</header><text>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).</text>
</clause></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="HE5D8717104024A519D6FD7FCBC41F1A3"><enum>(3)</enum><header>Conforming
amendments</header><text>Subparagraphs (B)(i) and (C) of section 857(b)(7) are
each amended by striking <quote>subparagraph (E)</quote> and inserting
<quote>subparagraph (F)</quote>.</text>
</paragraph></subsection><subsection id="H096810B869824B2694FFDA5AC14FD83C"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><enum>II</enum><header>Preferential and
designated dividends</header>
<section id="HF82CB0E5FF3340CB99E60EDEBEDBE929"><enum>201.</enum><header>Repeal of
preferential dividend rule for publicly offered REITs</header>
<subsection id="H12ABDA917A244E39B947A6D2A046E396"><enum>(a)</enum><header>In
general</header><text>Subsection (c) of section 562 is amended by inserting
<quote>or a publicly offered REIT (as defined in section 856(c)(5)(K))</quote>
after <quote>a publicly offered regulated investment company (as defined in
section 67(c)(2)(B))</quote>.</text>
</subsection><subsection id="HAFD43598830E4DAFB7FCE77BDD0E9B54"><enum>(b)</enum><header>Effective
date</header><text>The amendment made by this section shall apply to
distributions in taxable years beginning after the date of the enactment of
this Act.</text>
</subsection></section><section commented="no" id="H8474EF086BFA4DAA8E56B41873337A28"><enum>202.</enum><header>Authority for
alternative remedies to address certain failures</header>
<subsection commented="no" id="H0929E83618B64423BCBCF37151249E17"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subsection (e) of
section 562 is amended—</text>
<paragraph id="H87F2F1DD16DF428CB1465BCC8B5B7A6A"><enum>(1)</enum><text>by striking
<quote>In the case of a real estate investment trust</quote> and inserting the
following:</text>
<quoted-block display-inline="no-display-inline" id="H64CB32AD63994F7EB0E9AE88D58D1B8F" style="OLC">
<paragraph id="HE63FA9FAD51C4D42BFE5230BF6549162"><enum>(1)</enum><header>Determination of
earnings and profits for purposes of dividends paid deduction</header><text display-inline="yes-display-inline">In the case of a real estate investment
trust</text>
</paragraph><after-quoted-block>,
and</after-quoted-block></quoted-block>
</paragraph><paragraph id="HAFF0F4FC055149D8ABFDD846D1F61B60"><enum>(2)</enum><text>by adding at the
end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="HAA54E8360E0846F9AD3E711718920379" style="OLC">
<paragraph id="H0E79B7AB27C4465F9D7CD561D5DB62BE"><enum>(2)</enum><header>Authority to
provide alternative remedies for certain failures</header><text>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—</text>
<subparagraph id="H9BC3944CEFAF465E8F6FECFF94533A86"><enum>(A)</enum><text>the Secretary
determines that such failure is inadvertent or is due to reasonable cause and
not due to willful neglect, or</text>
</subparagraph><subparagraph id="H83C73E68A0D348638CCE260908DED58A"><enum>(B)</enum><text>such failure is of
a type of failure which the Secretary has identified for purposes of this
paragraph as being described in subparagraph
(A).</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection commented="no" id="H52698B2A52F34855BEEFC27FDAD9D170"><enum>(b)</enum><header>Effective
date</header><text display-inline="yes-display-inline">The amendments made by
this section shall apply to distributions in taxable years beginning after the
date of the enactment of this Act.</text>
</subsection></section><section id="H72C110307D7446C38367B4C904530F1F"><enum>203.</enum><header>Treatment of
interest-related dividends of specified REITs</header>
<subsection id="HDBB3C7B9E4114ECDB29779CA230EF393"><enum>(a)</enum><header>Nonresident
alien individuals</header>
<paragraph id="H120CEF3D028B41A79D7F246CEFEDC871"><enum>(1)</enum><header>In
general</header><text>Section 871 is amended by redesignating subsection (n) as
subsection (o) and by inserting after subsection (m) the following new
subsection:</text>
<quoted-block display-inline="no-display-inline" id="H0816B95775A244CEA2E558FDB1B98608" style="OLC">
<subsection id="H77E4433541564C789BFD5118004B531A"><enum>(n)</enum><header>Interest-Related
dividends of specified REITs</header>
<paragraph id="H1A13D2E55CBE4F3090EB105B808BDBAD"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">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.</text>
</paragraph><paragraph id="HA9E5F9EBF7E8462FB7BD3B2129142515"><enum>(2)</enum><header>Exceptions</header><text>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).</text>
</paragraph><paragraph id="HB285B4EF205947D79DFEA1F4E7D155C8"><enum>(3)</enum><header>Interest-related
dividend</header><text display-inline="yes-display-inline">For purposes of this
subsection—</text>
<subparagraph id="HA9B561B39B304477804A94234270F7E5"><enum>(A)</enum><header>In
general</header><text>The term <quote>interest-related dividend</quote> 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.</text>
</subparagraph><subparagraph id="H49BD17A868D845E88DF5BE7BF1EDE262"><enum>(B)</enum><header>Excess reported
amount</header><text>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.</text>
</subparagraph><subparagraph id="H93D4B0EE9F484A66864C4FEFD9D527B4"><enum>(C)</enum><header>Qualified net
interest income</header><text>The term <quote>qualified net interest
income</quote> has the meaning given such term by subsection (k)(1)(D)
(determined by treating the specified REIT as a regulated investment
company).</text>
</subparagraph><subparagraph id="H42B285D0294745879798EAEB7FE3ED29"><enum>(D)</enum><header>Termination</header><text>The
term <quote>interest-related dividend</quote> 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).</text>
</subparagraph></paragraph><paragraph id="H6DDE64B29E0D4E11BD79B81B756222B2"><enum>(4)</enum><header>Specified
REIT</header><text display-inline="yes-display-inline">For purposes of this
subsection, the term <quote>specified REIT</quote> 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.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="H6BFAC3DA51FA43198195CFCDEA566D09"><enum>(2)</enum><header>Conforming
amendment</header><text>Clause (iv) of section 871(k)(1)(E) is amended by
striking <quote>another regulated investment company</quote> and inserting
<quote>a regulated investment company or a specified REIT (as defined in
subsection (n)(4))</quote>.</text>
</paragraph></subsection><subsection id="HA5997FB44BA44DEDB57C248CDDF03ED2"><enum>(b)</enum><header>Foreign
corporations</header><text>Section 881 is amended by redesignating subsection
(f) as subsection (g) and by inserting after subsection (e) the following new
subsection:</text>
<quoted-block display-inline="no-display-inline" id="HA441D09FE98549A1B43E5697B6930EB3" style="OLC">
<subsection id="H0392CF751BC5412CAF5C9DA9166C56CB"><enum>(f)</enum><header>Tax not To apply
to interest-Related dividends of specified REITs</header>
<paragraph id="HDEB246C2BACB4FD4853888F93056C643"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">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)).</text>
</paragraph><paragraph id="H20EC3DC75281480F8E0502AC142DC3F0"><enum>(2)</enum><header>Exceptions and
special rules</header><text>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).</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HD172220F66194567BB5C281903AB54A8"><enum>(c)</enum><header>Withholding</header>
<paragraph id="H5752687276E24307AD7C62FE635479E2"><enum>(1)</enum><header>Nonresident
aliens</header><text display-inline="yes-display-inline">Paragraph (12) of
section 1441(c) is amended—</text>
<subparagraph id="H3D2F3ED1E83E4B2E863D05D2EBF0B2FD"><enum>(A)</enum><text>by striking
<quote>section 871(k)</quote> in subparagraph (A) and inserting
<quote>subsection (k) or (n) of section 871</quote>,</text>
</subparagraph><subparagraph id="H90E3C21E5F264A7BBAF36E78ECD95D17"><enum>(B)</enum><text>by inserting
<quote>or real estate investment trust (as the case may be)</quote> after
<quote>regulated investment company</quote> in subparagraph (B), and</text>
</subparagraph><subparagraph id="HBEFA073298DD4635A614BC228C347C01"><enum>(C)</enum><text>by striking
<quote><header-in-text level="paragraph" style="OLC">regulated investment
companies</header-in-text></quote> in the heading thereof and inserting
<quote><header-in-text level="paragraph" style="OLC">regulated investment
companies and real estate investment trusts</header-in-text></quote>.</text>
</subparagraph></paragraph><paragraph id="H8F4670FC485F4AB49584DB991315E676"><enum>(2)</enum><header>Foreign
corporations</header><text>Subsection (a) of section 1442 is amended—</text>
<subparagraph id="H3B47350A2673470BB8114FBE5400BD15"><enum>(A)</enum><text>by striking
<quote>sections 871(a) and 871(k)</quote> and inserting <quote>subsections (a),
(k), and (n) of section 871</quote>,</text>
</subparagraph><subparagraph id="H952AE50CD9DE4BA0BB32EAC85E3B072F"><enum>(B)</enum><text>by striking
<quote>sections 881(a) and 881(e)</quote> and inserting <quote>subsections (a),
(e), and (f) of section 881</quote>, and</text>
</subparagraph><subparagraph id="H2B91B121AC0A40FEB00719F5652CA0C0"><enum>(C)</enum><text>by inserting
<quote>or real estate investment trust (as the case may be)</quote> after
<quote>regulated investment company</quote>.</text>
</subparagraph></paragraph></subsection><subsection id="H612144D2DEE94A589DC79080FFEBFB13"><enum>(d)</enum><header>Effective
date</header>
<paragraph id="HC1F7F95FDE484D24AF0E9696F51467FA"><enum>(1)</enum><header>In
general</header><text>The amendments made by this section shall apply to
distributions made after the date of the enactment of this Act.</text>
</paragraph><paragraph id="H1AC62655511A4E5A8053E4A4D3665B20"><enum>(2)</enum><header>Transition
rule</header><text>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).</text>
</paragraph></subsection></section><section id="H61B647AAFE32429B978C30F148D8D79E"><enum>204.</enum><header>Limitations on
designation of dividends</header>
<subsection id="H327D2787C0694FB2948F51432E5BA625"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Section 857 is
amended by redesignating subsection (g) as subsection (h) and by inserting
after subsection (f) the following new subsection:</text>
<quoted-block display-inline="no-display-inline" id="HF78636B4A1E842C49C0C0C05C46D6FD6" style="OLC">
<subsection id="H2DB640D5FCBE4BA5B17CC19B6A04BA5B"><enum>(g)</enum><header>Limitations on
designation of dividends</header>
<paragraph id="HED5A3F7DAAD34A5D9006ADE913AF1EB9"><enum>(1)</enum><header>Overall
limitation</header><text display-inline="yes-display-inline">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.</text>
</paragraph><paragraph id="HE673A1A9F8CE47C0B472C6E019EF5A7E"><enum>(2)</enum><header>Proportionality</header><text display-inline="yes-display-inline">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.</text>
</paragraph></subsection><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H27C74B053AD24713B0D9548F901356A6"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to
distributions in taxable years beginning after the date of the enactment of
this Act.</text>
</subsection></section><enum>III</enum><header>Update and
Modification of REIT Income and Asset Tests</header>
<section display-inline="no-display-inline" id="H5101D23CD1384AF7B36D308709E97123" section-type="subsequent-section"><enum>301.</enum><header>Debt instruments of
publicly offered REITs and mortgages treated as real estate assets</header>
<subsection id="HE15D3E9A8E204D509E23582B04732750"><enum>(a)</enum><header>Debt instruments
of publicly offered REITs treated as real estate assets</header>
<paragraph id="H558BF6BBCC2148A0BB9732F807C87CF8"><enum>(1)</enum><header>In
general</header><text>Subparagraph (B) of section 856(c)(5) is amended—</text>
<subparagraph id="H6E9AB00026A84FB082634BE4DE888DB2"><enum>(A)</enum><text>by striking
<quote>and shares</quote> and inserting <quote>, shares</quote>, and</text>
</subparagraph><subparagraph id="H5990527C4CC849A8AB09B1BCDC101D8E"><enum>(B)</enum><text>by inserting
<quote>, and debt instruments issued by publicly offered REITs</quote> before
the period at the end of the first sentence.</text>
</subparagraph></paragraph><paragraph id="HAC05691B85DB4B51B65369FEF32704CE"><enum>(2)</enum><header>Income from
nonqualified debt instruments of publicly offered REITs not qualified for
purposes of satisfying the 75 percent gross income test</header><text display-inline="yes-display-inline">Subparagraph (H) of section 856(c)(3) is
amended by inserting <quote>(other than a nonqualified publicly offered REIT
debt instrument)</quote> after <quote>real estate asset</quote>.</text>
</paragraph><paragraph commented="no" id="HBF74F0D2FF0547AFAC5AC93BF3639C1B"><enum>(3)</enum><header>25 percent asset
limitation on holding of nonqualified debt instruments of publicly offered
REITs</header><text>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:</text>
<quoted-block display-inline="no-display-inline" id="HAE894B976B204AE0860DA2C852BD59B3" style="OLC">
<clause commented="no" id="HAB82C1B88B964E6E858B5E5530E3EE24"><enum>(iii)</enum><text display-inline="yes-display-inline">not more than 25 percent of the value of
its total assets is represented by nonqualified publicly offered REIT debt
instruments,
and</text>
</clause><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="H828722A6594043A4B3FE22176ACB8859"><enum>(4)</enum><header>Definitions
related to debt instruments of publicly offered REITs</header><text>Paragraph
(5) of section 856(c) is amended by adding at the end the following new
subparagraph:</text>
<quoted-block display-inline="no-display-inline" id="H636E7620131846A3BD4D5D3A5D6E7018" style="OLC">
<subparagraph id="H5235E06F31A74582A20BE666F6490CF7"><enum>(L)</enum><header>Definitions
related to debt instruments of publicly offered REITs</header>
<clause id="HD26E1512A3EC4C5E8C90FE211E0E4B66"><enum>(i)</enum><header>Publicly offered
REIT</header><text>The term <quote>publicly offered REIT</quote> 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.</text>
</clause><clause id="HE926BB3113A24E58BB2CB43FDE1C6796"><enum>(ii)</enum><header>Nonqualified
publicly offered REIT debt instrument</header><text>The term
<quote>nonqualified publicly offered REIT debt instrument</quote> 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 <quote>debt instruments
issued by publicly offered
REITs</quote>.</text>
</clause></subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection id="H3CD7729054924BA69BC798B541F28E77"><enum>(b)</enum><header>Interests in
mortgages on interests in real property treated as real estate
assets</header><text>Subparagraph (B) of section 856(c)(5) is amended by
inserting <quote>or on interests in real property</quote> after
<quote>interests in mortgages on real property</quote>.</text>
</subsection><subsection id="HAA4F4FCE4ACD4A148F779C1A59C1FA3E"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="HF192F41885AD4920A276FE824183E32F"><enum>302.</enum><header>Asset and
income test clarification regarding ancillary personal property</header>
<subsection id="H15FC036DAA8343BE8FDC169F40C07D3D"><enum>(a)</enum><header>In
general</header><text display-inline="yes-display-inline">Subsection (c) of
section 856 is amended by adding at the end the following new paragraph:</text>
<quoted-block display-inline="no-display-inline" id="HD1CD6C204C654F9C9ACD67F78FFF4831" style="OLC">
<paragraph id="H168AC407840841859E4A34B30DAC3D79"><enum>(9)</enum><header>Special rules
for certain personal property which is ancillary to real property</header>
<subparagraph id="H544403BD3F974AFDA6D46CD8001A760A"><enum>(A)</enum><header>Certain personal
property leased in connection with real property</header><text display-inline="yes-display-inline">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).</text>
</subparagraph><subparagraph id="H3B95BA28A5D04445B23989643B0342BD"><enum>(B)</enum><header>Certain personal
property mortgaged in connection with real property</header><text display-inline="yes-display-inline">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).</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H8B6649FF6A394B78ACA0D9832EC5A1D2"><enum>(b)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="HACCDA14D0841451585BCD72521C74A53"><enum>303.</enum><header>Special rules
for treatment of timber gains made permanent</header>
<subsection id="H83FC96241C204BC0BD0F868C991597E7"><enum>(a)</enum><header>In
general</header><text>Subparagraph (H) of section 856(c)(5) is amended by
striking clause (iii).</text>
</subsection><subsection id="H0BB2A259FE81418D8E0CEA3707B0A33F"><enum>(b)</enum><header>Clarification of
exemption from prohibited transaction rules</header><text>Subclause (II) of
section 856(c)(5)(H)(ii) is amended to read as follows:</text>
<quoted-block display-inline="no-display-inline" id="HF7CA18DE25054FEE9DA27105C6D846DA" style="OLC">
<subclause id="HC72A30E21E8043CAA6520DC463C612DD"><enum>(II)</enum><header>Exemption from
prohibited transaction rules</header><text display-inline="yes-display-inline">For purposes of this part, income described
in this subparagraph shall not be treated as gain from a prohibited
transaction.</text>
</subclause><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H9D393D296BB64270B669714A9054A5C9"><enum>(c)</enum><header>Conforming
amendments</header>
<paragraph id="HDA3885F967514F61A7B515FB1F1CF980"><enum>(1)</enum><text display-inline="yes-display-inline">Subclause (I) of section 856(c)(5)(H)(ii)
is amended by inserting <quote><header-in-text level="subclause" style="OLC">Deemed sale of cut timber.—</header-in-text></quote> before
<quote>For purposes of</quote>.</text>
</paragraph><paragraph id="H2E7F977318E548258FE1EB45A67B69C7"><enum>(2)</enum><text>Subsection (c) of
section 856, as amended by section 302, is amended by striking paragraph (8)
and redesignating paragraph (9) as paragraph (8).</text>
</paragraph><paragraph id="HF6AF3FDC4F1F4268BEA06C378FD27DED"><enum>(3)</enum><text>Paragraph (6) of
section 857(b), as amended by section 101(a), is amended by striking
subparagraphs (I) and (J).</text>
</paragraph></subsection><subsection id="H65B2B405F8504B7C91E27224B01031D4"><enum>(d)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section id="H26921EDB227A4541B40E6A6E13D5253D"><enum>304.</enum><header>Treatment of
mineral royalty income as qualifying income</header>
<subsection id="H2FFB80FD7C764180998D50EC285F9BFA"><enum>(a)</enum><header>In
general</header><text>Subparagraph (I) of section 856(c)(2) is amended to read
as follows:</text>
<quoted-block display-inline="no-display-inline" id="H12BB274E1EFC453B85AA38D1A68E0714" style="OLC">
<subparagraph id="HC387CEE96BC64651AD8CB728EC3E1EFF"><enum>(I)</enum><text display-inline="yes-display-inline">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;</text>
</subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="HCF6B2DA61AEC4EED9D85A482805D4BA3"><enum>(b)</enum><header>Conforming
amendment</header><text>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.</text>
</subsection><subsection id="HE035E79EBCF44080BA262E7A802167C9"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><section commented="no" id="HAD1BDE6B76764C6B924CFB23EDB6F865"><enum>305.</enum><header>Hedging
provisions</header>
<subsection commented="no" id="H04819E829E2C4AE2BB47F4BF78EE2A8F"><enum>(a)</enum><header>Modification To
permit the termination of a hedging transaction using an additional hedging
instrument</header><text display-inline="yes-display-inline">Subparagraph (G)
of section 856(c)(5) is amended by striking <quote>and</quote> at the end of
clause (i), by striking the period at the end of clause (ii) and inserting
<quote>, and</quote>, and by adding at the end the following new clause:</text>
<quoted-block display-inline="no-display-inline" id="H88E6968832BD4882B9FE803619110962" style="OLC">
<clause id="H89DCCA0465E74D15BDE3A31AADE08C8C"><enum>(iii)</enum><text>if—</text>
<subclause id="HD9A9325264E443E4A640B954C00B4969"><enum>(I)</enum><text>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),</text>
</subclause><subclause id="H26516AA37D4648A89E63FFB9D38771CE"><enum>(II)</enum><text>any portion of
such indebtedness is extinguished or any portion of such property is disposed
of, and</text>
</subclause><subclause id="H08F170B646ED4A0BA881AB09702107E9"><enum>(III)</enum><text>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),</text>
</subclause><continuation-text continuation-text-level="clause">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.</continuation-text></clause><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection commented="no" id="H182D3892BC68499090D69E4E58B7F908"><enum>(b)</enum><header>Identification
requirements</header>
<paragraph id="H813CD04A99F34D83A15AC3661E32A571"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">Subparagraph (G) of
section 856(c)(5), as amended by subsection (a), is amended by striking
<quote>and</quote> at the end of clause (ii), by striking the period at the end
of clause (iii) and inserting <quote>, and</quote>, and by adding at the end
the following new clause:</text>
<quoted-block display-inline="no-display-inline" id="HCB1103846A214680B1FCD8BF4EFA804E" style="OLC">
<clause id="H9254B5CBF604448ABF0E6BD2F518B11D"><enum>(iv)</enum><text display-inline="yes-display-inline">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).</text>
</clause><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="H3EEA2E75B88D411EA92EA00BCC3FFC65"><enum>(2)</enum><header>Conforming
amendments</header><text>Subparagraph (G) of section 856(c)(5) is
amended—</text>
<subparagraph commented="no" id="H27B0432B7BBF43A5BEC3856787726802"><enum>(A)</enum><text>by striking
<quote>which is clearly identified pursuant to section 1221(a)(7)</quote> in
clause (i), and</text>
</subparagraph><subparagraph commented="no" id="H182AFFDB489548568BD519F86CA53DA0"><enum>(B)</enum><text>by striking
<quote>, 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)</quote> in clause (ii).</text>
</subparagraph></paragraph></subsection><subsection commented="no" id="H6E4C11A9A0A54A5DA134EA7AC61ECA7D"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section><enum>IV</enum><header>Earnings and
Profits of Real Estate Investment Trusts</header>
<section id="HE9831082CEA142738B44C2195E61967A"><enum>401.</enum><header>Modification of
real estate investment trust earnings and profits calculation to avoid
duplicate taxation</header>
<subsection id="HC5D7669B45BD48818E8C6431AD095CEE"><enum>(a)</enum><header>Earnings and
profits not increased by amounts allowed in computing taxable income in prior
years</header>
<paragraph id="H7CD0652686B042F9A907736573EFB21D"><enum>(1)</enum><header>In
general</header><text>Paragraph (1) of section 857(d) is amended to read as
follows:</text>
<quoted-block display-inline="no-display-inline" id="H416C42245D2743549430652342CA375B" style="OLC">
<paragraph id="H0CA44764D4B64E97ADE35D331065C165"><enum>(1)</enum><header>In
general</header><text display-inline="yes-display-inline">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—</text>
<subparagraph id="HD8598F423B9D4DBE8458A7B5BDCFE32B"><enum>(A)</enum><text>is not allowable
in computing its taxable income for such taxable year, and</text>
</subparagraph><subparagraph id="H23B7B9ECEE9944F0848BA0BF161CCCB8"><enum>(B)</enum><text>was not allowable
in computing its taxable income for any prior taxable
year.</text>
</subparagraph></paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph><paragraph id="HB7455763ECAA4FF0A50E7449F45CA380"><enum>(2)</enum><header>Exception for
purposes of determining dividends paid deduction</header><text>Paragraph (1) of
section 562(e), as amended by section 302, is amended—</text>
<subparagraph id="H23220241D0C8472F992ED40939B5A560"><enum>(A)</enum><text>by striking
<quote>deduction, the earnings</quote> and inserting the
following:</text>
<quoted-block display-inline="yes-display-inline" id="HB14DB620F4724CB0A94CC3E885530DB6" style="OLC">
<text>deduction—</text><subparagraph id="H1CD9984B020E4BF29373D6A4A18DBAE8"><enum>(A)</enum><text display-inline="yes-display-inline">the
earnings</text>
</subparagraph><after-quoted-block>,</after-quoted-block></quoted-block>
</subparagraph><subparagraph id="H698940F5E9A04A048A58BFB276EF3994"><enum>(B)</enum><text display-inline="yes-display-inline">by striking the period at the end and
inserting <quote>, and</quote>, and</text>
</subparagraph><subparagraph id="H9C3D34B97C844C75B23B5DA92A7D72BC"><enum>(C)</enum><text>by adding at the
end the following new subparagraph:</text>
<quoted-block display-inline="no-display-inline" id="HB25F2B022DFA4210B412B07B30DAB2CB" style="OLC">
<subparagraph id="HD669B5D5D2EB496EAF3C2FB24A38F2A9"><enum>(B)</enum><text display-inline="yes-display-inline">section 857(d)(1) shall be applied without
regard to subparagraph (B)
thereof.</text>
</subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subparagraph></paragraph><paragraph id="HD3AF9B86BD7449D3AB472E7C33C10F57"><enum>(3)</enum><header>Conforming
amendments</header><text display-inline="yes-display-inline">Subsection (d) of
section 857 is amended by adding at the end the following new
paragraphs:</text>
<quoted-block display-inline="no-display-inline" id="H21AEEEB2ECD448909ABCBF9040654AD7" style="OLC">
<paragraph id="HDEBB4A9DE7E64641BAD216D20F7C0692"><enum>(4)</enum><header>Real estate
investment trust</header><text display-inline="yes-display-inline">For purposes
of this subsection, the term <quote>real estate investment trust</quote>
includes a domestic corporation, trust, or association which is a real estate
investment trust determined without regard to the requirements of subsection
(a).</text>
</paragraph><paragraph id="H9573263EC54046E3AB919170C10507D5"><enum>(5)</enum><header>Special rules
for determining earnings and profits for purposes of the deduction for
dividends paid</header><text>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).</text>
</paragraph><after-quoted-block>.</after-quoted-block></quoted-block>
</paragraph></subsection><subsection commented="no" id="H951B42C5FF4E4319AFA4A5C099BBC5BD"><enum>(b)</enum><header>Treatment of
gain on sales of real property</header><text display-inline="yes-display-inline">Subparagraph (A) of section 562(e)(1), as
amended by section 202 and subsection (a), is amended to read as
follows:</text>
<quoted-block display-inline="no-display-inline" id="H7C8DA93690014D90A995997D51EEF212" style="OLC">
<subparagraph id="H51E70032E5474A65851A206970628C33"><enum>(A)</enum><text display-inline="yes-display-inline">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</text>
</subparagraph><after-quoted-block>.</after-quoted-block></quoted-block>
</subsection><subsection id="H2972C48A3CFD40E3AEF29D7DC1D24119"><enum>(c)</enum><header>Effective
date</header><text>The amendments made by this section shall apply to taxable
years beginning after the date of the enactment of this Act.</text>
</subsection></section>