[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 915 Placed on Calendar Senate (PCS)]

                                                        Calendar No. 48
114th CONGRESS
  1st Session
                                 S. 915

                          [Report No. 114-25]

 To amend the Internal Revenue Code of 1986 to exempt certain stock of 
 real estate investment trusts from the tax on foreign investments in 
     United States real property interests, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 14, 2015

   Mr. Hatch, from the Committee on Finance, reported the following 
     original bill; which was read twice and placed on the calendar

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to exempt certain stock of 
 real estate investment trusts from the tax on foreign investments in 
     United States real property interests, 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 ``Real Estate 
Investment and Jobs Act of 2015''.
    (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.

SEC. 2. EXCEPTION FROM FIRPTA FOR CERTAIN STOCK OF REAL ESTATE 
              INVESTMENT TRUSTS.

    (a) Modifications of Ownership Rules.--
            (1) In general.--Section 897 is amended by adding at the 
        end the following new subsection:
    ``(k) Special Rules Relating to Real Estate Investment Trusts.--
            ``(1) Increase in percentage ownership for exceptions for 
        persons holding publicly traded stock.--
                    ``(A) Dispositions.--In the case of any disposition 
                of stock in a real estate investment trust, paragraphs 
                (3) and (6)(C) of subsection (c) shall each be applied 
                by substituting `more than 10 percent' for `more than 5 
                percent'.
                    ``(B) Distributions.--In the case of any 
                distribution from a real estate investment trust, 
                subsection (h)(1) shall be applied by substituting `10 
                percent' for `5 percent'.
            ``(2) Stock held by qualified shareholders not treated as 
        usrpi.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B)--
                            ``(i) stock of a real estate investment 
                        trust which is held directly by a qualified 
                        shareholder shall not be treated as a United 
                        States real property interest, and
                            ``(ii) notwithstanding subsection (h)(1), 
                        any distribution to a qualified shareholder 
                        shall not be treated as gain recognized from 
                        the sale or exchange of a United States real 
                        property interest to the extent the stock of 
                        the real estate investment trust held by such 
                        qualified shareholder is not treated as a 
                        United States real property interest under 
                        clause (i).
                    ``(B) Exception.--In the case of a qualified 
                shareholder with 1 or more applicable investors--
                            ``(i) subparagraph (A)(i) shall not apply 
                        to so much of the stock of a real estate 
                        investment trust held by a qualified 
                        shareholder as bears the same ratio to the 
                        amount of the interests (other than interests 
                        held solely as a creditor) held by such 
                        applicable investors in the qualified 
                        shareholder bears to all such interests in the 
                        qualified shareholder, and
                            ``(ii) a percentage equal to the ratio 
                        determined under clause (i) of the amounts 
                        realized by the qualified shareholder with 
                        respect to any disposition of stock in the real 
                        estate investment trust or with respect to any 
                        distribution from the real estate investment 
                        trust attributable to gain from sales or 
                        exchanges of a United States real property 
                        interest shall be treated as amounts realized 
                        from the disposition of United States real 
                        property interests.
                    ``(C) Applicable investor.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `applicable 
                        investor' means, with respect to any qualified 
                        shareholder holding stock in a real estate 
                        investment trust, a person (other than a 
                        qualified shareholder) which--
                                    ``(I) holds an interest (other than 
                                an interest solely as a creditor) in 
                                such qualified shareholder, and
                                    ``(II) holds more than 10 percent 
                                of the stock of such real estate 
                                investment trust (whether or not by 
                                reason of the person's ownership 
                                interest in the qualified shareholder).
                            ``(ii) Constructive ownership rules.--For 
                        purposes of this subparagraph, the constructive 
                        ownership rules under subsection (c)(6)(C) 
                        shall apply.
            ``(3) Qualified shareholder.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified shareholder' 
                means a foreign person--
                            ``(i) which is eligible for benefits of a 
                        comprehensive income tax treaty with the United 
                        States which includes an exchange of 
                        information program,
                            ``(ii) which is a qualified collective 
                        investment vehicle,
                            ``(iii) the principal class of interests of 
                        which is listed and regularly traded on 1 or 
                        more recognized stock exchanges (as defined in 
                        such comprehensive income tax treaty), and
                            ``(iv) which maintains records on the 
                        identity of each person who, at any time during 
                        the foreign person's taxable year, holds 
                        directly more than 10 percent of the class of 
                        interest described in clause (iii).
                    ``(B) Qualified collective investment vehicle.--For 
                purposes of this subsection, the term `qualified 
                collective investment vehicle' means a foreign person--
                            ``(i) which, under the comprehensive income 
                        tax treaty described in subparagraph (A)(i), is 
                        eligible for a reduced rate of withholding with 
                        respect to ordinary dividends paid by a real 
                        estate investment trust and continues to be so 
                        eligible even if such person holds more than 10 
                        percent of the stock of such real estate 
                        investment trust,
                            ``(ii) which, if such person were a United 
                        States person, would be classified as a United 
                        States real property holding corporation 
                        (determined without regard to paragraph (2)) at 
                        any time during the 5-year period ending on the 
                        date of any disposition of, or distribution 
                        with respect to, the person's interests in a 
                        real estate investment trust, or
                            ``(iii) which is designated as a qualified 
                        collective investment vehicle by the Secretary 
                        and is either--
                                    ``(I) fiscally transparent within 
                                the meaning of section 894, or
                                    ``(II) required to include 
                                dividends in its gross income, but 
                                entitled to a deduction for 
                                distributions to persons holding 
                                interests (other than interests solely 
                                as a creditor) in such foreign 
                                person.''.
            (2) Conforming amendments.--
                    (A) Section 897(c)(1)(A) is amended by inserting 
                ``or subsection (k)'' after ``subparagraph (B)'' in the 
                matter preceding clause (i).
                    (B) Section 857(b)(3)(F) is amended by inserting 
                ``or section 897(k)(2)(A)(ii)'' after ``897(h)(1)''.
    (b) Determination of Domestic Control.--
            (1) Special ownership rules.--
                    (A) In general.--Section 897(h)(4) is amended by 
                adding at the end the following new subparagraph:
                    ``(E) Special ownership rules.--For purposes of 
                determining the holder of stock under subparagraphs (B) 
                and (C)--
                            ``(i) in the case of any class of stock of 
                        the qualified investment entity which is 
                        regularly traded on an established securities 
                        market in the United States, a person holding 
                        less than 5 percent of such class of stock at 
                        all times during the testing period shall be 
                        treated as a United States person unless the 
                        qualified investment entity has actual 
                        knowledge that such person is not a United 
                        States person,
                            ``(ii) any stock in the qualified 
                        investment entity held by another qualified 
                        investment entity--
                                    ``(I) any class of stock of which 
                                is regularly traded on an established 
                                securities market, or
                                    ``(II) which is a regulated 
                                investment company which issues 
                                redeemable securities (within the 
                                meaning of section 2 of the Investment 
                                Company Act of 1940),
                        shall be treated as held by a foreign person, 
                        except that if such other qualified investment 
                        entity is domestically controlled (determined 
                        after application of this subparagraph), such 
                        stock shall be treated as held by a United 
                        States person, and
                            ``(iii) any stock in the qualified 
                        investment entity held by any other qualified 
                        investment entity not described in subclause 
                        (I) or (II) of clause (ii) shall only be 
                        treated as held by a United States person in 
                        proportion to the stock of such other qualified 
                        investment entity which is (or is treated under 
                        clause (ii) or (iii) as) held by a United 
                        States person.''.
                    (B) Conforming amendment.--The heading for 
                paragraph (4) of section 897(h) is amended by inserting 
                ``and special rules'' after ``Definitions''.
            (2) Technical amendment.--Clause (ii) of section 
        897(h)(4)(A) is amended by inserting ``and for purposes of 
        determining whether a real estate investment trust is a 
        domestically controlled qualified investment entity under this 
        subsection'' after ``real estate investment trust''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by subsection (a) 
        shall take effect on the date of enactment and shall apply to--
                    (A) any disposition on and after the date of the 
                enactment of this Act, and
                    (B) any distribution by a real estate investment 
                trust on or after the date of the enactment of this Act 
                which is treated as a deduction for a taxable year of 
                such trust ending after such date.
            (2) Determination of domestic control.--The amendments made 
        by subsection (b)(1) shall take effect on the date of the 
        enactment of this Act.
            (3) Technical amendment.--The amendment made by subsection 
        (b)(2) shall take effect on January 1, 2015.

SEC. 3. INCREASE IN RATE OF WITHHOLDING OF TAX ON DISPOSITIONS OF 
              UNITED STATES REAL PROPERTY INTERESTS.

    (a) In General.--Subsections (a), (e)(3), (e)(4), and (e)(5) of 
section 1445 are each amended by striking ``10 percent'' and inserting 
``15 percent''.
    (b) Exception for Certain Residences.--Section 1445(c) is amended 
by adding at the end the following new paragraph:
            ``(4) Reduced rate of withholding for residence where 
        amount realized does not exceed $1,000,000.--In the case of a 
        disposition--
                    ``(A) of property which is acquired by the 
                transferee for use by the transferee as a residence,
                    ``(B) with respect to which the amount realized for 
                such property does not exceed $1,000,000, and
                    ``(C) to which subsection (b)(5) does not apply,
        subsection (a) shall be applied by substituting `10 percent' 
        for `15 percent'.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dispositions after the date which is 60 days after the date of 
the enactment of this Act.

SEC. 4. REQUIRED NOTIFICATION OF STATUS AS UNITED STATES REAL PROPERTY 
              HOLDING CORPORATION.

    (a) Notification of Status as United States Real Property Holding 
Corporation.--
            (1) In general.--Subpart A of part III of subchapter A of 
        chapter 61 is amended by inserting before section 6039C the 
        following new section:

``SEC. 6039B. NOTIFICATION OF STATUS AS UNITED STATES REAL PROPERTY 
              HOLDING CORPORATION.

    ``(a) In General.--Any corporation which is a United States real 
property holding corporation shall make the following notifications:
            ``(1) Disclosure to the secretary.--Not later than the due 
        date for its return of tax (including extensions) for the 
        taxable year, the corporation shall disclose the information 
        described in subsection (b) to the Secretary in such form and 
        manner as the Secretary may require.
            ``(2) Disclosure on payee statements.--The corporation 
        shall include on any statement required to be made under 
        section 6042(c) the information described in subsection (b).
            ``(3) Disclosure to the public.--The corporation shall 
        disclose to the public the information described in subsection 
        (b)--
                    ``(A) in any annual report made by such 
                corporation, or
                    ``(B) in the case of a corporation which does not 
                file an annual report for any year, on its website or 
                through such other media as determined appropriate by 
                the Secretary in the interests of tax administration.
    ``(b) Information Described.--The information described in this 
subsection is--
            ``(1) a statement that such corporation is a United States 
        real property holding corporation, and
            ``(2) such other information as may be required by the 
        Secretary.
    ``(c) United States Real Property Holding Corporation.--
            ``(1) In general.--For purposes of this section, a 
        corporation is a United States real property holding 
        corporation if--
                    ``(A) such corporation meets the requirements of 
                section 897(c)(2) at any time during the applicable 
                period, or
                    ``(B) any officer of such corporation has actual 
                knowledge that such corporation meets such requirements 
                at any time during the period beginning on the first 
                day after the end of the applicable period and ending 
                on the date the notification required under subsection 
                (a) is made.
            ``(2) Applicable period.--For purposes of paragraph (1), 
        the applicable period is--
                    ``(A) in the case of any notice required under 
                subsection (a)(1), the 5-year period ending on the last 
                day of the taxable year for which a disclosure was 
                required to be made under such subsection,
                    ``(B) in the case of any notice required under 
                subsection (a)(2), the 5-year period ending on the last 
                day of the calendar year for which a disclosure was 
                required to be made under such subsection, and
                    ``(C) in the case of any notice required under 
                subsection (a)(3), the 5-year period ending on the last 
                day of the year for which a disclosure was required to 
                be made under such subsection.
    ``(d) Application to Publicly Traded Partnerships.--Under 
regulations prescribed by the Secretary, rules similar to the rules of 
subsection (a) shall apply to any publicly traded partnership (as 
defined in section 7704(b)) which--
            ``(1) is not treated as a corporation under section 
        7704(a), and
            ``(2) would be a United States real property holding 
        corporation if such publicly traded partnership were a 
        corporation.''.
            (2) Clerical amendment.--The table of sections for subpart 
        A of part III of subchapter A of chapter 61 is amended by 
        inserting before the item relating to section 6039C the 
        following new item:

``Sec. 6039B. Notification of status as United States real property 
                            holding corporation.''.
    (b) Notification of Domestic Control.--Subparagraph (B) of section 
897(h)(4) is amended by adding at the end the following new sentence: 
``Notwithstanding the preceding sentence, a qualified investment entity 
shall not be treated as a domestically controlled qualified investment 
entity for any period unless such entity makes a disclosure that such 
entity is domestically controlled on any annual report made by such 
entity on or after January 1, 2016 (or, in the case of an entity which 
does not file an annual report for the year, on its website or through 
such other media as determined appropriate by the Secretary in the 
interests of tax administration).''.
    (c) Penalty for Failure to Make Notification of Status.--
            (1) In general.--Part I of subchapter B of chapter 68 is 
        amended by adding at the end the following new section:

``SEC. 6720D. FAILURE TO MAKE NOTIFICATION OF STATUS AS UNITED STATES 
              REAL PROPERTY HOLDING COMPANY.

    ``(a) In General.--Any person required to make a notification under 
section 6039B who--
            ``(1) fails to disclose to the Secretary the information 
        required under section 6039B(a)(1) for any taxable year,
            ``(2) fails to substantially comply with the requirements 
        of section 6039B(a)(2) for any calendar year, or
            ``(3) fails to make the disclosure required under section 
        6039B(a)(3) for any year,
shall pay a penalty with respect to each such failure in the amount 
determined under subsection (b).
    ``(b) Amount of Penalty.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the amount of the penalty under this subsection 
        shall be $1,500,000.
            ``(2) Lower penalty for persons with gross receipts of not 
        more than $5,000,000.--
                    ``(A) In general.--In the case of a person who 
                meets the gross receipts test under subparagraph (B), 
                the amount of the penalty under this subsection shall 
                be $500,000.
                    ``(B) Gross receipts test.--
                            ``(i) In general.--A person meets the gross 
                        receipts test of this subparagraph for any 
                        calendar year if the average annual gross 
                        receipts of such person for the most recent 5 
                        taxable years ending before such calendar year 
                        do not exceed $5,000,000.
                            ``(ii) Certain rules made applicable.--For 
                        purposes of clause (i), rules similar to the 
                        rules of paragraphs (2) and (3) of section 
                        448(c) shall apply.
            ``(3) Higher penalty for persons with large united states 
        real property interests.--
                    ``(A) In general.--In the case of a person 
                described in subparagraph (C), the amount of the 
                penalty under this subsection shall be $5,000,000.
                    ``(B) Intentional disregard.--If a failure is due 
                to intentional disregard, subparagraph (A) shall be 
                applied by substituting `$10,000,000' for `$5,000,000'.
                    ``(C) Person described.--
                            ``(i) In general.--A person is described in 
                        this subparagraph if such person has United 
                        States real property interests (as defined in 
                        section 897(c)) with a gross fair market value 
                        of $1,000,000,000 or more at any time during 
                        the applicable period (as defined in section 
                        6039B(b)(2)).
                            ``(ii) Aggregation rules.--For purposes of 
                        this paragraph, rules similar to the rules of 
                        paragraph (2) of section 448(c) shall apply.
    ``(c) Coordination With Penalty for Failure to File Correct Payee 
Statements.--No penalty shall be imposed under section 6722 with 
respect to any failure to comply with the requirements of section 
6039B(a)(2) if a penalty is imposed under subsection (a)(2) with 
respect to such failure.
    ``(d) Reasonable Cause Waiver.--No penalty shall be imposed under 
this section with respect to any failure if it is shown that such 
failure is due to reasonable cause and not to willful neglect.
    ``(e) Inflation Adjustment.--
            ``(1) In general.--In the case of any failure relating to a 
        notice required to be made in a calendar year beginning after 
        2016, each of the dollar amounts under subsection (b) shall be 
        increased by such dollar amount multiplied by the cost-of-
        living adjustment determined under section 1(f)(3), determined 
        by substituting `calendar year 2015' for `calendar year 1992' 
        in subparagraph (B) thereof.
            ``(2) Rounding.--If any amount adjusted under paragraph (1) 
        is not a multiple of $10,000, such amount shall be rounded to 
        the next lowest multiple of $10,000.''.
            (2) Clerical amendment.--The table of sections for part I 
        of subchapter B of chapter 68 is amended by adding at the end 
        the following new item:

``Sec. 6720D. Failure to make notification of status as United States 
                            real property holding company.''.
    (d) Effective Dates.--
            (1) Notification.--The amendments made by subsections (a) 
        and (b) shall take effect on January 1, 2016.
            (2) Penalties.--The amendments made by subsection (c) shall 
        apply to notifications required to be made on or after January 
        1, 2016.

SEC. 5. REQUIRED WITHHOLDING BY BROKERS ON SALES BY SHAREHOLDERS OWNING 
              A MORE THAN 5 PERCENT INTEREST.

    (a) In General.--Section 1445(e) is amended by redesignating 
paragraph (7) as paragraph (8) and by inserting after paragraph (6) the 
following new paragraph:
            ``(7) Broker withholding obligation on dispositions of 
        certain interests in united states real property holding 
        corporations and publicly traded partnerships.--
                    ``(A) In general.--In the case of any disposition 
                of stock of a United States real property holding 
                corporation by a foreign person in which the 
                disposition is made through a broker (as defined in 
                section 6045(c)), such broker shall be required to 
                deduct and withhold a tax equal to 15 percent of the 
                amount realized on the disposition.
                    ``(B) Exceptions.--
                            ``(i) Amounts withheld by transferee.--
                        Subparagraph (A) shall not apply to any 
                        disposition if--
                                    ``(I) the transferee is required to 
                                deduct and withhold tax under 
                                subsection (a), and
                                    ``(II) the transferee furnishes to 
                                the broker an affidavit, under penalty 
                                of perjury, that the transferee has 
                                deducted and withheld such tax.
                            ``(ii) Interests regularly traded on an 
                        established securities market.--Subparagraph 
                        (A) shall not apply to any disposition of any 
                        class of stock of a United States real property 
                        holding corporation which is regularly traded 
                        on an established securities market if the 
                        transferor, immediately prior to the 
                        disposition, holds 5 percent (10 percent in the 
                        case of a real estate investment trust) or less 
                        of such class of stock (determined under the 
                        rules of section 897(c)(6)(C)).
                            ``(iii) Domestically controlled qualified 
                        investment entities and real estate investment 
                        trusts.--Subparagraph (A) shall not apply to 
                        dispositions of stock of--
                                    ``(I) any domestically controlled 
                                qualified investment entity (as defined 
                                in section 897(h)(4)), or
                                    ``(II) any real estate investment 
                                trust to the extent that such stock is 
                                not treated as a United States real 
                                property interest pursuant to section 
                                897(k)(2).
                            ``(iv) Interests in certain corporations.--
                        Subparagraph (A) shall not apply to any 
                        disposition of stock in a United States real 
                        property holding corporation if such stock is 
                        not treated as a United States real property 
                        interest by reason of section 897(c)(1)(B).
                            ``(v) Lack of broker knowledge.--
                                    ``(I) In general.--Subparagraph (A) 
                                shall not apply if the broker had no 
                                knowledge, and reasonably could not 
                                have been expected to have knowledge, 
                                that the disposition was of stock in a 
                                United States real property holding 
                                corporation.
                                    ``(II) Special rule.--For purposes 
                                of subclause (I), a broker may rely on 
                                public statements made by a public 
                                company, including statements related 
                                to the status of the company as a 
                                United States real property holding 
                                corporation or as a domestically 
                                controlled qualified investment entity.
                    ``(C) Application to publicly traded 
                partnerships.--Under regulations prescribed by the 
                Secretary, rules similar to the rules of subparagraphs 
                (A) and (B) shall apply to the disposition through a 
                broker of any interest in a publicly traded partnership 
                (as defined in section 7704(b)) which--
                            ``(i) is not treated as a corporation under 
                        section 7704(a), and
                            ``(ii) would be a United States real 
                        property holding corporation if such publicly 
                        traded partnership were a corporation.
                    ``(D) United states real property holding 
                corporation.--For purposes of this paragraph, the term 
                `United States real property holding corporation' means 
                any corporation which was a United States real property 
                holding corporation (as defined in section 897(c)(2)) 
                at any time during the 5-year period ending on the date 
                of the disposition referred to in subparagraph (A).''.
    (b) Conforming Amendment.--Section 1445(b)(6) is amended by 
striking ``This paragraph'' and inserting ``Except as provided in 
subsection (e)(7), this paragraph''.
    (c) Effective Date.--The amendments made by this section shall 
apply to dispositions after December 31, 2015.

SEC. 6. INTERESTS IN RICS AND REITS NOT EXCLUDED FROM DEFINITION OF 
              UNITED STATES REAL PROPERTY INTERESTS.

    (a) In General.--Section 897(c)(1)(B) is amended by striking 
``and'' at the end of clause (i), by striking the period at the end of 
clause (ii)(II) and inserting ``, and'', and by adding at the end the 
following new clause:
                            ``(iii) neither such corporation nor any 
                        predecessor of such corporation was a regulated 
                        investment company or a real estate investment 
                        trust at any time during the shorter of the 
                        periods described in subparagraph (A)(ii).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to dispositions on or after the date of the enactment of this Act.

SEC. 7. DIVIDENDS DERIVED FROM RICS AND REITS INELIGIBLE FOR DEDUCTION 
              FOR UNITED STATES SOURCE PORTION OF DIVIDENDS FROM 
              CERTAIN FOREIGN CORPORATIONS.

    (a) In General.--Section 245(a) is amended by adding at the end the 
following new paragraph:
            ``(12) Dividends derived from rics and reits ineligible for 
        deduction.--Regulated investment companies and real estate 
        investment trusts shall not be treated as domestic corporations 
        for purposes of paragraph (5)(B).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to dividends received from regulated investment companies and real 
estate investment trusts on or after the date of the enactment of this 
Act.
    (c) No Inference.--Nothing contained in this section or the 
amendments made by this section shall be construed to create any 
inference with respect to the proper treatment under section 245 of the 
Internal Revenue Code of 1986 of dividends received from regulated 
investment companies or real estate investment trusts before the date 
of the enactment of this Act.

SEC. 8. INCREASE IN CONTINUOUS LEVY.

    (a) In General.--Paragraph (3) of section 6331(h) of the Internal 
Revenue Code of 1986 is amended by striking ``30 percent'' and 
inserting ``35 percent''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made after 180 days after the date of the enactment of this 
Act.
                                                        Calendar No. 48

114th CONGRESS

  1st Session

                                 S. 915

                          [Report No. 114-25]

_______________________________________________________________________

                                 A BILL

 To amend the Internal Revenue Code of 1986 to exempt certain stock of 
 real estate investment trusts from the tax on foreign investments in 
     United States real property interests, and for other purposes.

_______________________________________________________________________

                             April 14, 2015

                 Read twice and placed on the calendar