[Senate Report 114-25]
[From the U.S. Government Publishing Office]


                                                        Calendar No. 48
                                                        
114th Congress        }                       {       Report
                                 SENATE
 1st Session          }                       {       114-25
==================================================================
 
              REAL ESTATE INVESTMENT AND JOBS ACT OF 2015

                                _______
                                

                 April 14, 2015.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 915]

    The Committee on Finance, having considered an original 
bill, S. 915, 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, having considered the same, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

                                CONTENTS

                                                                   Page
 I. LEGISLATIVE BACKGROUND............................................2
II. EXPLANATION OF THE BILL...........................................3
        A. Background and Present Law Relating to Real Estate 
            Investment Trusts (REITs), Regulated Investment 
            Companies (RICs), and the Foreign Investment in Real 
            Property Tax Act (FIRPTA)............................     3
        B. Provisions Relating to REITs, RICs, and FIRPTA (secs. 
            1 through 7 of the bill, secs. 897, 1445, 245, and 
            new sec. 6039B of the Code)..........................    10
            1. Publicly traded REITs and certain publicly traded 
                qualified shareholder entities that hold REIT 
                stock............................................    10
            2. Domestically controlled definition................    12
            3. Increase 10 percent FIRPTA withholding to 15 
                percent..........................................    13
            4. Required notification of FIRPTA status as a 
                USRPHC, presumption of foreign control of 
                qualified investment entities, and penalty for 
                failure to disclose FIRPTA status................    13
            5. Require FIRPTA withholding by brokers.............    16
            6. Cleansing rule not applicable to RICs or REITs....    17
            7. Dividends derived from RICs and REITs ineligible 
                for deduction for U.S. source portion of 
                dividends from certain foreign corporations......    17
        C. Increase Continuous Levy Authority on Payments to 
            Medicare Providers and Suppliers (sec. 9 of the bill 
            and sec. 6331 of the Code)...........................    18
III.BUDGET EFFECTS OF THE BILL.......................................20

IV. VOTES OF THE COMMITTEE...........................................22
 V. REGULATORY IMPACT AND OTHER MATTERS..............................22
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............23

                       I. LEGISLATIVE BACKGROUND

    The Committee on Finance, having considered S. 915, the 
``Real Estate Investment and Jobs Act of 2015'' 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, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

Background and need for legislative action

    Background.--Based on a proposal recommended by Senators 
Menendez and Enzi, the Committee on Finance marked up original 
legislation (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), on February 11, 2015, and, 
with a majority present, ordered the bill favorably reported.
    The bill contains some provisions that are similar to the 
following bills introduced by Senator Menendez:
    In the 113th Congress, S. 1181, cosponsored by Senators 
Enzi, Schumer, Barrasso, Begich, Boozman, Bennett, Cornyn, 
Boxer, Crapo, Cantwell, Isakson, Cardin, Roberts, Carper, 
Thune, Coons, Gillibrand, Hagan, Nelson, Shaheen, Stabenow, 
Tester, and Wyden; and
    In the 112th Congress, S. 1616, cosponsored by Senator 
Enzi.
    Need for legislative action.--It is essential to increase 
foreign investment in U.S. real estate. Increased investment in 
building and infrastructure will create American jobs. 
Increased investment will also provide equity capital for 
existing U.S. real estate ventures that have outstanding loans 
that are maturing, and will thus reduce the potential for 
foreclosures. The Foreign Investment in Real Property Tax Act 
of 1980 (``FIRPTA'') contains tax rules that impose significant 
penalties on foreign investment in domestic real estate through 
REITs that do not exist in other types of U.S. corporate 
investments such as corporate stocks and bonds.
    At the same time, there are weaknesses in the ability to 
collect FIRPTA tax that is due. Increasing the ability to 
collect such tax can partially offset the estimated budget cost 
of the needed legislation. Certain other provisions related to 
the use of REITs and RICs should also be modified, to provide 
more appropriate treatment for such entities, which deduct 
distributions to their shareholders and thus generally do not 
pay U.S. tax on income or gain.
    In addition, it has been reported that many thousands of 
Medicare providers and suppliers have outstanding Federal 
employment and income tax liability, which contribute to the 
tax gap. The permissible percentage of payments to a Medicare 
provider subject to levy should be increased.

                      II. EXPLANATION OF THE BILL


A. Background and Present Law Relating to Real Estate Investment Trusts 
    (REITs), Regulated Investment Companies (RICs), and the Foreign 
              Investment in Real Property Tax Act (FIRPTA)


General rules relating to FIRPTA

    A foreign person that is not engaged in the conduct of a 
trade or business in the United States (and is not an 
individual who is present in the U.S. at least 183 days in the 
year) generally is not subject to any U.S. tax on capital gain 
from U.S. sources, including capital gain from the sale of 
stock or of other capital assets.\1\
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    \1\Secs. 871(b), 882(a). Property is treated as held by a person 
for use in connection with the conduct of a trade or business in the 
United States, even if not so held at the time of sale, if it was so 
held within 10 years prior to the sale (sec. 864(c)(7)). Also, all gain 
from an installment sale is treated as from the sale of property held 
in connection with the conduct of such a trade or business if the 
property was so held during the year in which the installment sale was 
made, even if the recipient of the payments is no longer engaged in the 
conduct of such trade or business when the payments are received. Sec. 
864(c)(6). Unless otherwise stated, all section references are to the 
Internal Revenue Code of 1986, as amended (the ``Code'').
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    However, the Foreign Investment in Real Property Tax Act of 
1980 (``FIRPTA'')\2\ generally treats a foreign person's gain 
or loss from the disposition of a U.S. real property interest 
(``USRPI'') as income that is effectively connected with the 
conduct of a U.S. trade or business, and thus taxable at the 
income tax rates applicable to U.S. persons, including the 
rates for net capital gain.\3\ With certain exceptions, if a 
foreign corporation distributes a USRPI, gain is recognized on 
the distribution (including a distribution in redemption or 
liquidation) of a USRPI, in an amount equal to the excess of 
the fair market value of the USRPI (as of the time of 
distribution) over its adjusted basis.\4\ A foreign person 
subject to tax on this income is required to file a U.S. tax 
return under the normal rules relating to receipt of income 
effectively connected with a U.S. trade or business.\5\ In the 
case of a foreign corporation, the gain from the disposition or 
distribution of a USRPI may also be subject to the branch 
profits tax at a 30-percent rate (or lower treaty rate).
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    \2\Pub. L. No. 96-499. The rules governing the imposition and 
collection of tax under FIRPTA are contained in a series of provisions 
enacted in 1980 and subsequently amended. See secs. 897, 1445, 6039C, 
and 6652(f).
    \3\Except to the extent otherwise provided in regulations, gain is 
recognized notwithstanding any nonrecognition provision unless the 
USPRI is exchanged for other property that would be subject U.S. 
taxation on sale. Sec. 897(e).
    \4\Except to the extent otherwise provided in regulations, gain is 
recognized on the distribution of a USRPI from such foreign corporation 
notwithstanding any other provision of Chapter 1 of the Code (e.g, 
notwithstanding any otherwise applicable nonrecognition provision), 
unless the distributee would be subject to U.S, tax on subsequent 
disposition of the property and the basis of the distributed USRPI is 
no greater than the basis prior to the distribution, increased by any 
gain recognized on the distribution, or unless nonrecognition is 
otherwise permitted under regulations under section 897(e)(2). Sec. 
897(d).
    \5\Sec. 897(a). In addition, section 6039C authorizes regulations 
that would require a return reporting foreign direct investments in 
U.S. real property interests. No such regulations have been issued, 
however.
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    The payer of amounts that FIRPTA treats as effectively 
connected with a U.S. trade or business (``FIRPTA income'') to 
a foreign person generally is required to withhold U.S. tax 
from the payment. Withholding generally is 10 percent of the 
sales price, in the case of a direct sale by the foreign person 
of a USRPI (but withholding is not required in certain cases, 
including on any sale of stock that is regularly traded on an 
established securities market),\6\ and 10 percent of the amount 
realized by the foreign shareholder in the case of certain 
distributions by a corporation that is or has been a U.S. real 
property holding corporation during the applicable testing 
period.\7\ The withholding is generally 35 percent of the 
amount of a distribution to a foreign person of net proceeds 
attributable to the sale of a USPRI from an entity such as a 
partnership, real estate investment trust (``REIT'') or 
regulated investment company (``RIC'').\8\ The foreign person 
can request a refund with its U.S. tax return, if appropriate, 
based on that person's total U.S. effectively connected income 
and deductions (if any) for the taxable year.
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    \6\Sec. 1445(b). Other excepted circumstances include the sale of a 
personal residence where the amount realized does not exceed $300,000.
    \7\Sec. 1445(e)(3). Withholding at 10 percent of a gross amount may 
also apply in certain other circumstances under regulations. See Sec. 
1445(e)(4) and 1445(e)(5).
    \8\Sec. 1445 and Treasury regulations thereunder. The Treasury 
Department is authorized to issue regulations that would reduce the 35 
percent withholding on distributions to 20 percent during the time that 
the maximum income tax rate on dividends and capital gains of U.S. 
persons is 20 percent.
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            U.S. real property holding corporations and five-percent 
                    public shareholder exception
    USRPIs include not only interests in real property located 
in the United States or the U.S. Virgin Islands, but also stock 
of a domestic U.S. real property holding corporation 
(``USRPHC''), generally defined as any corporation, unless the 
taxpayer establishes that the fair market value\9\ of the 
corporation's USRPIs was less than 50 percent of the combined 
fair market value of all its real property interests (U.S. and 
worldwide) and of all its assets used or held for use in a 
trade or business, at all times during a ``testing period,'' 
which is the shorter of the duration of the taxpayer's 
ownership of the stock since June 18, 1980, or the five-year 
period ending on the date of disposition of the stock.\10\
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    \9\Treasury regulations provide an alternative for testing whether 
corporations are USRPHCs. Under this test, a corporation is presumed 
not to be a USRPHC if the accounting book value of its USRPIs is 25 
percent or less of the total accounting book values of its USRPIs, 
foreign real property, and trade or business assets (``alternative book 
value test''). The alternative book value test allows corporations not 
viewed as traditional real estate holding companies to utilize existing 
financial accounting and reporting data for purposes of determining 
USRPHC status, thereby avoiding a potentially costly exercise of 
regularly establishing the fair market value of its real estate and 
business assets. Treas. Reg. sec. Sec. 1.897-2(b)(2)(i).
    For purposes of the alternative book value test, for assets that 
are held directly by the corporation, the regulations define ``book 
value'' as the value at which an asset is carried on the financial 
accounting records of the corporation, if such value is determined in 
accordance with generally accepted accounting principles applied in the 
United States. Additional rules are provided to account for assets that 
may be held indirectly through partnership, corporate, and other 
entities. Treas. Reg. sec. Sec. 1.897-2(b)(2)(ii).
    The regulations provide that under certain circumstances, the IRS 
may rebut the presumption that a corporation is allowed to make under 
the alternative book value test. Specific rules are provided regarding 
the form of such IRS rebuttal and manner and timing of response by the 
corporation based on updated determinations as to its USRPHC status. If 
the corporation determines that it was not a USRPHC under the general 
50 percent test, it may continue to rely upon the alternative book 
value test unless, on the basis of additional information, the IRS 
again challenges its USRPHC status. However, if the corporation 
determines that it was a USRPHC on its most recent determination date, 
then by the 180th day following receipt of the IRS's notification, the 
domestic corporation must notify each of its interest holders that, 
contrary to any prior representations, it was a USRPHC as of its most 
recent determination date. Treas. Reg. sec. Sec. 1.897-2(b)(2)(iii).
    \10\Secs. 897(c)(1)(A)(ii) and 897(c)(2).
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    Under an exception, even if a corporation\11\ were a 
USRPHC, a shareholder's shares of a class of stock that is 
regularly traded on an established securities market are not 
treated as USRPIs if the seller shareholder held (applying 
attribution rules) no more than five percent of that class of 
stock at any time during the testing period.\12\ Among other 
things, the relevant attribution rules require attribution 
between a corporation and a shareholder that owns five percent 
or more in value of the stock of such corporation.\13\ The 
attribution rules also attribute stock ownership between 
spouses and between children, grandchildren, parents, and 
grandparents.
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    \11\Treasury regulations provide that, in the case of a partnership 
or trust that is publicly traded, for purposes of section 897(g) and 
the withholding rules of section 1445, an interest in the entity shall 
not be treated as an interest in a partnership or trust, but shall be 
subject to rules applicable to interests in publicly traded 
corporations including the exception from USRPI status in the hands of 
a person that owns no more than 5 percent of a publicly traded class of 
interests. Solely for purposes of determining whether greater than 5 
percent interests in such an entity constitute USRPIs the disposition 
of which is subject to tax, the entity is required to determine whether 
the assets it holds would cause it to be classified as a USRPHC if it 
were a corporation. Treas. Reg. Sec. 1.897-1(c)(iv).
    \12\Sec. 897(c)(3). The constructive ownership attribution rules 
are specified in section 897(c)(6)(C).
    \13\If a person owns, directly or indirectly, five percent or more 
in value of the stock in a corporation, such person is considered as 
owning the stock owned directly or indirectly by or for such 
corporation, in that proportion which the value of the stock such 
person so owns bears to the value of all the stock in such corporation. 
(Sec. 318(c)(2)(C) as modified by section 897(c)(6)(C)). Also, if five 
percent or more in value of the stock in a corporation is owned 
directly or indirectly, by or for any person, such corporation shall be 
considered as owning the stock owned, directly or indirectly, by or for 
such person. (Sec. 318(c)(3)(C) as modified by section 897(c)(6)(C)).
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            ``Cleansing rule'' exception where corporate gain 
                    recognized
    An interest in a corporation is not a USRPI if, as of the 
date of disposition of such interest, such corporation did not 
hold any USRPIs and all of the USRPIs held by such corporation 
during the shorter of (i) the period of time after June 18, 
1980, during which the taxpayer held such interest, or (ii) the 
five-year period ending on the date of disposition of such 
interest, were either disposed of in transactions in which the 
full amount of the gain (if any) was recognized, or ceased to 
be USRPIs by reason of the application of this rule to one or 
more other corporations.\14\
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    \14\Sec. 897(c)(1)(B).
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FIRPTA rules for foreign investment through REITS and RICs

    Special FIRPTA rules apply to foreign investment through a 
``qualified investment entity'', which includes any real estate 
investment trust (``REIT''). Prior to January 1, 2015, the term 
also included certain regulated investment companies (``RICs'') 
that invest largely in U.S. real property interests (including 
stock of one or more REITs). On and after that date, such RICs 
are treated as qualified investment entities under FIRPTA only 
for the purpose of applying FIRPTA to certain distributions the 
RIC receives or makes that are attributable to its interest in 
a REIT.\15\
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    \15\Sec. 897(h)(4)(A)(ii). The provision that expired after 
December 31, 2014, more generally treating such RICs as qualified 
investment entities, has expired previously but has subsequently been 
reinstated through December 31, 2014.
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    REITs and RICs must satisfy a number of requirements, and 
are generally taxable as U.S. domestic corporations, but are 
subject to a modified corporate tax regime that permits the 
corporation to deduct amounts distributed to shareholders. The 
shareholders generally include such distributions in income.
            Stock of domestically controlled qualified investment 
                    entities not a USRPI
    If a qualified investment entity is ``domestically 
controlled'' (defined to mean that less than 50 percent in 
value of the qualified investment entity has been owned 
(directly or indirectly) by foreign persons during the relevant 
testing period\16\), stock of such entity is not a USRPI and a 
foreign shareholder can sell the stock of such entity without 
being subject to tax under FIRPTA, even if the stock would 
otherwise be stock of a USRPHC.\17\ Treasury regulations 
provide that for purposes of determining whether a REIT is 
domestically controlled, the actual owner of REIT shares is the 
``person who is required to include in his return the dividends 
received on the stock.''\18\ The IRS has issued a private 
letter ruling concluding that the term ``directly or 
indirectly'' for this purpose did not look through corporate 
entities that, in the facts of the ruling, were represented to 
be fully taxable domestic corporations for U.S. federal income 
tax purposes ``and not otherwise a REIT, RIC, hybrid entity, 
conduit, disregarded entity, or other flow-through or look-
through entity.''\19\
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    \16\The testing period for this purpose if the shorter of (i) the 
period beginning on June 19, 1980, and ending on the date of 
disposition or distribution, as the case may be, (ii) the five-year 
period ending on the date of the disposition or distribution, as the 
case may be, or (iii) the period during which the qualified investment 
entity was in existence. Sec. 897(h)(4)(D).
    \17\As noted previously, after December 31, 2014, a RIC is not 
included in the definition of a qualified investment entity for 
purposes of this rule permitting stock of a ``domestically controlled'' 
qualified investment entity to be sold without FIRPTA tax. Sec. 
897(h)(4)(A)(ii).
    \18\Treas. Reg. Sec. 1.897-1(c)(2)(i) and Treas. Reg. Sec. 1.857-
8(b).
    \19\PLR 200923001. A private letter ruling may be relied upon only 
by the taxpayer to which the ruling is issued. However, private letter 
rulings provide some indication of administrative practice.
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            FIRPTA applies to qualified investment entity (REIT and 
                    certain RIC) distributions attributable to gain 
                    from sale or exchange of USRPI's, except for 
                    distributions to certain five-percent or smaller 
                    shareholders
    Code section 897(h) provides that a distribution by a REIT 
or other qualified investment entity, to the extent 
attributable to gain from the entity's sale or exchange of 
USRPIs, is treated as FIRPTA income.\20\ The FIRPTA character 
is retained if the distribution occurs from one qualified 
investment entity to another, through a tier of U.S. REITs or 
RICs.\21\ An IRS notice (Notice 2007-55) states that this rule 
retaining the FIRPTA income character of distributions 
attributable to the sale of USRPIs applies to any distributions 
under sections 301, 302, 331, and 332 (i.e., to both 
nonliquidating and liquidating distributions, and to 
distributions treated as sales or exchanges of stock by the 
investor as well as to dividend distributions) and that the IRS 
will issue regulations to that effect.\22\
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    \20\Sec. 897(h)(1). In addition, on the distribution of a USRPI by 
a domestically controlled qualified investment entity, gain is 
recognized with respect to the foreign ownership percentage, 
notwithstanding any otherwise applicable nonrecognition provision of 
the Code, under rules similar to the rules applicable to distributions 
by foreign corporations. Sec. 897(h)(3). The foreign ownership 
percentage is the percentage of the stock of the qualified investment 
entity which was held (directly or indirectly) by foreign persons at 
the time during the testing period during which the direct and indirect 
ownership of stock by foreign persons was greatest. Sec. 897(h)(4)(C).
    \21\In 2006, the Tax Increase Prevention and Reconciliation Act of 
2005 (``TIPRA''), Pub. L. No. 109-222, sec. 505, specified the 
retention of this FIRPTA character on a distribution to an upper-tier 
qualified investment entity, and added statutory withholding 
requirements.
    \22\Notice 2007-55, 2007-2 C.B. 13. The Notice also states that in 
the case of a foreign government investor, because FIRPTA income is 
treated as effectively connected with the conduct of a U.S. trade or 
business, proceeds distributed by a qualified investment entity from 
the sale of U.S. real property interests are not exempt from tax under 
section 892. The Notice cites and compares existing temporary 
regulations and indicates that Treasury will apply those regulations as 
well to certain distributions. See Temp. Treas. Reg. secs. 1.892-3T, 
1.897-9T(e), and 1.1445-10T(b).
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    Code section 897(h)(1) provides an exception to this rule 
in the case of distributions to certain public shareholders. If 
an investor has owned no more than five percent of a class of 
stock of a REIT or other qualified investment entity that is 
regularly traded on an established securities market located 
within the U.S., during the one-year period ending on the date 
of the distribution, then amounts attributable to gain from 
entity sales or exchanges of USRPIs can be distributed to such 
a shareholder without being subject to FIRPTA tax.\23\ Such 
distributions that are dividends are treated as dividends from 
the qualified investment entity,\24\ and thus generally would 
be subject to U.S. dividend withholding tax (as reduced under 
any applicable treaty), but are not treated as income 
effectively connected with the conduct of a U.S. trade or 
business. An IRS Chief Counsel advice memorandum concludes that 
such distributions that are not dividends are not subject to 
tax under FIRPTA.\25\
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    \23\Sec. 897(h)(1), second sentence. As noted previously, after 
December 31, 2014, a RIC is not a qualified investment entity for this 
purpose.
    \24\Secs. 852(b)(3)(E) and 857(b)(3)(F).
    \25\AM 2008-003, February 15, 2008.
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FIRPTA withholding and reporting of information regarding USRPHC status

    Tax that may be due with respect to cross-border payments 
made to a foreign person is collected under withholding rules 
established in Chapter 3 of the Code. In addition to a number 
of generally applicable withholding rules, a special section of 
Chapter 3, section 1445 relating to FIRPTA, requires a 
purchaser of a USRPI from any person to withhold 10 percent of 
gross purchase price unless certain exceptions apply.\26\
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    \26\Section 1445 also can impose 10 percent withholding in certain 
other circumstances. See secs. 1445(e)(3), 1445(e)(4), and 1445(e)(5). 
Section 1445 requires withholding of 35 percent of the gain (which can 
be reduced to 20 percent under regulations) in the case of certain 
dispositions by domestic partnerships, estates, or trusts, and certain 
distributions by qualified investment entities. In addition, 35 percent 
of gain is required to be withheld in the case of certain taxable 
distributions by a foreign corporation. Secs. 1445(e)(1), 1445(e)(2), 
and 1445(e)(6).
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    Under the generally applicable rules, foreign persons are 
subject to 30-percent withholding at the source on cross-border 
payments that are fixed, determinable, annual or periodic 
income from U.S. sources.\27\ The withholding agent that makes 
such payments to a foreign person is required to report and pay 
over any amounts of U.S. tax withheld by March 15 of the 
calendar year following the year in which the payment is made. 
Two types of reports are required: (1) a summary of the total 
U.S.-source income paid and withholding tax withheld on foreign 
persons for the year and (2) a report to both the IRS and the 
foreign person of that person's U.S.-source income that is 
subject to reporting.\28\ The nonresident withholding rules 
apply broadly to any person, whether or not foreign, that has 
custody, control or payment of an item of income of a foreign 
person, and may include brokers.\29\ To avoid cascading 
imposition of the withholding tax as payments move through 
intermediaries to the beneficial owner, the regulations outline 
the specific rules relating to situations whereby an 
intermediary may take on the responsibility to withhold and the 
withholding agent may rely upon the intermediary to do so.\30\
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    \27\Such income does not include capital gains, for example, from 
the sale of stock, including USRPHC stock, or any other USRPI. These 
items are subject to FIRPTA withholding under section 1445. In the case 
of a partnership, withholding with respect to a foreign partner's share 
of income that FIRPTA treats as effectively connected income is imposed 
under section 1446. If the partnership is a publicly traded partnership 
taxed as a partnership under section 7704, the withholding is required 
only on distributions. Treas. Reg. sec. 1.1446-4.
    \28\Treas. Reg. sec. 1.1461-1(b), (c).
    \29\See Treas. Reg. secs. 1.1441-7(a) (definition of withholding 
agent includes foreign persons).
    \30\Treas. Reg. sec. 1.1441-1(b)(1). The procedures necessary to 
comply with the Chapter 3 withholding and reporting obligations are 
detailed in IRS Publication 515, available at http:
//www.irs.gov/publications/p515/ar02.html#en_US_2015_publink1000224806.
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    With respect to FIRPTA withholding by the purchaser of a 
USPRI, the obligation to withhold does not apply if the 
transferor furnishes an affidavit that the transferor is not a 
foreign person. Even absent such an affidavit, the obligation 
does not apply to the purchase of publicly traded stock.\31\ 
The obligation also does not apply to the purchaser of stock of 
a domestic corporation that is not publicly traded, if the 
corporation furnishes the transferee with an affidavit stating 
the corporation is not and has not been a USRPHC during the 
applicable period (unless the transferee has actual knowledge 
or receives a notification that the affidavit is false).\32\
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    \31\Sec. 1445(b)(6).
    \32\Sec. 1445(b)(3). Other exceptions also apply. Sec. 1445(b).
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    Treasury regulations\33\ generally provide that a domestic 
corporation must, within a reasonable period after receipt of a 
request from a foreign person holding an interest in it, inform 
that person whether the interest constitutes a USRPI.\34\ No 
particular form is required. The statement must be dated and 
signed by a responsible corporate officer who must verify under 
penalties of perjury that the statement is correct to his 
knowledge and belief. If a foreign investor requests such a 
statement, then the corporation must provide a notice to the 
IRS that includes the name and taxpayer identification number 
of the corporation as well as the investor, and indicates 
whether the interest in question is a USRPI. However, these 
requirements apply neither to a domestically controlled REIT, 
nor to a corporation that has issued any class of stock which 
is regularly traded on an established securities market at any 
time during the calendar year. In such cases a corporation may 
voluntarily choose to comply with the notice requirements that 
would otherwise have applied.\35\
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    \33\Treas. Reg. Sec. 1.897-2(h).
    \34\As described previously, stock of a U.S. corporation is not 
generally a USRPI unless it is stock of a U.S. real property holding 
corporation (``USRPHC''). However, all U.S. corporate stock is deemed 
to be such stock, unless it is shown that the corporation's U.S. real 
property interests do not amount to the relevant 50 percent or more of 
the corporation's relevant assets. However, even if a REIT or other 
qualified investment entity is a USRPHC, if it is domestically 
controlled its stock is not a USRPI.
    In addition to these exceptions that might be determined at the 
entity level, even if a corporation is a USRPHC, its stock is not a 
USRPI in the hands of the seller if the stock is of a class that is 
publicly traded and the foreign shareholder disposing of the stock has 
not owned (applying attribution rules) more than five percent of such 
class of stock during the relevant period.
    \35\Treas. Reg. sec. 1.897-2(h)(3).
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    FIRPTA withholding by a transferee in the case of a 
purchase from a foreign transferor is reduced or eliminated to 
the extent the IRS issues a withholding certificate indicating 
that the 10 percent withholding on gross proceeds is greater 
than the transferor's tax liability. In order to obtain such a 
certificate, the transferor must apply to the IRS and provide 
relevant information (such as the transferor's basis in the 
property sold, or whether the transferor's disposition is 
exempt from U.S. tax for any reason). In certain circumstances 
the certificate may also be issued where either the transferor 
or the transferee enters into an agreement with the IRS to 
assure payment of tax due, and provides adequate security.\36\
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    \36\Treas. Reg. sec. 1.1445-3.
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General Code authorization of certain returns by foreign persons

    Present law section 6039C provides for returns by foreign 
persons holding direct investments in U.S. real property 
interests for the calendar year, to the extent provided by 
regulations. No regulations have been issued under this 
section.

Corporate dividends-received deduction for certain U.S. source 
        dividends received from foreign corporations

    A corporation is generally allowed to deduct a portion of 
the dividends it receives from another corporation. The 
deductible amount is a percentage of the dividends received. 
The percentage depends on the level of ownership that the 
corporate shareholder has in the corporation paying the 
dividend. The dividends-received deduction is 70 percent of the 
dividend if the recipient owns less than 20 percent of the 
stock of the payor corporation, 80 percent if the recipient 
owns at least 20 percent but less than 80 percent of the stock 
of the payor corporation, and 100 percent if the recipient owns 
80 percent or more of the stock of the payor corporation.\37\
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    \37\Sec. 243.
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    Dividends from REITs are not eligible for the corporate 
dividends received deduction.\38\ Dividends from a RIC are 
eligible only to the extent attributable to dividends received 
by the RIC from certain other corporations, and are treated as 
dividends from a corporation that is not 20-percent owned.\39\
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    \38\Secs. 243(d)(3) and 857(c)(1).
    \39\Secs. 243(d)(2) and 854(b)(1)(A) and (C).
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    Dividends received from a foreign corporation are not 
generally eligible for the dividends-received deduction. 
However, section 245 provides that if a U.S. corporation is a 
10-percent shareholder of a foreign corporation, the U.S. 
corporation is generally entitled to a dividends-received 
deduction for the portion of dividends received that are 
attributable to the post-1986 undistributed U.S. earnings of 
the foreign corporation. The post-1986 undistributed U.S. 
earnings are measured by reference to earnings of the foreign 
corporation effectively connected with the conduct of a trade 
or business within the United States, or received by the 
foreign corporation from an 80-percent-owned U.S. 
corporation.\40\ A 2013 IRS chief counsel advice memorandum 
advised that dividends received by a 10-percent U.S. corporate 
shareholder from a foreign corporation controlled by the 
shareholder are not eligible for the dividends-received 
deduction if the dividends were attributable to interest income 
of an 80-percent owned RIC.\41\ Treasury regulations section 
1.246-1 states that the deductions provided in sections ``243 . 
. . 244 . . . and 245 (relating to dividends received from 
certain foreign corporations)'' are not allowable with respect 
to any dividend received from certain entities, one of which is 
a REIT.
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    \40\Sec. 245.
    \41\IRS CCA 201320014. The situation addressed in the memorandum 
involved a controlled foreign corporation that had terminated its CFC 
status before year end, through a transfer of stock to a partnership. 
The advice was internal IRS advice to the Large Business and 
International Division. Such advice is not to be relied upon or cited 
as precedent by taxpayers, but may offer some indication of 
administrative practice.
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B. Provisions Relating to REITs, RICs, and FIRPTA (secs. 1 through 7 of 
    the bill, secs. 897, 1445, 245, and new sec. 6039B of the Code)


    1. Publicly traded REITs and certain publicly traded qualified 
               shareholder entities that hold REIT stock


                           REASONS FOR CHANGE

    The Committee wishes to encourage equity investment in U.S. 
real estate. The Committee believes that increasing the amount 
of stock of a publicly-traded REIT that a foreign investor may 
hold without becoming subject to FIRPTA on the disposition of 
that REIT stock will encourage greater foreign ownership of 
REIT stock, which in turn may contribute to greater underlying 
REIT investment in U.S. real property.
    The Committee further believes that foreign investment in 
REITs should be encouraged by removing FIRPTA concerns when 
REIT stock is owned by certain foreign publicly traded 
entities.

                        EXPLANATION OF PROVISION

    In the case of REIT stock only, the provision increases 
from five percent to 10 percent the maximum stock ownership a 
shareholder may have held, during the testing period, of a 
class of stock that is publicly traded, to avoid having that 
stock be treated as a USRPI on disposition.
    The provision likewise increases from five percent to 10 
percent the percentage ownership threshold that, if not 
exceeded, results in treating a distribution to holders of 
publicly traded REIT stock, attributable to gain from sales of 
exchanges of U.S. real property interests, as a dividend, 
rather than as FIPRTA gain. Any distributions to such 10 
percent (or less) shareholders that are not dividends (for 
example, if the qualified investment entity surrendered its 
stock in a redemption that was not treated as a dividend) would 
be exempt from U.S. tax.\42\
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    \42\This result would follow from application of the conclusion of 
AM 2008-83, Feb. 15, 2008. See Present Law, FIRPTA rules for foreign 
investment through REITs and RICs, supra.
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    For these purposes, the attribution rules of section 
897(c)(6)(C) are modified to refer to the determination of 
whether a person holds more than 5 percent of a class of stock 
that is publicly traded (in the case of a non-REIT shareholder) 
or more than 10 percent (in the case of a REIT shareholder), as 
applicable. For purposes of either determination, however, 
however, the provision retains the present law attribution 
rules of section 897(c)(6)(C) that trigger attribution between 
a shareholder and a corporation if the shareholder owns five 
percent or more of a class of stock of the corporation.
    The provision also provides that REIT stock directly 
(without application of any attribution rules) held by a 
qualified shareholder is not a USRPI in the hands of such 
qualified shareholder, except to the extent that an investor in 
the qualified shareholder (other than an investor that is a 
qualified shareholder) holds an interest (other than an 
interest solely as a creditor) in such qualified shareholder 
and holds more than 10 percent of the stock of such REIT 
(whether or not by reason of the person's ownership interest in 
the qualified shareholder), determined by application of the 
constructive ownership rules of section 897(c)(6)(C)). In 
addition, any distribution to a qualified shareholder shall not 
be treated as gain from the sale or exchange of a USRPI to the 
extent the stock of a REIT held by such qualified shareholder 
is not treated as a USRPI under this rule. Such a distribution 
is instead subject to the rule of section 857(b)(3)(F), 
generally treating any amount distributed with respect to the 
sale of a USRPI as a dividend to the qualified shareholder. 
Thus, so long as no investor in the qualified shareholder owns 
more than 10 percent of the REIT stock under the foregoing 
rules, a qualified shareholder may own and dispose of any 
amount of stock of a REIT (including stock of a privately held, 
non-domestically controlled REIT that is owned by such 
qualified shareholder) without the application of FIRPTA. Also, 
the REIT may sell its assets and distribute the proceeds in a 
transaction that is treated as a sale of the qualified 
shareholder's REIT stock, without the application of FIRPTA.
    If an investor in the qualified shareholder (other than an 
investor that is a qualified shareholder) does hold more than 
10 percent of the REIT stock (an ``applicable investor''), then 
a percentage of the interests in REIT stock held by the 
qualified shareholder equal to such investor's percentage 
ownership of the qualified shareholder is treated as a USRPI in 
the hands of the qualified shareholder and is subject to 
FIRPTA. This percentage is applied to treat as gain from the 
disposition of a USRPI a portion of any amount realized by the 
qualified shareholder from any disposition any of the REIT 
stock or any receipt of a distribution attributable to gain 
from sales or exchanges of USRPIs.\43\
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    \43\As one example, if an individual shareholder owns 10 percent of 
a REIT's stock directly and also owns 10 percent of the stock of a 
qualified shareholder that in turn owns 80 percent of that REIT's stock 
(thus indirectly owning another 8 percent of such REIT's stock), such 
shareholder is deemed to own more than 10 percent (i.e., 18 percent) of 
that REIT's stock under the proposal. Accordingly, 10 percent (the 
investor's percentage ownership of the qualified shareholder) of the 
qualified shareholder's interest in any REIT stock held by the 
qualified shareholder is treated as a U.S. real property interest. 
Also, if the REIT has gain from the sale of a U.S. real property 
interest and distributes the gain, the second sentence of section 
897(h)(1) will not apply to 10 percent of such gain.
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    A qualified shareholder is defined as a foreign person that 
is (i) eligible for the benefits of a comprehensive income tax 
treaty which includes an exchange of information program, (ii) 
a qualified collective investment vehicle (as defined below), 
(iii) whose principal class of interests is listed and 
regularly traded on one or more recognized stock exchanges (as 
defined in such comprehensive income tax treaty), and (iv) that 
maintains records on the identity of each person who, at any 
time during the qualified shareholder's taxable year, is the 
direct owner of more than 10 percent of that principal class of 
interests.
    A qualified collective investment vehicle is defined as a 
foreign person that (i) is eligible for a reduced rate of 
withholding under the comprehensive income tax treaty described 
above, and continues to be so eligible even if such person 
holds more than 10 percent of the stock of such REIT,\44\ (ii) 
is a foreign person that, if it were a domestic person, would 
be classified as a U.S. real property holding corporation 
(determined without regard to the proposal's rules that exempt 
REIT stock held by the entity from treatment as a USRPI), or 
(iii) is designated as such by the Secretary of the Treasury 
and is either (a) fiscally transparent within the meaning of 
section 894, or (b) required to include dividends in its gross 
income, but is entitled to a deduction for distributions to its 
investors.
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    \44\For example, the U.S. income tax treaties with Australia and 
the Netherlands provide such a reduced rate of withholding under 
certain circumstances.
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                             EFFECTIVE DATE

    The disposition provisions apply to dispositions on and 
after the date of enactment. The distribution provisions apply 
to any distribution by a REIT on or after the date of enactment 
which is treated as a deduction for a taxable year of such REIT 
ending after such date.

                 2. Domestically controlled definition


                           REASONS FOR CHANGE

    The Committee is concerned that there may be uncertainty in 
determining whether a REIT (or RIC, if such entity is a 
qualified investment entity for this purpose), is domestically 
controlled. Uncertainty might affect foreign investment in such 
entities. The Committee believes that it is impracticable for a 
publicly traded entity to know the U.S. or foreign status of 
its less than five-percent shareholders, whose ownership may 
not be required to be publicly reported. The Committee also 
believes it is appropriate to count ownership by foreign 
investors in a privately held REIT or RIC, since such private 
ownership should be ascertainable.

                        EXPLANATION OF PROVISION

    For purposes of determining whether a qualified investment 
entity is domestically controlled, and for purposes of 
determining the foreign ownership percentage that is ineligible 
for nonrecognition treatment on a distribution by a 
domestically controlled qualified investment entity, the 
provision provides a number of new rules and presumptions.
    First, in the case of any class of stock of a qualified 
investment entity which is regularly traded on an established 
securities market in the United States, a person holding less 
than five percent of such class of stock at all times during 
the testing period shall be treated as a U.S. person unless the 
qualified investment entity has actual knowledge that such 
person is not a U.S. person. Second, 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 stock exchange, 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 (as determined after applying the new rules), such 
stock shall be treated as held by a U.S. person. Finally, any 
stock in a qualified investment entity held by any other 
qualified investment entity not described in (I) or (II) of the 
preceding sentence shall only be treated as held by a U.S. 
person to the extent that the stock of such other qualified 
investment entity is (or is treated under the new provision as) 
held by a U.S. person. Although the definition of a RIC as a 
qualified investment entity expired on December 31, 2014, under 
the provision, such definition does not expire for purposes of 
determining whether a REIT is domestically controlled under 
these rules and presumptions.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment. The 
definition of a RIC as a qualified investment entity, for 
purposes of the determination whether a REIT is domestically 
controlled, did not expire on December 31, 2014.

        3. Increase 10 percent FIRPTA withholding to 15 percent


                           REASONS FOR CHANGE

    The Committee is concerned that some foreign persons may 
fail to file the required U.S. tax returns under FIRPTA. Such 
persons may escape paying full U.S. tax on their gain from 
disposition of U.S. real property interests, if the current 10 
percent withholding tax on gross sales proceeds is less than 
the amount of tax that would be due on the actual gain on the 
disposition.

                        EXPLANATION OF PROVISION

    The provision generally increases the rate of withholding 
of tax on dispositions and certain distributions of URSPIs, 
from 10 percent to 15 percent. There is an exception to this 
higher rate of withholding (retaining the 10 percent 
withholding tax rate under present law) for sales of residences 
intended for personal use by the acquirer, with respect to 
which the purchase price does not exceed $1,000,000. Thus, if 
the present law exception for personal residences (where the 
purchase price does not exceed $300,000) does not apply, the 10 
percent withholding rate is retained so long as the purchase 
price does not exceed $1,000,000.

                             EFFECTIVE DATE

    The provision applies to dispositions after the date which 
is 60 days after the date of the enactment.

 4. Required notification of FIRPTA status as a USRPHC, presumption of 
   foreign control of qualified investment entities, and penalty for 
                   failure to disclose FIRPTA status


                           REASONS FOR CHANGE

    The Committee believes that it is important to balance the 
removal of obstacles that foreign persons encounter in 
investing in United States property with adequate measures to 
ensure that those foreign investors who are subject to tax on 
the gain upon disposition of a real property interest satisfy 
their obligations. Under present law, in the case of a sale of 
stock of a corporation, the information as to whether or not 
that corporation is a USRPHC (thus potentially requiring FIRPTA 
tax, and purchaser withholding unless an exception applies) may 
be unknown except through time consuming inquiries to the 
corporation. The Committee believes that requiring corporations 
routinely to disclose their current or recent status as a 
USRPHC, with substantial penalties for failure to do so, will 
give purchasers and sellers access to reliable information and 
better enable them to discharge their obligations.

                        EXPLANATION OF PROVISION

Disclosure of USRPHC status

    The provision adds a new section 6039B to the Code, which 
requires any corporation that is or was a USRPHC within an 
applicable period to disclose such status as a USRPHC to the 
Secretary of the Treasury (IRS), to its shareholders, and to 
the public.
    First, not later than the due date for its return of tax 
(including extensions) for the taxable year, the corporation 
must disclose to the Secretary of the Treasury the information 
that the corporation is a USRPHC (as well as any other 
information as may be required by the Secretary of the 
Treasury), in such form and manner as the Secretary of the 
Treasury shall require. The applicable period for purposes of 
this requirement is generally the five-year period ending on 
the last day of the taxable year for which a disclosure was 
required to be made.
    Second, the corporation must disclose the information on 
any statement required to be made under section 6042(c). The 
Committee intends this rule to apply to any payee statement, 
such as a 1099 information return, otherwise required to be 
provided, but does not intend to impose a new requirement to 
provide an information return solely in order to provide this 
information. The applicable period for purposes of this 
requirement is generally the five-year period ending on the 
last day of the calendar year which the disclosure is required 
to be made.
    Third, the corporation must disclose the information to the 
public in any annual report made by such corporation, or, 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 of the Treasury in the 
interests of tax administration). The applicable period for 
purposes of this requirement is generally the five-year period 
ending on the last day of the year for which the disclosure is 
required to be made.
    For purposes of these requirements, a corporation is a 
USRPHC, and its status as such must be disclosed, if it meets 
the requirements of section 897(c)(2) at any time during the 
relevant applicable period, or if 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 required notification is made.
            Publicly traded partnerships
    Under regulations prescribed by the Secretary of the 
Treasury, any publicly traded partnership that is not 
automatically covered by the provision due to treatment as a 
corporation under section 7704 shall also be subject to these 
rules.\45\
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    \45\The Committee does not intend to restrict the Treasury's 
ability to continue to apply Treasury regulations section 1.897-
1(c)(2)(iv) with respect to all publicly traded partnerships, including 
those that are not treated as corporations under section 7704. That 
regulation, or similar concepts, could also be applied after enactment 
of the provision, to subject such partnerships that are not treated as 
corporations under section 7704 to the new rules.
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Penalties for failure to disclose

    Penalties are imposed for failure to comply with the USRPHC 
notification requirements. Any person who (1) fails to disclose 
the required information to the Secretary of the Treasury for 
any taxable year, (2) fails to substantially comply with the 
required payee notifications on information returns, or (3) 
fails to make the required public disclosure, shall pay a 
penalty with respect to each such failure.
    In the case of a corporation with average annual gross 
receipts of $5,000,000 or less in the most recent five taxable 
years, the penalty is $500,000. The penalty increases to 
$1,500,000 for corporations with such average annual gross 
receipts exceeding $5,000,000. However, in the case of any 
corporation that holds U.S. real property interests with a 
gross fair market value of $1 billion or more, then, regardless 
of the amount of penalty that would otherwise apply under the 
gross receipts provisions, the penalty is $5 million, increased 
to $10 million in the case of intentional failure to disclose 
or report. For purposes of determining gross receipts and gross 
fair market value under these penalty provisions, the related-
party aggregation rules of section 448(c)(2) apply. The penalty 
amounts and the gross receipts and gross fair market value 
thresholds will be adjusted for inflation.
            Coordination with penalty under section 6722 for failure to 
                    file correct payee statements
    In case of failure to comply with the payee statement 
requirement of the provision, if a penalty is imposed under the 
provision, no penalty is imposed under section 6722 with 
respect to such failure.
            Reasonable cause waiver
    No penalty is imposed under the provision with respect to 
any failure if it is shown that such failure is due to 
reasonable cause and not to willful neglect.

Qualified investment entity presumed not domestically controlled absent 
        disclosure to the contrary

    A qualified investment entity shall not be treated as 
domestically controlled 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 of the Treasury in 
the interests of tax administration). Thus, for example, if a 
foreign person disposes of the stock of a qualified investment 
entity that is domestically controlled under the new rules 
provided under the bill, but that does not disclose its 
domestically controlled status, the disposition is treated as 
one of stock of an entity that is not domestically controlled, 
and hence FIRPTA would generally apply to the disposition 
unless another exception applied.

                             EFFECTIVE DATE

    The provision takes effect on January 1, 2016.

                5. Require FIRPTA withholding by brokers


                           REASONS FOR CHANGE

    The Committee believes that it is important to balance the 
removal of obstacles that foreign persons encounter in 
investing in United States property with adequate measures to 
ensure that those foreign investors who are subject to tax on 
the gain upon disposition of stock of a USRPHC satisfy their 
obligations. Under present law, the gross withholding 
obligation in case of a sale of USRPHC stock falls on the 
purchaser, and there is no obligation in the case of publicly 
traded stock. Although certain brokers may also function as 
withholding agents for clients in certain circumstances, the 
Committee believes that it is advisable to impose an 
affirmative liability to withhold on the seller's broker. As 
the seller's broker, the broker is positioned to know the 
foreign status, if any, of the seller, and to withhold when 
appropriate.

                        EXPLANATION OF PROVISION

    In the case of any disposition of stock of a USRPHC 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. Certain exceptions 
apply.
    The broker is not required to withhold on any disposition 
if the transferee is required to deduct and withhold tax and 
the transferee furnishes to the broker an affidavit, under 
penalties of perjury, that the transferee has deducted and 
withheld such tax.
    The broker is not required to withhold with respect to any 
disposition of any class of stock of a USRPHC which is 
regularly traded on an established securities market if the 
transferor, immediately prior to the disposition, holds no more 
than five percent (10 percent in the case of a REIT) of such 
class of stock, determined under the rules of section 
897(c)(6)(C).
    The broker is not required to withhold on a disposition of 
stock of a domestically controlled qualified investment entity 
(as defined after application of the new rules relating to 
determination of domestically controlled status) or on a 
disposition of stock of a REIT to the extent such stock is not 
treated as a USRPI under the rules permitting sale by an entity 
that is a qualified shareholder under the provision.
    The broker is also not required to withhold with respect to 
a disposition of stock of a USRPHC that would not be treated as 
a USRPI because of the application of the ``cleansing rule'' 
(as modified by the bill).
    The withholding requirement does 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 
USRPHC. For purposes of this rule, a broker may rely on public 
statements made by a public company, including statements 
related to the status of the company as a USRPHC or as a 
domestically controlled qualified investment entity.\46\
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    \46\Under the immediately preceding provision of the bill, any 
qualified investment entity is presumed to be foreign controlled unless 
the entity has made a disclosure to the contrary.
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    The provision amends the Code provision that currently 
exempts from withholding the disposition of a share of a class 
of stock that is regularly traded on an established securities 
market, to require the broker withholding in accordance with 
the foregoing provisions.
    Under regulations prescribed by the Secretary of the 
Treasury, similar withholding rules shall apply to brokers in 
the case of a disposition of a publicly traded partnership 
interest that is not already treated as stock of a corporation, 
pursuant to section 7704, where such partnership would be a 
USRPHC if it were a U.S. corporation.\47\
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    \47\The Committee does not intend to restrict the Treasury's 
ability to continue to apply Treasury regulation section 1.897-
1(c)(2)(iv) with respect to all publicly traded partnerships, including 
those that are not treated as corporations under section 7704. That 
regulation, or similar concepts, could also be applied after enactment 
of the provision, to impose the withholding rules to brokers in the 
case of a disposition of a publicly traded partnership interest that is 
not already treated as stock of a corporation pursuant to section 7704, 
where such partnership would be a U.S. real property holding 
corporation if it were a U.S. corporation.
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                             EFFECTIVE DATE

    The provision applies to dispositions after December 31, 
2015.

           6. Cleansing rule not applicable to RICs or REITs


                           REASONS FOR CHANGE

    The purpose of the ``cleansing rule'' was to ``cleanse'' 
the USRPHC treatment of stock of a domestic corporation if that 
corporation has recognized all the gain inherent in its U.S. 
real property interests, and paid U.S. corporate tax on that 
gain. Because REITs and RICs can deduct their distributions, 
including those made in liquidation, U.S. tax is not paid on 
gain recognized from asset sales in liquidation of such 
entities.\48\ Thus, the Committee believes that the cleansing 
rule should not apply to such entities.
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    \48\A REIT or RIC might also pay corporate tax on an asset sale, 
because it did not make a distribution of proceeds to the shareholders, 
but can designate the gain such that shareholders can receive a credit 
for the corporate tax paid, negating the collection of U. S. tax on the 
gain from asset sales.
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                        EXPLANATION OF PROVISION

    Under the provision, the so-called ``cleansing rule'' 
applies to stock of a corporation only if neither such 
corporation nor any predecessor of such corporation was a RIC 
or a REIT at any time during the shorter of the period after 
June 18, 1980 during which the taxpayer held such stock, or the 
five-year period ending on the date of the disposition of such 
stock.

                             EFFECTIVE DATE

    The provision applies to dispositions on or after the date 
of enactment.

 7. Dividends derived from RICs and REITs ineligible for deduction for 
   U.S. source portion of dividends from certain foreign corporations


                           REASONS FOR CHANGE

    The purpose of the dividends-received deduction is to 
provide relief to a corporation that receives dividends from 
another corporation whose income was subject to U.S. tax. The 
dividends-received deduction thus reduces the potential for 
cascading taxes as corporate income is distributed up a chain 
of corporations. Unlike other corporations, a corporation that 
is a RIC or a REIT deducts its income that is distributed to 
shareholders and thus U.S. corporate level tax typically has 
not been paid on such distributed income. An IRS chief counsel 
advisory memorandum concluded that dividends attributable to 
interest income of an 80-percent owned RIC are not entitled to 
be counted in determining the dividends received deduction 
under section 245. Furthermore, an IRS regulation states that 
REIT dividends are not eligible for section 245. The Committee 
wishes to preclude any remaining potential that taxpayers might 
take the position that any RIC or REIT dividends are eligible 
for the dividends received deduction under section 245.

                        EXPLANATION OF PROVISION

    Under the provision, for purposes of determining whether 
dividends from a foreign corporation (attributable to dividends 
from an 80-percent owned domestic corporation) are eligible for 
a dividends-received deduction under section 245 of the Code, 
dividends from RICs and REITs are not treated as dividends from 
domestic corporations.

                             EFFECTIVE DATE

    The provision applies to dividends received from RICs and 
REITs on or after the date of enactment. No inference is 
intended with respect to the proper treatment under section 245 
of dividends received from RICs or REITs before the date of 
enactment.

C. Increase Continuous Levy Authority on Payments to Medicare Providers 
      and Suppliers (sec. 9 of the bill and sec. 6331 of the Code)


                              PRESENT LAW

In general

    Levy is the administrative authority of the IRS to seize a 
taxpayers property, or rights to property, to pay the 
taxpayer's tax liability.\49\ Generally, the IRS is entitled to 
seize a taxpayer's property by levy if a Federal tax lien has 
attached to such property,\50\ the property is not exempt from 
levy,\51\ and the IRS has provided both notice of intention to 
levy\52\ and notice of the right to an administrative hearing 
(the notice is referred to as a ``collections due process 
notice'' or ``CDP notice'' and the hearing is referred to as 
the ``CDP hearing'')\53\ at least 30 days before the levy is 
made. A levy on salary or wages generally is continuously in 
effect until released.\54\ A Federal tax lien arises 
automatically when: (1) a tax assessment has been made; (2) the 
taxpayer has been given notice of the assessment stating the 
amount and demanding payment; and (3) the taxpayer has failed 
to pay the amount assessed within 10 days after the notice and 
demand.\55\
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    \49\Sec. 6331(a). Levy specifically refers to the legal process by 
which the IRS orders a third party to turn over property in its 
possession that belongs to the delinquent taxpayer named in a notice of 
levy.
    \50\Ibid.
    \51\Sec. 6334.
    \52\Sec. 6331(d).
    \53\Sec. 6330. The notice and the hearing are referred to 
collectively as the CDP requirements.
    \54\Secs. 6331(e) and 6343.
    \55\Sec. 6321.
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    The notice of intent to levy is not required if the 
Secretary finds that collection would be jeopardized by delay. 
The standard for determining whether jeopardy exists is similar 
to the standard applicable when determining whether assessment 
of tax without following the normal deficiency procedures is 
permitted.\56\
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    \56\Secs. 6331(d)(3) and 6861.
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    The CDP notice (and pre-levy CDP hearing) is not required 
if: (1) the Secretary finds that collection would be 
jeopardized by delay; (2) the Secretary has served a levy on a 
State to collect a Federal tax liability from a State tax 
refund; (3) the taxpayer subject to the levy requested a CDP 
hearing with respect to unpaid employment taxes arising in the 
two-year period before the beginning of the taxable period with 
respect to which the employment tax levy is served; or (4) the 
Secretary has served a Federal contractor levy. In each of 
these four cases, however, the taxpayer is provided an 
opportunity for a hearing within a reasonable period of time 
after the levy.\57\
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    \57\Sec. 6330(f).
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Federal payment levy program

    To help the IRS collect taxes more effectively, the 
Taxpayer Relief Act of 1997\58\ authorized the establishment of 
the Federal Payment Levy Program (``FPLP''), which allows the 
IRS to continuously levy up to 15 percent of certain 
``specified payments'' by the Federal government if the payees 
are delinquent on their tax obligations. With respect to 
payments to vendors of goods, services, or property sold or 
leased to the Federal government, the continuous levy may be up 
to 100 percent of each payment.\59\ For payments to Medicare 
providers and suppliers, the levy is up to 15 percent for 
payments made within 180 days after December 19, 2014. For 
payments made after that date, the levy is up to 30 
percent.\60\
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    \58\Pub. L. No. 105-34.
    \59\Sec. 6331(h)(3).
    \60\Pub. L. No. 113-295, Division B.
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    Under FPLP, the IRS matches its accounts receivable records 
with Federal payment records maintained by Treasury's Bureau of 
Fiscal Service (``BFS''), such as certain Social Security 
benefit and Federal wage records. When these records match, the 
delinquent taxpayer is provided both the notice of intention to 
levy and the CDP notice. If the taxpayer does not respond after 
30 days, the IRS can instruct BFS to levy the taxpayer's 
Federal payments. Subsequent payments are continuously levied 
until such time that the tax debt is paid or the IRS releases 
the levy.

                           REASONS FOR CHANGE

    It has been reported that many thousands of Medicare 
providers and suppliers have outstanding Federal employment and 
income tax liability, which contribute to the tax gap. 
Consequently, the Committee believes that it is appropriate to 
increase the permissible percentage of payments to a Medicare 
provider subject to levy.

                        EXPLANATION OF PROVISION

    The provision provides that the present limitation of 30 
percent of certain specified payments be increased by an amount 
sufficient to offset the estimated revenue loss of the 
provision described in Part A, above.

                             EFFECTIVE DATE

    The provision is effective for payments made after 180 days 
after the date of enactment.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and section 308(a)(1) of the 
Congressional Budget and Impoundment Control Act of 1974, as 
amended (the ``Budget Act''), the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the ``FIRPTA'' as reported.
    The proposals are estimated to reduce Federal fiscal year 
budget receipts as follows:


                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that no provisions of the bill as reported 
involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that no provisions affect the levels of tax 
expenditures.

            C. Consultation with Congressional Budget Office

    In accordance with section 402 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office will be provided separately.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority present, the ``Real Estate Investment and Jobs Act of 
2015'' was ordered favorably reported by voice vote on February 
11, 2015.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill as amended.

Impact on individuals and businesses, personal privacy and paperwork

    The bill imposes new requirements for corporations, 
including publicly traded corporations, to report their status 
as a USRPHC within the prior 5 years, and also imposes a 
withholding obligation on sellers' brokers. These provisions of 
the bill may impose additional administrative requirements or 
regulatory burdens on individuals or businesses.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the reported bill 
contains two Federal private sector mandates, but no Federal 
intergovernmental mandates on State, local, or tribal 
governments within the meaning of Public Law 104-4, the 
Unfunded Mandates Reform Act of 1995. The two private sector 
mandates are (i) the requirement that corporations, including 
publicly traded corporations, report their status as a USRPHC 
and (ii) the requirement that sellers' brokers withhold FIRPTA 
tax. Each of these mandates imposes additional enforceable 
duties upon the private sector. It is not feasible to estimate 
the costs that such private sector parties would be required to 
spend in order to comply.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. The staff of the Joint Committee on Taxation has 
determined that there are no provisions that are of widespread 
applicability to individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

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