
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC269B]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
                      PART IX--ITEMS NOT DEDUCTIBLE
 
Sec. 269B. Stapled entities


(a) General rule

    Except as otherwise provided by regulations, for purposes of this 
title--
        (1) if a domestic corporation and a foreign corporation are 
    stapled entities, the foreign corporation shall be treated as a 
    domestic corporation.
        (2) in applying section 1563, stock in a second corporation 
    which constitutes a stapled interest with respect to stock of a 
    first corporation shall be treated as owned by such first 
    corporation, and
        (3) in applying subchapter M for purposes of determining whether 
    any stapled entity is a regulated investment company or a real 
    estate investment trust, all entities which are stapled entities 
    with respect to each other shall be treated as 1 entity.

(b) Secretary to prescribe regulations

    The Secretary shall prescribe such regulations as may be necessary 
to prevent avoidance or evasion of Federal income tax through the use of 
stapled entities. Such regulations may include (but shall not be limited 
to) regulations providing the extent to which 1 of such entities shall 
be treated as owning the other entity (to the extent of the stapled 
interest) and regulations providing that any tax imposed on the foreign 
corporation referred to in subsection (a)(1) may, if not paid by such 
corporation, be collected from the domestic corporation referred to in 
such subsection or the shareholders of such foreign corporation.

(c) Definitions

    For purposes of this section--

                             (1) Entity

        The term ``entity'' means any corporation, partnership, trust, 
    association, estate, or other form of carrying on a business or 
    activity.

                        (2) Stapled entities

        The term ``stapled entities'' means any group of 2 or more 
    entities if more than 50 percent in value of the beneficial 
    ownership in each of such entities consists of stapled interests.

                        (3) Stapled interests

        Two or more interests are stapled interests if, by reason of 
    form of ownership, restrictions on transfer, or other terms or 
    conditions, in connection with the transfer of 1 of such interests 
    the other such interests are also transferred or required to be 
    transferred.

(d) Special rule for treaties

    Nothing in section 894 or 7852(d) or in any other provision of law 
shall be construed as permitting an exemption, by reason of any treaty 
obligation of the United States heretofore or hereafter entered into, 
from the provisions of this section.

(e) Subsection (a)(1) not to apply in certain cases

                           (1) In general

        Subsection (a)(1) shall not apply if it is established to the 
    satisfaction of the Secretary that the domestic corporation and the 
    foreign corporation referred to in such subsection are foreign 
    owned.

                          (2) Foreign owned

        For purposes of paragraph (1), a corporation is foreign owned if 
    less than 50 percent of--
            (A) the total combined voting power of all classes of stock 
        of such corporation entitled to vote, and
            (B) the total value of the stock of the corporation,

    is held directly (or indirectly through applying paragraphs (2) and 
    (3) of section 958(a) and paragraph (4) of section 318(a)) by United 
    States persons (as defined in section 7701(a)(30)).

(Added Pub. L. 98-369, div. A, title I, Sec. 136(a), July 18, 1984, 98 
Stat. 669; amended Pub. L. 99-514, title XVIII, Sec. 1810(j), Oct. 22, 
1986, 100 Stat. 2829.)


                               Amendments

    1986--Subsec. (b). Pub. L. 99-514, Sec. 1810(j)(1), inserted ``and 
regulations providing that any tax imposed on the foreign corporation 
referred to in subsection (a)(1) may, if not paid by such corporation, 
be collected from the domestic corporation referred to in such 
subsection or the shareholders of such foreign corporation''.
    Subsec. (e). Pub. L. 99-514, Sec. 1810(j)(2), added subsec. (e).


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 effective, except as otherwise provided, 
as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 
98-369, div. A, to which such amendment relates, see section 1881 of 
Pub. L. 99-514, set out as a note under section 48 of this title.


                             Effective Date

    Section 136(c) of Pub. L. 98-369, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) In general.--Except as otherwise provided in this subsection, 
the amendments made by this section [enacting this section] shall take 
effect on the date of the enactment of this Act [July 18, 1984].
    ``(2) Interests stapled as of june 30, 1983.--Except as otherwise 
provided in this subsection, in the case of any interests which on June 
30, 1983, were stapled interests (as defined in section 269B(c)(3) of 
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by 
this section)), the amendments made by this section shall take effect on 
January 1, 1985 (January 1, 1987, in the case of stapled interests in a 
foreign corporation).
    ``(3) Certain stapled entities which include real estate investment 
trust.--Paragraph (3) of section 269B(a) of such Code shall not apply in 
determining the application of the provisions of part II of subchapter M 
of chapter 1 of such Code to any real estate investment trust which is 
part of a group of stapled entities if--
        ``(A) all members of such group were stapled entities as of June 
    30, 1983, and
        ``(B) as of June 30, 1983, such group included one or more real 
    estate investment trusts.
    ``(4) Certain stapled entities which include puerto rican 
corporations.--
        ``(A) Paragraph (1) of section 269B(a) of such Code shall not 
    apply to a domestic corporation and a qualified Puerto Rican 
    corporation which, on June 30, 1983, were stapled entities.
        ``(B) For purposes of subparagraph (A), the term `qualified 
    Puerto Rican corporation' means any corporation organized in Puerto 
    Rico--
            ``(i) which is described in section 957(c) of such Code or 
        would be so described if any dividends it received from any 
        other corporation described in such section 957(c) were treated 
        as gross income of the type described in such section 957(c), 
        and
            ``(ii) does not, at any time during the taxable year, own 
        (within the meaning of section 958 of such Code but before 
        applying paragraph (2) of section 269B(a) of such Code) any 
        stock of any corporation which is not described in such section 
        957(c).
    ``(5) Treaty rule not to apply to stapled entities entitled to 
treaty benefits as of june 30, 1983.--In the case of any entity which 
was a stapled entity as of June 30, 1983, subsection (d) of section 269B 
of such Code shall not apply to any treaty benefit to which such entity 
was entitled as of June 30, 1983.
    ``(6) Elections to treat stapled foreign entities as subsidiaries.--
        ``(A) In general.--In the case of any foreign corporation and 
    domestic corporation which as of June 30, 1983, were stapled 
    entities, such domestic corporation may elect (in lieu of applying 
    paragraph (1) of section 269B(a) of such Code) to be treated as 
    owning all interests in the foreign corporation which constitute 
    stapled interests with respect to stock of the domestic corporation.
        ``(B) Election.--Any election under subparagraph (A) shall be 
    made not later than 180 days after the date of the enactment of this 
    Act and shall be made in such manner as the Secretary of the 
    Treasury or his delegate shall prescribe.
        ``(C) Election irrevocable.--Any election under subparagraph 
    (A), once made, may be revoked only with the consent of the 
    Secretary of the Treasury or his delegate.
    ``(7) Other stapled entities which include real estate investment 
trust.--
        ``(A) In general.--Paragraph (3) of section 269B(a) of such Code 
    shall not apply in determining the application of the provisions of 
    part II of subchapter M of chapter 1 of such Code to any qualified 
    real estate investment trust which is a part of a group of stapled 
    entities--
            ``(i) which was created pursuant to a written board of 
        directors resolution adopted on April 5, 1984, and
            ``(ii) all members of such group were stapled entities as of 
        June 16, 1985.
        ``(B) Qualified real estate investment trust.--The term 
    `qualified real estate investment trust' means any real estate 
    trust--
            ``(i) at least 75 percent of the gross income of which is 
        derived from interest on obligations secured by mortgages on 
        real property (as defined in section 856 of such Code),
            ``(ii) with respect to which the interest on the obligations 
        described in clause (i) made or acquired by such trust (other 
        than to persons who are independent contractors, as defined in 
        section 856(d)(3) of such Code) is at an arm's length rate or a 
        rate not more than 1 percentage point greater than the 
        associated borrowing cost of the trust, and
            ``(iii) with respect to which any real property held by the 
        trust is not used in the trade or business of any other member 
        of the group of stapled entities.''


Termination of Exception for Certain Real Estate Investment Trusts From 
                    the Treatment of Stapled Entities

    Pub. L. 105-206, title VII, Sec. 7002, July 22, 1998, 112 Stat. 827, 
provided that:
    ``(a) In General.--Notwithstanding paragraph (3) of section 136(c) 
of the Tax Reform Act of 1984 [Pub. L. 98-369, set out above] (relating 
to stapled stock; stapled entities), the REIT gross income provisions 
shall be applied by treating the activities and gross income of members 
of the stapled REIT group properly allocable to any nonqualified real 
property interest held by the exempt REIT or any stapled entity which is 
a member of such group (or treated under subsection (c) as held by such 
REIT or stapled entity) as the activities and gross income of the exempt 
REIT in the same manner as if the exempt REIT and such group were one 
entity.
    ``(b) Nonqualified Real Property Interest.--For purposes of this 
section--
        ``(1) In general.--The term `nonqualified real property 
    interest' means, with respect to any exempt REIT, any interest in 
    real property acquired after March 26, 1998, by the exempt REIT or 
    any stapled entity.
        ``(2) Exception for binding contracts, etc.--Such term shall not 
    include any interest in real property acquired after March 26, 1998, 
    by the exempt REIT or any stapled entity if--
            ``(A) the acquisition is pursuant to a written agreement 
        (including a put option, buy-sell agreement, and an agreement 
        relating to a third party default) which was binding on such 
        date and at all times thereafter on such REIT or stapled entity; 
        or
            ``(B) the acquisition is described on or before such date in 
        a public announcement or in a filing with the Securities and 
        Exchange Commission.
        ``(3) Improvements and leases.--
            ``(A) In general.--Except as otherwise provided in this 
        paragraph, the term `nonqualified real property interest' shall 
        not include--
                ``(i) any improvement to land owned or leased by the 
            exempt REIT or any member of the stapled REIT group; and
                ``(ii) any repair to, or improvement of, any improvement 
            owned or leased by the exempt REIT or any member of the 
            stapled REIT group,
    if such ownership or leasehold interest is a qualified real property 
        interest.
            ``(B) Leases.--The term `nonqualified real property 
        interest' shall not include--
                ``(i) any lease of a qualified real property interest if 
            such lease is not otherwise such an interest; or
                ``(ii) any renewal of a lease which is a qualified real 
            property interest,
    but only if the rent on any lease referred to in clause (i) or any 
        renewal referred to in clause (ii) does not exceed an arm's 
        length rate.
            ``(C) Termination where change in use.--
                ``(i) In general.--Subparagraph (A) shall not apply to 
            any improvement placed in service after December 31, 1999, 
            which is part of a change in the use of the property to 
            which such improvement relates unless the cost of such 
            improvement does not exceed 200 percent of--
          ``(I) the cost of such property; or
          ``(II) if such property is substituted basis property (as 
                defined in section 7701(a)(42) of the Internal Revenue 
                Code of 1986), the fair market value of the property at 
                the time of acquisition.
                ``(ii) Binding contracts.--For purposes of clause (i), 
            an improvement shall be treated as placed in service before 
            January 1, 2000, if such improvement is placed in service 
            before January 1, 2004, pursuant to a binding contract in 
            effect on December 31, 1999, and at all times thereafter.
        ``(4) Exception for permitted transfers, etc.--The term 
    `nonqualified real property interest' shall not include any interest 
    in real property acquired solely as a result of a direct or indirect 
    contribution, distribution, or other transfer of such interest from 
    the exempt REIT or any member of the stapled REIT group to such REIT 
    or any such member, but only to the extent the aggregate of the 
    interests of the exempt REIT and all stapled entities in such 
    interest in real property (determined in accordance with subsection 
    (c)(1)) is not increased by reason of the transfer.
        ``(5) Treatment of entities which are not stapled, etc. on march 
    26, 1998.--Notwithstanding any other provision of this section, all 
    interests in real property held by an exempt REIT or any stapled 
    entity with respect to such REIT (or treated under subsection (c) as 
    held by such REIT or stapled entity) shall be treated as 
    nonqualified real property interests unless--
            ``(A) such stapled entity was a stapled entity with respect 
        to such REIT as of March 26, 1998, and at all times thereafter; 
        and
            ``(B) as of March 26, 1998, and at all times thereafter, 
        such REIT was a real estate investment trust.
        ``(6) Qualified real property interest.--The term `qualified 
    real property interest' means any interest in real property other 
    than a nonqualified real property interest.
    ``(c) Treatment of Property Held by 10-Percent Subsidiaries.--For 
purposes of this section--
        ``(1) In general.--Any exempt REIT and any stapled entity shall 
    be treated as holding their proportionate shares of each interest in 
    real property held by any 10-percent subsidiary entity of the exempt 
    REIT or stapled entity, as the case may be.
        ``(2) Property held by 10-percent subsidiaries treated as 
    nonqualified.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        any interest in real property held by a 10-percent subsidiary 
        entity of an exempt REIT or stapled entity shall be treated as a 
        nonqualified real property interest.
            ``(B) Exception for interests in real property held on march 
        26, 1998, etc.--In the case of an entity which was a 10-percent 
        subsidiary entity of an exempt REIT or stapled entity on March 
        26, 1998, and at all times thereafter, an interest in real 
        property held by such subsidiary entity shall be treated as a 
        qualified real property interest if such interest would be so 
        treated if held or acquired directly by the exempt REIT or the 
        stapled entity.
        ``(3) Reduction in qualified real property interests if increase 
    in ownership of subsidiary.--If, after March 26, 1998, an exempt 
    REIT or stapled entity increases its ownership interest in a 
    subsidiary entity to which paragraph (2)(B) applies above its 
    ownership interest in such subsidiary entity as of such date, the 
    additional portion of each interest in real property which is 
    treated as held by the exempt REIT or stapled entity by reason of 
    such increased ownership shall be treated as a nonqualified real 
    property interest.
        ``(4) Special rules for determining ownership.--For purposes of 
    this subsection--
            ``(A) percentage ownership of an entity shall be determined 
        in accordance with subsection (e)(4);
            ``(B) interests in the entity which are acquired by an 
        exempt REIT or a member of the stapled REIT group in any 
        acquisition described in an agreement, announcement, or filing 
        described in subsection (b)(2) shall be treated as acquired on 
        March 26, 1998; and
            ``(C) except as provided in guidance prescribed by the 
        Secretary, any change in proportionate ownership which is 
        attributable solely to fluctuations in the relative fair market 
        values of different classes of stock shall not be taken into 
        account.
        ``(5) Treatment of 60-percent partnerships.--
            ``(A) In general.--If, as of March 26, 1998--
                ``(i) an exempt REIT or stapled entity held directly or 
            indirectly at least 60 percent of the capital or profits 
            interest in a partnership; and
                ``(ii) 90 percent or more of the capital interests and 
            90 percent or more of the profits interests in such 
            partnership (other than interests held directly or 
            indirectly by the exempt REIT or stapled entity) are, or 
            will be, redeemable or exchangeable for consideration the 
            amount of which is determined by reference to the value of 
            shares of stock in the exempt REIT or stapled entity (or 
            both),
    paragraph (3) shall not apply to such partnership, and such REIT or 
        entity shall be treated for all purposes of this section as 
        holding all of the capital and profits interests in such 
        partnership.
            ``(B) Limitation to one partnership.--If, as of January 1, 
        1999, more than one partnership owned by any exempt REIT or 
        stapled entity meets the requirements of subparagraph (A), only 
        the largest such partnership on such date (determined by 
        aggregate asset bases) shall be treated as meeting such 
        requirements.
            ``(C) Mirror entity.--For purposes of subparagraph (A), an 
        interest in a partnership formed after March 26, 1998, shall be 
        treated as held by an exempt REIT or stapled entity on March 26, 
        1998, if such partnership is formed to mirror the stapling of an 
        exempt REIT and a stapled entity in connection with an 
        acquisition agreed to or announced on or before March 26, 1998.
    ``(d) Treatment of Property Secured by Mortgage Held by Exempt REIT 
or Member of Stapled REIT Group.--
        ``(1) In general.--In the case of any nonqualified obligation 
    held by an exempt REIT or any member of the stapled REIT group, the 
    REIT gross income provisions shall be applied by treating the exempt 
    REIT as having impermissible tenant service income equal to--
            ``(A) the interest income from such obligation which is 
        properly allocable to the property described in paragraph (2); 
        and
            ``(B) the income of any member of the stapled REIT group 
        from services described in paragraph (2) with respect to such 
        property.
    If the income referred to in subparagraph (A) or (B) is of a 10-
    percent subsidiary entity, only the portion of such income which is 
    properly allocable to the exempt REIT's or the stapled entity's 
    interest in the subsidiary entity shall be taken into account.
        ``(2) Nonqualified obligation.--Except as otherwise provided in 
    this subsection, the term `nonqualified obligation' means any 
    obligation secured by a mortgage on an interest in real property if 
    the income of any member of the stapled REIT group for services 
    furnished with respect to such property would be impermissible 
    tenant service income were such property held by the exempt REIT and 
    such services furnished by the exempt REIT.
        ``(3) Exception for certain market rate obligations.--Such term 
    shall not include any obligation--
            ``(A) payments under which would be treated as interest if 
        received by a REIT; and
            ``(B) the rate of interest on which does not exceed an arm's 
        length rate.
        ``(4) Exception for existing obligations.--Such term shall not 
    include any obligation--
            ``(A) which is secured on March 26, 1998, by an interest in 
        real property; and
            ``(B) which is held on such date by the exempt REIT or any 
        entity which is a member of the stapled REIT group on such date 
        and at all times thereafter,
    but only so long as such obligation is secured by such interest, and 
    the interest payable on such obligation is not changed to a rate 
    which exceeds an arm's length rate unless such change is pursuant to 
    the terms of the obligation in effect on March 26, 1998. The 
    preceding sentence shall not cease to apply by reason of the 
    refinancing of the obligation if (immediately after the refinancing) 
    the principal amount of the obligation resulting from the 
    refinancing does not exceed the principal amount of the refinanced 
    obligation (immediately before the refinancing) and the interest 
    payable on such refinanced obligation does not exceed an arm's 
    length rate.
        ``(5) Treatment of entities which are not stapled, etc. on march 
    26, 1998.--A rule similar to the rule of subsection (b)(5) shall 
    apply for purposes of this subsection.
        ``(6) Increase in amount of nonqualified obligations if increase 
    in ownership of subsidiary.--A rule similar to the rule of 
    subsection (c)(3) shall apply for purposes of this subsection.
        ``(7) Coordination with subsection (a).--This subsection shall 
    not apply to the portion of any interest in real property that the 
    exempt REIT or stapled entity holds or is treated as holding under 
    this section without regard to this subsection.
    ``(e) Definitions.--For purposes of this section--
        ``(1) REIT gross income provisions.--The term `REIT gross income 
    provisions' means--
            ``(A) paragraphs (2), (3), and (6) of section 856(c) of the 
        Internal Revenue Code of 1986; and
            ``(B) section 857(b)(5) of such Code.
        ``(2) Exempt reit.--The term `exempt REIT' means a real estate 
    investment trust to which section 269B of the Internal Revenue Code 
    of 1986 does not apply by reason of paragraph (3) of section 136(c) 
    of the Tax Reform Act of 1984.
        ``(3) Stapled reit group.--The term `stapled REIT group' means, 
    with respect to an exempt REIT, the group consisting of--
            ``(A) all entities which are stapled entities with respect 
        to the exempt REIT; and
            ``(B) all entities which are 10-percent subsidiary entities 
        of the exempt REIT or any such stapled entity.
        ``(4) 10-percent subsidiary entity.--
            ``(A) In general.--The term `10-percent subsidiary entity' 
        means, with respect to any exempt REIT or stapled entity, any 
        entity in which the exempt REIT or stapled entity (as the case 
        may be) directly or indirectly holds at least a 10-percent 
        interest.
            ``(B) Exception for certain c corporation subsidiaries of 
        reits.--A corporation which would, but for this subparagraph, be 
        treated as a 10-percent subsidiary of an exempt REIT shall not 
        be so treated if such corporation is taxable under section 11 of 
        the Internal Revenue Code of 1986.
            ``(C) 10-percent interest.--The term `10-percent interest' 
        means--
                ``(i) in the case of an interest in a corporation, 
            ownership of 10 percent (by vote or value) of the stock in 
            such corporation;
                ``(ii) in the case of an interest in a partnership, 
            ownership of 10 percent of the capital or profits interest 
            in the partnership; and
                ``(iii) in any other case, ownership of 10 percent of 
            the beneficial interests in the entity.
        ``(5) Other definitions.--Terms used in this section which are 
    used in section 269B or section 856 of such Code shall have the 
    respective meanings given such terms by such section.
    ``(f) Guidance.--The Secretary may prescribe such guidance as may be 
necessary or appropriate to carry out the purposes of this section, 
including guidance to prevent the avoidance of such purposes and to 
prevent the double counting of income.
    ``(g) Effective Date.--This section shall apply to taxable years 
ending after March 26, 1998.''


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.
