
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[CITE: 26USC856]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
Subchapter M--Regulated Investment Companies and Real Estate Investment 
                                 Trusts
 
                 PART II--REAL ESTATE INVESTMENT TRUSTS
 
Sec. 856. Definition of real estate investment trust


(a) In general

    For purposes of this title, the term ``real estate investment 
trust'' means a corporation, trust, or association--
        (1) which is managed by one or more trustees or directors;
        (2) the beneficial ownership of which is evidenced by 
    transferable shares, or by transferable certificates of beneficial 
    interest;
        (3) which (but for the provisions of this part) would be taxable 
    as a domestic corporation;
        (4) which is neither (A) a financial institution referred to in 
    section 582(c)(2), nor (B) an insurance company to which subchapter 
    L applies;
        (5) the beneficial ownership of which is held by 100 or more 
    persons;
        (6) subject to the provisions of subsection (k), which is not 
    closely held (as determined under subsection (h)); and
        (7) which meets the requirements of subsection (c).

(b) Determination of status

    The conditions described in paragraphs (1) to (4), inclusive, of 
subsection (a) must be met during the entire taxable year, and the 
condition described in paragraph (5) must exist during at least 335 days 
of a taxable year of 12 months, or during a proportionate part of a 
taxable year of less than 12 months.

(c) Limitations

    A corporation, trust, or association shall not be considered a real 
estate investment trust for any taxable year unless--
        (1) it files with its return for the taxable year an election to 
    be a real estate investment trust or has made such election for a 
    previous taxable year, and such election has not been terminated or 
    revoked under subsection (g);
        (2) at least 95 percent (90 percent for taxable years beginning 
    before January 1, 1980) of its gross income (excluding gross income 
    from prohibited transactions) is derived from--
            (A) dividends;
            (B) interest;
            (C) rents from real property;
            (D) gain from the sale or other disposition of stock, 
        securities, and real property (including interests in real 
        property and interests in mortgages on real property) which is 
        not property described in section 1221(a)(1);
            (E) abatements and refunds of taxes on real property;
            (F) income and gain derived from foreclosure property (as 
        defined in subsection (e));
            (G) amounts (other than amounts the determination of which 
        depends in whole or in part on the income or profits of any 
        person) received or accrued as consideration for entering into 
        agreements (i) to make loans secured by mortgages on real 
        property or on interests in real property or (ii) to purchase or 
        lease real property (including interests in real property and 
        interests in mortgages on real property); and
            (H) gain from the sale or other disposition of a real estate 
        asset which is not a prohibited transaction solely by reason of 
        section 857(b)(6);

        (3) at least 75 percent of its gross income (excluding gross 
    income from prohibited transactions) is derived from--
            (A) rents from real property;
            (B) interest on obligations secured by mortgages on real 
        property or on interests in real property;
            (C) gain from the sale or other disposition of real property 
        (including interests in real property and interests in mortgages 
        on real property) which is not property described in section 
        1221(a)(1);
            (D) dividends or other distributions on, and gain (other 
        than gain from prohibited transactions) from the sale or other 
        disposition of, transferable shares (or transferable 
        certificates of beneficial interest) in other real estate 
        investment trusts which meet the requirements of this part;
            (E) abatements and refunds of taxes on real property;
            (F) income and gain derived from foreclosure property (as 
        defined in subsection (e));
            (G) amounts (other than amounts the determination of which 
        depends in whole or in part on the income or profits of any 
        person) received or accrued as consideration for entering into 
        agreements (i) to make loans secured by mortgages on real 
        property or on interests in real property or (ii) to purchase or 
        lease real property (including interests in real property and 
        interests in mortgages on real property);
            (H) gain from the sale or other disposition of a real estate 
        asset which is not a prohibited transaction solely by reason of 
        section 857(b)(6); and
            (I) qualified temporary investment income; and

        (4) at the close of each quarter of the taxable year--
            (A) at least 75 percent of the value of its total assets is 
        represented by real estate assets, cash and cash items 
        (including receivables), and Government securities; and
            (B)(i) not more than 25 percent of the value of its total 
        assets is represented by securities (other than those includible 
        under subparagraph (A)),
            (ii) not more than 20 percent of the value of its total 
        assets is represented by securities of one or more taxable REIT 
        subsidiaries, and
            (iii) except with respect to a taxable REIT subsidiary and 
        securities includible under subparagraph (A)--
                (I) not more than 5 percent of the value of its total 
            assets is represented by securities of any one issuer,
                (II) the trust does not hold securities possessing more 
            than 10 percent of the total voting power of the outstanding 
            securities of any one issuer, and
                (III) the trust does not hold securities having a value 
            of more than 10 percent of the total value of the 
            outstanding securities of any one issuer.

    A real estate investment trust which meets the requirements of this 
    paragraph at the close of any quarter shall not lose its status as a 
    real estate investment trust because of a discrepancy during a 
    subsequent quarter between the value of its various investments and 
    such requirements unless such discrepancy exists immediately after 
    the acquisition of any security or other property and is wholly or 
    partly the result of such acquisition. A real estate investment 
    trust which does not meet such requirements at the close of any 
    quarter by reason of a discrepancy existing immediately after the 
    acquisition of any security or other property which is wholly or 
    partly the result of such acquisition during such quarter shall not 
    lose its status for such quarter as a real estate investment trust 
    if such discrepancy is eliminated within 30 days after the close of 
    such quarter and in such cases it shall be considered to have met 
    such requirements at the close of such quarter for purposes of 
    applying the preceding sentence.
        (5) For purposes of this part--
            (A) The term ``value'' means, with respect to securities for 
        which market quotations are readily available, the market value 
        of such securities; and with respect to other securities and 
        assets, fair value as determined in good faith by the trustees, 
        except that in the case of securities of real estate investment 
        trusts such fair value shall not exceed market value or asset 
        value, whichever is higher.
            (B) The term ``real estate assets'' means real property 
        (including interests in real property and interests in mortgages 
        on real property) and shares (or transferable certificates of 
        beneficial interest) in other real estate investment trusts 
        which meet the requirements of this part. Such term also 
        includes any property (not otherwise a real estate asset) 
        attributable to the temporary investment of new capital, but 
        only if such property is stock or a debt instrument, and only 
        for the 1-year period beginning on the date the real estate 
        trust receives such capital.
            (C) The term ``interests in real property'' includes fee 
        ownership and co-ownership of land or improvements thereon, 
        leaseholds of land or improvements thereon, options to acquire 
        land or improvements thereon, and options to acquire leaseholds 
        of land or improvements thereon, but does not include mineral, 
        oil, or gas royalty interests.
            (D) Qualified temporary investment income.--
                (i) In general.--The term ``qualified temporary 
            investment income'' means any income which--
                    (I) is attributable to stock or a debt instrument 
                (within the meaning of section 1275(a)(1)),
                    (II) is attributable to the temporary investment of 
                new capital, and
                    (III) is received or accrued during the 1-year 
                period beginning on the date on which the real estate 
                investment trust receives such capital.

                (ii) New capital.--The term ``new capital'' means any 
            amount received by the real estate investment trust--
                    (I) in exchange for stock (or certificates of 
                beneficial interests) in such trust (other than amounts 
                received pursuant to a dividend reinvestment plan), or
                    (II) in a public offering of debt obligations of 
                such trust which have maturities of at least 5 years.

            (E) A regular or residual interest in a REMIC shall be 
        treated as a real estate asset, and any amount includible in 
        gross income with respect to such an interest shall be treated 
        as interest on an obligation secured by a mortgage on real 
        property; except that, if less than 95 percent of the assets of 
        such REMIC are real estate assets (determined as if the real 
        estate investment trust held such assets), such real estate 
        investment trust shall be treated as holding directly (and as 
        receiving directly) its proportionate share of the assets and 
        income of the REMIC. For purposes of determining whether any 
        interest in a REMIC qualifies under the preceding sentence, any 
        interest held by such REMIC in another REMIC shall be treated as 
        a real estate asset under principles similar to the principles 
        of the preceding sentence, except that, if such REMIC's are part 
        of a tiered structure, they shall be treated as one REMIC for 
        purposes of this subparagraph. The principles of the preceding 
        provisions of this subparagraph shall apply to regular interests 
        in a FASIT.
            (F) All other terms shall have the same meaning as when used 
        in the Investment Company Act of 1940, as amended (15 U.S.C. 
        80a-1 and following).
            (G) Treatment of certain hedging instruments.--Except to the 
        extent provided by regulations, any--
                (i) payment to a real estate investment trust under an 
            interest rate swap or cap agreement, option, futures 
            contract, forward rate agreement, or any similar financial 
            instrument, entered into by the trust in a transaction to 
            reduce the interest rate risks with respect to any 
            indebtedness incurred or to be incurred by the trust to 
            acquire or carry real estate assets, and
                (ii) gain from the sale or other disposition of any such 
            investment,

        shall be treated as income qualifying under paragraph (2).

        (6) A corporation, trust, or association which fails to meet the 
    requirements of paragraph (2) or (3), or of both such paragraphs, 
    for any taxable year shall nevertheless be considered to have 
    satisfied the requirements of such paragraphs for such taxable year 
    if--
            (A) the nature and amount of each item of its gross income 
        described in such paragraphs is set forth in a schedule attached 
        to its income tax return for such taxable year;
            (B) the inclusion of any incorrect information in the 
        schedule referred to in subparagraph (A) is not due to fraud 
        with intent to evade tax; and
            (C) the failure to meet the requirements of paragraph (2) or 
        (3), or of both such paragraphs, is due to reasonable cause and 
        not due to willful neglect.

        (7) Straight debt safe harbor in applying paragraph (4).--
    Securities of an issuer which are straight debt (as defined in 
    section 1361(c)(5) without regard to subparagraph (B)(iii) thereof) 
    shall not be taken into account in applying paragraph 
    (4)(B)(iii)(III) if--
            (A) the issuer is an individual, or
            (B) the only securities of such issuer which are held by the 
        trust or a taxable REIT subsidiary of the trust are straight 
        debt (as so defined), or
            (C) the issuer is a partnership and the trust holds at least 
        a 20 percent profits interest in the partnership.

(d) Rents from real property defined

                        (1) Amounts included

        For purposes of paragraphs (2) and (3) of subsection (c), the 
    term ``rents from real property'' includes (subject to paragraph 
    (2))--
            (A) rents from interests in real property,
            (B) charges for services customarily furnished or rendered 
        in connection with the rental of real property, whether or not 
        such charges are separately stated, and
            (C) rent attributable to personal property which is leased 
        under, or in connection with, a lease of real property, but only 
        if the rent attributable to such personal property for the 
        taxable year does not exceed 15 percent of the total rent for 
        the taxable year attributable to both the real and personal 
        property leased under, or in connection with, such lease.

    For purposes of subparagraph (C), with respect to each lease of real 
    property, rent attributable to personal property for the taxable 
    year is that amount which bears the same ratio to total rent for the 
    taxable year as the average of the fair market values of the 
    personal property at the beginning and at the end of the taxable 
    year bears to the average of the aggregate fair market values of 
    both the real property and the personal property at the beginning 
    and at the end of such taxable year.

                        (2) Amounts excluded

        For purposes of paragraphs (2) and (3) of subsection (c), the 
    term ``rents from real property'' does not include--
            (A) except as provided in paragraphs (4) and (6), any amount 
        received or accrued, directly or indirectly, with respect to any 
        real or personal property, if the determination of such amount 
        depends in whole or in part on the income or profits derived by 
        any person from such property (except that any amount so 
        received or accrued shall not be excluded from the term ``rents 
        from real property'' solely by reason of being based on a fixed 
        percentage or percentages of receipts or sales);
            (B) except as provided in paragraph (8), any amount received 
        or accrued directly or indirectly from any person if the real 
        estate investment trust owns, directly or indirectly--
                (i) in the case of any person which is a corporation, 
            stock of such person possessing 10 percent or more of the 
            total combined voting power of all classes of stock entitled 
            to vote, or 10 percent or more of the total value of shares 
            of all classes of stock of such person; or
                (ii) in the case of any person which is not a 
            corporation, an interest of 10 percent or more in the assets 
            or net profits of such person; and

            (C) any impermissible tenant service income (as defined in 
        paragraph (7)).

                 (3) Independent contractor defined

        For purposes of this subsection and subsection (e), the term 
    ``independent contractor'' means any person--
            (A) who does not own, directly or indirectly, more than 35 
        percent of the shares, or certificates of beneficial interest, 
        in the real estate investment trust; and
            (B) if such person is a corporation, not more than 35 
        percent of the total combined voting power of whose stock (or 35 
        percent of the total shares of all classes of whose stock), or, 
        if such person is not a corporation, not more than 35 percent of 
        the interest in whose assets or net profits is owned, directly 
        or indirectly, by one or more persons owning 35 percent or more 
        of the shares or certificates of beneficial interest in the 
        trust.

    In the event that any class of stock of either the real estate 
    investment trust or such person is regularly traded on an 
    established securities market, only persons who own, directly or 
    indirectly, more than 5 percent of such class of stock shall be 
    taken into account as owning any of the stock of such class for 
    purposes of applying the 35 percent limitation set forth in 
    subparagraph (B) (but all of the outstanding stock of such class 
    shall be considered outstanding in order to compute the denominator 
    for purpose of determining the applicable percentage of ownership).

            (4) Special rule for certain contingent rents

        Where a real estate investment trust receives or accrues, with 
    respect to real or personal property, any amount which would be 
    excluded from the term ``rents from real property'' solely because 
    the tenant of the real estate investment trust receives or accrues, 
    directly or indirectly, from subtenants any amount the determination 
    of which depends in whole or in part on the income or profits 
    derived by any person from such property, only a proportionate part 
    (determined pursuant to regulations prescribed by the Secretary) of 
    the amount received or accrued by the real estate investment trust 
    from that tenant will be excluded from the term ``rents from real 
    property''.

                 (5) Constructive ownership of stock

        For purposes of this subsection, the rules prescribed by section 
    318(a) for determining the ownership of stock shall apply in 
    determining the ownership of stock, assets, or net profits of any 
    person; except that--
            (A) ``10 percent'' shall be substituted for ``50 percent'' 
        in subparagraph (C) of paragraphs (2) and (3) of section 318(a), 
        and
            (B) section 318(a)(3)(A) shall be applied in the case of a 
        partnership by taking into account only partners who own 
        (directly or indirectly) 25 percent or more of the capital 
        interest, or the profits interest, in the partnership.

    (6) Special rule for certain property subleased by tenant of 
                        real estate investment trusts

        (A) In general

            If--
                (i) a real estate investment trust receives or accrues, 
            with respect to real or personal property, amounts from a 
            tenant which derives substantially all of its income with 
            respect to such property from the subleasing of 
            substantially all of such property, and
                (ii) a portion of the amount such tenant receives or 
            accrues, directly or indirectly, from subtenants consists of 
            qualified rents,

        then the amounts which the trust receives or accrues from the 
        tenant shall not be excluded from the term ``rents from real 
        property'' by reason of being based on the income or profits of 
        such tenant to the extent the amounts so received or accrued are 
        attributable to qualified rents received or accrued by such 
        tenant.

        (B) Qualified rents

            For purposes of subparagraph (A), the term ``qualified 
        rents'' means any amount which would be treated as rents from 
        real property if received by the real estate investment trust.

               (7) Impermissible tenant service income

        For purposes of paragraph (2)(C)--

        (A) In general

            The term ``impermissible tenant service income'' means, with 
        respect to any real or personal property, any amount received or 
        accrued directly or indirectly by the real estate investment 
        trust for--
                (i) services furnished or rendered by the trust to the 
            tenants of such property, or
                (ii) managing or operating such property.

        (B) Disqualification of all amounts where more than de minimis 
                amount

            If the amount described in subparagraph (A) with respect to 
        a property for any taxable year exceeds 1 percent of all amounts 
        received or accrued during such taxable year directly or 
        indirectly by the real estate investment trust with respect to 
        such property, the impermissible tenant service income of the 
        trust with respect to the property shall include all such 
        amounts.

        (C) Exceptions

            For purposes of subparagraph (A)--
                (i) services furnished or rendered, or management or 
            operation provided, through an independent contractor from 
            whom the trust itself does not derive or receive any income 
            or through a taxable REIT subsidiary of such trust shall not 
            be treated as furnished, rendered, or provided by the trust, 
            and
                (ii) there shall not be taken into account any amount 
            which would be excluded from unrelated business taxable 
            income under section 512(b)(3) if received by an 
            organization described in section 511(a)(2).

        (D) Amount attributable to impermissible services

            For purposes of subparagraph (A), the amount treated as 
        received for any service (or management or operation) shall not 
        be less than 150 percent of the direct cost of the trust in 
        furnishing or rendering the service (or providing the management 
        or operation).

        (E) Coordination with limitations

            For purposes of paragraphs (2) and (3) of subsection (c), 
        amounts described in subparagraph (A) shall be included in the 
        gross income of the corporation, trust, or association.

           (8) Special rule for taxable REIT subsidiaries

        For purposes of this subsection, amounts paid to a real estate 
    investment trust by a taxable REIT subsidiary of such trust shall 
    not be excluded from rents from real property by reason of paragraph 
    (2)(B) if the requirements of either of the following subparagraphs 
    are met:

        (A) Limited rental exception

            The requirements of this subparagraph are met with respect 
        to any property if at least 90 percent of the leased space of 
        the property is rented to persons other than taxable REIT 
        subsidiaries of such trust and other than persons described in 
        section 856(d)(2)(B). The preceding sentence shall apply only to 
        the extent that the amounts paid to the trust as rents from real 
        property (as defined in paragraph (1) without regard to 
        paragraph (2)(B)) from such property are substantially 
        comparable to such rents made by the other tenants of the 
        trust's property for comparable space.

        (B) Exception for certain lodging facilities

            The requirements of this subparagraph are met with respect 
        to an interest in real property which is a qualified lodging 
        facility leased by the trust to a taxable REIT subsidiary of the 
        trust if the property is operated on behalf of such subsidiary 
        by a person who is an eligible independent contractor.

                 (9) Eligible independent contractor

        For purposes of paragraph (8)(B)--

        (A) In general

            The term ``eligible independent contractor'' means, with 
        respect to any qualified lodging facility, any independent 
        contractor if, at the time such contractor enters into a 
        management agreement or other similar service contract with the 
        taxable REIT subsidiary to operate the facility, such contractor 
        (or any related person) is actively engaged in the trade or 
        business of operating qualified lodging facilities for any 
        person who is not a related person with respect to the real 
        estate investment trust or the taxable REIT subsidiary.

        (B) Special rules

            Solely for purposes of this paragraph and paragraph (8)(B), 
        a person shall not fail to be treated as an independent 
        contractor with respect to any qualified lodging facility by 
        reason of any of the following:
                (i) The taxable REIT subsidiary bears the expenses for 
            the operation of the facility pursuant to the management 
            agreement or other similar service contract.
                (ii) The taxable REIT subsidiary receives the revenues 
            from the operation of such facility, net of expenses for 
            such operation and fees payable to the operator pursuant to 
            such agreement or contract.
                (iii) The real estate investment trust receives income 
            from such person with respect to another property that is 
            attributable to a lease of such other property to such 
            person that was in effect as of the later of--
                    (I) January 1, 1999, or
                    (II) the earliest date that any taxable REIT 
                subsidiary of such trust entered into a management 
                agreement or other similar service contract with such 
                person with respect to such qualified lodging facility.

        (C) Renewals, etc., of existing leases

            For purposes of subparagraph (B)(iii)--
                (i) a lease shall be treated as in effect on January 1, 
            1999, without regard to its renewal after such date, so long 
            as such renewal is pursuant to the terms of such lease as in 
            effect on whichever of the dates under subparagraph (B)(iii) 
            is the latest, and
                (ii) a lease of a property entered into after whichever 
            of the dates under subparagraph (B)(iii) is the latest shall 
            be treated as in effect on such date if--
                    (I) on such date, a lease of such property from the 
                trust was in effect, and
                    (II) under the terms of the new lease, such trust 
                receives a substantially similar or lesser benefit in 
                comparison to the lease referred to in subclause (I).

        (D) Qualified lodging facility

            For purposes of this paragraph--
            (i) In general

                The term ``qualified lodging facility'' means any 
            lodging facility unless wagering activities are conducted at 
            or in connection with such facility by any person who is 
            engaged in the business of accepting wagers and who is 
            legally authorized to engage in such business at or in 
            connection with such facility.
            (ii) Lodging facility

                The term ``lodging facility'' means a hotel, motel, or 
            other establishment more than one-half of the dwelling units 
            in which are used on a transient basis.
            (iii) Customary amenities and facilities

                The term ``lodging facility'' includes customary 
            amenities and facilities operated as part of, or associated 
            with, the lodging facility so long as such amenities and 
            facilities are customary for other properties of a 
            comparable size and class owned by other owners unrelated to 
            such real estate investment trust.

        (E) Operate includes manage

            References in this paragraph to operating a property shall 
        be treated as including a reference to managing the property.

        (F) Related person

            Persons shall be treated as related to each other if such 
        persons are treated as a single employer under subsection (a) or 
        (b) of section 52.

(e) Special rules for foreclosure property

                  (1) Foreclosure property defined

        For purposes of this part, the term ``foreclosure property'' 
    means any real property (including interests in real property), and 
    any personal property incident to such real property, acquired by 
    the real estate investment trust as the result of such trust having 
    bid in such property at foreclosure, or having otherwise reduced 
    such property to ownership or possession by agreement or process of 
    law, after there was default (or default was imminent) on a lease of 
    such property or on an indebtedness which such property secured. 
    Such term does not include property acquired by the real estate 
    investment trust as a result of indebtedness arising from the sale 
    or other disposition of property of the trust described in section 
    1221(a)(1) which was not originally acquired as foreclosure 
    property.

                          (2) Grace period

        Except as provided in paragraph (3), property shall cease to be 
    foreclosure property with respect to the real estate investment 
    trust as of the close of the 3d taxable year following the taxable 
    year in which the trust acquired such property.

                           (3) Extensions

        If the real estate investment trust establishes to the 
    satisfaction of the Secretary that an extension of the grace period 
    is necessary for the orderly liquidation of the trust's interests in 
    such property, the Secretary may grant one extension of the grace 
    period for such property. Any such extension shall not extend the 
    grace period beyond the close of the 3d taxable year following the 
    last taxable year in the period under paragraph (2).

          (4) Termination of grace period in certain cases

        Any foreclosure property shall cease to be such on the first day 
    (occurring on or after the day on which the real estate investment 
    trust acquired the property) on which--
            (A) a lease is entered into with respect to such property 
        which, by its terms, will give rise to income which is not 
        described in subsection (c)(3) (other than subparagraph (F) of 
        such subsection), or any amount is received or accrued, directly 
        or indirectly, pursuant to a lease entered into on or after such 
        day which is not described in such subsection,
            (B) any construction takes place on such property (other 
        than completion of a building, or completion of any other 
        improvement, where more than 10 percent of the construction of 
        such building or other improvement was completed before default 
        became imminent), or
            (C) if such day is more than 90 days after the day on which 
        such property was acquired by the real estate investment trust 
        and the property is used in a trade or business which is 
        conducted by the trust (other than through an independent 
        contractor (within the meaning of section (d)(3)) from whom the 
        trust itself does not derive or receive any income).

    For purposes of subparagraph (C), property shall not be treated as 
    used in a trade or business by reason of any activities of the real 
    estate investment trust with respect to such property to the extent 
    that such activities would not result in amounts received or 
    accrued, directly or indirectly, with respect to such property being 
    treated as other than rents from real property.

                   (5) Taxpayer must make election

        Property shall be treated as foreclosure property for purposes 
    of this part only if the real estate investment trust so elects (in 
    the manner provided in regulations prescribed by the Secretary) on 
    or before the due date (including any extensions of time) for filing 
    its return of tax under this chapter for the taxable year in which 
    such trust acquires such property. A real estate investment trust 
    may revoke any such election for a taxable year by filing the 
    revocation (in the manner provided by the Secretary) on or before 
    the due date (including any extension of time) for filing its return 
    of tax under this chapter for the taxable year. If a trust revokes 
    an election for any property, no election may be made by the trust 
    under this paragraph with respect to the property for any subsequent 
    taxable year.

        (6) Special rule for qualified health care properties

        For purposes of this subsection--

        (A) Acquisition at expiration of lease

            The term ``foreclosure property'' shall include any 
        qualified health care property acquired by a real estate 
        investment trust as the result of the termination of a lease of 
        such property (other than a termination by reason of a default, 
        or the imminence of a default, on the lease).

        (B) Grace period

            In the case of a qualified health care property which is 
        foreclosure property solely by reason of subparagraph (A), in 
        lieu of applying paragraphs (2) and (3)--
                (i) the qualified health care property shall cease to be 
            foreclosure property as of the close of the second taxable 
            year after the taxable year in which such trust acquired 
            such property, and
                (ii) if the real estate investment trust establishes to 
            the satisfaction of the Secretary that an extension of the 
            grace period in clause (i) is necessary to the orderly 
            leasing or liquidation of the trust's interest in such 
            qualified health care property, the Secretary may grant one 
            or more extensions of the grace period for such qualified 
            health care property.

        Any such extension shall not extend the grace period beyond the 
        close of the 6th year after the taxable year in which such trust 
        acquired such qualified health care property.

        (C) Income from independent contractors

            For purposes of applying paragraph (4)(C) with respect to 
        qualified health care property which is foreclosure property by 
        reason of subparagraph (A) or paragraph (1), income derived or 
        received by the trust from an independent contractor shall be 
        disregarded to the extent such income is attributable to--
                (i) any lease of property in effect on the date the real 
            estate investment trust acquired the qualified health care 
            property (without regard to its renewal after such date so 
            long as such renewal is pursuant to the terms of such lease 
            as in effect on such date), or
                (ii) any lease of property entered into after such date 
            if--
                    (I) on such date, a lease of such property from the 
                trust was in effect, and
                    (II) under the terms of the new lease, such trust 
                receives a substantially similar or lesser benefit in 
                comparison to the lease referred to in subclause (I).

        (D) Qualified health care property

            (i) In general

                The term ``qualified health care property'' means any 
            real property (including interests therein), and any 
            personal property incident to such real property, which--
                    (I) is a health care facility, or
                    (II) is necessary or incidental to the use of a 
                health care facility.
            (ii) Health care facility

                For purposes of clause (i), the term ``health care 
            facility'' means a hospital, nursing facility, assisted 
            living facility, congregate care facility, qualified 
            continuing care facility (as defined in section 7872(g)(4)), 
            or other licensed facility which extends medical or nursing 
            or ancillary services to patients and which, immediately 
            before the termination, expiration, default, or breach of 
            the lease of or mortgage secured by such facility, was 
            operated by a provider of such services which was eligible 
            for participation in the medicare program under title XVIII 
            of the Social Security Act with respect to such facility.

(f) Interest

                           (1) In general

        For purposes of paragraphs (2)(B) and (3)(B) of subsection (c), 
    the term ``interest'' does not include any amount received or 
    accrued, directly or indirectly, if the determination of such amount 
    depends in whole or in part on the income or profits of any person 
    except that--
            (A) any amount so received or accrued shall not be excluded 
        from the term ``interest'' solely by reason of being based on a 
        fixed percentage or percentages of receipts or sales, and
            (B) where a real estate investment trust receives any amount 
        which would be excluded from the term ``interest'' solely 
        because the debtor of the real estate investment trust receives 
        or accrues any amount the determination of which depends in 
        whole or in part on the income or profits of any person, only a 
        proportionate part (determined pursuant to regulations 
        prescribed by the Secretary) of the amount received or accrued 
        by the real estate investment trust from the debtor will be 
        excluded from the term ``interest''.

                          (2) Special rule

        If--
            (A) a real estate investment trust receives or accrues with 
        respect to an obligation secured by a mortgage on real property 
        or an interest in real property amounts from a debtor which 
        derives substantially all of its gross income with respect to 
        such property (not taking into account any gain on any 
        disposition) from the leasing of substantially all of its 
        interests in such property to tenants, and
            (B) a portion of the amount which such debtor receives or 
        accrues, directly or indirectly, from tenants consists of 
        qualified rents (as defined in subsection (d)(6)(B)),

    then the amounts which the trust receives or accrues from such 
    debtor shall not be excluded from the term ``interest'' by reason of 
    being based on the income or profits of such debtor to the extent 
    the amounts so received are attributable to qualified rents received 
    or accrued by such debtor.

(g) Termination of election

                       (1) Failure to qualify

        An election under subsection (c)(1) made by a corporation, 
    trust, or association shall terminate if the corporation, trust, or 
    association is not a real estate investment trust to which the 
    provisions of this part apply for the taxable year with respect to 
    which the election is made, or for any succeeding taxable year. Such 
    termination shall be effective for the taxable year for which the 
    corporation, trust, or association is not a real estate investment 
    trust to which the provisions of this part apply, and for all 
    succeeding taxable years.

                           (2) Revocation

        An election under subsection (c)(1) made by a corporation, 
    trust, or association may be revoked by it for any taxable year 
    after the first taxable year for which the election is effective. A 
    revocation under this paragraph shall be effective for the taxable 
    year in which made and for all succeeding taxable years. Such 
    revocation must be made on or before the 90th day after the first 
    day of the first taxable year for which the revocation is to be 
    effective. Such revocation shall be made in such manner as the 
    Secretary shall prescribe by regulations.

            (3) Election after termination or revocation

        Except as provided in paragraph (4), if a corporation, trust, or 
    association has made an election under subsection (c)(1) and such 
    election has been terminated or revoked under paragraph (1) or 
    paragraph (2), such corporation, trust, or association (and any 
    successor corporation, trust, or association) shall not be eligible 
    to make an election under subsection (c)(1) for any taxable year 
    prior to the fifth taxable year which begins after the first taxable 
    year for which such termination or revocation is effective.

                            (4) Exception

        If the election of a corporation, trust, or association has been 
    terminated under paragraph (1), paragraph (3) shall not apply if--
            (A) the corporation, trust, or association does not 
        willfully fail to file within the time prescribed by law an 
        income tax return for the taxable year with respect to which the 
        termination of the election under subsection (c)(1) occurs;
            (B) the inclusion of any incorrect information in the return 
        referred to in subparagraph (A) is not due to fraud with intent 
        to evade tax; and
            (C) the corporation, trust, or association establishes to 
        the satisfaction of the Secretary that its failure to qualify as 
        a real estate investment trust to which the provisions of this 
        part apply is due to reasonable cause and not due to willful 
        neglect.

(h) Closely held determinations

                    (1) Section 542(a)(2) applied

        (A) In general

            For purposes of subsection (a)(6), a corporation, trust, or 
        association is closely held if the stock ownership requirement 
        of section 542(a)(2) is met.

        (B) Waiver of partnership attribution, etc.

            For purposes of subparagraph (A)--
                (i) paragraph (2) of section 544(a) shall be applied as 
            if such paragraph did not contain the phrase ``or by or for 
            his partner'', and
                (ii) sections 544(a)(4)(A) and 544(b)(1) shall be 
            applied by substituting ``the entity meet the stock 
            ownership requirement of section 542(a)(2)'' for ``the 
            corporation a personal holding company''.

       (2) Subsections (a)(5) and (6) not to apply to 1st year

        Paragraphs (5) and (6) of subsection (a) shall not apply to the 
    1st taxable year for which an election is made under subsection 
    (c)(1) by any corporation, trust, or association.

         (3) Treatment of trusts described in section 401(a)

        (A) Look-thru treatment

            (i) In general

                Except as provided in clause (ii), in determining 
            whether the stock ownership requirement of section 542(a)(2) 
            is met for purposes of paragraph (1)(A), any stock held by a 
            qualified trust shall be treated as held directly by its 
            beneficiaries in proportion to their actuarial interests in 
            such trust and shall not be treated as held by such trust.
            (ii) Certain related trusts not eligible

                Clause (i) shall not apply to any qualified trust if one 
            or more disqualified persons (as defined in section 
            4975(e)(2), without regard to subparagraphs (B) and (I) 
            thereof) with respect to such qualified trust hold in the 
            aggregate 5 percent or more in value of the interests in the 
            real estate investment trust and such real estate investment 
            trust has accumulated earnings and profits attributable to 
            any period for which it did not qualify as a real estate 
            investment trust.

        (B) Coordination with personal holding company rules

            If any entity qualifies as a real estate investment trust 
        for any taxable year by reason of subparagraph (A), such entity 
        shall not be treated as a personal holding company for such 
        taxable year for purposes of part II of subchapter G of this 
        chapter.

        (C) Treatment for purposes of unrelated business tax

            If any qualified trust holds more than 10 percent (by value) 
        of the interests in any pension-held REIT at any time during a 
        taxable year, the trust shall be treated as having for such 
        taxable year gross income from an unrelated trade or business in 
        an amount which bears the same ratio to the aggregate dividends 
        paid (or treated as paid) by the REIT to the trust for the 
        taxable year of the REIT with or within which the taxable year 
        of the trust ends (the ``REIT year'') as--
                (i) the gross income (less direct expenses related 
            thereto) of the REIT for the REIT year from unrelated trades 
            or businesses (determined as if the REIT were a qualified 
            trust), bears to
                (ii) the gross income (less direct expenses related 
            thereto) of the REIT for the REIT year.

        This subparagraph shall apply only if the ratio determined under 
        the preceding sentence is at least 5 percent.

        (D) Pension-held REIT

            The purposes of subparagraph (C)--
            (i) In general

                A real estate investment trust is a pension-held REIT if 
            such trust would not have qualified as a real estate 
            investment trust but for the provisions of this paragraph 
            and if such trust is predominantly held by qualified trusts.
            (ii) Predominantly held

                For purposes of clause (i), a real estate investment 
            trust is predominantly held by qualified trusts if--
                    (I) at least 1 qualified trust holds more than 25 
                percent (by value) of the interests in such real estate 
                investment trust, or
                    (II) 1 or more qualified trusts (each of whom own 
                more than 10 percent by value of the interests in such 
                real estate investment trust) hold in the aggregate more 
                than 50 percent (by value) of the interests in such real 
                estate investment trust.

        (E) Qualified trust

            For purposes of this paragraph, the term ``qualified trust'' 
        means any trust described in section 401(a) and exempt from tax 
        under section 501(a).

(i) Treatment of certain wholly owned subsidiaries

                           (1) In general

        For purposes of this title--
            (A) a corporation which is a qualified REIT subsidiary shall 
        not be treated as a separate corporation, and
            (B) all assets, liabilities, and items of income, deduction, 
        and credit of a qualified REIT subsidiary shall be treated as 
        assets, liabilities, and such items (as the case may be) of the 
        real estate investment trust.

                    (2) Qualified REIT subsidiary

        For purposes of this subsection, the term ``qualified REIT 
    subsidiary'' means any corporation if 100 percent of the stock of 
    such corporation is held by the real estate investment trust. Such 
    term shall not include a taxable REIT subsidiary.

     (3) Treatment of termination of qualified subsidiary status

        For purposes of this subtitle, if any corporation which was a 
    qualified REIT subsidiary ceases to meet the requirements of 
    paragraph (2), such corporation shall be treated as a new 
    corporation acquiring all of its assets (and assuming all of its 
    liabilities) immediately before such cessation from the real estate 
    investment trust in exchange for its stock.

(j) Treatment of shared appreciation mortgages

                           (1) In general

        Solely for purposes of subsection (c) of this section and 
    section 857(b)(6), any income derived from a shared appreciation 
    provision shall be treated as gain recognized on the sale of the 
    secured property.

                       (2) Treatment of income

        For purposes of applying subsection (c) of this section and 
    section 857(b)(6) to any income described in paragraph (1)--
            (A) the real estate investment trust shall be treated as 
        holding the secured property for the period during which it held 
        the shared appreciation provision (or, if shorter, for the 
        period during which the secured property was held by the person 
        holding such property), and
            (B) the secured property shall be treated as property 
        described in section 1221(a)(1) if it is so described in the 
        hands of the person holding the secured property (or it would be 
        so described if held by the real estate investment trust).

      (3) Coordination with prohibited transactions safe harbor

        For purposes of section 857(b)(6)(C)--
            (A) the real estate investment trust shall be treated as 
        having sold the secured property when it recognizes any income 
        described in paragraph (1), and
            (B) any expenditures made by any holder of the secured 
        property shall be treated as made by the real estate investment 
        trust.

             (4) Coordination with 4-year holding period

        (A) In general

            For purposes of section 857(b)(6)(C), if a real estate 
        investment trust is treated as having sold secured property 
        under paragraph (3)(A), the trust shall be treated as having 
        held such property for at least 4 years if--
                (i) the secured property is sold or otherwise disposed 
            of pursuant to a case under title 11 of the United States 
            Code,
                (ii) the seller is under the jurisdiction of the court 
            in such case, and
                (iii) the disposition is required by the court or is 
            pursuant to a plan approved by the court.

        (B) Exception

            Subparagraph (A) shall not apply if--
                (i) the secured property was acquired by the seller with 
            the intent to evict or foreclose, or
                (ii) the trust knew or had reason to know that default 
            on the obligation described in paragraph (5)(A) would occur.

                           (5) Definitions

        For purposes of this subsection--

        (A) Shared appreciation provision

            The term ``shared appreciation provision'' means any 
        provision--
                (i) which is in connection with an obligation which is 
            held by the real estate investment trust and is secured by 
            an interest in real property, and
                (ii) which entitles the real estate investment trust to 
            receive a specified portion of any gain realized on the sale 
            or exchange of such real property (or of any gain which 
            would be realized if the property were sold on a specified 
            date) or appreciation in value as of any specified date.

        (B) Secured property

            The term ``secured property'' means the real property 
        referred to in subparagraph (A).

(k) Requirement that entity not be closely held treated as met in 
        certain cases

    A corporation, trust, or association--
        (1) which for a taxable year meets the requirements of section 
    857(f)(1), and
        (2) which does not know, or exercising reasonable diligence 
    would not have known, whether the entity failed to meet the 
    requirement of subsection (a)(6),

shall be treated as having met the requirement of subsection (a)(6) for 
the taxable year.

(l) Taxable REIT subsidiary

    For purposes of this part--

                           (1) In general

        The term ``taxable REIT subsidiary'' means, with respect to a 
    real estate investment trust, a corporation (other than a real 
    estate investment trust) if--
            (A) such trust directly or indirectly owns stock in such 
        corporation, and
            (B) such trust and such corporation jointly elect that such 
        corporation shall be treated as a taxable REIT subsidiary of 
        such trust for purposes of this part.

    Such an election, once made, shall be irrevocable unless both such 
    trust and corporation consent to its revocation. Such election, and 
    any revocation thereof, may be made without the consent of the 
    Secretary.

     (2) Thirty-five percent ownership in another taxable REIT 
                                 subsidiary

        The term ``taxable REIT subsidiary'' includes, with respect to 
    any real estate investment trust, any corporation (other than a real 
    estate investment trust) with respect to which a taxable REIT 
    subsidiary of such trust owns directly or indirectly--
            (A) securities possessing more than 35 percent of the total 
        voting power of the outstanding securities of such corporation, 
        or
            (B) securities having a value of more than 35 percent of the 
        total value of the outstanding securities of such corporation.

    The preceding sentence shall not apply to a qualified REIT 
    subsidiary (as defined in subsection (i)(2)). The rule of section 
    856(c)(7) shall apply for purposes of subparagraph (B).

                           (3) Exceptions

        The term ``taxable REIT subsidiary'' shall not include--
            (A) any corporation which directly or indirectly operates or 
        manages a lodging facility or a health care facility, and
            (B) any corporation which directly or indirectly provides to 
        any other person (under a franchise, license, or otherwise) 
        rights to any brand name under which any lodging facility or 
        health care facility is operated.

    Subparagraph (B) shall not apply to rights provided to an eligible 
    independent contractor to operate or manage a lodging facility if 
    such rights are held by such corporation as a franchisee, licensee, 
    or in a similar capacity and such lodging facility is either owned 
    by such corporation or is leased to such corporation from the real 
    estate investment trust.

                           (4) Definitions

        For purposes of paragraph (3)--

        (A) Lodging facility

            The term ``lodging facility'' has the meaning given to such 
        term by subsection (d)(9)(D)(ii).

        (B) Health care facility

            The term ``health care facility'' has the meaning given to 
        such term by subsection (e)(6)(D)(ii).

(Added Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1004; 
amended Pub. L. 88-272, title II, Sec. 225(k)(4), Feb. 26, 1964, 78 
Stat. 94; Pub. L. 88-554, Sec. 4(b)(4), Aug. 31, 1964, 78 Stat. 763; 
Pub. L. 93-625, Sec. 6(a), (b), (d)(1), Jan. 3, 1975, 88 Stat. 2112-
2114; Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(O), (2), title XVI, 
Secs. 1602(a), 1603(a), (c)(1)-(4), 1604(a)-(c)(1), (d)-(f)(3)(A), (g), 
(k)(1), (2)(A), title XIX, Secs. 1901(a)(111), 1906(b)(13)(A), Oct. 4, 
1976, 90 Stat. 1732, 1746, 1748-1753, 1783, 1834; Pub. L. 95-600, title 
III, Sec. 363(a), (c), title VII, Sec. 701(t)(2), Nov. 6, 1978, 92 Stat. 
2852, 2853, 2912; Pub. L. 98-369, div. A, title X, Sec. 1001(b)(12), 
(e), July 18, 1984, 98 Stat. 1011, 1012; Pub. L. 99-514, title VI, 
Secs. 661(a), 662, 663, 671(b)(1), title IX, Sec. 901(d)(4)(E), Oct. 22, 
1986, 100 Stat. 2299, 2300, 2302, 2317, 2380; Pub. L. 100-647, title I, 
Sec. 1006(p)(1), (3), (4)(A), (5), (q), (t)(11), Nov. 10, 1988, 102 
Stat. 3416, 3417, 3422; Pub. L. 103-66, title XIII, Sec. 13149(a), Aug. 
10, 1993, 107 Stat. 445; Pub. L. 104-188, title I, Secs. 1621(b)(5), 
1704(t)(35), Aug. 20, 1996, 110 Stat. 1867, 1889; Pub. L. 105-34, title 
XII, Secs. 1251(b)-1253, 1255(a), (b)(1), 1257, 1258, 1261, 1262, Aug. 
5, 1997, 111 Stat. 1031-1036; Pub. L. 106-170, title V, 
Secs. 532(c)(2)(H)-(K), 541-542(b)(3)(A)(i), (B)(i), 543, 551(a), 
561(a), Dec. 17, 1999, 113 Stat. 1930, 1940-1943, 1948, 1949; Pub. L. 
106-554, Sec. 1(a)(7) [title III, Sec. 319(9), (10)], Dec. 21, 2000, 114 
Stat. 2763, 2763A-646.)

                       References in Text

    The Investment Company Act of 1940, referred to in subsec. 
(c)(5)(F), is title I of act Aug. 22, 1940, ch. 686, 54 Stat. 789, as 
amended, which is classified generally to subchapter I (Sec. 80a-1 et 
seq.) of chapter 2D of Title 15, Commerce and Trade. For complete 
classification of this Act to the Code, see section 80a-51 of Title 15 
and Tables.
    The Social Security Act, referred to in subsec. (e)(6)(D)(ii), is 
act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title XVIII of the 
Act is classified generally to subchapter XVIII (Sec. 1395 et seq.) of 
chapter 7 of Title 42, The Public Health and Welfare. For complete 
classification of this Act to the Code, see section 1305 of Title 42 and 
Tables.


                               Amendments

    2000--Subsec. (c)(7). Pub. L. 106-554, Sec. 1(a)(7) [title III, 
Sec. 319(9)], substituted ``paragraph (4)(B)(iii)(III)'' for ``paragraph 
(4)(B)(ii)(III)'' in introductory provisions.
    Subsec. (l)(4)(A). Pub. L. 106-554, Sec. 1(a)(7) [title III, 
Sec. 319(10)], substituted ``subsection (d)(9)(D)(ii)'' for ``paragraph 
(9)(D)(ii)''.
    1999--Subsec. (c)(2)(D), (3)(C). Pub. L. 106-170, Sec. 532(c)(2)(H), 
(I), substituted ``section 1221(a)(1)'' for ``section 1221(1)''.
    Subsec. (c)(4)(B). Pub. L. 106-170, Sec. 541(a), amended subpar. (B) 
generally. Prior to amendment, subpar. (B) read as follows: ``not more 
than 25 percent of the value of its total assets is represented by 
securities (other than those includible under subparagraph (A)) for 
purposes of this calculation limited in respect of any one issuer to an 
amount not greater in value than 5 percent of the value of the total 
assets of the trust and to not more than 10 percent of the outstanding 
voting securities of such issuer.''
    Subsec. (c)(7). Pub. L. 106-170, Sec. 541(b), added par. (7).
    Subsec. (d)(1). Pub. L. 106-170, Sec. 542(b)(3)(A)(i), substituted 
``fair market values'' for ``adjusted bases'' in two places in 
concluding provisions.
    Subsec. (d)(2)(B). Pub. L. 106-170, Sec. 542(b)(2), inserted 
``except as provided in paragraph (8),'' after ``(B)'' in introductory 
provisions.
    Subsec. (d)(2)(B)(i). Pub. L. 106-170, Sec. 542(b)(3)(B)(i), 
substituted ``value'' for ``number''.
    Subsec. (d)(3). Pub. L. 106-170, Sec. 561(a), inserted concluding 
provisions.
    Subsec. (d)(7)(C)(i). Pub. L. 106-170, Sec. 542(a), inserted ``or 
through a taxable REIT subsidiary of such trust'' after ``income''.
    Subsec. (d)(8), (9). Pub. L. 106-170, Sec. 542(b)(1), added pars. 
(8) and (9).
    Subsec. (e)(1). Pub. L. 106-170, Sec. 532(c)(2)(J), substituted 
``section 1221(a)(1)'' for ``section 1221(1)''.
    Subsec. (e)(6). Pub. L. 106-170, Sec. 551(a), added par. (6).
    Subsec. (i)(2). Pub. L. 106-170, Sec. 543(b), inserted at end ``Such 
term shall not include a taxable REIT subsidiary.''
    Subsec. (j)(2)(B). Pub. L. 106-170, Sec. 532(c)(2)(K), substituted 
``section 1221(a)(1)'' for ``section 1221(1)''.
    Subsec. (l). Pub. L. 106-170, Sec. 543(a), added subsec. (l).
    1997--Subsec. (a)(6). Pub. L. 105-34, Sec. 1251(b)(2), inserted 
``subject to the provisions of subsection (k),'' before ``which is 
not''.
    Subsec. (c)(3)(I). Pub. L. 105-34, Sec. 1255(a)(1), inserted ``and'' 
at end.
    Subsec. (c)(4). Pub. L. 105-34, Sec. 1255(a)(2), (3), redesignated 
par. (5) as (4) and struck out former par. (4) which read as follows: 
``less than 30 percent of its gross income is derived from the sale or 
other disposition of--
        ``(A) stock or securities held for less than 1 year;
        ``(B) property in a transaction which is a prohibited 
    transaction; and
        ``(C) real property (including interests in real property and 
    interests in mortgages on real property) held for less than 4 years 
    other than--
            ``(i) property compulsorily or involuntarily converted 
        within the meaning of section 1033, and
            ``(ii) property which is foreclosure property within the 
        definition of section 856(e); and''.
    Subsec. (c)(5). Pub. L. 105-34, Sec. 1255(a)(3), redesignated par. 
(6) as (5). Former par. (5) redesignated (4).
    Subsec. (c)(5)(G). Pub. L. 105-34, Sec. 1258, amended heading and 
text of subpar. (G) generally. Prior to amendment, text read as follows: 
``Except to the extent provided by regulations, any--
        ``(i) payment to a real estate investment trust under a bona 
    fide interest rate swap or cap agreement entered into by the real 
    estate investment trust to hedge any variable rate indebtedness of 
    such trust incurred or to be incurred to acquire or carry real 
    estate assets, and
        ``(ii) any gain from the sale or other disposition of such 
    agreement,
shall be treated as income qualifying under paragraph (2).''
    Pub. L. 105-34, Sec. 1255(b)(1), struck out ``and such agreement 
shall be treated as a security for purposes of paragraph (4)(A)'' after 
``under paragraph (2)'' in concluding provisions.
    Subsec. (c)(6), (7). Pub. L. 105-34, Sec. 1255(a)(3), redesignated 
par. (7) as (6). Former par. (6) redesignated (5).
    Subsec. (c)(8). Pub. L. 105-34, Sec. 1255(a)(2), struck out heading 
and text of par. (8). Text read as follows: ``In the case of the taxable 
year in which a real estate investment trust is completely liquidated, 
there shall not be taken into account under paragraph (4) any gain from 
the sale, exchange, or distribution of any property after the adoption 
of the plan of complete liquidation.''
    Subsec. (d)(2). Pub. L. 105-34, Sec. 1252(a), added subpar. (C) and 
struck out former subpar. (C) and concluding provisions which read as 
follows:
        ``(C) any amount received or accrued, directly or indirectly, 
    with respect to any real or personal property if the real estate 
    investment trust furnishes or renders services to the tenants of 
    such property, or manages or operates such property, other than 
    through an independent contractor from whom the trust itself does 
    not derive or receive any income.
Subparagraph (C) shall not apply with respect to any amount if such 
amount would be excluded from unrelated business taxable income under 
section 512(b)(3) if received by an organization described in section 
511(a)(2).''
    Subsec. (d)(5). Pub. L. 105-34, Sec. 1253, substituted ``except 
that--'' and subpars. (A) and (B) for ``except that `10 percent' shall 
be substituted for `50 percent' in subparagraph (C) of section 318(a)(2) 
and 318(a)(3).''
    Subsec. (d)(7). Pub. L. 105-34, Sec. 1252(b), added par. (7).
    Subsec. (e)(2). Pub. L. 105-34, Sec. 1257(a)(1), which directed 
amendment of par. (2) by substituting ``as of the close of the 3d 
taxable year following the taxable year in which the trust acquired such 
property'' for ``on the date which is 2 years after the date the trust 
acquired such property'', was executed by making the substitution for 
``on the date which is 2 years after the date such trust acquired such 
property'' to reflect the probable intent of Congress.
    Subsec. (e)(3). Pub. L. 105-34, Sec. 1257(a)(2), substituted ``grant 
one extension'' for ``grant one or more extensions'' and ``Any such 
extension shall not extend the grace period beyond the close of the 3d 
taxable year following the last taxable year in the period under 
paragraph (2).'' for ``Any such extension shall not extend the grace 
period beyond the date which is 6 years after the date such trust 
acquired such property.''
    Subsec. (e)(4). Pub. L. 105-34, Sec. 1257(c), inserted concluding 
provisions ``For purposes of subparagraph (C), property shall not be 
treated as used in a trade or business by reason of any activities of 
the real estate investment trust with respect to such property to the 
extent that such activities would not result in amounts received or 
accrued, directly or indirectly, with respect to such property being 
treated as other than rents from real property.''
    Subsec. (e)(5). Pub. L. 105-34, Sec. 1257(b), substituted ``A real 
estate investment trust may revoke any such election for a taxable year 
by filing the revocation (in the manner provided by the Secretary) on or 
before the due date (including any extension of time) for filing its 
return of tax under this chapter for the taxable year. If a trust 
revokes an election for any property, no election may be made by the 
trust under this paragraph with respect to the property for any 
subsequent taxable year.'' for ``Any such election shall be 
irrevocable.''
    Subsec. (i)(2). Pub. L. 105-34, Sec. 1262, struck out ``at all times 
during the period such corporation was in existence'' after ``real 
estate investment trust''.
    Subsec. (j)(4). Pub. L. 105-34, Sec. 1261(a), added par. (4). Former 
par. (4) redesignated (5).
    Subsec. (j)(5). Pub. L. 105-34, Sec. 1261(a), redesignated par. (4) 
as (5).
    Subsec. (j)(5)(A)(ii). Pub. L. 105-34, Sec. 1261(b), inserted before 
period at end ``or appreciation in value as of any specified date''.
    Subsec. (k). Pub. L. 105-34, Sec. 1251(b)(1), added subsec. (k).
    1996--Subsec. (a)(4). Pub. L. 104-188, Sec. 1704(t)(35), substituted 
``section 582(c)(2)'' for ``section 582(c)(5)''.
    Subsec. (c)(6)(E). Pub. L. 104-188, Sec. 1621(b)(5), inserted at end 
``The principles of the preceding provisions of this subparagraph shall 
apply to regular interests in a FASIT.''
    1993--Subsec. (h)(3). Pub. L. 103-66 added par. (3).
    1988--Subsec. (c)(6)(D). Pub. L. 100-647, Sec. 1006(t)(11), struck 
out subpar. (D), as added by Pub. L. 99-514, Sec. 671(b)(1), which read 
as follows: ``A regular or residual interest in a REMIC shall be treated 
as an interest in real property, and any amount includible in gross 
income with respect to such an interest shall be treated as interest; 
except that, if less than 95 percent of the assets of such REMIC are 
interests in real property (determined as if the taxpayer held such 
assets), such interest shall be so treated only in the proportion which 
the assets of the REMIC consist of such interests.''
    Subsec. (c)(6)(D)(i)(I). Pub. L. 100-647, Sec. 1006(p)(1), 
substituted ``debt instrument (within the meaning of section 
1275(a)(1))'' for ``debt instrument''.
    Subsec. (c)(6)(D)(ii)(I). Pub. L. 100-647, Sec. 1006(p)(5), 
substituted ``stock (or certificates of beneficial interests) in such 
trust'' for ``stock in such trust''.
    Subsec. (c)(6)(E), (F). Pub. L. 100-647, Sec. 1006(t)(11), added 
subpar. (E) and redesignated former subpar. (E) as (F).
    Subsec. (c)(6)(G). Pub. L. 100-647, Sec. 1006(p)(4)(A), added 
subpar. (G).
    Subsec. (c)(8). Pub. L. 100-647, Sec. 1006(p)(3), added par. (8).
    Subsec. (d)(6)(A). Pub. L. 100-647, Sec. 1006(q)(1), amended subpar. 
(A) generally. Prior to amendment, subpar. (A) read as follows: ``If--
        ``(i) a real estate investment trust receives or accrues, with 
    respect to real or personal property, amounts from a tenant which 
    derives substantially all of its income with respect to such 
    property from the subleasing of substantially all of such property, 
    and
        ``(ii) such tenant receives or accrues, directly or indirectly, 
    from subtenants only amounts which are qualified rents,
then the amounts that the trust receives or accrues from the tenant 
shall not be excluded from the term `rents from real property' solely by 
reason of being based on the income or profits of such tenant.''
    Subsec. (f). Pub. L. 100-647, Sec. 1006(q)(2), amended subsec. (f) 
generally, making changes in content and structure.
    1986--Subsec. (a)(4). Pub. L. 99-514, Sec. 901(d)(4)(E), substituted 
``referred to in section 582(c)(5)'' for ``to which section 585, 586, or 
593 applies''.
    Subsec. (a)(6). Pub. L. 99-514, Sec. 661(a)(1), amended par. (6) 
generally. Prior to amendment, par. (6) read as follows: ``which would 
not be a personal holding company (as defined in section 542) if all of 
its adjusted ordinary gross income (as defined in section 543(b)(2)) 
constituted personal holding company income (as defined in section 543); 
and''.
    Subsec. (c)(3)(I). Pub. L. 99-514, Sec. 662(b)(1), added subpar. 
(I).
    Subsec. (c)(6)(B). Pub. L. 99-514, Sec. 662(b)(2), inserted ``Such 
term also includes any property (not otherwise a real estate asset) 
attributable to the temporary investment of new capital, but only if 
such property is stock or a debt instrument, and only for the 1-year 
period beginning on the date the real estate trust receives such 
capital.''
    Subsec. (c)(6)(D). Pub. L. 99-514, Sec. 671(b)(1), added subpar. (D) 
relating to REMIC interest. Former subpar. (D) redesignated (E).
    Pub. L. 99-514, Sec. 662(b)(3), added subpar. (D) relating to 
qualified temporary investment income. Former subpar. (D) redesignated 
(E).
    Subsec. (c)(6)(E). Pub. L. 99-514, Secs. 662(b)(3), 671(b)(1), made 
identical redesignations of former subpar. (D) as (E).
    Subsec. (d)(2). Pub. L. 99-514, Sec. 663(a), (b)(3), inserted 
reference to par. (6) in subpar. (A) and inserted at end ``Subparagraph 
(C) shall not apply with respect to any amount if such amount would be 
excluded from unrelated business taxable income under section 512(b)(3) 
if received by an organization described in section 511(a)(2).''
    Subsec. (d)(6). Pub. L. 99-514, Sec. 663(b)(1), added par. (6).
    Subsec. (f). Pub. L. 99-514, Sec. 663(b)(2), amended subsec. (f) 
generally, restating former introductory provisions and par. (1) as 
introductory provisions of par. (1) and as subpar. (A), restating 
provisions of par. (2), adding subpar. (1)(B), and striking out former 
concluding provisions which read as follows: ``The provisions of this 
subsection shall apply only with respect to amounts received or accrued 
pursuant to loans made after May 27, 1976. For purposes of the preceding 
sentence, a loan is considered to be made before May 28, 1976, if such 
loan is made pursuant to a binding commitment entered into before May 
28, 1976.''
    Subsec. (h). Pub. L. 99-514, Sec. 661(a)(2), added subsec. (h).
    Subsec. (i). Pub. L. 99-514, Sec. 662(a), added subsec. (i).
    Subsec. (j). Pub. L. 99-514, Sec. 662(c), added subsec. (j).
    1984--Subsec. (c)(4)(A). Pub. L. 98-369 substituted ``6 months'' for 
``1 year'', applicable to property acquired after June 22, 1984, and 
before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
    1978--Subsec. (c)(2)(H). Pub. L. 95-600, Sec. 363(a)(1), added 
subpar. (H).
    Subsec. (c)(3)(D). Pub. L. 95-600, Sec. 701(t)(2), inserted ``(other 
than gain from prohibited transactions)'' after ``on, and gain''.
    Subsec. (c)(3)(H). Pub. L. 95-600, Sec. 363(a)(2), added subpar. 
(H).
    Subsec. (c)(4)(B). Pub. L. 95-600, Sec. 363(a)(3), substituted 
``property in a transaction which is a prohibited transaction'' for 
``section 1221(1) property (other than foreclosure property)''.
    Subsec. (e)(3). Pub. L. 95-600, Sec. 363(c), substituted ``the 
Secretary may grant one or more extensions of the grace period for such 
property'' for ``the Secretary may extend the grace period for such 
property'' and ``shall not extend the grace period beyond the date which 
is 6 years after the date such trust acquired such property'' for 
``shall be for a period of not more than one year, and not more than two 
extensions shall be granted with respect to any property''.
    1976--Subsec. (a). Pub. L. 94-455, Secs. 1603(a), 1604(f)(1), (2), 
in introductory provisions substituted ``this title'' for ``this 
subtitle'' and ``a corporation, trust, or association'' for ``an 
unincorporated trust or an unincorporated association'', in par. (1) 
inserted ``or directors'' after ``trustees'', and in par. (4) 
substituted reference to which is neither (A) a financial institution to 
which section 585, 586, or 593 applies, nor (B) an insurance company to 
which subchapter L applies for reference to which does not hold any 
property primarily for sale to customers in the ordinary course of its 
trade or business.
    Subsec. (c). Pub. L. 94-455, Sec. 1604(f)(3)(A), in introductory 
provision substituted ``A corporation, trust, or association'' for ``A 
trust or association''.
    Subsec. (c)(1). Pub. L. 94-455, Secs. 1604(k)(2)(A), 
1901(a)(111)(A), struck out reference to which began after Dec. 31, 1960 
and inserted reference to such election has not been terminated or 
revoked under subsec. (g).
    Subsec. (c)(2). Pub. L. 94-455, Secs. 1603(c)(2), 1604(a), (c)(1), 
in introductory provision substituted ``95 percent (90 percent for 
taxable years beginning before January 1, 1980) of its gross income 
(excluding gross income from prohibited transactions)'' for ``90 percent 
of its gross income'', in subpar. (D) inserted reference to which is not 
property not described in section 1221(1), and added subpar. (G).
    Subsec. (c)(3). Pub. L. 94-455, Secs. 1603(c)(1), (3), 1604(c)(1), 
in introductory provision inserted ``(excluding gross income from 
prohibited transactions) 75 percent of its gross income'', in subpar. 
(C) inserted reference to which is not property described in section 
1221(1), and added subpar. (G).
    Subsec. (c)(4). Pub. L. 94-455, Sec. 1402(b)(2), provided that ``9 
months'' would be changed to ``1 year''.
    Pub. L. 94-455, Secs. 1402(b)(1)(O), 1604(d), in subpar. (A) 
provided that ``6 months'' would be changed to ``9 months'' for taxable 
years beginning in 1977, added subpar. (B), and redesignated former 
subpar. (B) as (C), and in subpar. (C) as so redesignated, substituted 
``(including interest in real property and interest in mortgages on real 
property'' for ``(including interest in real property)'' and inserted 
reference to property which is foreclosure property within the 
definition of section 856(e).
    Subsec. (c)(6)(C). Pub. L. 94-455, Sec. 1604(e), inserted reference 
to options to acquire land or improvements thereon, and options to 
acquire leaseholds of land or improvements thereon.
    Subsec. (c)(6)(D). Pub. L. 94-455, Sec. 1901(a)(111)(B), inserted 
``(15 U.S.C. 80a-1 and following)'' after ``, as amended''.
    Subsec. (c)(7). Pub. L. 94-455, Sec. 1602(a), added par. (7).
    Subsec. (d). Pub. L. 94-455, Sec. 1604(b), among other changes, 
inserted provisions including in definition of rents from real property 
charges for services customarily furnished or rendered in connection 
with rental of real property and rent attributable to personal property 
which is leased under, or in connection with, a lease of real property, 
provisions relating to the computation of the amount of rent 
attributable to personal property, and provisions relating to the 
special rule for certain contingent rents.
    Subsec. (e)(1). Pub. L. 94-455, Sec. 1603(c)(4), inserted provision 
relating to the exclusion, from definition of foreclosure property, of 
property acquired by the real estate investment trust or other 
disposition of property of the trust described in section 1221(1) of 
this title.
    Subsec. (e)(3), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out 
``or his delegate'' after ``Secretary'' each time appearing.
    Subsec. (f). Pub. L. 94-455, Sec. 1604(g), added subsec. (f).
    Subsec. (g). Pub. L. 94-455, Sec. 1604(k)(1), added subsec. (g).
    1975--Subsec. (a)(4). Pub. L. 93-625, Sec. 6(b), inserted ``(other 
than foreclosure property, as defined in subsection (e))'' after 
``property''.
    Subsec. (c)(2)(F), (3)(F). Pub. L. 93-625, Sec. 6(d)(1), added 
subpar. (F) to pars. (2) and (3).
    Subsec. (e). Pub. L. 93-625, Sec. 6(a), added subsec. (e).
    1964--Subsec. (a)(6). Pub L. 88-272 substituted ``adjusted ordinary 
gross income (as defined in section 543(b)(2))'' for ``gross income''.
    Subsec. (d). Pub. L. 88-5544 inserted reference to subparagraph (C) 
of section 318(a)(3) of this title.


                    Effective Date of 1999 Amendment

    Amendment by section 532(c)(2)(H)-(K) of Pub. L. 106-170 applicable 
to any instrument held, acquired, or entered into, any transaction 
entered into, and supplies held or acquired on or after Dec. 17, 1999, 
see section 532(d) of Pub. L. 106-170, set out as a note under section 
170 of this title.
    Pub. L. 106-170, title V, Sec. 542(b)(3)(A)(ii), Dec. 17, 1999, 113 
Stat. 1943, provided that: ``The amendment made by this subparagraph 
[amending this section] shall apply to taxable years beginning after 
December 31, 2000.''
    Pub. L. 106-170, title V, Sec. 542(b)(3)(B)(ii), Dec. 17, 1999, 113 
Stat. 1943, provided that: ``The amendment made by this subparagraph 
[amending this section] shall apply to amounts received or accrued in 
taxable years beginning after December 31, 2000, except for amounts paid 
pursuant to leases in effect on July 12, 1999, or pursuant to a binding 
contract in effect on such date and at all times thereafter.''
    Pub. L. 106-170, title V, Sec. 546, Dec. 17, 1999, 113 Stat. 1946, 
provided that:
    ``(a) In General.--The amendments made by this subpart [subpart A 
(Secs. 541-547) of title V of Pub. L. 106-170, amending this section and 
sections 163 and 857 of this title] shall apply to taxable years 
beginning after December 31, 2000.
    ``(b) Transitional Rules Related to Section 541.--
        ``(1) Existing arrangements.--
            ``(A) In general.--Except as otherwise provided in this 
        paragraph, the amendment made by section 541 [amending this 
        section] shall not apply to a real estate investment trust with 
        respect to--
                ``(i) securities of a corporation held directly or 
            indirectly by such trust on July 12, 1999;
                ``(ii) securities of a corporation held by an entity on 
            July 12, 1999, if such trust acquires control of such entity 
            pursuant to a written binding contract in effect on such 
            date and at all times thereafter before such acquisition;
                ``(iii) securities received by such trust (or a 
            successor) in exchange for, or with respect to, securities 
            described in clause (i) or (ii) in a transaction in which 
            gain or loss is not recognized; and
                ``(iv) securities acquired directly or indirectly by 
            such trust as part of a reorganization (as defined in 
            section 368(a)(1) of the Internal Revenue Code of 1986) with 
            respect to such trust if such securities are described in 
            clause (i), (ii), or (iii) with respect to any other real 
            estate investment trust.
            ``(B) New trade or business or substantial new assets.--
        Subparagraph (A) shall cease to apply to securities of a 
        corporation as of the first day after July 12, 1999, on which 
        such corporation engages in a substantial new line of business, 
        or acquires any substantial asset, other than--
                ``(i) pursuant to a binding contract in effect on such 
            date and at all times thereafter before the acquisition of 
            such asset;
                ``(ii) in a transaction in which gain or loss is not 
            recognized by reason of section 1031 or 1033 of the Internal 
            Revenue Code of 1986; or
                ``(iii) in a reorganization (as so defined) with another 
            corporation the securities of which are described in 
            paragraph (1)(A) of this subsection.
            ``(C) Limitation on transition rules.--Subparagraph (A) 
        shall cease to apply to securities of a corporation held, 
        acquired, or received, directly or indirectly, by a real estate 
        investment trust as of the first day after July 12, 1999, on 
        which such trust acquires any additional securities of such 
        corporation other than--
                ``(i) pursuant to a binding contract in effect on July 
            12, 1999, and at all times thereafter; or
                ``(ii) in a reorganization (as so defined) with another 
            corporation the securities of which are described in 
            paragraph (1)(A) of this subsection.
        ``(2) Tax-free conversion.--If--
            ``(A) at the time of an election for a corporation to become 
        a taxable REIT subsidiary, the amendment made by section 541 
        does not apply to such corporation by reason of paragraph (1); 
        and
            ``(B) such election first takes effect before January 1, 
        2004,
    such election shall be treated as a reorganization qualifying under 
    section 368(a)(1)(A) of such Code.''
    Pub. L. 106-170, title V, Sec. 551(b), Dec. 17, 1999, 113 Stat. 
1949, provided that: ``The amendment made by this section [amending this 
section] shall apply to taxable years beginning after December 31, 
2000.''
    Pub. L. 106-170, title V, Sec. 561(b), Dec. 17, 1999, 113 Stat. 
1950, provided that: ``The amendment made by this section [amending this 
section] shall apply to taxable years beginning after December 31, 
2000.''


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 applicable to taxable years beginning 
after Aug. 5, 1997, see section 1263 of Pub. L. 105-34, set out as a 
note under section 852 of this title.


                    Effective Date of 1996 Amendment

    Amendment by section 1621(b)(5) of Pub. L. 104-188 effective Sept. 
1, 1997, see section 1621(d) of Pub. L. 104-188, set out as a note under 
section 26 of this title.


                    Effective Date of 1993 Amendment

    Section 13149(b) of Pub. L. 103-66 provided that: ``The amendment 
made by this section [amending this section] shall apply to taxable 
years beginning after December 31, 1993.''


                    Effective Date of 1988 Amendment

    Section 1006(p)(4)(B) of Pub. L. 100-647 provided that: ``The 
amendment made by subparagraph (A) [amending this section] shall apply 
to taxable years ending after the date of the enactment of this Act 
[Nov. 10, 1988].''
    Amendment by section 1006(p)(1), (3), (5), (q), (t)(11) of Pub. L. 
100-647 effective, except as otherwise provided, as if included in the 
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such 
amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a 
note under section 1 of this title.


                    Effective Date of 1986 Amendment

    Section 1006(p)(2) of Pub. L. 100-647 provided that: 
``Notwithstanding section 669 of the Reform Act [Pub. L. 99-514, set out 
below], the amendment made by section 662(c) of the Reform Act [amending 
this section] shall apply to taxable years beginning after December 31, 
1986, but only in the case of obligations acquired after October 22, 
1986.''
    Section 669 of subtitle G (Secs. 661-668) of title VI of Pub. L. 99-
514, as amended by Pub. L. 100-647, title I, Sec. 1018(u)(29), Nov. 10, 
1988, 102 Stat. 3591, provided that:
    ``(a) General Rule.--Except as otherwise provided in this section, 
the amendments made by this subtitle [amending this section and sections 
857 to 860, 4981, and 6697 of this title] shall apply to taxable years 
beginning after December 31, 1986.
    ``(b) Section 668.--The amendments made by section 668 [amending 
sections 857, 858, and 4981 of this title] shall apply to calendar years 
beginning after December 31, 1986.
    ``(c) Retention of Existing Transitional Rule.--The amendment made 
by section 663(b)(2) [amending this section] shall not apply with 
respect to amounts received or accrued pursuant to loans made before May 
28, 1976. For purposes of the preceding sentence, a loan is considered 
to be made before May 28, 1976, if such loan is made pursuant to a 
binding commitment entered into before May 28, 1976.''
    Amendment by section 671(b)(1) of Pub. L. 99-514 effective Jan. 1, 
1987, see section 675(a) of Pub. L. 99-514, as amended, set out as an 
Effective Date note under section 860A of this title.
    Amendment by section 901(d)(4)(E) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, see section 901(e) of Pub. 
L. 99-514, set out as a note under section 166 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 applicable to property acquired after 
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 
98-369, set out as a note under section 166 of this title.


                    Effective Date of 1978 Amendment

    Section 363(d) of Pub. L. 95-600 provided that: ``The amendments 
made by subsections (a) [amending this section] and (b) [amending 
section 857 of this title] shall apply to taxable years ending after the 
date of the enactment of this Act [Nov. 6, 1978]. The amendment made by 
subsection (c) [amending this section] shall apply to extensions granted 
after the date of the enactment of this Act with respect to periods 
beginning after December 31, 1977.''
    Amendment by section 701(t)(2) of Pub. L. 95-600 effective Oct. 4, 
1976, see section 701(t)(5) of Pub. L. 95-600, set out as a note under 
section 859 of this title.


                    Effective Date of 1976 Amendment

    Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning in 1977.
    Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning after Dec. 31, 1977.
    Section 1608(d) of Pub. L. 94-455, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) Except as provided in paragraphs (2) and (3), the amendments 
made by sections 1603, 1604, and 1605 [enacting sections 860 and 4981 of 
this title and amending this section and sections 275, 857, 858, 6161, 
6211 to 6214, 6344, 6512, 6601, and 7422 of this title] shall apply to 
taxable years of real estate investment trusts beginning after the date 
of the enactment of this Act [Oct. 4, 1976].
    ``(2) If, as a result of a determination (as defined in section 
859(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]), 
occurring after the date of enactment of this Act [Oct. 4, 1976], with 
respect to the real estate investment trust, such trust does not meet 
the requirement of section 856(a)(4) of the Internal Revenue Code of 
1986 (as in effect before the amendment of such section by this Act) for 
any taxable year beginning on or before the date of the enactment of 
this Act, such trust may elect, within 60 days after such determination 
in the manner provided in regulations prescribed by the Secretary of the 
Treasury or his delegate, to have the provisions of section 1603 (other 
than paragraphs (1), (2), (3), and (4) of section 1603(c)) apply with 
respect to such taxable year. Where the provisions of section 1603 apply 
to a real estate investment trust with respect to any taxable year 
beginning on or before the date of the enactment of this Act--
        ``(A) credit or refund of any overpayment of tax which results 
    from the application of section 1603 to such taxable year shall be 
    made as if on the date of the determination (as defined in section 
    859(c) of the Internal Revenue Code of 1986) 2 years remained before 
    the expiration of the period of limitation prescribed by section 
    6511 of such Code on the filing of claim for refund for the taxable 
    year to which the overpayment relates,
        ``(B) the running of the statute of limitations provided in 
    section 6501 of such Code on the making of assessments, and the 
    bringing of distraint or a proceeding in court for collection, in 
    respect of any deficiency (as defined in section 6211 of such Code) 
    established by such a determination, and all interest, additions to 
    tax, additional amounts, or assessable penalties in respect thereof, 
    shall be suspended for a period of 2 years after the date of such 
    determination, and
        ``(C) the collection of any deficiency (as defined in section 
    6211 of such Code) established by such determination and all 
    interest, additions to tax, additional amounts, and assessable 
    penalties in respect thereof shall, except in cases of jeopardy, be 
    stayed until the expiration of 60 days after the date of such 
    determination.
No distraint or proceeding in court shall be begun for the collection of 
an amount the collection of which is stayed under subparagraph (C) 
during the period for which the collection of such amount is stayed.
    ``(3) Section 856(g)(3) of the Internal Revenue Code of 1986, as 
added by section 1604 of this Act, shall not apply with respect to a 
termination of an election, filed by a taxpayer under section 856(c)(1) 
of such Code on or before the date of the enactment of this Act [Oct. 4, 
1976], unless the provisions of part II of subchapter M of chapter 1 of 
subtitle A of such Code apply to such taxpayer for a taxable year ending 
after the date of the enactment of this Act for which such election is 
in effect.''


                    Effective Date of 1975 Amendment

    Section 6(e) of Pub. L. 93-625, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendments 
made by this section [amending this section and section 857 of this 
title] apply to foreclosure property acquired after December 31, 1973. 
Notwithstanding the provisions of section 856(e)(5) of the Internal 
Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection (a) 
of this section) any taxpayer required to make an election with respect 
to foreclosure property sooner than 90 days after the date of enactment 
of this Act [Jan. 3, 1975], may make that election at any time before 
the 91st day after the date of enactment of this Act.''


                    Effective Date of 1964 Amendments

    Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that for 
purposes of sections 302 and 304 of this title, such amendments shall 
not apply to distributions in payment for stock acquisitions or 
redemptions, if such acquisitions or redemptions occurred before Aug. 
31, 1964, see section 4(c) of Pub. L. 88-554, set out as a note under 
section 318 of this title.
    Amendment by Pub. L. 88-272 applicable to taxable years beginning 
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out as a 
note under section 316 of this title.


                             Effective Date

    Section 10(k) of Pub. L. 86-779 provided that: ``The amendments made 
by this section [enacting this section and sections 857 and 858 and 
amending sections 11, 34, 116, 243, 318, 443, 852, 855, and 1504 of this 
title] shall apply with respect to taxable years of real estate 
investment trusts beginning after December 31, 1960.''


               Study Relating To Taxable REIT Subsidiaries

    Pub. L. 106-170, title V, Sec. 547, Dec. 17, 1999, 113 Stat. 1947, 
provided that: ``The Secretary of the Treasury shall conduct a study to 
determine how many taxable REIT subsidiaries are in existence and the 
aggregate amount of taxes paid by such subsidiaries. The Secretary shall 
submit a report to the Congress describing the results of such study.''


   Trust Not Disqualified in Certain Cases Where Income Tests Not Met

    Section 1608(b) of Pub. L. 94-455, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The amendment 
made by section 1602 [amending this section and section 857 of this 
title] shall apply to taxable years of real estate investment trusts 
beginning after the date of the enactment of this Act [Oct. 4, 1976]. In 
addition, the amendments made by section 1602 shall apply to a taxable 
year of a real estate investment trust beginning before the date of the 
enactment of this Act if, as the result of a determination (as defined 
in section 859(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 
1954]) with respect to such trust occurring after the date of the 
enactment of this Act, such trust for such taxable years does not meet 
the requirements of section 856(c)(2) or section 856(c)(3), or of both 
such sections, of such Code as in effect for such taxable year. In any 
case, the amendment made by section 1602(a) requiring a schedule to be 
attached to the income tax return of certain real estate investment 
trusts shall apply only to taxable years of such trusts beginning after 
the date of the enactment of this Act. If the amendments made by section 
1602 apply to a taxable year ending on or before the date of enactment 
of this Act, the reference to paragraph (2)(B) in section 857(b)(5) of 
such Code, as amended, shall be considered to be a reference to 
paragraph (2)(C) of section 857(b) of such Code, as in effect 
immediately before the enactment of this Act.''

                  Section Referred to in Other Sections

    This section is referred to in sections 108, 163, 291, 318, 501, 
857, 859, 860G, 860L, 1212, 6049, 6655, 7701, 7704 of this title.
