PART II—REAL ESTATE INVESTMENT TRUSTS
Editorial Notes
Amendments
1978—
1976—
1960—
§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);
(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) mineral royalty income earned in the first taxable year beginning after the date of the enactment of this subparagraph from real property owned by a timber real estate investment trust and held, or once held, in connection with the trade or business of producing timber by such real estate investment trust;
(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 (other than a nonqualified publicly offered REIT debt instrument) 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,
(iii) not more than 25 percent of the value of its total assets is represented by nonqualified publicly offered REIT debt instruments, and
(iv) 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 (including a discrepancy caused solely by the change in the foreign currency exchange rate used to value a foreign asset) 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 or on interests in real property), shares (or transferable certificates of beneficial interest) in other real estate investment trusts which meet the requirements of this part, and debt instruments issued by publicly offered REITs. 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)
(i)
(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)
(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.
(F) All other terms shall have the same meaning as when used in the Investment Company Act of 1940, as amended (
(G)
(i) any income of a real estate investment trust from a hedging transaction (as defined in clause (ii) or (iii) of section 1221(b)(2)(A)), including gain from the sale or disposition of such a transaction, shall not constitute gross income under paragraphs (2) and (3) to the extent that the transaction hedges any indebtedness incurred or to be incurred by the trust to acquire or carry real estate assets,
(ii) any income of a real estate investment trust from a transaction entered into by the trust primarily to manage risk of currency fluctuations with respect to any item of income or gain described in paragraph (2) or (3) (or any property which generates such income or gain), including gain from the termination of such a transaction, shall not constitute gross income under paragraphs (2) and (3),
(iii) if—
(I) a real estate investment trust enters into one or more positions described in clause (i) with respect to indebtedness described in clause (i) or one or more positions described in clause (ii) with respect to property which generates income or gain described in paragraph (2) or (3),
(II) any portion of such indebtedness is extinguished or any portion of such property is disposed of, and
(III) in connection with such extinguishment or disposition, such trust enters into one or more transactions which would be hedging transactions described in clause (ii) or (iii) of section 1221(b)(2)(A) with respect to any position referred to in subclause (I) if such position were ordinary property,
any income of such trust from any position referred to in subclause (I) and from any transaction referred to in subclause (III) (including gain from the termination of any such position or transaction) shall not constitute gross income under paragraphs (2) and (3) to the extent that such transaction hedges such position, and
(iv) clauses (i), (ii), and (iii) shall not apply with respect to any transaction unless such transaction satisfies the identification requirement described in section 1221(a)(7) (determined after taking into account any curative provisions provided under the regulations referred to therein).
(H)
(i)
(I) recognized by an election under section 631(a) from timber owned by the real estate investment trust, the cutting of which is provided by a taxable REIT subsidiary of the real estate investment trust;
(II) recognized under section 631(b); or
(III) income which would constitute gain under subclause (I) or (II) but for the failure to meet the 1-year holding period requirement.
(ii)
(I) For purposes of this subtitle, cut timber, the gain from which is recognized by a real estate investment trust pursuant to an election under section 631(a) described in clause (i)(I) or so much of clause (i)(III) as relates to clause (i)(I), shall be deemed to be sold to the taxable REIT subsidiary of the real estate investment trust on the first day of the taxable year.
(II) For purposes of this subtitle, income described in this subparagraph shall not be treated as gain from the sale of property described in section 1221(a)(1).
(iii)
(I)
(J)
(i) does not otherwise qualify under paragraph (2) or (3) may be considered as not constituting gross income for purposes of paragraphs (2) or (3), or
(ii) otherwise constitutes gross income not qualifying under paragraph (2) or (3) may be considered as gross income which qualifies under paragraph (2) or (3).
(K)
(i) is held for use in the normal course of the activities of the trust or qualified business unit which give rise to items of income or gain described in paragraph (2) or (3) of subsection (c) or are directly related to acquiring or holding assets described in subsection (c)(4), and
(ii) is not held in connection with an activity described in subsection (n)(4).
(L)
(i)
(ii)
(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) following the corporation, trust, or association's identification of the failure to meet the requirements of paragraph (2) or (3), or of both such paragraphs, for any taxable year, a description of each item of its gross income described in such paragraphs is set forth in a schedule for such taxable year filed in accordance with regulations prescribed by the Secretary, and
(B) 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)
(A)
(i) following the corporation, trust, or association's identification of the failure to satisfy the requirements of such paragraph for a particular quarter, a description of each asset that causes the corporation, trust, or association to fail to satisfy the requirements of such paragraph at the close of such quarter of any taxable year is set forth in a schedule for such quarter filed in accordance with regulations prescribed by the Secretary,
(ii) the failure to meet the requirements of such paragraph for a particular quarter is due to reasonable cause and not due to willful neglect, and
(iii)(I) the corporation, trust, or association disposes of the assets set forth on the schedule specified in clause (i) within 6 months after the last day of the quarter in which the corporation, trust or association's identification of the failure to satisfy the requirements of such paragraph occurred or such other time period prescribed by the Secretary and in the manner prescribed by the Secretary, or
(II) the requirements of such paragraph are otherwise met within the time period specified in subclause (I).
(B)
(i) such failure is due to the ownership of assets the total value of which does not exceed the lesser of—
(I) 1 percent of the total value of the trust's assets at the end of the quarter for which such measurement is done, and
(II) $10,000,000, and
(ii)(I) the corporation, trust, or association, following the identification of such failure, disposes of assets in order to meet the requirements of such paragraph within 6 months after the last day of the quarter in which the corporation, trust or association's identification of the failure to satisfy the requirements of such paragraph occurred or such other time period prescribed by the Secretary and in the manner prescribed by the Secretary, or
(II) the requirements of such paragraph are otherwise met within the time period specified in subclause (I).
(C)
(i)
(I) $50,000, or
(II) the amount determined (pursuant to regulations promulgated by the Secretary) by multiplying the net income generated by the assets described in the schedule specified in subparagraph (A)(i) for the period specified in clause (ii) by the highest rate of tax specified in section 11.
(ii)
(iii)
(8)
(9)
(A)
(i)
(ii)
(I) personal property is leased under, or in connection with, a lease of real property, for a period of not less than 1 year, and rents attributable to such personal property are treated as rents from real property under subsection (d)(1)(C),
(II) any portion of such personal property and any portion of such real property are sold, or otherwise disposed of, in a single disposition (or contemporaneously in separate dispositions), and
(III) the fair market value of the personal property so sold or contemporaneously disposed of (determined at the time of disposition) does not exceed 15 percent of the total fair market value of all of the personal and real property so sold or contemporaneously disposed of (determined at the time of disposition),
any gain from such dispositions shall be treated for purposes of paragraphs (2)(H) and (3)(H) as gain from the disposition of a real estate asset.
(B)
(i)
(I) for purposes of paragraph (3)(B), as an obligation described therein,
(II) for purposes of paragraph (4)(A), as a real estate asset, and
(III) for purposes of paragraphs (2)(D) and (3)(C), as a mortgage on real property.
(ii)
(I)
(II)
(10)
(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
(i) In general
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 paragraph (2)(B).
(ii) Rents must be substantially comparable
Clause (i) 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 paid by the other tenants of the trust's property for comparable space.
(iii) Times for testing rent comparability
The substantial comparability requirement of clause (ii) shall be treated as met with respect to a lease to a taxable REIT subsidiary of the trust if such requirement is met under the terms of the lease—
(I) at the time such lease is entered into,
(II) at the time of each extension of the lease, including a failure to exercise a right to terminate, and
(III) at the time of any modification of the lease between the trust and the taxable REIT subsidiary if the rent under such lease is effectively increased pursuant to such modification.
With respect to subclause (III), if the taxable REIT subsidiary of the trust is a controlled taxable REIT subsidiary of the trust, the term "rents from real property" shall not in any event include rent under such lease to the extent of the increase in such rent on account of such modification.
(iv) Controlled taxable REIT subsidiary
For purposes of clause (iii), the term "controlled taxable REIT subsidiary" means, with respect to any real estate investment trust, any taxable REIT subsidiary of such trust if such trust owns directly or indirectly—
(I) stock possessing more than 50 percent of the total voting power of the outstanding stock of such subsidiary, or
(II) stock having a value of more than 50 percent of the total value of the outstanding stock of such subsidiary.
(v) Continuing qualification based on third party actions
If the requirements of clause (i) are met at a time referred to in clause (iii), such requirements shall continue to be treated as met so long as there is no increase in the space leased to any taxable REIT subsidiary of such trust or to any person described in paragraph (2)(B).
(vi) Correction period
If there is an increase referred to in clause (v) during any calendar quarter with respect to any property, the requirements of clause (iii) shall be treated as met during the quarter and the succeeding quarter if such requirements are met at the close of such succeeding quarter.
(B) Exception for certain lodging facilities and health care property
The requirements of this subparagraph are met with respect to an interest in real property which is a qualified lodging facility (as defined in paragraph (9)(D)) or a qualified health care property (as defined in subsection (e)(6)(D)(i)) 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. For purposes of this section, a taxable REIT subsidiary is not considered to be operating or managing a qualified health care property or qualified lodging facility solely because it—
(i) directly or indirectly possesses a license, permit, or similar instrument enabling it to do so, or
(ii) employs individuals working at such facility or property located outside the United States, but only if an eligible independent contractor is responsible for the daily supervision and direction of such individuals on behalf of the taxable REIT subsidiary pursuant to a management agreement or similar service contract.
(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 or qualified health care property (as defined in subsection (e)(6)(D)(i)), 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 such qualified lodging facility or qualified health care property, such contractor (or any related person) is actively engaged in the trade or business of operating qualified lodging facilities or qualified health care properties, respectively, 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 or qualified health care property (as so defined) by reason of the following:
(i) The taxable REIT subsidiary bears the expenses for the operation of such qualified lodging facility or qualified health care property pursuant to the management agreement or other similar service contract.
(ii) The taxable REIT subsidiary receives the revenues from the operation of such qualified lodging facility or qualified health care property, 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 or qualified health care property.
(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—
(I) hotel,
(II) motel, or
(III) 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 or through a taxable REIT subsidiary).
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 unless paragraph (5) applies. 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.
(5) Entities to which paragraph applies
This paragraph applies to a corporation, trust, or association—
(A) which is not a real estate investment trust to which the provisions of this part apply for the taxable year due to one or more failures to comply with one or more of the provisions of this part (other than paragraph (2), (3), or (4) of subsection (c)),
(B) such failures are due to reasonable cause and not due to willful neglect, and
(C) if such corporation, trust, or association pays (as prescribed by the Secretary in regulations and in the same manner as tax) a penalty of $50,000 for each failure to satisfy a provision of this part due to reasonable cause and not 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
(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)). For purposes of subparagraph (B), securities described in subsection (m)(2)(A) shall not be taken into account.
(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 or a health care facility if such rights are held by such corporation as a franchisee, licensee, or in a similar capacity and such lodging facility or health care 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).
(m) Safe harbor in applying subsection (c)(4)
(1) In general
In applying subclause (III) of subsection (c)(4)(B)(iv), except as otherwise determined by the Secretary in regulations, the following shall not be considered securities held by the trust:
(A) Straight debt securities of an issuer which meet the requirements of paragraph (2).
(B) Any loan to an individual or an estate.
(C) Any section 467 rental agreement (as defined in section 467(d)), other than with a person described in subsection (d)(2)(B).
(D) Any obligation to pay rents from real property (as defined in subsection (d)(1)).
(E) Any security issued by a State or any political subdivision thereof, the District of Columbia, a foreign government or any political subdivision thereof, or the Commonwealth of Puerto Rico, but only if the determination of any payment received or accrued under such security does not depend in whole or in part on the profits of any entity not described in this subparagraph or payments on any obligation issued by such an entity,
(F) Any security issued by a real estate investment trust.
(G) Any other arrangement as determined by the Secretary.
(2) Special rules relating to straight debt securities
(A) In general
For purposes of paragraph (1)(A), securities meet the requirements of this paragraph if such securities are straight debt, as defined in section 1361(c)(5) (without regard to subparagraph (B)(iii) thereof).
(B) Special rules relating to certain contingencies
For purposes of subparagraph (A), any interest or principal shall not be treated as failing to satisfy section 1361(c)(5)(B)(i) solely by reason of the fact that—
(i) the time of payment of such interest or principal is subject to a contingency, but only if—
(I) any such contingency does not have the effect of changing the effective yield to maturity, as determined under section 1272, other than a change in the annual yield to maturity which does not exceed the greater of ¼ of 1 percent or 5 percent of the annual yield to maturity, or
(II) neither the aggregate issue price nor the aggregate face amount of the issuer's debt instruments held by the trust exceeds $1,000,000 and not more than 12 months of unaccrued interest can be required to be prepaid thereunder, or
(ii) the time or amount of payment is subject to a contingency upon a default or the exercise of a prepayment right by the issuer of the debt, but only if such contingency is consistent with customary commercial practice.
(C) Special rules relating to corporate or partnership issuers
In the case of an issuer which is a corporation or a partnership, securities that otherwise would be described in paragraph (1)(A) shall be considered not to be so described if the trust holding such securities and any of its controlled taxable REIT subsidiaries (as defined in subsection (d)(8)(A)(iv)) hold any securities of the issuer which—
(i) are not described in paragraph (1) (prior to the application of this subparagraph), and
(ii) have an aggregate value greater than 1 percent of the issuer's outstanding securities determined without regard to paragraph (3)(A)(i).
(3) Look-through rule for partnership securities
(A) In general
For purposes of applying subclause (III) of subsection (c)(4)(B)(iv)—
(i) a trust's interest as a partner in a partnership (as defined in section 7701(a)(2)) shall not be considered a security, and
(ii) the trust shall be deemed to own its proportionate share of each of the assets of the partnership.
(B) Determination of trust's interest in partnership assets
For purposes of subparagraph (A), with respect to any taxable year beginning after the date of the enactment of this subparagraph—
(i) the trust's interest in the partnership assets shall be the trust's proportionate interest in any securities issued by the partnership (determined without regard to subparagraph (A)(i) and paragraph (4), but not including securities described in paragraph (1)), and
(ii) the value of any debt instrument shall be the adjusted issue price thereof, as defined in section 1272(a)(4).
(4) Certain partnership debt instruments not treated as a security
For purposes of applying subclause (III) of subsection (c)(4)(B)(iv)—
(A) any debt instrument issued by a partnership and not described in paragraph (1) shall not be considered a security to the extent of the trust's interest as a partner in the partnership, and
(B) any debt instrument issued by a partnership and not described in paragraph (1) shall not be considered a security if at least 75 percent of the partnership's gross income (excluding gross income from prohibited transactions) is derived from sources referred to in subsection (c)(3).
(5) Secretarial guidance
The Secretary is authorized to provide guidance (including through the issuance of a written determination, as defined in section 6110(b)) that an arrangement shall not be considered a security held by the trust for purposes of applying subclause (III) of subsection (c)(4)(B)(iv) notwithstanding that such arrangement otherwise could be considered a security under subparagraph (F) of subsection (c)(5).
(n) Rules regarding foreign currency transactions
(1) In general
For purposes of this part—
(A) passive foreign exchange gain for any taxable year shall not constitute gross income for purposes of subsection (c)(2), and
(B) real estate foreign exchange gain for any taxable year shall not constitute gross income for purposes of subsection (c)(3).
(2) Real estate foreign exchange gain
For purposes of this subsection, the term "real estate foreign exchange gain" means—
(A) foreign currency gain (as defined in section 988(b)(1)) which is attributable to—
(i) any item of income or gain described in subsection (c)(3),
(ii) the acquisition or ownership of obligations secured by mortgages on real property or on interests in real property (other than foreign currency gain attributable to any item of income or gain described in clause (i)), or
(iii) becoming or being the obligor under obligations secured by mortgages on real property or on interests in real property (other than foreign currency gain attributable to any item of income or gain described in clause (i)),
(B) section 987 gain attributable to a qualified business unit (as defined by section 989) of the real estate investment trust, but only if such qualified business unit meets the requirements under—
(i) subsection (c)(3) for the taxable year, and
(ii) subsection (c)(4)(A) at the close of each quarter that the real estate investment trust has directly or indirectly held the qualified business unit, and
(C) any other foreign currency gain as determined by the Secretary.
(3) Passive foreign exchange gain
For purposes of this subsection, the term "passive foreign exchange gain" means—
(A) real estate foreign exchange gain,
(B) foreign currency gain (as defined in section 988(b)(1)) which is not described in subparagraph (A) and which is attributable to—
(i) any item of income or gain described in subsection (c)(2),
(ii) the acquisition or ownership of obligations (other than foreign currency gain attributable to any item of income or gain described in clause (i)), or
(iii) becoming or being the obligor under obligations (other than foreign currency gain attributable to any item of income or gain described in clause (i)), and
(C) any other foreign currency gain as determined by the Secretary.
(4) Exception for income from substantial and regular trading
Notwithstanding this subsection or any other provision of this part, any section 988 gain derived by a corporation, trust, or association from dealing, or engaging in substantial and regular trading, in securities (as defined in section 475(c)(2)) shall constitute gross income which does not qualify under paragraph (2) or (3) of subsection (c). This paragraph shall not apply to income which does not constitute gross income by reason of subsection (c)(5)(G).
(Added
Editorial Notes
References in Text
The date of the enactment of this subparagraph, referred to in subsec. (c)(2)(I), is the date of enactment of
The Investment Company Act of 1940, referred to in subsec. (c)(5)(F), is title I of act Aug. 22, 1940, ch. 686,
The date of the enactment of this paragraph and such date of enactment, referred to in subsec. (c)(10), is the date of enactment of
The Social Security Act, referred to in subsec. (e)(6)(D)(ii), is act Aug. 14, 1935, ch. 531,
The date of the enactment of this subparagraph, referred to in subsec. (m)(3)(B), is the date of enactment of
Codification
Amendments
2018—Subsec. (c)(7)(A), (B).
Subsec. (c)(9)(A).
Subsec. (c)(9)(B).
Subsec. (m)(1), (3)(A), (4).
Subsec. (m)(5).
Subsec. (m)(6).
2015—Subsec. (c)(3)(H).
Subsec. (c)(4)(B)(ii).
Subsec. (c)(4)(B)(iii), (iv).
Subsec. (c)(5)(B).
Subsec. (c)(5)(G)(i).
Subsec. (c)(5)(G)(ii).
Subsec. (c)(5)(G)(iii).
Subsec. (c)(5)(G)(iv).
Subsec. (c)(5)(L).
Subsec. (c)(8).
Subsec. (c)(9).
Subsec. (c)(10).
Subsec. (e)(4)(C).
2008—Subsec. (c)(2)(I).
Subsec. (c)(4).
Subsec. (c)(4)(B)(ii).
Subsec. (c)(5)(G).
Subsec. (c)(5)(H).
Subsec. (c)(5)(I).
Subsec. (c)(5)(J).
Subsec. (c)(5)(K).
Subsec. (c)(8).
Subsec. (d)(8)(B).
Subsec. (d)(9)(A), (B).
Subsec. (l)(3).
Subsec. (n).
2007—Subsec. (d)(9)(D)(ii).
Subsec. (l)(2).
2005—Subsec. (c)(7).
Subsec. (g)(5)(A).
Subsec. (m)(6).
2004—Subsec. (c)(5)(E).
Subsec. (c)(5)(G).
Subsec. (c)(6)(A).
Subsec. (c)(6)(B), (C).
Subsec. (c)(7).
Subsec. (d)(8)(A).
Subsec. (g)(1).
Subsec. (g)(5).
Subsec. (m).
2000—Subsec. (c)(7).
Subsec. (l)(4)(A).
1999—Subsec. (c)(2)(D), (3)(C).
Subsec. (c)(4)(B).
Subsec. (c)(7).
Subsec. (d)(1).
Subsec. (d)(2)(B).
Subsec. (d)(2)(B)(i).
Subsec. (d)(3).
Subsec. (d)(7)(C)(i).
Subsec. (d)(8), (9).
Subsec. (e)(1).
Subsec. (e)(6).
Subsec. (i)(2).
Subsec. (j)(2)(B).
Subsec. (l).
1997—Subsec. (a)(6).
Subsec. (c)(3)(I).
Subsec. (c)(4).
"(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).
Subsec. (c)(5)(G).
"(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)."
Subsec. (c)(6), (7).
Subsec. (c)(8).
Subsec. (d)(2).
"(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).
Subsec. (d)(7).
Subsec. (e)(2).
Subsec. (e)(3).
Subsec. (e)(4).
Subsec. (e)(5).
Subsec. (i)(2).
Subsec. (j)(4).
Subsec. (j)(5).
Subsec. (j)(5)(A)(ii).
Subsec. (k).
1996—Subsec. (a)(4).
Subsec. (c)(6)(E).
1993—Subsec. (h)(3).
1988—Subsec. (c)(6)(D).
Subsec. (c)(6)(D)(i)(I).
Subsec. (c)(6)(D)(ii)(I).
Subsec. (c)(6)(E), (F).
Subsec. (c)(6)(G).
Subsec. (c)(8).
Subsec. (d)(6)(A).
"(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).
1986—Subsec. (a)(4).
Subsec. (a)(6).
Subsec. (c)(3)(I).
Subsec. (c)(6)(B).
Subsec. (c)(6)(D).
Subsec. (c)(6)(E).
Subsec. (d)(2).
Subsec. (d)(6).
Subsec. (f).
Subsec. (h).
Subsec. (i).
Subsec. (j).
1984—Subsec. (c)(4)(A).
1978—Subsec. (c)(2)(H).
Subsec. (c)(3)(D).
Subsec. (c)(3)(H).
Subsec. (c)(4)(B).
Subsec. (e)(3).
1976—Subsec. (a).
Subsec. (c).
Subsec. (c)(1).
Subsec. (c)(2).
Subsec. (c)(3).
Subsec. (c)(4).
Subsec. (c)(6)(C).
Subsec. (c)(6)(D).
Subsec. (c)(7).
Subsec. (d).
Subsec. (e)(1).
Subsec. (e)(3), (5).
Subsec. (f).
Subsec. (g).
1975—Subsec. (a)(4).
Subsec. (c)(2)(F), (3)(F).
Subsec. (e).
1964—Subsec. (a)(6).
Subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Amendment by section 101(n) of
Effective Date of 2015 Amendment
Amendment by section 311(b) of
Effective Dates of 2008 Amendment
"(a)
"(b) REIT
"(1) The amendments made by section 3031(a) and (c) [amending this section] shall apply to gains and items of income recognized after the date of the enactment of this Act [July 30, 2008].
"(2) The amendment made by section 3031(b) [amending this section] shall apply to transactions entered into after the date of the enactment of this Act [July 30, 2008].
"(c)
"(1) The amendment made by section 3033(a) [amending
"(2) The amendment made by section 3033(b) [amending
"(d)
Amendment of this section and repeal of
[
[
[
Effective Date of 2007 Amendment
Amendment by section 9(b) of
Effective Date of 2005 Amendment
Amendments by section 403(d)(1), (2) of
Effective Date of 2004 Amendment
"(1)
"(2)
"(3)
"(4)
"(A) The amendment made by paragraph (1) of subsection (f) [amending this section] shall apply to failures with respect to which the requirements of subparagraph (A) or (B) of section 856(c)(7) of the Internal Revenue Code of 1986 (as added by such paragraph) are satisfied after the date of the enactment of this Act [Oct. 22, 2004].
"(B) The amendment made by paragraph (2) of subsection (f) [amending this section] shall apply to failures with respect to which the requirements of paragraph (6) of section 856(c) of the Internal Revenue Code of 1986 (as amended by such paragraph) are satisfied after the date of the enactment of this Act.
"(C) The amendments made by paragraph (3) of subsection (f) [amending this section] shall apply to failures with respect to which the requirements of paragraph (5) of section 856(g) of the Internal Revenue Code of 1986 (as added by such paragraph) are satisfied after the date of the enactment of this Act.
"(D) The amendment made by paragraph (4) of subsection (f) [amending
"(E) The amendments made by paragraph (5) of subsection (f) [amending
Amendment by section 835(b)(4) of
Effective Date of 1999 Amendment
Amendment by section 532(c)(2)(H)–(K) of
"(a)
"(b)
"(1)
"(A)
"(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)
"(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)
"(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)
"(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."
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by section 1621(b)(5) of
Effective Date of 1993 Amendment
Effective Date of 1988 Amendment
Amendment by section 1006(p)(1), (3), (5), (q), (t)(11) of
Effective Date of 1986 Amendment
"(a)
"(b)
"(c)
Amendment by section 671(b)(1) of
Amendment by section 901(d)(4)(E) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by section 701(t)(2) of
Effective Date of 1976 Amendment
"(1) Except as provided in paragraphs (2) and (3), the amendments made by sections 1603, 1604, and 1605 [enacting
"(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
Effective Date of 1975 Amendment
Effective Date of 1964 Amendments
Amendment by
Amendment by
Effective Date
Savings Provision
For provisions that nothing in amendment by section 401(b)(28) of
Study Relating To Taxable REIT Subsidiaries
Trust Not Disqualified in Certain Cases Where Income Tests Not Met
§857. Taxation of real estate investment trusts and their beneficiaries
(a) Requirements applicable to real estate investment trusts
The provisions of this part (other than subsection (d) of this section and subsection (g) of section 856) shall not apply to a real estate investment trust for a taxable year unless—
(1) the deduction for dividends paid during the taxable year (as defined in section 561, but determined without regard to capital gains dividends) equals or exceeds—
(A) the sum of—
(i) 90 percent of the real estate investment trust taxable income for the taxable year (determined without regard to the deduction for dividends paid (as defined in section 561) and by excluding any net capital gain); and
(ii) 90 percent of the excess of the net income from foreclosure property over the tax imposed on such income by subsection (b)(4)(A); minus
(B) any excess noncash income (as determined under subsection (e)); and
(2) either—
(A) the provisions of this part apply to the real estate investment trust for all taxable years beginning after February 28, 1986, or
(B) as of the close of the taxable year, the real estate investment trust has no earnings and profits accumulated in any non-REIT year.
For purposes of the preceding sentence, the term "non-REIT year" means any taxable year to which the provisions of this part did not apply with respect to the entity. The Secretary may waive the requirements of paragraph (1) for any taxable year if the real estate investment trust establishes to the satisfaction of the Secretary that it was unable to meet such requirements by reason of distributions previously made to meet the requirements of section 4981.
(b) Method of taxation of real estate investment trusts and holders of shares or certificates of beneficial interest
(1) Imposition of tax on real estate investment trusts
There is hereby imposed for each taxable year on the real estate investment trust taxable income of every real estate investment trust a tax computed as provided in section 11, as though the real estate investment trust taxable income were the taxable income referred to in section 11.
(2) Real estate investment trust taxable income
For purposes of this part, the term "real estate investment trust taxable income" means the taxable income of the real estate investment trust, adjusted as follows:
(A) The deductions for corporations provided in part VIII (except section 248) of subchapter B (section 241 and following, relating to the deduction for dividends received, etc.) shall not be allowed.
(B) The deduction for dividends paid (as defined in section 561) shall be allowed, but shall be computed without regard to that portion of such deduction which is attributable to the amount excluded under subparagraph (D).
(C) The taxable income shall be computed without regard to section 443(b) (relating to computation of tax on change of annual accounting period).
(D) There shall be excluded an amount equal to the net income from foreclosure property.
(E) There shall be deducted an amount equal to the tax imposed by paragraphs (5) and (7) of this subsection, section 856(c)(7)(C), and section 856(g)(5) for the taxable year.
(F) There shall be excluded an amount equal to any net income derived from prohibited transactions.
(3) Capital gains
(A) Treatment of capital gain dividends by shareholders
A capital gain dividend shall be treated by the shareholders or holders of beneficial interests as a gain from the sale or exchange of a capital asset held for more than 1 year.
(B) Definition of capital gain dividend
For purposes of this part, a capital gain dividend is any dividend, or part thereof, which is designated by the real estate investment trust as a capital gain dividend in a written notice mailed to its shareholders or holders of beneficial interests at any time before the expiration of 30 days after the close of its taxable year (or mailed to its shareholders or holders of beneficial interests with its annual report for the taxable year); except that, if there is an increase in the excess described in subparagraph (A)(ii) of this paragraph for such year which results from a determination (as defined in section 860(e)), such designation may be made with respect to such increase at any time before the expiration of 120 days after the date of such determination. If the aggregate amount so designated with respect to a taxable year of the trust (including capital gain dividends paid after the close of the taxable year described in section 858) is greater than the net capital gain of the taxable year, the portion of each distribution which shall be a capital gain dividend shall be only that proportion of the amount so designated which such net capital gain bears to the aggregate amount so designated. For purposes of this subparagraph, the amount of the net capital gain for any taxable year which is not a calendar year shall be determined without regard to any net capital loss attributable to transactions after December 31 of such year, and any such net capital loss shall be treated as arising on the 1st day of the next taxable year. To the extent provided in regulations, the preceding sentence shall apply also for purposes of computing the taxable income of the real estate investment trust.
(C) Treatment by shareholders of undistributed capital gains
(i) Every shareholder of a real estate investment trust at the close of the trust's taxable year shall include, in computing his long-term capital gains in his return for his taxable year in which the last day of the trust's taxable year falls, such amount as the trust shall designate in respect of such shares in a written notice mailed to its shareholders at any time prior to the expiration of 60 days after the close of its taxable year (or mailed to its shareholders or holders of beneficial interests with its annual report for the taxable year), but the amount so includible by any shareholder shall not exceed that part of the amount subjected to tax in paragraph (1) which he would have received if all of such amount had been distributed as capital gain dividends by the trust to the holders of such shares at the close of its taxable year.
(ii) For purposes of this title, every such shareholder shall be deemed to have paid, for his taxable year under clause (i), the tax imposed by paragraph (1) on undistributed capital gain on the amounts required by this subparagraph to be included in respect of such shares in computing his long-term capital gains for that year; and such shareholders shall be allowed credit or refund as the case may be, for the tax so deemed to have been paid by him.
(iii) The adjusted basis of such shares in the hands of the holder shall be increased with respect to the amounts required by this subparagraph to be included in computing his long-term capital gains, by the difference between the amount of such includible gains and the tax deemed paid by such shareholder in respect of such shares under clause (ii).
(iv) In the event of such designation, the tax imposed by paragraph (1) on undistributed capital gain shall be paid by the real estate investment trust within 30 days after the close of its taxable year.
(v) The earnings and profits of such real estate investment trust, and the earnings and profits of any such shareholder which is a corporation, shall be appropriately adjusted in accordance with regulations prescribed by the Secretary.
(vi) As used in this subparagraph, the terms "shares" and "shareholders" shall include beneficial interests and holders of beneficial interests, respectively.
(D) Coordination with net operating loss provisions
For purposes of section 172, if a real estate investment trust pays capital gain dividends during any taxable year, the amount of the net capital gain for such taxable year (to the extent such gain does not exceed the amount of such capital gain dividends) shall be excluded in determining—
(i) the net operating loss for the taxable year, and
(ii) the amount of the net operating loss of any prior taxable year which may be carried through such taxable year under section 172(b)(2) to a succeeding taxable year.
(E) Certain distributions
In the case of a shareholder of a real estate investment trust to whom section 897 does not apply by reason of the second sentence of section 897(h)(1) or subparagraph (A)(ii) or (C) of section 897(k)(2), the amount which would be included in computing long-term capital gains for such shareholder under subparagraph (A) or (C) (without regard to this subparagraph)—
(i) shall not be included in computing such shareholder's long-term capital gains, and
(ii) shall be included in such shareholder's gross income as a dividend from the real estate investment trust.
(F) Undistributed capital gain
For purposes of this paragraph, the term "undistributed capital gain" means the excess of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only.
(4) Income from foreclosure property
(A) Imposition of tax
A tax is hereby imposed for each taxable year on the net income from foreclosure property of every real estate investment trust. Such tax shall be computed by multiplying the net income from foreclosure property by the highest rate of tax specified in section 11(b).
(B) Net income from foreclosure property
For purposes of this part, the term "net income from foreclosure property" means the excess of—
(i) gain (including any foreign currency gain, as defined in section 988(b)(1)) from the sale or other disposition of foreclosure property described in section 1221(a)(1) and the gross income for the taxable year derived from foreclosure property (as defined in section 856(e)), but only to the extent such gross income is not described in (or, in the case of foreign currency gain, not attributable to gross income described in) section 856(c)(3) other than subparagraph (F) thereof, over
(ii) the deductions allowed by this chapter which are directly connected with the production of the income referred to in clause (i).
(5) Imposition of tax in case of failure to meet certain requirements
If section 856(c)(6) applies to a real estate investment trust for any taxable year, there is hereby imposed on such trust a tax in an amount equal to the greater of—
(A) the excess of—
(i) 95 percent of the gross income (excluding gross income from prohibited transactions) of the real estate investment trust, over
(ii) the amount of such gross income which is derived from sources referred to in section 856(c)(2); or
(B) the excess of—
(i) 75 percent of the gross income (excluding gross income from prohibited transactions) of the real estate investment trust, over
(ii) the amount of such gross income which is derived from sources referred to in section 856(c)(3),
multiplied by a fraction the numerator of which is the real estate investment trust taxable income for the taxable year (determined without regard to the deductions provided in paragraphs (2)(B) and (2)(E), without regard to any net operating loss deduction, and by excluding any net capital gain) and the denominator of which is the gross income for the taxable year (excluding gross income from prohibited transactions; gross income and gain from foreclosure property (as defined in section 856(e), but only to the extent such gross income and gain is not described in subparagraph (A), (B), (C), (D), (E), or (G) of section 856(c)(3)); long-term capital gain; and short-term capital gain to the extent of any short-term capital loss).
(6) Income from prohibited transactions
(A) Imposition of tax
There is hereby imposed for each taxable year of every real estate investment trust a tax equal to 100 percent of the net income derived from prohibited transactions.
(B) Definitions
For purposes of this part—
(i) the term "net income derived from prohibited transactions" means the excess of the gain (including any foreign currency gain, as defined in section 988(b)(1)) from prohibited transactions over the deductions (including any foreign currency loss, as defined in section 988(b)(2)) allowed by this chapter which are directly connected with prohibited transactions;
(ii) in determining the amount of the net income derived from prohibited transactions, there shall not be taken into account any item attributable to any prohibited transaction for which there was a loss; and
(iii) the term "prohibited transaction" means a sale or other disposition of property described in section 1221(a)(1) which is not foreclosure property.
(C) Certain sales not to constitute prohibited transactions
For purposes of this part, the term "prohibited transaction" does not include a sale of property which is a real estate asset (as defined in section 856(c)(5)(B)) if—
(i) the trust has held the property for not less than 2 years;
(ii) aggregate expenditures made by the trust, or any partner of the trust, during the 2-year period preceding the date of sale which are includible in the basis of the property do not exceed 30 percent of the net selling price of the property;
(iii)(I) during the taxable year the trust does not make more than 7 sales of property (other than sales of foreclosure property or sales to which section 1033 applies), or (II) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the aggregate bases (as so determined) of all of the assets of the trust as of the beginning of the taxable year, or (III) the fair market value of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the fair market value of all of the assets of the trust as of the beginning of the taxable year, or (IV) the trust satisfies the requirements of subclause (II) applied by substituting "20 percent" for "10 percent" and the 3-year average adjusted bases percentage for the taxable year (as defined in subparagraph (G)) does not exceed 10 percent, or (V) the trust satisfies the requirements of subclause (III) applied by substituting "20 percent" for "10 percent" and the 3-year average fair market value percentage for the taxable year (as defined in subparagraph (H)) does not exceed 10 percent;
(iv) in the case of property, which consists of land or improvements, not acquired through foreclosure (or deed in lieu of foreclosure), or lease termination, the trust has held the property for not less than 2 years for production of rental income; and
(v) if the requirement of clause (iii)(I) is not satisfied, substantially all of the marketing and development expenditures with respect to the property were made through an independent contractor (as defined in section 856(d)(3)) from whom the trust itself does not derive or receive any income or a taxable REIT subsidiary.
(D) Certain sales not to constitute prohibited transactions
For purposes of this part, the term "prohibited transaction" does not include a sale of property which is a real estate asset (as defined in section 856(c)(5)(B)) if—
(i) the trust held the property for not less than 2 years in connection with the trade or business of producing timber,
(ii) the aggregate expenditures made by the trust, or a partner of the trust, during the 2-year period preceding the date of sale which—
(I) are includible in the basis of the property (other than timberland acquisition expenditures), and
(II) are directly related to operation of the property for the production of timber or for the preservation of the property for use as timberland,
do not exceed 30 percent of the net selling price of the property,
(iii) the aggregate expenditures made by the trust, or a partner of the trust, during the 2-year period preceding the date of sale which—
(I) are includible in the basis of the property (other than timberland acquisition expenditures), and
(II) are not directly related to operation of the property for the production of timber, or for the preservation of the property for use as timberland,
do not exceed 5 percent of the net selling price of the property,
(iv)(I) during the taxable year the trust does not make more than 7 sales of property (other than sales of foreclosure property or sales to which section 1033 applies), or
(II) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the aggregate bases (as so determined) of all of the assets of the trust as of the beginning of the taxable year, or
(III) the fair market value of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the fair market value of all of the assets of the trust as of the beginning of the taxable year, or
(IV) the trust satisfies the requirements of subclause (II) applied by substituting "20 percent" for "10 percent" and the 3-year average adjusted bases percentage for the taxable year (as defined in subparagraph (G)) does not exceed 10 percent, or
(V) the trust satisfies the requirements of subclause (III) applied by substituting "20 percent" for "10 percent" and the 3-year average fair market value percentage for the taxable year (as defined in subparagraph (H)) does not exceed 10 percent,
(v) in the case that the requirement of clause (iv)(I) is not satisfied, substantially all of the marketing expenditures with respect to the property were made through an independent contractor (as defined in section 856(d)(3)) from whom the trust itself does not derive or receive any income, or a taxable REIT subsidiary, and
(vi) the sales price of the property sold by the trust is not based in whole or in part on income or profits, including income or profits derived from the sale or operation of such property.
(E) Special rules
In applying subparagraphs (C) and (D) the following special rules apply:
(i) The holding period of property acquired through foreclosure (or deed in lieu of foreclosure), or termination of the lease, includes the period for which the trust held the loan which such property secured, or the lease of such property.
(ii) In the case of a property acquired through foreclosure (or deed in lieu of foreclosure), or termination of a lease, expenditures made by, or for the account of, the mortgagor or lessee after default became imminent will be regarded as made by the trust.
(iii) Expenditures (including expenditures regarded as made directly by the trust, or indirectly by any partner of the trust, under clause (ii)) will not be taken into account if they relate to foreclosure property and did not cause the property to lose its status as foreclosure property.
(iv) Expenditures will not be taken into account if they are made solely to comply with standards or requirements of any government or governmental authority having relevant jurisdiction, or if they are made to restore the property as a result of losses arising from fire, storm or other casualty.
(v) The term "expenditures" does not include advances on a loan made by the trust.
(vi) The sale of more than one property to one buyer as part of one transaction constitutes one sale.
(vii) The term "sale" does not include any transaction in which the net selling price is less than $10,000.
(F) No inference with respect to treatment as inventory property
The determination of whether property is described in section 1221(a)(1) shall be made without regard to this paragraph.
(G) 3-year average adjusted bases percentage
The term "3-year average adjusted bases percentage" means, with respect to any taxable year, the ratio (expressed as a percentage) of—
(i) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the 3 taxable year period ending with such taxable year, divided by
(ii) the sum of the aggregate adjusted bases (as so determined) of all of the assets of the trust as of the beginning of each of the 3 taxable years which are part of the period referred to in clause (i).
(H) 3-year average fair market value percentage
The term "3-year average fair market value percentage" means, with respect to any taxable year, the ratio (expressed as a percentage) of—
(i) the fair market value of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the 3 taxable year period ending with such taxable year, divided by
(ii) the sum of the fair market value of all of the assets of the trust as of the beginning of each of the 3 taxable years which are part of the period referred to in clause (i).
(I) Sales of property that are not a prohibited transaction
In the case of a sale on or before the termination date, the sale of property which is not a prohibited transaction through the application of subparagraph (D) shall be considered property held for investment or for use in a trade or business and not property described in section 1221(a)(1) for all purposes of this subtitle. For purposes of the preceding sentence, the reference to subparagraph (D) shall be a reference to such subparagraph as in effect on the day before the enactment of the Housing Assistance Tax Act of 2008, as modified by subparagraph (G) as so in effect.
(J) Termination date
For purposes of this paragraph, the term "termination date" has the meaning given such term by section 856(c)(10).
(7) Income from redetermined rents, redetermined deductions, and excess interest
(A) Imposition of tax
There is hereby imposed for each taxable year of the real estate investment trust a tax equal to 100 percent of redetermined rents, redetermined deductions, excess interest, and redetermined TRS service income.
(B) Redetermined rents
(i) In general
The term "redetermined rents" means rents from real property (as defined in section 856(d)) to the extent the amount of the rents would (but for subparagraph (F)) be reduced on distribution, apportionment, or allocation under section 482 to clearly reflect income as a result of services furnished or rendered by a taxable REIT subsidiary of the real estate investment trust to a tenant of such trust.
(ii) Exception for de minimis amounts
Clause (i) shall not apply to amounts described in section 856(d)(7)(A) with respect to a property to the extent such amounts do not exceed the one percent threshold described in section 856(d)(7)(B) with respect to such property.
(iii) Exception for comparably priced services
Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if—
(I) such subsidiary renders a significant amount of similar services to persons other than such trust and tenants of such trust who are unrelated (within the meaning of section 856(d)(8)(F)) to such subsidiary, trust, and tenants, but
(II) only to the extent the charge for such service so rendered is substantially comparable to the charge for the similar services rendered to persons referred to in subclause (I).
(iv) Exception for certain separately charged services
Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if—
(I) the rents paid to the trust by tenants (leasing at least 25 percent of the net leasable space in the trust's property) who are not receiving such service from such subsidiary are substantially comparable to the rents paid by tenants leasing comparable space who are receiving such service from such subsidiary, and
(II) the charge for such service from such subsidiary is separately stated.
(v) Exception for certain services based on subsidiary's income from the services
Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if the gross income of such subsidiary from such service is not less than 150 percent of such subsidiary's direct cost in furnishing or rendering the service.
(vi) Exceptions granted by Secretary
The Secretary may waive the tax otherwise imposed by subparagraph (A) if the trust establishes to the satisfaction of the Secretary that rents charged to tenants were established on an arms' length basis even though a taxable REIT subsidiary of the trust provided services to such tenants.
(C) Redetermined deductions
The term "redetermined deductions" means deductions (other than redetermined rents) of a taxable REIT subsidiary of a real estate investment trust to the extent the amount of such deductions would (but for subparagraph (F)) be decreased on distribution, apportionment, or allocation under section 482 to clearly reflect income as between such subsidiary and such trust.
(D) Excess interest
The term "excess interest" means any deductions for interest payments by a taxable REIT subsidiary of a real estate investment trust to such trust to the extent that the interest payments are in excess of a rate that is commercially reasonable.
(E) Redetermined TRS service income
(i) In general
The term "redetermined TRS service income" means gross income of a taxable REIT subsidiary of a real estate investment trust attributable to services provided to, or on behalf of, such trust (less deductions properly allocable thereto) to the extent the amount of such income (less such deductions) would (but for subparagraph (F)) be increased on distribution, apportionment, or allocation under section 482.
(ii) Coordination with redetermined rents
Clause (i) shall not apply with respect to gross income attributable to services furnished or rendered to a tenant of the real estate investment trust (or to deductions properly allocable thereto).
(F) Coordination with section 482
The imposition of tax under subparagraph (A) shall be in lieu of any distribution, apportionment, or allocation under section 482.
(G) Regulatory authority
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph. Until the Secretary prescribes such regulations, real estate investment trusts and their taxable REIT subsidiaries may base their allocations on any reasonable method.
(8) Loss on sale or exchange of stock held 6 months or less
(A) In general
If—
(i) subparagraph (B) or (D) of paragraph (3) provides that any amount with respect to any share or beneficial interest is to be treated as a long-term capital gain, and
(ii) the taxpayer has held such share or interest for 6 months or less,
then any loss on the sale or exchange of such share or interest shall, to the extent of the amount described in clause (i), be treated as a long-term capital loss.
(B) Determination of holding periods
For purposes of this paragraph, in determining the period for which the taxpayer has held any share of stock or beneficial interest—
(i) the rules of paragraphs (3) and (4) of section 246(c) shall apply, and
(ii) there shall not be taken into account any day which is more than 6 months after the date on which such share or interest becomes ex-dividend.
(C) Exception for losses incurred under periodic liquidation plans
To the extent provided in regulations, subparagraph (A) shall not apply to any loss incurred on the sale or exchange of shares of stock of, or beneficial interest in, a real estate investment trust pursuant to a plan which provides for the periodic liquidation of such shares or interests.
(9) Time certain dividends taken into account
For purposes of this title, any dividend declared by a real estate investment trust in October, November, or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed—
(A) to have been received by each shareholder on December 31 of such calendar year, and
(B) to have been paid by such trust on December 31 of such calendar year (or, if earlier, as provided in section 858).
The preceding sentence shall apply only if such dividend is actually paid by the company during January of the following calendar year.
(c) Restrictions applicable to dividends received from real estate investment trusts
(1) Section 243
For purposes of section 243 (relating to deductions for dividends received by corporations), a dividend received from a real estate investment trust which meets the requirements of this part shall not be considered a dividend.
(2) Section (1)(h)(11)
(A) In general
In any case in which—
(i) a dividend is received from a real estate investment trust (other than a capital gain dividend), and
(ii) such trust meets the requirements of section 856(a) for the taxable year during which it paid such dividend,
then, in computing qualified dividend income, there shall be taken into account only that portion of such dividend designated by the real estate investment trust.
(B) Limitation
The aggregate amount which may be designated as qualified dividend income under subparagraph (A) shall not exceed the sum of—
(i) the qualified dividend income of the trust for the taxable year,
(ii) the excess of—
(I) the sum of the real estate investment trust taxable income computed under section 857(b)(2) for the preceding taxable year and the income subject to tax by reason of the application of the regulations under section 337(d) for such preceding taxable year, over
(II) the sum of the taxes imposed on the trust for such preceding taxable year under section 857(b)(1) and by reason of the application of such regulations, and
(iii) the amount of any earnings and profits which were distributed by the trust for such taxable year and accumulated in a taxable year with respect to which this part did not apply.
(C) Notice to shareholders
The amount of any distribution by a real estate investment trust which may be taken into account as qualified dividend income shall not exceed the amount so designated by the trust in a written notice to its shareholders mailed not later than 60 days after the close of its taxable year.
(D) Qualified dividend income
For purposes of this paragraph, the term "qualified dividend income" has the meaning given such term by section 1(h)(11)(B).
(d) Earnings and profits
(1) In general
The earnings and profits of a real estate investment trust for any taxable year (but not its accumulated earnings) shall not be reduced by any amount which—
(A) is not allowable in computing its taxable income for such taxable year, and
(B) was not allowable in computing its taxable income for any prior taxable year.
(2) Coordination with tax on undistributed income
A real estate investment trust shall be treated as having sufficient earnings and profits to treat as a dividend any distribution (other than in a redemption to which section 302(a) applies) which is treated as a dividend by such trust. The preceding sentence shall not apply to the extent that the amount distributed during any calendar year by the trust exceeds the required distribution for such calendar year (as determined under section 4981).
(3) Distributions to meet requirements of subsection (a)(2)(B)
Any distribution which is made in order to comply with the requirements of subsection (a)(2)(B)—
(A) shall be treated for purposes of this subsection and subsection (a)(2)(B) as made from earnings and profits which, but for the distribution, would result in a failure to meet such requirements (and allocated to such earnings on a first-in, first-out basis), and
(B) to the extent treated under subparagraph (A) as made from accumulated earnings and profits, shall not be treated as a distribution for purposes of subsection (b)(2)(B) and section 858.
(4) Real estate investment trust
For purposes of this subsection, the term "real estate investment trust" includes a domestic corporation, trust, or association which is a real estate investment trust determined without regard to the requirements of subsection (a).
(5) Special rules for determining earnings and profits for purposes of the deduction for dividends paid
For special rules for determining the earnings and profits of a real estate investment trust for purposes of the deduction for dividends paid, see section 562(e)(1).
(e) Excess noncash income
(1) In general
For purposes of subsection (a)(1)(B), the term "excess noncash income" means the excess (if any) of—
(A) the amount determined under paragraph (2) for the taxable year, over
(B) 5 percent of the real estate investment trust taxable income for the taxable year determined without regard to the deduction for dividends paid (as defined in section 561) and by excluding any net capital gain.
(2) Determination of amount
The amount determined under this paragraph for the taxable year is the sum of—
(A) the amount (if any) by which—
(i) the amounts includible in gross income under section 467 (relating to certain payments for the use of property or services), exceed
(ii) the amounts which would have been includible in gross income without regard to such section,
(B) any income on the disposition of a real estate asset if—
(i) there is a determination (as defined in section 860(e)) that such income is not eligible for nonrecognition under section 1031, and
(ii) failure to meet the requirements of section 1031 was due to reasonable cause and not to willful neglect,
(C) the amount (if any) by which—
(i) the amounts includible in gross income with respect to instruments to which section 860E(a) or 1272 applies, exceed
(ii) the amount of money and the fair market value of other property received during the taxable year under such instruments, and
(D) amounts includible in income by reason of cancellation of indebtedness.
(f) Real estate investment trusts to ascertain ownership
(1) In general
Each real estate investment trust shall each taxable year comply with regulations prescribed by the Secretary for the purposes of ascertaining the actual ownership of the outstanding shares, or certificates of beneficial interest, of such trust.
(2) Failure to comply
(A) In general
If a real estate investment trust fails to comply with the requirements of paragraph (1) for a taxable year, such trust shall pay (on notice and demand by the Secretary and in the same manner as tax) a penalty of $25,000.
(B) Intentional disregard
If any failure under paragraph (1) is due to intentional disregard of the requirement under paragraph (1), the penalty under subparagraph (A) shall be $50,000.
(C) Failure to comply after notice
The Secretary may require a real estate investment trust to take such actions as the Secretary determines appropriate to ascertain actual ownership if the trust fails to meet the requirements of paragraph (1). If the trust fails to take such actions, the trust shall pay (on notice and demand by the Secretary and in the same manner as tax) an additional penalty equal to the penalty determined under subparagraph (A) or (B), whichever is applicable.
(D) Reasonable cause
No penalty shall be imposed under this paragraph with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect.
(g) Limitations on designation of dividends
(1) Overall limitation
The aggregate amount of dividends designated by a real estate investment trust under subsections (b)(3)(C) and (c)(2)(A) with respect to any taxable year may not exceed the dividends paid by such trust with respect to such year. For purposes of the preceding sentence, dividends paid after the close of the taxable year described in section 858 shall be treated as paid with respect to such year.
(2) Proportionality
The Secretary may prescribe regulations or other guidance requiring the proportionality of the designation of particular types of dividends among shares or beneficial interests of a real estate investment trust.
(h) Cross reference
For provisions relating to excise tax based on certain real estate investment trust taxable income not distributed during the taxable year, see section 4981.
(Added
Editorial Notes
References in Text
The date of enactment of the Housing Assistance Tax Act of 2008, referred to in subsec. (b)(6)(I), is the date of enactment of div. C of
Codification
Amendments
2018—Subsec. (b)(6)(J).
2017—Subsec. (b)(3)(A), (B).
Subsec. (b)(3)(C).
Subsec. (b)(3)(C)(i), (ii), (iv).
Subsec. (b)(3)(D).
Subsec. (b)(3)(E).
Subsec. (b)(3)(F).
2015—Subsec. (b)(3)(F).
Subsec. (b)(6)(C).
Subsec. (b)(6)(C)(iii)(IV), (V).
Subsec. (b)(6)(C)(v).
Subsec. (b)(6)(D).
Subsec. (b)(6)(D)(iv)(IV), (V).
Subsec. (b)(6)(D)(v).
Subsec. (b)(6)(F).
Subsec. (b)(6)(G) to (J).
Subsec. (b)(7)(A).
Subsec. (b)(7)(B)(i), (C).
Subsec. (b)(7)(E) to (G).
Subsec. (d)(1).
Subsec. (d)(4), (5).
Subsecs. (g), (h).
2008—Subsec. (b)(3)(A)(ii).
Subsec. (b)(4)(B)(i).
Subsec. (b)(6)(B)(i).
Subsec. (b)(6)(C).
Subsec. (b)(6)(C)(i).
Subsec. (b)(6)(C)(ii).
Subsec. (b)(6)(C)(iii)(III).
Subsec. (b)(6)(C)(iv).
Subsec. (b)(6)(D).
Subsec. (b)(6)(D)(i).
Subsec. (b)(6)(D)(ii), (iii).
Subsec. (b)(6)(D)(iv)(III).
Subsec. (b)(6)(D)(v).
Subsec. (b)(6)(G).
"(i)
"(I) by substituting '2 years' for '4 years' in clause (i), and
"(II) by substituting '2-year period' for '4-year period' in clauses (ii) and (iii).
"(ii)
Subsec. (b)(6)(H), (I).
2007—Subsec. (b)(8)(B).
2005—Subsec. (b)(2)(E).
Subsec. (b)(6)(E).
Subsec. (b)(6)(F).
2004—Subsec. (b)(2)(E).
Subsec. (b)(3)(F).
Subsec. (b)(5)(A)(i).
Subsec. (b)(6)(D) to (F).
Subsec. (b)(7)(B)(ii) to (vii).
Subsec. (c)(2).
2003—Subsec. (c).
2002—Subsec. (b)(7)(B)(i).
Subsec. (b)(7)(C).
2000—Subsec. (b)(7)(B)(ii).
1999—Subsec. (a)(1)(A)(i), (ii).
Subsec. (b)(2)(E).
Subsec. (b)(4)(B)(i).
Subsec. (b)(5)(A)(i).
Subsec. (b)(6)(B)(iii).
Subsec. (b)(7) to (9).
Subsec. (d)(3)(A).
Subsec. (d)(3)(B).
1998—Subsec. (d)(3)(A).
1997—Subsec. (a)(2), (3).
Subsec. (b)(3)(D), (E).
Subsec. (b)(5).
Subsec. (b)(6)(C).
Subsec. (b)(6)(C)(iii).
Subsec. (b)(7)(A)(i).
Subsec. (d)(3).
Subsec. (e)(2)(B) to (D).
"(i) the amounts includible in gross income with respect to instruments to which section 1274 (relating to certain debt instruments issued for property) applies, exceed
"(ii) the amount of money and the fair market value of other property received during the taxable year under such instruments; plus".
Subsecs. (f), (g).
1990—Subsec. (b)(3)(C).
1988—Subsec. (a).
Subsec. (b)(3)(C).
Subsec. (b)(8).
Subsec. (e)(2)(B)(i).
1986—Subsec. (a).
Subsec. (a)(1)(B).
"(i) the amount of any penalty imposed on the real estate investment trust by section 6697 which is paid by such trust during the taxable year; and
"(ii) the net loss derived from prohibited transactions,".
Subsec. (b)(2)(F).
Subsec. (b)(3)(C).
Subsec. (b)(3)(D).
Subsec. (b)(6)(B)(ii).
Subsec. (b)(6)(C)(ii).
Subsec. (b)(6)(C)(iii).
Subsec. (b)(6)(C)(v).
Subsec. (b)(8).
Subsec. (c).
Subsec. (d).
Subsecs. (e), (f).
1984—Subsec. (b)(3)(B).
Subsec. (b)(7).
Subsec. (c).
1981—Subsec. (c).
1980—Subsec. (b)(4)(A).
Subsec. (c).
1978—Subsec. (b)(1).
Subsec. (b)(3)(A)(ii).
Subsec. (b)(3)(C).
Subsec. (b)(6)(C) to (E).
1976—Subsec. (a).
Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(3)(A).
Subsec. (b)(3)(B).
Subsec. (b)(3)(C).
Subsec. (b)(4)(B)(i).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (b)(7).
Subsec. (d).
Subsec. (e).
1975—Subsec. (a)(1).
Subsec. (b)(2)(C).
Subsec. (b)(2)(F).
Subsec. (b)(4), (5).
1969—Subsec. (b)(3)(A).
Subsec. (b)(3)(C).
1964—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2015 Amendment
"(1)
"(2)
"(A)
"(B)
Amendment by section 320(a) of
Amendment by section 321(a)(1), (2), (b) of
"(1)
"(A) any disposition on and after the date of the enactment of this Act, and
"(B) any distribution by a real estate investment trust on or after the date of the enactment of this Act which is treated as a deduction for a taxable year of such trust ending after such date."
Effective Date of 2008 Amendment
Amendment by section 3033(a) of
Amendment by sections 3051 and 3052 of
Amendment of this section and repeal of
Amendment by section 15311(c) of
[
Effective Date of 2005 Amendment
Amendment by section 403(d)(3) of
Effective Date of 2004 Amendments
Amendment by section 243(c), (e) of
"(1) any distribution by a real estate investment trust which is treated as a deduction for a taxable year of such trust beginning after the date of the enactment of this Act [Oct. 22, 2004], and
"(2) any distribution by a real estate investment trust made after such date which is treated as a deduction under section 860 [probably means section 860 of the Internal Revenue Code of 1986] for a taxable year of such trust beginning on or before such date."
Amendment by
Effective Date of 2003 Amendment
Amendment by
Effective Date of 2002 Amendment
Effective Date of 2000 Amendment
Amendment by
Effective Date of 1999 Amendment
Amendment by section 532(c)(2)(L), (M) of
Amendment by section 545 of
Amendment by section 566(a)(2), (b) of
Effective Date of 1998 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by sections 1006(r), (s)(2), (4) and 1018(u)(28) of
Effective Date of 1986 Amendment
Amendment by section 612(b)(7) of
Amendments by sections 661(b), 664, 665(a), (b)(1), and 666 of
Amendment by section 668(b)(1)(A), (2), (3) of
Effective Date of 1984 Amendment
Amendment by section 16(a) of
Amendment by section 55(b) of
Amendment by section 1001(b)(13) of
Effective Date of 1980 Amendment
Amendment by
Effective and Termination Dates of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by section 301(b)(12) of
Amendment by section 362(d)(3) of
Amendment by section 363(b) of
Amendment by section 403(c)(3) of
Effective Date of 1976 Amendment
"(1) the reference to [former] section 857(b)(3)(A)(ii) in sections 857(b)(3)(C) [now 857(b)(3)(B)] and 859(b)(1)(B) of such Code as amended, shall be considered to be a reference to [former] section 857(b)(3)(A) of such Code, as in effect immediately before the enactment of this Act [Oct. 4, 1976], and
"(2) the reference to section 857(b)(2)(B) in section 859(a) of such Code, as amended, shall be considered to be a reference to section 857(b)(2)(C) of such Code, as in effect immediately before the enactment of this Act [Oct. 4, 1976]."
For effective date of amendment by section 1602(b)(1), (2) of
For effective date of amendment by sections 1603, 1604, and 1605 of
Amendment by section 1901(a)(112), (b)(1)(V), (33)(K) of
Effective Date of 1975 Amendment
Amendment by
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1964 Amendment
Amendment by
Effective Date
Section applicable with respect to taxable years of real estate investment trusts beginning after Dec. 31, 1960, see section 10(k) of
§858. Dividends paid by real estate investment trust after close of taxable year
(a) General rule
For purposes of this part, if a real estate investment trust—
(1) declares a dividend before the time prescribed by law for the filing of its return for a taxable year (including the period of any extension of time granted for filing such return), and
(2) distributes the amount of such dividend to shareholders or holders of beneficial interests in the 12-month period following the close of such taxable year and not later than the date of the first regular dividend payment made after such declaration,
the amount so declared and distributed shall, to the extent the trust elects in such return (and specifies in dollar amounts) in accordance with regulations prescribed by the Secretary, be considered as having been paid only during such taxable year, except as provided in subsections (b) and (c).
(b) Receipt by shareholder
Except as provided in section 857(b)(9), amounts to which subsection (a) applies shall be treated as received by the shareholder or holder of a beneficial interest in the taxable year in which the distribution is made.
(c) Notice to shareholders
In the case of amounts to which subsection (a) applies, any notice to shareholders or holders of beneficial interests required under this part with respect to such amounts shall be made not later than 30 days after the close of the taxable year in which the distribution is made (or mailed to its shareholders or holders of beneficial interests with its annual report for the taxable year).
(Added
Editorial Notes
Amendments
2014—Subsec. (b).
1988—Subsec. (b).
1986—Subsec. (b).
Subsec. (c).
1976—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 665(b)(2) of
Effective Date of 1976 Amendment
For effective date of amendment by section 1604(h) of
Effective Date
Section applicable with respect to taxable years of real estate investment trusts beginning after Dec. 31, 1960, see section 10(k) of
§859. Adoption of annual accounting period
(a) General rule
For purposes of this subtitle—
(1) a real estate investment trust shall not change to any accounting period other than the calendar year, and
(2) a corporation, trust, or association may not elect to be a real estate investment trust for any taxable year beginning after October 4, 1976, unless its accounting period is the calendar year.
Paragraph (2) shall not apply to a corporation, trust, or association which was considered to be a real estate investment trust for any taxable year beginning on or before October 4, 1976.
(b) Change of accounting period without approval
Notwithstanding section 442, an entity which has not engaged in any active trade or business may change its accounting period to a calendar year without the approval of the Secretary if such change is in connection with an election under section 856(c).
(Added
Editorial Notes
Prior Provisions
A prior section 859, added
Amendments
1986—
1978—
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1978 Amendment
Repeal of prior