Sec. 322. Exception from FIRPTA for certain stock of REITs
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Section 897 is amended by adding at the end the following new subsection: In the case of any disposition of stock in a real estate investment trust, paragraphs
(3)and (6)(C) of subsection
(c)shall each be applied by substituting more than 10 percent for more than 5 percent . In the case of any distribution from a real estate investment trust, subsection (h)(1) shall be applied by substituting 10 percent for 5 percent . Except as provided in subparagraph (B)— stock of a real estate investment trust which is held directly (or indirectly through 1 or more partnerships) by a qualified shareholder shall not be treated as a United States real property interest, and notwithstanding subsection (h)(1), any distribution to a qualified shareholder shall not be treated as gain recognized from the sale or exchange of a United States real property interest to the extent the stock of the real estate investment trust held by such qualified shareholder is not treated as a United States real property interest under clause (i). In the case of a qualified shareholder with 1 or more applicable investors— subparagraph (A)(i) shall not apply to so much of the stock of a real estate investment trust held by a qualified shareholder as bears the same ratio to the value of the interests (other than interests held solely as a creditor) held by such applicable investors in the qualified shareholder bears to value of all interests (other than interests held solely as a creditor) in the qualified shareholder, and a percentage equal to the ratio determined under clause
(i)of the amounts realized by the qualified shareholder with respect to any disposition of stock in the real estate investment trust or with respect to any distribution from the real estate investment trust attributable to gain from sales or exchanges of a United States real property interest shall be treated as amounts realized from the disposition of United States real property interests. If a distribution by a real estate investment trust is treated as a sale or exchange of stock under section 301(c)(3), 302, or 331 with respect to a qualified shareholder— in the case of an applicable investor, subparagraph
(B)shall apply with respect to such distribution, and in the case of any other person, such distribution shall be treated under section 857(b)(3)(F) as a dividend from a real estate investment trust notwithstanding any other provision of this title. For purposes of this paragraph, the term applicable investor means, with respect to any qualified shareholder holding stock in a real estate investment trust, a person (other than a qualified shareholder) which— holds an interest (other than an interest solely as a creditor) in such qualified shareholder, and holds more than 10 percent of the stock of such real estate investment trust (whether or not by reason of the person’s ownership interest in the qualified shareholder). For purposes of subparagraphs (B)(i) and
(C)and paragraph (4), the constructive ownership rules under subsection (c)(6)(C) shall apply. For purposes of this subsection— The term qualified shareholder means a foreign person which— is eligible for benefits of a comprehensive income tax treaty with the United States which includes an exchange of information program and the principal class of interests of which is listed and regularly traded on 1 or more recognized stock exchanges (as defined in such comprehensive income tax treaty), or is a foreign partnership that is created or organized under foreign law as a limited partnership in a jurisdiction that has an agreement for the exchange of information with respect to taxes with the United States and has a class of limited partnership units which is regularly traded on the New York Stock Exchange or Nasdaq Stock Market and such class of limited partnership units value is greater than 50 percent of the value of all the partnership units, is a qualified collective investment vehicle, and maintains records on the identity of each person who, at any time during the foreign person’s taxable year, holds directly 5 percent or more of the class of interest described in subclause
(I)or
(II)of clause (i), as the case may be. For purposes of this subsection, the term qualified collective investment vehicle means a foreign person— which, under the comprehensive income tax treaty described in subparagraph (A)(i), is eligible for a reduced rate of withholding with respect to ordinary dividends paid by a real estate investment trust even if such person holds more than 10 percent of the stock of such real estate investment trust, which— is a publicly traded partnership (as defined in section 7704(b)) to which subsection
(a)of section 7704 does not apply, is a withholding foreign partnership for purposes of chapters 3, 4, and 61, if such foreign partnership were a United States corporation, would be a United States real property holding corporation (determined without regard to paragraph (1)) at any time during the 5-year period ending on the date of disposition of, or distribution with respect to, such partnership’s interests in a real estate investment trust, or which is designated as a qualified collective investment vehicle by the Secretary and is either— fiscally transparent within the meaning of section 894, or required to include dividends in its gross income, but entitled to a deduction for distributions to persons holding interests (other than interests solely as a creditor) in such foreign person. For the purposes of this subsection, in the case of an applicable investor who is a nonresident alien individual or a foreign corporation and is a partner in a partnership that is a qualified shareholder, if such partner’s proportionate share of USRPI gain for the taxable year exceeds such partner’s distributive share of USRPI gain for the taxable year, then such partner’s distributive share of the amount of gain taken into account under subsection (a)(1) by the partner for the taxable year (determined without regard to this paragraph) shall be increased by the amount of such excess, and such partner’s distributive share of items of income or gain for the taxable year that are not treated as gain taken into account under subsection (a)(1) (determined without regard to this paragraph) shall be decreased (but not below zero) by the amount of such excess. For the purposes of this paragraph, the term USRPI gain means the excess (if any) of— the sum of— any gain recognized from the disposition of a United States real property interest, and any distribution by a real estate investment trust that is treated as gain recognized from the sale or exchange of a United States real property interest, over any loss recognized from the disposition of a United States real property interest. For purposes of this paragraph, an applicable investor’s proportionate share of USRPI gain shall be determined on the basis of such investor’s share of partnership items of income or gain (excluding gain allocated under section 704(c)), whichever results in the largest proportionate share. If the investor’s share of partnership items of income or gain (excluding gain allocated under section 704(c)) may vary during the period such investor is a partner in the partnership, such share shall be the highest share such investor may receive. . Section 897(c)(1)(A) is amended by inserting or subsection
(k)after subparagraph
(B)in the matter preceding clause (i). Section 857(b)(3)(F) is amended by inserting or subparagraph (A)(ii) or
(C)of section 897(k)(2) after 897(h)(1) . Section 897(h)(4) is amended by adding at the end the following new subparagraph: For purposes of determining the holder of stock under subparagraphs
(B)and (C)— in the case of any class of stock of the qualified investment entity which is regularly traded on an established securities market in the United States, a person holding less than 5 percent of such class of stock at all times during the testing period shall be treated as a United States person unless the qualified investment entity has actual knowledge that such person is not a United States person, any stock in the qualified investment entity held by another qualified investment entity— any class of stock of which is regularly traded on an established securities market, or which is a regulated investment company which issues redeemable securities (within the meaning of section 2 of the Investment Company Act of 1940), shall be treated as held by a foreign person, except that if such other qualified investment entity is domestically controlled (determined after application of this subparagraph), such stock shall be treated as held by a United States person, and any stock in the qualified investment entity held by any other qualified investment entity not described in subclause
(I)or
(II)of clause
(ii)shall only be treated as held by a United States person in proportion to the stock of such other qualified investment entity which is (or is treated under clause
(ii)or
(iii)as) held by a United States person. . The heading for paragraph
(4)of section 897(h) is amended by inserting after and special rules . Definitions Clause
(ii)of section 897(h)(4)(A) is amended by inserting and for purposes of determining whether a real estate investment trust is a domestically controlled qualified investment entity under this subsection after real estate investment trust . The amendments made by subsection
(a)shall take effect on the date of enactment and shall apply to— any disposition on and after the date of the enactment of this Act, and 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. The amendments made by subsection (b)(1) shall take effect on the date of the enactment of this Act. The amendment made by subsection (b)(2) shall take effect on January 1, 2015.