-CITE-
26 USC Subchapter M - Regulated Investment Companies and
Real Estate Investment Trusts 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
-HEAD-
SUBCHAPTER M - REGULATED INVESTMENT COMPANIES AND REAL ESTATE
INVESTMENT TRUSTS
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Part
I. Regulated investment companies.
II. Real estate investment trusts.
III. Provisions which apply to both regulated investment
companies and real estate investment trusts.
IV. Real estate mortgage investment conduits.
V. Financial asset securitization investment trusts.
AMENDMENTS
1996 - Pub. L. 104-188, title I, Sec. 1621(c), Aug. 20, 1996, 110
Stat. 1867, added item for part V.
1988 - Pub. L. 100-647, title I, Sec. 1018(u)(30), Nov. 10, 1988,
102 Stat. 3591, added item for part IV.
1978 - Pub. L. 95-600, title III, Sec. 362(d)(8), Nov. 6, 1978,
92 Stat. 2852, added item for part III.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in sections 11, 52, 269B, 1504 of
this title.
-End-
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26 USC PART I - REGULATED INVESTMENT COMPANIES 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
PART I - REGULATED INVESTMENT COMPANIES
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Sec.
851. Definition of regulated investment company.
852. Taxation of regulated investment companies and their
shareholders.
853. Foreign tax credit allowed to shareholders.
854. Limitations applicable to dividends received from
regulated investment company.
855. Dividends paid by regulated investment company after
close of taxable year.
AMENDMENTS
1980 - Pub. L. 96-223, title IV, Sec. 404(b)(7), Apr. 2, 1980, 94
Stat. 307, inserted "and taxable interest" after "dividends" in
item 854 for taxable years after Dec. 31, 1980, and before Jan. 1,
1982.
1960 - Pub. L. 86-779, Sec. 10(b)(1), Sept. 14, 1960, 74 Stat.
1008, inserted "and Real Estate Investment Trusts" in subchapter M
heading, part I and part II designations thereunder and part I
designation preceding table of sections numbered 851 to 855.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 59, 59A, 382 of this title.
-End-
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26 USC Sec. 851 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 851. Definition of regulated investment company
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "regulated investment
company" means any domestic corporation -
(1) which, at all times during the taxable year -
(A) is registered under the Investment Company Act of 1940,
as amended (15 U.S.C. 80a-1 to 80b-2) as a management company
or unit investment trust, or
(B) has in effect an election under such Act to be treated as
a business development company, or
(2) which is a common trust fund or similar fund excluded by
section 3(c)(3) of such Act (15 U.S.C. 80a-3(c)) from the
definition of "investment company" and is not included in the
definition of "common trust fund" by section 584(a).
(b) Limitations
A corporation shall not be considered a regulated investment
company for any taxable year unless -
(1) it files with its return for the taxable year an election
to be a regulated investment company or has made such election
for a previous taxable year;
(2) at least 90 percent of its gross income is derived from
dividends, interest, payments with respect to securities loans
(as defined in section 512(a)(5)), and gains from the sale or
other disposition of stock or securities (as defined in section
2(a)(36) of the Investment Company Act of 1940, as amended) or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities,
or currencies; and
(3) at the close of each quarter of the taxable year -
(A) at least 50 percent of the value of its total assets is
represented by -
(i) cash and cash items (including receivables), Government
securities and securities of other regulated investment
companies, and
(ii) other securities for purposes of this calculation
limited, except and to the extent provided in subsection (e),
in respect of any one issuer to an amount not greater in
value than 5 percent of the value of the total assets of the
taxpayer and to not more than 10 percent of the outstanding
voting securities of such issuer, and
(B) not more than 25 percent of the value of its total assets
is invested in the securities (other than Government securities
or the securities of other regulated investment companies) of
any one issuer, or of two or more issuers which the taxpayer
controls and which are determined, under regulations prescribed
by the Secretary, to be engaged in the same or similar trades
or businesses or related trades or businesses.
For purposes of paragraph (2), there shall be treated as dividends
amounts included in gross income under section 951(a)(1)(A)(i) or
1293(a) for the taxable year to the extent that, under section
959(a)(1) or 1293(c) (as the case may be), there is a distribution
out of the earnings and profits of the taxable year which are
attributable to the amounts so included. For purposes of paragraph
(2), the Secretary may by regulation exclude from qualifying income
foreign currency gains which are not directly related to the
company's principal business of investing in stock or securities
(or options and futures with respect to stock or securities). For
purposes of paragraph (2), amounts excludable from gross income
under section 103(a) shall be treated as included in gross income.
Income derived from a partnership or trust shall be treated as
described in paragraph (2) only to the extent such income is
attributable to items of income of the partnership or trust (as the
case may be) which would be described in paragraph (2) if realized
by the regulated investment company in the same manner as realized
by the partnership or trust.
(c) Rules applicable to subsection (b)(3)
For purposes of subsection (b)(3) and this subsection -
(1) In ascertaining the value of the taxpayer's investment in
the securities of an issuer, for the purposes of subparagraph
(B), there shall be included its proper proportion of the
investment of any other corporation, a member of a controlled
group, in the securities of such issuer, as determined under
regulations prescribed by the Secretary.
(2) The term "controls" means the ownership in a corporation of
20 percent or more of the total combined voting power of all
classes of stock entitled to vote.
(3) The term "controlled group" means one or more chains of
corporations connected through stock ownership with the taxpayer
if -
(A) 20 percent or more of the total combined voting power of
all classes of stock entitled to vote of each of the
corporations (except the taxpayer) is owned directly by one or
more of the other corporations, and
(B) the taxpayer owns directly 20 percent or more of the
total combined voting power of all classes of stock entitled to
vote, of at least one of the other corporations.
(4) The term "value" means, with respect to securities (other
than those of majority-owned subsidiaries) 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 board of directors,
except that in the case of securities of majority-owned
subsidiaries which are investment companies such fair value shall
not exceed market value or asset value, whichever is higher.
(5) All other terms shall have the same meaning as when used in
the Investment Company Act of 1940, as amended.
(d) Determination of status
A corporation which meets the requirements of subsections (b)(3)
and (c) at the close of any quarter shall not lose its status as a
regulated investment company because of a discrepancy during a
subsequent quarter between the value of its various investments and
such requirements unless such discrepancy exists immediately after
the acquisition of any security or other property and is wholly or
partly the result of such acquisition. A corporation 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 regulated investment company 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.
(e) Investment companies furnishing capital to development
corporations
(1) General rule
If the Securities and Exchange Commission determines, in
accordance with regulations issued by it, and certifies to the
Secretary not earlier than 60 days prior to the close of the
taxable year of a management company or a business development
company described in subsection (a)(1), that such investment
company is principally engaged in the furnishing of capital to
other corporations which are principally engaged in the
development or exploitation of inventions, technological
improvements, new processes, or products not previously generally
available, such investment company may, in the computation of 50
percent of the value of its assets under subparagraph (A) of
subsection (b)(3) for any quarter of such taxable year, include
the value of any securities of an issuer, whether or not the
investment company owns more than 10 percent of the outstanding
voting securities of such issuer, the basis of which, when added
to the basis of the investment company for securities of such
issuer previously acquired, did not exceed 5 percent of the value
of the total assets of the investment company at the time of the
subsequent acquisition of securities. The preceding sentence
shall not apply to the securities of an issuer if the investment
company has continuously held any security of such issuer (or of
any predecessor company of such issuer as determined under
regulations prescribed by the Secretary) for 10 or more years
preceding such quarter of such taxable year.
(2) Limitation
The provisions of this subsection shall not apply at the close
of any quarter of a taxable year to an investment company if at
the close of such quarter more than 25 percent of the value of
its total assets is represented by securities of issuers with
respect to each of which the investment company holds more than
10 percent of the outstanding voting securities of such issuer
and in respect of each of which or any predecessor thereof the
investment company has continuously held any security for 10 or
more years preceding such quarter unless the value of its total
assets so represented is reduced to 25 percent or less within 30
days after the close of such quarter.
(3) Determination of status
For purposes of this subsection, unless the Securities and
Exchange Commission determines otherwise, a corporation shall be
considered to be principally engaged in the development or
exploitation of inventions, technological improvements, new
processes, or products not previously generally available, for at
least 10 years after the date of the first acquisition of any
security in such corporation or any predecessor thereof by such
investment company if at the date of such acquisition the
corporation or its predecessor was principally so engaged, and an
investment company shall be considered at any date to be
furnishing capital to any company whose securities it holds if
within 10 years prior to such date it has acquired any of such
securities, or any securities surrendered in exchange therefor,
from such other company or predecessor thereof. For purposes of
the certification under this subsection, the Securities and
Exchange Commission shall have authority to issue such rules,
regulations and orders, and to conduct such investigations and
hearings, either public or private, as it may deem appropriate.
(4) Definitions
The terms used in this subsection shall have the same meaning
as in subsections (b)(3) and (c) of this section.
(f) Certain unit investment trusts
For purposes of this title -
(1) A unit investment trust (as defined in the Investment
Company Act of 1940) -
(A) which is registered under such Act and issues periodic
payment plan certificates (as defined in such Act) in one or
more series,
(B) substantially all of the assets of which, as to all such
series, consist of (i) securities issued by a single management
company (as defined in such Act) and securities acquired
pursuant to subparagraph (C), or (ii) securities issued by a
single other corporation, and
(C) which has no power to invest in any other securities
except securities issued by a single other management company,
when permitted by such Act or the rules and regulations of the
Securities and Exchange Commission,
shall not be treated as a person.
(2) In the case of a unit investment trust described in
paragraph (1) -
(A) each holder of an interest in such trust shall, to the
extent of such interest, be treated as owning a proportionate
share of the assets of such trust;
(B) the basis of the assets of such trust which are treated
under subparagraph (A) as being owned by a holder of an
interest in such trust shall be the same as the basis of his
interest in such trust; and
(C) in determining the period for which the holder of an
interest in such trust has held the assets of the trust which
are treated under subparagraph (A) as being owned by him, there
shall be included the period for which such holder has held his
interest in such trust.
This subsection shall not apply in the case of a unit investment
trust which is a segregated asset account under the insurance laws
or regulations of a State.
(g) Special rule for series funds
(1) In general
In the case of a regulated investment company (within the
meaning of subsection (a)) having more than one fund, each fund
of such regulated investment company shall be treated as a
separate corporation for purposes of this title (except with
respect to the definitional requirement of subsection (a)).
(2) Fund defined
For purposes of paragraph (1) the term "fund" means a
segregated portfolio of assets, the beneficial interests in which
are owned by the holders of a class or series of stock of the
regulated investment company that is preferred over all other
classes or series in respect of such portfolio of assets.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 268; Pub. L. 85-866, title I,
Sec. 38, Sept. 2, 1958, 72 Stat. 1638; Pub. L. 91-172, title IX,
Sec. 908(a), Dec. 30, 1969, 83 Stat. 717; Pub. L. 94-12, title VI,
Sec. 602(a)(2), Mar. 29, 1975, 89 Stat. 58; Pub. L. 94-455, title
XIX, Secs. 1901(a)(109), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.
1783, 1834; Pub. L. 95-345, Sec. 2(a)(3), Aug. 15, 1978, 92 Stat.
481; Pub. L. 95-600, title VII, Sec. 701(s)(1), Nov. 6, 1978, 92
Stat. 2911; Pub. L. 97-424, title V, Sec. 547(b)(1), Jan. 6, 1983,
96 Stat. 2199; Pub. L. 98-369, div. A, title X, Sec. 1071(a)(1),
July 18, 1984, 98 Stat. 1049; Pub. L. 99-514, title VI, Secs.
652(a), (b), 653(a)-(c), 654(a), title XII, Sec. 1235(f)(3), Oct.
22, 1986, 100 Stat. 2297, 2298, 2575; Pub. L. 100-647, title I,
Sec. 1006(m), (n)(1), (2)(A), (B), (4), (5), (o), Nov. 10, 1988,
102 Stat. 3415, 3416; Pub. L. 105-34, title XII, Sec.
1271(a)-(b)(7), Aug. 5, 1997, 111 Stat. 1036, 1037.)
-REFTEXT-
REFERENCES IN TEXT
The Investment Company Act of 1940, as amended, referred to in
subsecs. (a)(1), (b)(2), (c)(5), and (f)(1), is title I of act Aug.
22, 1940, ch. 686, 54 Stat. 789, as amended, which is classified
generally to subchapter I (Sec. 80a-1 et seq.) of chapter 2D of
Title 15, Commerce and Trade. Section 2(a)(36) of the Act is
classified to section 80a-2(a)(36) of Title 15. For complete
classification of this Act to the Code, see section 80a-51 of Title
15 and Tables.
-MISC1-
AMENDMENTS
1997 - Subsec. (b). Pub. L. 105-34, Sec. 1271(b)(1), in
concluding provisions, substituted "paragraph (2), amounts
excludable" for "paragraphs (2) and (3), amounts excludable" and
struck out "In the case of the taxable year in which a regulated
investment company is completely liquidated, there shall not be
taken into account under paragraph (3) any gain from the sale,
exchange, or distribution of any property after the adoption of the
plan of complete liquidation." at end.
Subsec. (b)(2). Pub. L. 105-34, Sec. 1271(a), inserted "and" at
end.
Subsec. (b)(3), (4). Pub. L. 105-34, Sec. 1271(a), redesignated
par. (4) as (3) and struck out former par. (3) which read as
follows: "less than 30 percent of its gross income is derived from
the sale or disposition of any of the following which was held for
less than 3 months:
"(A) stock or securities (as defined in section 2(a)(36) of the
Investment Company Act of 1940, as amended),
"(B) options, futures, or forward contracts (other than
options, futures, or forward contracts on foreign currencies), or
"(C) foreign currencies (or options, futures, or forward
contracts on foreign currencies) but only if such currencies (or
options, futures, or forward contracts) are not directly related
to the company's principal business of investing in stock or
securities (or options and futures with respect to stocks or
securities), and".
Subsec. (c). Pub. L. 105-34, Sec. 1271(b)(2), substituted
"subsection (b)(3)" for "subsection (b)(4)" in heading and
introductory provisions.
Subsec. (d). Pub. L. 105-34, Sec. 1271(b)(3), substituted
"subsections (b)(3)" for "subsections (b)(4)".
Subsec. (e)(1). Pub. L. 105-34, Sec. 1271(b)(4), substituted
"subsection (b)(3)" for "subsection (b)(4)".
Subsec. (e)(4). Pub. L. 105-34, Sec. 1271(b)(5), substituted
"subsections (b)(3)" for "subsections (b)(4)".
Subsec. (g). Pub. L. 105-34, Sec. 1271(b)(6), redesignated
subsec. (h) as (g) and struck out former subsec. (g) which provided
for treatment of certain hedging transactions.
Subsec. (g)(3). Pub. L. 105-34, Sec. 1271(b)(7), struck out par.
(3) which provided special rule for abnormal redemptions.
Subsec. (h). Pub. L. 105-34, Sec. 1271(b)(6), redesignated
subsec. (h) as (g).
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1006(m)(1), amended
par. (1) generally. Prior to amendment, par. (1) read as follows:
"which, at all times during the taxable year, is registered under
the Investment Company Act of 1940, as amended (15 U.S.C. 80a-1 to
80b-2), as a management company, business development company, or
unit investment trust, or".
Subsec. (b). Pub. L. 100-647, Sec. 1006(n)(1), (5), inserted at
end "Income derived from a partnership or trust shall be treated as
described in paragraph (2) only to the extent such income is
attributable to items of income of the partnership or trust (as the
case may be) which would be described in paragraph (2) if realized
by the regulated investment company in the same manner as realized
by the partnership or trust. In the case of the taxable year in
which a regulated investment company is completely liquidated,
there shall not be taken into account under paragraph (3) any gain
from the sale, exchange, or distribution of any property after the
adoption of the plan of complete liquidation."
Pub. L. 100-647, Sec. 1006(n)(2)(B), substituted "which are not
directly related" for "which are not ancillary" in last sentence.
Subsec. (b)(3). Pub. L. 100-647, Sec. 1006(n)(2)(A), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "less
than 30 percent of its gross income is derived from the sale or
other disposition of stock or securities held for less than 3
months; and".
Subsec. (e)(1). Pub. L. 100-647, Sec. 1006(m)(2), substituted "a
management company or a business development company described in
subsection (a)(1)" for "a registered management company or
registered business development company".
Subsec. (g)(2)(A)(i). Pub. L. 100-647, Sec. 1006(n)(4),
substituted "contractual obligation" for "contractual option".
Subsec. (h). Pub. L. 100-647, Sec. 1006(o)(1), redesignated
subsec. (q) as (h).
Subsec. (h)(3). Pub. L. 100-647, Sec. 1006(o)(2), added par. (3).
Subsec. (q). Pub. L. 100-647, Sec. 1006(o)(1), redesignated
subsec. (q) as (h).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 652(a), substituted
"as a management company, business development company, or unit
investment trust" for "either as a management company or as a unit
investment trust".
Subsec. (b). Pub. L. 99-514, Sec. 1235(f)(3), inserted "or
1293(a)" and "or 1293(c) (as the case may be)", in concluding
provision.
Pub. L. 99-514, Sec. 653(c), inserted before last sentence "For
purposes of paragraph (2), the Secretary may by regulation exclude
from qualifying income foreign currency gains which are not
ancillary to the company's principal business of investing in stock
or securities (or options and futures with respect to stock or
securities)."
Subsec. (b)(2). Pub. L. 99-514, Sec. 653(b), inserted "(as
defined in section 2(a)(36) of the Investment Company Act of 1940,
as amended) or foreign currencies, or other income (including but
not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock,
securities, or currencies".
Subsec. (e)(1). Pub. L. 99-514, Sec. 652(b), substituted
"registered management company or registered business development
company" for "registered management company".
Subsec. (g). Pub. L. 99-514, Sec. 653(a), added subsec. (g).
Subsec. (q). Pub. L. 99-514, Sec. 654(a), added subsec. (q).
1984 - Subsec. (a). Pub. L. 98-369 struck out "(other than a
personal holding company as defined in section 542)" after "any
domestic corporation" in introductory provisions.
1983 - Subsec. (b). Pub. L. 97-424 substituted "section 103(a)"
for "section 103(a)(1)" after "gross income under".
1978 - Subsec. (b). Pub. L. 95-600 required that for purposes of
pars. (2) and (3), amounts excludable from gross income under
section 103(a)(1) shall be treated as included in gross income.
Subsec. (b)(2). Pub. L. 95-345 inserted provision relating to
payments with respect to securities loans.
1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1901(a)(109)(A),
struck out "54 Stat. 789;" before "15 U.S.C. 80a-1 to 80b-2)".
Subsec. (b)(1), (4)(B). Pub. L. 94-455, Sec. 1901(a)(109)(B),
struck out "which began after December 31, 1941" after "previous
taxable year" in par. (1), and "or his delegate" after "Secretary"
in par. (4)(B).
Subsecs. (c), (d). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" wherever appearing.
1975 - Subsec. (b). Pub. L. 94-12 inserted provisions directing
that, for purposes of par. (2), there shall be treated as dividends
amounts included in gross income under section 951(a)(1)(A)(i) for
the taxable year to the extent that, under section 959(a)(1), there
is a distribution out of earnings and profits of the taxable year
which are attributable to the amounts so included.
1969 - Subsec. (f). Pub. L. 91-172 added subsec. (f).
1958 - Subsec. (e)(1). Pub. L. 85-866, Sec. 38(a), substituted
"not earlier than 60 days" for "not less than 60 days" in first
sentence.
Subsec. (e)(2). Pub. L. 85-866, Sec. 38(b), substituted "issuer"
for "issues".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1271(c) of Pub. L. 105-34, set out
as a note under section 817 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(n)(2)(C) of Pub. L. 100-647 provided that:
"Subparagraph (C) of section 851(b)(3) of the 1986 Code (as amended
by subparagraph (A)), and the amendment made by subparagraph (B)
[amending this section], shall apply to taxable years beginning
after the date of the enactment of this Act [Nov. 10, 1988]."
Amendment by section 1006(m), (n)(1), (2)(A), (4), (5), (o) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 652(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
Section 653(d) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after the date of the enactment of this Act [Oct.
22, 1986]."
Section 654(b) of Pub. L. 99-514 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to taxable years beginning after the date
of the enactment of this Act [Oct. 22, 1986].
"(2) Treatment of certain existing series funds. - In the case of
a regulated investment company which has more than one fund on the
date of the enactment of this act, and has before such date been
treated for Federal income tax purposes as a single corporation -
"(A) the amendment made by subsection (a), and the resulting
treatment of each fund as a separate corporation, shall not give
rise to the realization or recognition of income or loss by such
regulated investment company, its funds, or its shareholders, and
"(B) the tax attributes of such regulated investment company
shall be appropriately allocated among its funds."
Amendment by section 1235(f)(3) of Pub. L. 99-514 applicable to
taxable years of foreign corporations beginning after Dec. 31,
1986, see section 1235(h) of Pub. L. 99-514, set out as an
Effective Date note under section 1291 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1982, with certain exceptions, see section
1071(a)(5) of Pub. L. 98-369, set out as a note under section 852
of this title.
EFFECTIVE DATE OF 1978 AMENDMENTS
Section 701(s)(3) of Pub. L. 95-600 provided that: "The
amendments made by this section [amending this section and section
852 of this title] shall apply to taxable years beginning after
December 31, 1975."
Amendment by Pub. L. 95-345 applicable with respect to amounts
received after Dec. 31, 1976, as payments with respect to
securities loans (as defined in section 512(a)(5) of this title),
and transfers of securities, under agreements described in section
1058 of this title, occurring after such date, see section 2(e) of
Pub. L. 95-345, set out as a note under section 509 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(109) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 applicable to taxable years of foreign
corporations beginning after Dec. 31, 1975, and to taxable years of
United States shareholders (within the meaning of section 951(b) of
this title) within which or with which such taxable years of such
foreign corporations end, see section 602(f) of Pub. L. 94-12, set
out as an Effective Date note under section 955 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Section 908(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years of unit investment trusts ending after December 31,
1968, and to taxable years of holders of interests in such trusts
ending with or within such taxable years of such trusts. The
enactment of this section shall not be construed to result in the
realization of gain or loss by any unit investment trust or by any
holder of an interest in a unit investment trust."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 11, 50B, 403, 817, 852,
853, 860L, 992, 1212, 1247, 1296, 7603, 7704 of this title; title
42 section 1395nn.
-End-
-CITE-
26 USC Sec. 852 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 852. Taxation of regulated investment companies and their
shareholders
-STATUTE-
(a) Requirements applicable to regulated investment companies
The provisions of this part (other than subsection (c) of this
section) shall not be applicable to a regulated investment company
for a taxable year unless -
(1) the deduction for dividends paid during the taxable year
(as defined in section 561, but without regard to capital gain
dividends) equals or exceeds the sum of -
(A) 90 percent of its investment company taxable income for
the taxable year determined without regard to subsection
(b)(2)(D); and
(B) 90 percent of the excess of (i) its interest income
excludable from gross income under section 103(a) over (ii) its
deductions disallowed under sections 265, 171(a)(2), and
(2) either -
(A) the provisions of this part applied to the investment
company for all taxable years ending on or after November 8,
1983, or
(B) as of the close of the taxable year, the investment
company has no earnings and profits accumulated in any taxable
year to which the provisions of this part (or the corresponding
provisions of prior law) did not apply to it.
The Secretary may waive the requirements of paragraph (1) for any
taxable year if the regulated investment company 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 4982.
(b) Method of taxation of companies and shareholders
(1) Imposition of tax on regulated investment companies
There is hereby imposed for each taxable year upon the
investment company taxable income of every regulated investment
company a tax computed as provided in section 11, as though the
investment company taxable income were the taxable income
referred to in section 11. In the case of a regulated investment
company which is a personal holding company (as defined in
section 542) or which fails to comply for the taxable year with
regulations prescribed by the Secretary for the purpose of
ascertaining the actual ownership of its stock, such tax shall be
computed at the highest rate of tax specified in section 11(b).
(2) Investment company taxable income
The investment company taxable income shall be the taxable
income of the regulated investment company adjusted as follows:
(A) There shall be excluded the amount of the net capital
gain, if any.
(B) The net operating loss deduction provided in section 172
shall not be allowed.
(C) The deductions for corporations provided in part VIII
(except section 248) in subchapter B (section 241 and
following, relating to the deduction for dividends received,
etc.) shall not be allowed.
(D) the (!1) deduction for dividends paid (as defined in
section 561) shall be allowed, but shall be computed without
regard to capital gain dividends and exempt-interest dividends.
(E) The taxable income shall be computed without regard to
section 443(b) (relating to computation of tax on change of
annual accounting period).
(F) The taxable income shall be computed without regard to
section 454(b) (relating to short-term obligations issued on a
discount basis) if the company so elects in a manner prescribed
by the Secretary.
(3) Capital gains
(A) Imposition of tax
There is hereby imposed for each taxable year in the case of
every regulated investment company a tax, determined as
provided in section 1201(a), on the excess, if any, of the net
capital gain over the deduction for dividends paid (as defined
in section 561) determined with reference to capital gain
dividends only.
(B) Treatment of capital gain dividends by shareholders
A capital gain dividend shall be treated by the shareholders
as a gain from the sale or exchange of a capital asset held for
more than 1 year.
(C) 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 company
as a capital gain dividend in a written notice mailed to its
shareholders not later than 60 days after the close of its
taxable year; except that, if there is an increase in the
excess described in subparagraph (A) 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 company
(including capital gains dividends paid after the close of the
taxable year described in section 855) 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 a taxable year (to which an election under section
4982(e)(4) does not apply) shall be determined without regard
to any net capital loss or net long-term capital loss
attributable to transactions after October 31 of such year, and
any such net capital loss or net long-term 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 regulated investment company.
(D) Treatment by shareholders of undistributed capital gains
(i) Every shareholder of a regulated investment company at
the close of the company'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 company's taxable
year falls, such amount as the company 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 close of its taxable year, but the amount so includible
by any shareholder shall not exceed that part of the amount
subjected to tax in subparagraph (A) which he would have
received if all of such amount had been distributed as capital
gain dividends by the company 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 subparagraph (A) 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
shareholder 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
shareholder 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
subparagraph (A) shall be paid by the regulated investment
company within 30 days after close of its taxable year.
(v) The earnings and profits of such regulated investment
company, 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.
(4) Loss on sale or exchange of stock held 6 months or less
(A) Loss attributable to capital gain dividend
If -
(i) subparagraph (B) or (D) of paragraph (3) provides that
any amount with respect to any share is to be treated as
long-term capital gain, and
(ii) such share is held by the taxpayer for 6 months or
less,
then any loss (to the extent not disallowed under subparagraph
(B)) on the sale or exchange of such share shall, to the extent
of the amount described in clause (i), be treated as a
long-term capital loss.
(B) Loss attributable to exempt-interest dividend
If -
(i) a shareholder of a regulated investment company
receives an exempt-interest dividend with respect to any
share, and
(ii) such share is held by the taxpayer for 6 months or
less,
then any loss on the sale or exchange of such share shall, to
the extent of the amount of such exempt-interest dividend, be
disallowed.
(C) Determination of holding periods
For purposes of this paragraph, the rules of paragraphs (3)
and (4) of section 246(c) shall apply in determining the period
for which the taxpayer has held any share of stock; except that
"6 months" shall be substituted for each number of days
specified in subparagraph (B) (!2) of section 246(c)(3).
(D) Losses incurred under a periodic liquidation plan
To the extent provided in regulations, subparagraphs (A) and
(B) shall not apply to losses incurred on the sale or exchange
of shares of stock in a regulated investment company pursuant
to a plan which provides for the periodic liquidation of such
shares.
(E) Authority to shorten required holding period
In the case of a regulated investment company which regularly
distributes at least 90 percent of its net tax-exempt interest,
the Secretary may by regulations prescribe that subparagraph
(B) (and subparagraph (C) to the extent it relates to
subparagraph (B)) shall be applied on the basis of a holding
period requirement shorter than 6 months; except that such
shorter holding period requirement shall not be shorter than
the greater of 31 days or the period between regular
distributions of exempt-interest dividends.
(5) Exempt-interest dividends
If, at the close of each quarter of its taxable year, at least
50 percent of the value (as defined in section 851(c)(4)) of the
total assets of the regulated investment company consists of
obligations described in section 103(a), such company shall be
qualified to pay exempt-interest dividends, as defined herein, to
its shareholders.
(A) Definition
An exempt-interest dividend means any dividend or part
thereof (other than a capital gain dividend) paid by a
regulated investment company and designated by it as an
exempt-interest dividend in a written notice mailed to its
shareholders not later than 60 days after the close of its
taxable year. If the aggregate amount so designated with
respect to a taxable year of the company (including
exempt-interest dividends paid after the close of the taxable
year as described in section 855) is greater than the excess of
-
(i) the amount of interest excludable from gross income
under section 103(a), over
(ii) the amounts disallowed as deductions under sections
265 and 171(a)(2),
the portion of such distribution which shall constitute an
exempt-interest dividend shall be only that proportion of the
amount so designated as the amount of such excess for such
taxable year bears to the amount so designated.
(B) Treatment of exempt-interest dividends by shareholders
An exempt-interest dividend shall be treated by the
shareholders for all purposes of this subtitle as an item of
interest excludable from gross income under section 103(a).
Such purposes include but are not limited to -
(i) the determination of gross income and taxable income,
(ii) the determination of distributable net income under
subchapter J,
(iii) the allowance of, or calculation of the amount of,
any credit or deduction, and
(iv) the determination of the basis in the hands of any
shareholder of any share of stock of the company.
(6) Section 311(b) not to apply to certain distributions
Section 311(b) shall not apply to any distribution by a
regulated investment company to which this part applies, if such
distribution is in redemption of its stock upon the demand of the
shareholder.
(7) Time certain dividends taken into account
For purposes of this title, any dividend declared by a
regulated investment company 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 company on December 31 of such
calendar year (or, if earlier, as provided in section 855).
The preceding sentence shall apply only if such dividend is
actually paid by the company during January of the following
calendar year.
(8) Special rule for treatment of certain foreign currency losses
To the extent provided in regulations, the taxable income of a
regulated investment company (other than a company to which an
election under section 4982(e)(4) applies) shall be computed
without regard to any net foreign currency loss attributable to
transactions after October 31 of such year, and any such net
foreign currency loss shall be treated as arising on the 1st day
of the following taxable year.
(9) Dividends treated as received by company on ex-dividend date
For purposes of this title, if a regulated investment company
is the holder of record of any share of stock on the record date
for any dividend payable with respect to such stock, such
dividend shall be included in gross income by such company as of
the later of -
(A) the date such share became ex-dividend with respect to
such dividend, or
(B) the date such company acquired such share.
(10) Special rule for certain losses on stock in passive foreign
investment company
To the extent provided in regulations, the taxable income of a
regulated investment company (other than a company to which an
election under section 4982(e)(4) applies) shall be computed
without regard to any net reduction in the value of any stock of
a passive foreign investment company with respect to which an
election under section 1296(k) is in effect occurring after
October 31 of the taxable year, and any such reduction shall be
treated as occurring on the first day of the following taxable
year.
(c) Earnings and profits
(1) In general
The earnings and profits of a regulated investment company for
any taxable year (but not its accumulated earnings and profits)
shall not be reduced by any amount which is not allowable as a
deduction in computing its taxable income for such taxable year.
For purposes of this subsection, the term "regulated investment
company" includes a domestic corporation which is a regulated
investment company determined without regard to the requirements
of subsection (a).
(2) Coordination with tax on undistributed income
For purposes of applying this chapter to distributions made by
a regulated investment company with respect to any calendar year,
the earnings and profits of such company shall be determined
without regard to any net capital loss (or net foreign currency
loss) attributable to transactions after October 31 of such year,
without regard to any net reduction in the value of any stock of
a passive foreign investment company with respect to which an
election under section 1296(k) is in effect occurring after
October 31 of such year, and with such other adjustments as the
Secretary may by regulations prescribe. The preceding sentence
shall apply -
(A) only to the extent that the amount distributed by the
company with respect to the calendar year does not exceed the
required distribution for such calendar year (as determined
under section 4982 by substituting "100 percent" for each
percentage set forth in section 4982(b)(1)), and
(B) except as provided in regulations, only if an election
under section 4982(e)(4) is not in effect with respect to such
company.
(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)(D) and section
855.
(d) Distributions in redemption of interests in unit investment
trusts
In the case of a unit investment trust -
(1) which is registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1 and following) and issues periodic payment
plan certificates (as defined in such Act), and
(2) substantially all of the assets of which consist of
securities issued by a management company (as defined in such
Act),
section 562(c) (relating to preferential dividends) shall not apply
to a distribution by such trust to a holder of an interest in such
trust in redemption of part or all of such interest, with respect
to the capital gain net income of such trust attributable to such
redemption.
(e) Procedures similar to deficiency dividend procedures made
applicable
(1) In general
If -
(A) there is a determination that the provisions of this part
do not apply to an investment company for any taxable year
(hereinafter in this subsection referred to as the "non-RIC
year"), and
(B) such investment company meets the distribution
requirements of paragraph (2) with respect to the non-RIC year,
for purposes of applying subsection (a)(2) to subsequent taxable
years, the provisions of this part shall be treated as applying
to such investment company for the non-RIC year. If the
determination under subparagraph (A) is solely as a result of the
failure to meet the requirements of subsection (a)(2), the
preceding sentence shall also apply for purposes of applying
subsection (a)(2) to the non-RIC year and the amount referred to
in paragraph (2)(A)(i) shall be the portion of the accumulated
earnings and profits which resulted in such failure.
(2) Distribution requirements
(A) In general
The distribution requirements of this paragraph are met with
respect to any non-RIC year if, within the 90-day period
beginning on the date of the determination (or within such
longer period as the Secretary may permit), the investment
company makes 1 or more qualified designated distributions and
the amount of such distributions is not less than the excess of
-
(i) the portion of the accumulated earnings and profits of
the investment company (as of the date of the determination)
which are attributable to the non-RIC year, over
(ii) any interest payable under paragraph (3).
(B) Qualified designated distribution
For purposes of this paragraph, the term "qualified
designated distribution" means any distribution made by the
investment company if -
(i) section 301 applies to such distribution, and
(ii) such distribution is designated (at such time and in
such manner as the Secretary shall by regulations prescribe)
as being taken into account under this paragraph with respect
to the non-RIC year.
(C) Effect on dividends paid deduction
Any qualified designated distribution shall not be included
in the amount of dividends paid for purposes of computing the
dividends paid deduction for any taxable year.
(3) Interest charge
(A) In general
If paragraph (1) applies to any non-RIC year of an investment
company, such investment company shall pay interest at the
underpayment rate established under section 6621 -
(i) on an amount equal to 50 percent of the amount referred
to in paragraph (2)(A)(i),
(ii) for the period -
(I) which begins on the last day prescribed for payment
of the tax imposed for the non-RIC year (determined without
regard to extensions), and
(II) which ends on the date the determination is made.
(B) Coordination with subtitle F
Any interest payable under subparagraph (A) may be assessed
and collected at any time during the period during which any
tax imposed for the taxable year in which the determination is
made may be assessed and collected.
(4) Provision not to apply in the case of fraud
The provisions of this subsection shall not apply if the
determination contains a finding that the failure to meet any
requirement of this part was due to fraud with intent to evade
tax.
(5) Determination
For purposes of this subsection, the term "determination" has
the meaning given to such term by section 860(e). Such term also
includes a determination by the investment company filed with the
Secretary that the provisions of this part do not apply to the
investment company for a taxable year.
(f) Treatment of certain load charges
(1) In general
If -
(A) the taxpayer incurs a load charge in acquiring stock in a
regulated investment company and, by reason of incurring such
charge or making such acquisition, the taxpayer acquires a
reinvestment right,
(B) such stock is disposed of before the 91st day after the
date on which such stock was acquired, and
(C) the taxpayer subsequently acquires stock in such
regulated investment company or in another regulated investment
company and the otherwise applicable load charge is reduced by
reason of the reinvestment right,
the load charge referred to in subparagraph (A) (to the extent it
does not exceed the reduction referred to in subparagraph (C))
shall not be taken into account for purposes of determining the
amount of gain or loss on the disposition referred to in
subparagraph (B). To the extent such charge is not taken into
account in determining the amount of such gain or loss, such
charge shall be treated as incurred in connection with the
acquisition referred to in subparagraph (C) (including for
purposes of reapplying this paragraph).
(2) Definitions and special rules
For purposes of this subsection -
(A) Load charge
The term "load charge" means any sales or similar charge
incurred by a person in acquiring stock of a regulated
investment company. Such term does not include any charge
incurred by reason of the reinvestment of a dividend.
(B) Reinvestment right
The term "reinvestment right" means any right to acquire
stock of 1 or more regulated investment companies without the
payment of a load charge or with the payment of a reduced
charge.
(C) Nonrecognition transactions
If the taxpayer acquires stock in a regulated investment
company from another person in a transaction in which gain or
loss is not recognized, the taxpayer shall succeed to the
treatment of such other person under this subsection.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 271; July 11, 1956, ch. 573,
Sec. 2(a), 70 Stat. 530; Pub. L. 85-866, title I, Secs. 39(a),
101(a), (b), Sept. 2, 1958, 72 Stat. 1638, 1674; Pub. L. 86-779,
Sec. 10(b)(2), (3), Sept. 14, 1960, 74 Stat. 1009; Pub. L. 88-272,
title II, Sec. 229(a)(1), (2), (b), Feb. 26, 1964, 78 Stat. 99;
Pub. L. 91-172, title V, Sec. 511(c)(2), Dec. 30, 1969, 83 Stat.
637; Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(N), (2), title XIX,
Secs. 1901(a)(110)(A), (B)(i), (C), (b)(1)(V), (6)(B), (33)(I),
(J), (N), 1906(b)(13)(A), title XXI, Sec. 2137(a)-(c), Oct. 4,
1976, 90 Stat. 1732, 1783, 1792, 1794, 1801, 1802, 1834, 1930,
1931; Pub. L. 95-600, title III, Secs. 301(b)(11), 362(c), title
VII, Sec. 701(s)(2), Nov. 6, 1978, 92 Stat. 2822, 2851, 2911; Pub.
L. 96-222, title I, Sec. 104(a)(3)(B), Apr. 1, 1980, 94 Stat. 215;
Pub. L. 97-424, title V, Sec. 547(b)(2), Jan. 6, 1983, 96 Stat.
2199; Pub. L. 98-369, div. A, title I, Sec. 55(a), title X, Secs.
1001(b)(11), (e), 1071(a)(2)-(4), (b)(1), July 18, 1984, 98 Stat.
571, 1011, 1012, 1049, 1050, 1052; Pub. L. 99-514, title III, Sec.
311(b)(1), title VI, Secs. 631(e)(11), 651(b)(1)(A), (2), (3),
655(a)(1), (2), title XI, Sec. 1173(b)(1)(B), title XV, Sec.
1511(c)(6), title XVIII, Secs. 1804(c)(1)-(5), 1878(j), Oct. 22,
1986, 100 Stat. 2219, 2274, 2296, 2298, 2299, 2515, 2745, 2799,
2800, 2905; Pub. L. 100-647, title I, Secs. 1006(l)(1)(A), (3),
(4), (7)-(10), 1011B(h)(4), 1018(p), Nov. 10, 1988, 102 Stat.
3413-3415, 3491, 3585; Pub. L. 101-239, title VII, Sec. 7204(b)(1),
(c)(1), Dec. 19, 1989, 103 Stat. 2334, 2335; Pub. L. 103-66, title
XIII, Sec. 13221(c)(1), Aug. 10, 1993, 107 Stat. 477; Pub. L.
104-188, title I, Sec. 1602(b)(3), Aug. 20, 1996, 110 Stat. 1833;
Pub. L. 105-34, title XI, Sec. 1122(c)(2), (3), title XII, Sec.
1254(b)(2), Aug. 5, 1997, 111 Stat. 977, 1033; Pub. L. 106-170,
title V, Sec. 566(a)(1), (c), Dec. 17, 1999, 113 Stat. 1950.)
-REFTEXT-
REFERENCES IN TEXT
Section 246(c)(3) of this title, referred to in subsec.
(b)(4)(C), was amended by Pub. L. 105-34, title X, Sec. 1015(b)(2),
Aug. 5, 1997, 111 Stat. 922, to strike out subpar. (B) and
redesignate subpar. (C) as (B).
The Investment Company Act of 1940, referred to in subsec. (d),
is title I of act Aug. 22, 1940, ch. 686, 54 Stat. 789, as amended,
which is classified generally to subchapter I (Sec. 80a-1 et seq.)
of chapter 2D of Title 15, Commerce and Trade. For complete
classification of this Act to the Code, see section 80a-51 of Title
15 and Tables.
-MISC1-
AMENDMENTS
1999 - Subsec. (c)(3). Pub. L. 106-170, Sec. 566(a)(1), added
par. (3).
Subsec. (e)(1). Pub. L. 106-170, Sec. 566(c), inserted at end "If
the determination under subparagraph (A) is solely as a result of
the failure to meet the requirements of subsection (a)(2), the
preceding sentence shall also apply for purposes of applying
subsection (a)(2) to the non-RIC year and the amount referred to in
paragraph (2)(A)(i) shall be the portion of the accumulated
earnings and profits which resulted in such failure."
1997 - Subsec. (b)(3)(D)(iii). Pub. L. 105-34, Sec. 1254(b)(2),
substituted "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)." for "by 65 percent of so
much of such amounts as equals the amount subject to tax in
accordance with section 1201(a)."
Subsec. (b)(10). Pub. L. 105-34, Sec. 1122(c)(2), added par.
(10).
Subsec. (c)(2). Pub. L. 105-34, Sec. 1122(c)(3), inserted ",
without regard to any net reduction in the value of any stock of a
passive foreign investment company with respect to which an
election under section 1296(k) is in effect occurring after October
31 of such year," after "October 31 of such year".
1996 - Subsec. (b)(5)(C). Pub. L. 104-188 struck out subpar. (C).
Prior to amendment, subpar. (C) read as follows:
"(C) Interest on certain loans used to acquire employer
securities. - For purposes of this section -
"(i) 50 percent of the amount of any loan of the regulated
investment company which qualifies as a securities acquisition
loan (as defined in section 133) shall be treated as an
obligation described in section 103(a), and
"(ii) 50 percent of the interest received on such loan shall be
treated as interest excludable from gross income under section
103."
1993 - Subsec. (b)(3)(D)(iii). Pub. L. 103-66 substituted "65
percent" for "66 percent".
1989 - Subsec. (b)(9). Pub. L. 101-239, Sec. 7204(c)(1), added
par. (9).
Subsec. (f). Pub. L. 101-239, Sec. 7204(b)(1), added subsec. (f).
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1006(l)(8), inserted at
end "The Secretary may waive the requirements of paragraph (1) for
any taxable year if the regulated investment company 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 4982."
Subsec. (b)(3)(C). Pub. L. 100-647, Sec. 1006(l)(4), substituted
"net capital loss or net long-term capital loss" for "net capital
loss" in two places in third sentence, and "computing the taxable
income of the regulated investment company" for "computing
regulated investment company taxable income" in fourth sentence.
Subsec. (b)(5)(C). Pub. L. 100-647, Sec. 1011B(h)(4), substituted
"section" for "paragraph".
Subsec. (b)(6). Pub. L. 100-647, Sec. 1006(l)(1)(A), redesignated
par. (6), relating to time certain dividends are taken into
account, as (7).
Subsec. (b)(7). Pub. L. 100-647, Sec. 1006(l)(9), substituted "in
October, November, or December" for "in December" and "in such a
month" for "in such month", in introductory text, "on December 31
of such calendar year" for "on such date" in subpars. (A) an (B),
and "during January" for "before February 1" in last sentence.
Pub. L. 100-647, Sec. 1006(l)(1)(A), redesignated par. (6),
relating to time certain dividends are taken into account, as (7).
Subsec. (b)(8). Pub. L. 100-647, Sec. 1006(l)(7), added par. (8).
Subsec. (c)(2). Pub. L. 100-647, Sec. 1006(l)(3), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "A
regulated investment company 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 company. The preceding sentence shall
not apply to the extent that the amount distributed during any
calendar year by the company exceeds the required distribution for
such calendar year (as determined under section 4982)."
Subsec. (e)(1). Pub. L. 100-647, Secs. 1006(l)(10), 1018(p),
amended par. (1) identically, substituting "subsection (a)(2)" for
"subsection (a)(3)" in last sentence.
1986 - Subsec. (a)(2), (3). Pub. L. 99-514, Sec. 1878(j)(1),
redesignated par. (3) as (2) and struck out former par. (2) which
read as follows: "the investment company complies for such year
with regulations prescribed by the Secretary for the purpose of
ascertaining the actual ownership of its outstanding stock, and".
Subsec. (b)(1). Pub. L. 99-514, Sec. 1878(j)(2), substituted last
sentence for former last sentence which read as follows: "In the
case of a regulated investment company which is a personal holding
company (as defined in section 542), that tax shall be computed at
the highest rate of tax specified in section 11(b)."
Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 655(a)(1), substituted
"60 days" for "45 days".
Pub. L. 99-514, Sec. 651(b)(3), inserted provision for
determination of the amount of the net capital gain for a taxable
year (to which an election under section 4982(e)(4) does not apply)
and made such provision applicable also for purposes of computing
regulated investment company taxable income.
Subsec. (b)(3)(D)(i). Pub. L. 99-514, Sec. 655(a)(1), substituted
"60 days" for "45 days".
Subsec. (b)(3)(D)(iii). Pub. L. 99-514, Sec. 311(b)(1),
substituted "66 percent" for "72 percent".
Subsec. (b)(4). Pub. L. 99-514, Sec. 1804(c)(5), substituted "6
months or less" for "less than 31 days" in heading.
Subsec. (b)(4)(B)(ii). Pub. L. 99-514, Sec. 1804(c)(1),
substituted "6 months or less" for "less than 31 days".
Subsec. (b)(4)(C). Pub. L. 99-514, Sec. 1804(c)(2), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: "For purposes of this paragraph, the rules of paragraphs
(3) and (4) of section 246(c) shall apply in determining the period
for which the taxpayer held any share of stock; except that for the
number of days specified in subparagraph (B) of section 246(c)(3)
there shall be substituted -
"(i) '6 months' for purposes of subparagraph (A), and
"(ii) '30 days' for purposes of subparagraph (B)."
Subsec. (b)(4)(D). Pub. L. 99-514, Sec. 1804(c)(3), substituted
"subparagraphs (A) and (B)" for "subparagraph (A)".
Subsec. (b)(4)(E). Pub. L. 99-514, Sec. 1804(c)(4), added subpar.
(E).
Subsec. (b)(5)(A). Pub. L. 99-514, Sec. 655(a)(2), substituted
"60 days" for "45 days".
Subsec. (b)(5)(C). Pub. L. 99-514, Sec. 1173(b)(1)(B), added
subpar. (C).
Subsec. (b)(6). Pub. L. 99-514, Sec. 651(b)(1)(A), added par. (6)
relating to time certain dividends are taken into account.
Pub. L. 99-514, Sec. 631(e)(11), added par. (6) relating to
inapplicability of section 311(b) to certain distributions.
Subsec. (c). Pub. L. 99-514, Sec. 651(b)(2), amended subsec. (c)
generally, designating existing provisions as par. (1), inserting
heading, and adding par. (2).
Subsec. (e)(3)(A). Pub. L. 99-514, Sec. 1511(c)(6), substituted
"the underpayment rate established under section 6621" for "the
annual rate established under section 6621".
1984 - Subsec. (a)(3). Pub. L. 98-369, Sec. 1071(a)(3), added
par. (3).
Subsec. (b)(1). Pub. L. 98-369, Sec. 1071(a)(2), inserted
provision that in the case of a regulated investment company which
is a personal holding company (as defined in section 542), that tax
shall be computed at the highest rate of tax specified in section
11.
Subsec. (b)(2)(F). Pub. L. 98-369, Sec. 1071(b)(1), added subpar.
(F).
Subsec. (b)(3)(B). Pub. L. 98-369, Sec. 1001(b)(11), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (b)(4)(A)(i). Pub. L. 98-369, Sec. 55(a)(1), substituted
"subparagraph (B) or (D) of paragraph (3) provides that any amount
with respect to any share is to be treated as long-term capital
gain" for "under subparagraph (B) or (D) of paragraph (3) a
shareholder of a regulated investment company is required, with
respect to any share, to treat any amount as a long-term capital
gain".
Subsec. (b)(4)(A)(ii). Pub. L. 98-369, Sec. 55(a)(1), substituted
"6 months or less" for "less than 31 days".
Subsec. (b)(4)(C). Pub. L. 98-369, Sec. 55(a)(2), substituted
"the rules of paragraphs (3) and (4) of section 246(c) shall apply
in determining the period for which the taxpayer held any share of
stock;" for "the rules of section 246(c)(3) shall apply in
determining whether any share of stock has been held for less than
31 days;" and substituted provisions dealing with the applicable
number of days for former provisions which set forth different
applicable days.
Subsec. (b)(4)(D). Pub. L. 98-369, Sec. 55(a)(3), added subpar.
(D).
Subsec. (e). Pub. L. 98-369, Sec. 1071(a)(4), added subsec. (e).
1983 - Subsec. (b)(5). Pub. L. 97-424 substituted "section
103(a)" for "section 103(a)(1)" wherever appearing.
1980 - Subsec. (b)(3)(D)(iii). Pub. L. 96-222 substituted "72
percent" for "70 percent".
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 301(b)(11),
substituted "a tax" for "a normal tax and surtax".
Subsec. (b)(3)(C). Pub. L. 95-600, Sec. 362(c), inserted ",
except that, if there is an increase in the excess described in
subparagraph (A) 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" after
"amount so designated".
Subsec. (b)(4). Pub. L. 95-600, Sec. 701(s)(2), designated first
sentence, including subpars. (A) and (B), as subpar. (A), cls. (i)
and (ii); added subpar. (A) heading and substituted "shall, to the
extent of the amount described in clause (i), be treated as a
long-term capital loss" for "shall, to the extent of the amount
described in subparagraph (A) of this paragraph, be treated as loss
from the sale or exchange of a capital asset held for more than 1
year"; added subpar. (B); and designated second sentence as subpar.
(C).
1976 - Subsec. (a)(1). Pub. L. 94-455, Secs. 1901(b)(6)(B),
2137(a), designated existing provisions as introductory material
and subpar. (A) and added subpar. (B).
Subsec. (a)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (b)(1). Pub. L. 94-455, Sec. 1901(b)(1)(V), struck out
provision relating to the computation of the normal tax under
section 11 of this title.
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1901(b)(33)(I),
substituted "the amount of the net capital gain, if any" for "the
excess, if any, of the net long-term capital gain over the
short-term capital loss".
Subsec. (b)(2)(D). Pub. L. 94-455, Sec. 2137(b), inserted
reference to exempt-interest dividends.
Subsec. (b)(3)(A). Pub. L. 94-455, Sec. 1901(b)(33)(J)(i), among
other changes, struck out reference to the sum of the net
short-term capital loss.
Subsec. (b)(3)(B). Pub. L. 94-455, Sec. 1402(b)(2), provided that
"9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(N), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (b)(3)(C). Pub. L. 94-455, Sec. 1901(a)(110)(A),
(b)(33)(J)(ii), substituted "net capital gain" for "excess of the
net long-term capital gain over the net short-term capital loss" in
two places and struck out provision requiring for purpose of the
deduction for capital gains dividends paid, the deductions shall in
the case of a taxable year beginning before Jan. 1, 1975, first be
made from the amount subject to tax in accordance with section
1201(a)(1)(B), to the extent thereof, and then from the amount
subject to tax in accordance with section 1201(a)(1)(A).
Subsec. (b)(3)(D)(iii). Pub. L. 94-455, Sec. 1901(a)(110)(B)(i),
struck out "by 75 percent of so much of such amounts as equals the
amount subject to tax in accordance with section 1201(a)(1)(A) and"
after "his long term capital gains," and "(72 percent in the case
of a taxable year beginning after December 31, 1969, and before
January 1, 1971)" after "by 70 percent" and substituted "section
1201(a)" for "section 1201(a)(1)(B) or (2)".
Subsec. (b)(3)(D)(v). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (b)(4). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(N), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (b)(5). Pub. L. 94-455, Sec. 2137(c), added par. (5).
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(110)(C), (b)(33)(N),
inserted in par. (1) "(15 U.S.C. 80a-1 and following)" after
"Investment company Act of 1940" and substituted in provision
following par. (2) "capital gain net income" for "net capital
gain".
1969 - Subsec. (b)(3)(A). Pub. L. 91-172, Sec. 511(c)(2)(A),
substituted "determined as provided in section 1201(a), on" for "of
25 percent of".
Subsec. (b)(3)(C). Pub. L. 91-172, Sec. 511(c)(2)(B), inserted
provision requiring for the purposes of the deduction for capital
gains dividends paid the deduction shall, in the case of a taxable
year beginning before Jan. 1, 1975, first be made from the amount
subject to tax in accordance with section 1201(a)(1)(B), to the
extent thereof, and then from the amount subject to tax in
accordance with section 1201(a)(1)(A).
Subsec. (b)(3)(D). Pub. L. 91-172, Sec. 511(c)(2)(C), (D), struck
out "of 25 percent" in cl. (ii), substituted reference in cl. (iii)
to the increase of the adjusted basis of shares in the hands of the
shareholder, with respect to the amounts required by this subpar.,
by 75 percent of so much of such amounts as equals the amount
subject to tax in accordance with section 1201(a)(1)(A) and by 70
percent (72 percent in the case of a taxable year beginning after
Dec. 31, 1969, and before Jan. 1, 1971) of so much of such amounts
as equals the amount subject to tax in accordance with section
1201(a)(1)(B) or (2), for reference to the increase of the adjusted
basis of shares in the hand of the shareholder by 75 percent of the
amounts required by this subpar. to be included in computing his
long-term capital gains.
1964 - Subsec. (b)(3)(C), (D)(i). Pub. L. 88-272, Sec. 229(a)(1),
(2), substituted "45 days" for "30 days".
Subsec. (d). Pub. L. 88-272, Sec. 229(b), added subsec. (d).
1960 - Subsec. (a). Pub. L. 86-779, Sec. 10(b)(2), substituted
"this part" for "this subchapter".
Subsec. (b)(3)(C). Pub. L. 86-779, Sec. 10(b)(3), substituted
"For purposes of this part, a capital gain dividend is" for "A
capital gain dividend means".
1958 - Subsec. (a). Pub. L. 85-866, Sec. 101(a), inserted "(other
than subsection (c) of this section)".
Subsec. (b)(4). Pub. L. 85-866, Sec. 39(a), added par. (4).
Subsec. (c). Pub. L. 85-866, Sec. 101(b), inserted sentence
defining regulated investment company.
1956 - Subsec. (b)(3)(D). Act July 11, 1956, added subpar. (D).
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 566(d), Dec. 17, 1999, 113 Stat.
1950, provided that: "The amendments made by this section [amending
this section and section 857 of this title] shall apply to
distributions after December 31, 2000."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 1122(c)(2), (3) of Pub. L. 105-34 applicable
to taxable years of United States persons beginning after Dec. 31,
1997, and to taxable years of foreign corporations ending with or
within such taxable years of United States persons, see section
1124 of Pub. L. 105-34, set out as a note under section 532 of this
title.
Section 1263 of title XII of Pub. L. 105-34 provided that: "The
amendments made by this part [probably means subtitle D (Secs.
1251-1263) of title XII of Pub. L. 105-34, amending this section
and sections 856 and 857 of this title] shall apply to taxable
years beginning after the date of the enactment of this Act [Aug.
5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1602(b)(1) of Pub. L. 104-188 applicable to
loans made after Aug. 20, 1996, with exception and provisions
relating to certain refinancings, see section 1602(c) of Pub. L.
104-188, set out as an Effective Date of Repeal note under former
section 133 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to taxable years beginning
on or after Jan. 1, 1993, see section 13221(d) of Pub. L. 103-66
set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7204(b)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to charges incurred after October 3, 1989, in taxable years ending
after such date."
Section 7204(c)(2) of Pub. L. 101-239 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to dividends in cases where the stock becomes ex-dividend after the
date of the enactment of this Act [Dec. 19, 1989]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(l)(9) of Pub. L. 100-647 provided that the amendment
made by that section is effective with respect to dividends
declared in 1988 and subsequent calendar years.
Amendment by sections 1006(l)(1)(A), (3), (4), (7), (8), (10),
1011B(h)(4), and 1018(p) of Pub. L. 100-647 effective, except as
otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 311(b)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 311(c) of
Pub. L. 99-514, set out as a note under section 1201 of this title.
Amendment by section 631(e)(11) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 651(b)(1)(A), (2), (3) of Pub. L. 99-514
applicable to calendar years beginning after Dec. 31, 1986, see
section 651(d) of Pub. L. 99-514, set out as an Effective Date note
under section 4982 of this title.
Section 655(b) of Pub. L. 99-514 provided that: "The amendments
made by subsection (a) [amending this section and sections 853 to
855 of this title] shall apply to taxable years beginning after the
date of the enactment of this Act [Oct. 22, 1986]."
Section 1173(c)(2)(A) of Pub. L. 99-514 provided that: "The
amendments made by subsection (b)(1) [amending this section and
former section 133 of this title] shall apply to loans used to
acquire employer securities after the date of the enactment of this
Act [Oct. 22, 1986], including loans used to refinance loans used
to acquire employer securities before such date if such loans were
used to acquire employer securities after May 23, 1984."
Amendment by section 1511(c)(6) of Pub. L. 99-514 applicable for
purposes of determining interest for periods after Dec. 31, 1986,
see section 1511(d) of Pub. L. 99-514, set out as a note under
section 47 of this title.
Section 1804(c)(6) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section] shall
apply to stock with respect to which the taxpayer's holding period
begins after March 28, 1985."
Amendment by section 1878(j) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 55(c) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section and section 857 of this
title] shall apply to losses incurred with respect to shares of
stock and beneficial interests with respect to which the taxpayer's
holding period begins after the date of the enactment of this Act
[July 18, 1984]."
Amendment by section 1001(b)(11) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
Section 1071(a)(5) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by this subsection [amending this
section and section 851 of this title] shall apply to taxable years
beginning after December 31, 1982.
"(B) Investment companies which were regulated investment
companies for years ending before november 8, 1983. - In the case
of any investment company to which the provisions of part I of
subchapter M of chapter 1 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] applied for any taxable year ending before
November 8, 1983, for purposes of section 852(a)(3)(B) of the
Internal Revenue Code of 1986 (as amended by this subsection), no
earnings and profits accumulated in any taxable year ending before
January 1, 1984, shall be taken into account.
"(C) Investment companies beginning business in 1983. - In the
case of an investment company which began business in 1983 (and was
not a successor corporation), earnings and profits accumulated
during its first taxable year shall not be taken into account for
purposes of section 852(a)(3)(B) of such Code (as so amended).
"(D) Investment companies registering before november 8, 1983. -
In the case of any investment company -
"(i) which, during the period after December 31, 1981, and
before November 8, 1983 -
"(I) was engaged in the active conduct of a trade or
business,
"(II) sold substantially all of its operating assets, and
"(III) registered under the Investment Company Act of 1940
[15 U.S.C. Sec. 80a-1 et seq.] as either a management company
or a unit investment trust, and
"(ii) to which the provisions of part I of subchapter M of
chapter 1 of the Internal Revenue Code of 1986 applied for its
first taxable year beginning after November 8, 1983,
for purposes of section 852(a)(3)(A) of such Code (as amended by
paragraph (3)), the provisions of part I of subchapter M of chapter
1 of such Code shall be treated as applying to such investment
company for its first taxable year ending after November 8, 1983.
For purposes of the preceding sentence, all members of an
affiliated group (as defined in section 1504(a) of such Code)
filing a consolidated return shall be treated as 1 taxpayer."
Section 1071(b)(2) of Pub. L. 98-369 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1978."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 301(b)(11) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 301(c) of
Pub. L. 95-600, set out as a note under section 11 of this title.
Amendment by section 362(c) of Pub. L. 95-600 applicable with
respect to determinations (as defined in section 860(e) of this
title) after Nov. 6, 1978, see section 362(e) of Pub. L. 95-600,
set out as an Effective Date note under section 860 of this title.
Amendment by section 701(s)(2) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1975, see section 701(s)(3)
of Pub. L. 95-600, set out as a note under section 851 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Amendment by section 1901(a)(110)(A), (C), (b)(1)(V), (6)(B),
(33)(I), (J), (N) of Pub. L. 94-455 effective for taxable years
beginning after Dec. 31, 1976, see section 1901(d) of Pub. L.
94-455, set out as an Effective Date of 1976 Amendment note under
section 2 of this title.
Section 1901(a)(110)(B)(ii) of Pub. L. 94-455, as amended by Pub.
L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"The amendment made by clause (i) [amending this section] shall not
be considered to affect the amount of any increase in the basis of
stock under the provisions of section 852(b)(3)(D)(iii) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] which is based
upon amounts subject to tax under section 1201 of such Code
[section 1201 of this title] in taxable years beginning before
January 1, 1975."
Section 2137(e) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and sections 103 and
265 of this title] shall apply to taxable years beginning after
December 31, 1975."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to taxable
years beginning after Dec. 31, 1969, see section 511(d) of Pub. L.
91-172, set out as an Effective Date note under section 1201 of
this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 229(c) of Pub. L. 88-272 provided that: "The amendments
made by subsection (a) [amending this section and sections 853,
854, and 855 of this title] shall apply to taxable years of
regulated investment companies ending on or after the date of the
enactment of this Act [Feb. 26, 1964]. The amendment made by
subsection (b) [amending this section] shall apply to taxable years
of regulated investment companies ending after December 31, 1963."
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment of section by Pub. L. 86-779 applicable with respect to
taxable years of real estate investment trusts beginning after Dec.
31, 1960, see section 10(k) of Pub. L. 86-779, set out as an
Effective Date note under section 856 of this title.
EFFECTIVE DATE OF 1958 AMENDMENT
Section 39(b) of Pub. L. 85-866 provided that: "The amendment
made by subsection (a) [amending this section] shall apply with
respect to taxable years ending after December 31, 1957, but only
with respect to shares of stock acquired after December 31, 1957."
Section 101(c) of Pub. L. 85-866 provided that: "The amendments
made by this section [amending this section] shall apply with
respect to taxable years of regulated investment companies
beginning on or after March 1, 1958."
EFFECTIVE DATE OF 1956 AMENDMENT
Section 2(b) of act July 11, 1956, provided that: "The amendment
made by this section [amending this section] shall apply only with
respect to taxable years of regulated investment companies
beginning after December 31, 1956."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 57, 443, 774, 853, 854,
855, 860, 891, 1201, 4982 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be capitalized.
(!2) See References in Text note below.
-End-
-CITE-
26 USC Sec. 853 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 853. Foreign tax credit allowed to shareholders
-STATUTE-
(a) General rule
A regulated investment company -
(1) more than 50 percent of the value (as defined in section
851(c)(4)) of whose total assets at the close of the taxable year
consists of stock or securities in foreign corporations, and
(2) which meets the requirements of section 852(a) for the
taxable year,
may, for such taxable year, elect the application of this section
with respect to income, war profits, and excess profits taxes
described in section 901(b)(1), which are paid by the investment
company during such taxable year to foreign countries and
possessions of the United States.
(b) Effect of election
If the election provided in subsection (a) is effective for a
taxable year -
(1) the regulated investment company -
(A) shall not, with respect to such taxable year, be allowed
a deduction under section 164(a) or a credit under section 901
for taxes to which subsection (a) is applicable, and
(B) shall be allowed as an addition to the dividends paid
deduction for such taxable year the amount of such taxes;
(2) each shareholder of such investment company shall -
(A) include in gross income and treat as paid by him his
proportionate share of such taxes, and
(B) treat as gross income from sources within the respective
foreign countries and possessions of the United States, for
purposes of applying subpart A of part III of subchapter N, the
sum of his proportionate share of such taxes and the portion of
any dividend paid by such investment company which represents
income derived from sources within foreign countries or
possessions of the United States.
(c) Notice to shareholders
The amounts to be treated by the shareholder, for purposes of
subsection (b)(2), as his proportionate share of -
(1) taxes paid to any foreign country or possession of the
United States, and
(2) gross income derived from sources within any foreign
country or possession of the United States,
shall not exceed the amounts so designated by the company in a
written notice mailed to its shareholders not later than 60 days
after the close of its taxable year.
(d) Manner of making election and notifying shareholders
The election provided in subsection (a) and the notice to
shareholders required by subsection (c) shall be made in such
manner as the Secretary may prescribe by regulations.
(e) Treatment of taxes not allowed as a credit under section 901(k)
This section shall not apply to any tax with respect to which the
regulated investment company is not allowed a credit under section
901 by reason of section 901(k).
(f) Cross references
(1) For treatment by shareholders of taxes paid to foreign
countries and possessions of the United States, see section
164(a) and section 901.
(2) For definition of foreign corporation, see section
7701(a)(5).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 272; Pub. L. 88-272, title II,
Sec. 229(a)(3), Feb. 26, 1964, 78 Stat. 99; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L.
99-514, title VI, Sec. 655(a)(3), Oct. 22, 1986, 100 Stat. 2299;
Pub. L. 105-34, title X, Sec. 1053(b), Aug. 5, 1997, 111 Stat. 943;
Pub. L. 105-206, title VI, Sec. 6010(k)(1), (2), July 22, 1998, 112
Stat. 815.)
-MISC1-
AMENDMENTS
1998 - Subsec. (c). Pub. L. 105-206, Sec. 6010(k)(2), struck out
at end "Such notice shall also include the amount of such taxes
which (without regard to the election under this section) would not
be allowable as a credit under section 901(a) to the regulated
investment company by reason of section 901(k)."
Subsecs. (e), (f). Pub. L. 105-206, Sec. 6010(k)(1), added
subsec. (e) and redesignated former subsec. (e) as (f).
1997 - Subsec. (c). Pub. L. 105-34 inserted at end "Such notice
shall also include the amount of such taxes which (without regard
to the election under this section) would not be allowable as a
credit under section 901(a) to the regulated investment company by
reason of section 901(k)."
1986 - Subsec. (c). Pub. L. 99-514 substituted "60 days" for "45
days".
1976 - Subsec. (d). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1964 - Subsec. (c). Pub. L. 88-272 substituted "45 days" for "30
days".
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1053(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and section 901 of this
title] shall apply to dividends paid or accrued more than 30 days
after the date of the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Oct. 22, 1986, see section 655(b) of Pub. L. 99-514, set out
as a note under section 852 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years of
regulated investment companies ending on or after Feb. 26, 1964,
see section 229(c) of Pub. L. 88-272, set out as a note under
section 852 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 855, 901 of this title.
-End-
-CITE-
26 USC Sec. 854 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 854. Limitations applicable to dividends received from
regulated investment company
-STATUTE-
(a) Capital gain dividend
For purposes of section 1(h)(11) (relating to maximum rate of tax
on dividends) and section 243 (relating to deductions for dividends
received by corporations), a capital gain dividend (as defined in
section 852(b)(3)) received from a regulated investment company
shall not be considered as a dividend.
(b) Other dividends
(1) Amount treated as dividend
(A) Deduction under section 243
In any case in which -
(i) a dividend is received from a regulated investment
company (other than a dividend to which subsection (a)
applies), and
(ii) such investment company meets the requirements of
section 852(a) for the taxable year during which it paid such
dividend,
then, in computing any deduction under section 243, there shall
be taken into account only that portion of such dividend
designated under this subparagraph by the regulated investment
company and such dividend shall be treated as received from a
corporation which is not a 20-percent owned corporation.
(B) Maximum rate under section 1(h)
(i) In general
If the aggregate dividends received by a regulated
investment company during any taxable year are less than 95
percent of its gross income, then, in computing the maximum
rate under section 1(h)(11), rules similar to the rules of
subparagraph (A) shall apply.
(ii) Gross income
For purposes of clause (i), in the case of 1 or more sales
or other dispositions of stock or securities, the term "gross
income" includes only the excess of -
(I) the net short-term capital gain from such sales or
dispositions, over
(II) the net long-term capital loss from such sales or
dispositions.
(iii) Dividends from real estate investment trusts
For purposes of clause (i) -
(I) paragraph (3)(B)(ii) shall not apply, and
(II) in the case of a distribution from a trust described
in such paragraph, the amount of such distribution which is
a dividend shall be subject to the limitations under
section 857(c).
(iv) Dividends from qualified foreign corporations
For purposes of clause (i), dividends received from
qualified foreign corporations (as defined in section
1(h)(11)) shall also be taken into account in computing
aggregate dividends received.
(C) Limitation
The aggregate amount which may be designated as dividends
under subparagraph (A) or (B) shall not exceed the aggregate
dividends received by the company for the taxable year.
(2) Notice to shareholders
The amount of any distribution by a regulated investment
company which may be taken into account as a dividend for
purposes of the maximum rate under section 1(h)(11) and the
deduction under section 243 shall not exceed the amount so
designated by the company in a written notice to its shareholders
mailed not later than 60 days after the close of its taxable
year.
(3) Aggregate dividends
For purposes of this subsection -
(A) In general
In computing the amount of aggregate dividends received,
there shall only be taken into account dividends received from
domestic corporations.
(B) Dividends
For purposes of subparagraph (A), the term "dividend" shall
not include any distribution from -
(i) a corporation which, for the taxable year of the
corporation in which the distribution is made, or for the
next preceding taxable year of the corporation, is a
corporation exempt from tax under section 501 (relating to
certain charitable, etc., organizations) or section 521
(relating to farmers' cooperative associations), or
(ii) a real estate investment trust which, for the taxable
year of the trust in which the dividend is paid, qualifies
under part II of subchapter M (section 856 and following).
(C) Limitations on dividends from regulated investment
companies
In determining the amount of any dividend for purposes of
this paragraph, a dividend received from a regulated investment
company shall be subject to the limitations prescribed in this
section.
(4) Special rule for computing deduction under section 243
For purposes of subparagraph (A) of paragraph (1), an amount
shall be treated as a dividend for the purpose of paragraph (1)
only if a deduction would have been allowable under section 243
to the regulated investment company determined -
(A) as if section 243 applied to dividends received by a
regulated investment company,
(B) after the application of section 246 (but without regard
to subsection (b) thereof), and
(C) after the application of section 246A.
(5) Coordination with section 1(h)(11)
For purposes of paragraph (1)(B), an amount shall be treated as
a dividend only if the amount is qualified dividend income
(within the meaning of section 1(h)(11)(B)).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 273; Pub. L. 88-272, title II,
Secs. 201(d)(8)-(10), 229(a)(4), Feb. 26, 1964, 78 Stat. 32, 99;
Pub. L. 96-223, title IV, Sec. 404(b)(6), Apr. 2, 1980, 94 Stat.
307; Pub. L. 97-34, title III, Sec. 302(c)(4), (d)(1), Aug. 13,
1981, 95 Stat. 272, 274; Pub. L. 98-369, div. A, title I, Secs.
16(a), 52(a)-(c), July 18, 1984, 98 Stat. 505, 564, 565; Pub. L.
99-514, title VI, Secs. 612(b)(6), 655(a)(4), Oct. 22, 1986, 100
Stat. 2250, 2299; Pub. L. 100-203, title X, Sec. 10221(d)(3), Dec.
22, 1987, 101 Stat. 1330-409; Pub. L. 100-647, title I, Sec.
1006(b)(2), Nov. 10, 1988, 102 Stat. 3393; Pub. L. 108-27, title
III, Sec. 302(c), May 28, 2003, 117 Stat. 762.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (a). Pub. L. 108-27, Secs. 302(c)(1), 303,
temporarily inserted "section 1(h)(11) (relating to maximum rate of
tax on dividends) and" after "For purposes of". See Effective and
Termination Dates of 2003 Amendment note below.
Subsec. (b)(1)(B). Pub. L. 108-27, Secs. 302(c)(2), 303,
temporarily added subpar. (B). Former subpar. (B) redesignated (C).
See Effective and Termination Dates of 2003 Amendment note below.
Subsec. (b)(1)(C). Pub. L. 108-27, Secs. 302(c)(2), (3), 303,
temporarily redesignated subpar. (B) as (C) and substituted
"subparagraph (A) or (B)" for "subparagraph (A)". See Effective and
Termination Dates of 2003 Amendment note below.
Subsec. (b)(2). Pub. L. 108-27, Secs. 302(c)(4), 303, temporarily
inserted "the maximum rate under section 1(h)(11) and" after "for
purposes of". See Effective and Termination Dates of 2003 Amendment
note below.
Subsec. (b)(5). Pub. L. 108-27, Secs. 302(c)(5), 303, temporarily
added par. (5). See Effective and Termination Dates of 2003
Amendment note below.
1988 - Subsec. (b)(3). Pub. L. 100-647 substituted "Aggregate
dividends" for "Definitions" in heading and amended text generally,
substituting subpars. (A) to (C) for former subpars. (A) and (B).
1987 - Subsec. (b)(1)(A). Pub. L. 100-203 inserted "and such
dividend shall be treated as received from a corporation which is
not a 20-percent owned corporation" before period at end.
1986 - Subsec. (a). Pub. L. 99-514, Sec. 612(b)(6)(A), which
directed that "section 116 (relating to an exclusion for dividends
received by individuals), and" be struck out, was executed by
striking out "section 116 (relating to an exclusion for dividends
received by individuals) and" before "section 243" as the probable
intent of Congress.
Subsec. (b)(1)(B), (C). Pub. L. 99-514, Sec. 612(b)(6)(B)(i),
(ii), redesignated subpar. (C) as (B), struck out "or (B)" before
"shall not exceed", and struck out former subpar. (B), exclusion
under section 116, which read as follows: "If the aggregate
dividends received by a regulated investment company during any
taxable year are less than 95 percent of its gross income, then, in
computing the exclusion under section 116, rules similar to the
rules of subparagraph (A) shall apply."
Subsec. (b)(2). Pub. L. 99-514, Sec. 655(a)(4), substituted "60
days" for "45 days".
Pub. L. 99-514, Sec. 612(b)(6)(B)(iii), struck out "the exclusion
under section 116 and" before "the deduction under section 243".
Subsec. (b)(3)(B). Pub. L. 99-514, Sec. 612(b)(6)(B)(iv), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "The term 'aggregate dividends received' includes only
dividends received from domestic corporations other than dividends
described in section 116(b) (relating to dividends excluded from
gross income). In determining the amount of any dividend for
purposes of this subparagraph, the rules provided in section 116(c)
(relating to certain distributions) shall apply."
1984 - Subsec. (b). Pub. L. 98-369, Sec. 16(a), repealed
amendments made by Pub. L. 97-34, Sec. 302(c). See 1981 Amendment
note below.
Subsec. (b)(1). Pub. L. 98-369, Sec. 52(a), increased the
required amount of dividends by substituting provisions directing
that in any case in which (i) a dividend is received from a
regulated investment company (other than a dividend to which
subsection (a) applies), and (ii) such investment company meets the
requirements of section 852(a) for the taxable year during which it
paid such dividend, then, in computing any deduction under section
243, there shall be taken into account only that portion of such
dividend thus designated by the regulated investment company, that
if the aggregate dividends received by a regulated investment
company during any taxable year are less than 95 percent of its
gross income, then, in computing the exclusion under section 116,
similar rules applied, and that the aggregate amount which may be
designated thus dividends shall not exceed the aggregate dividends
received by the company for the taxable year for provisions which
had directed that in the case of a dividend received from a
regulated investment company (other than a dividend to which
subsection (a) applied) (A) if such investment company met the
requirements of section 852(a) for the taxable year during which it
paid such dividend; and (B) the aggregate dividends received by
such company during such taxable year were less than 75 percent of
its gross income, then, in computing the exclusion under section
116 and the deduction under section 243, there was taken into
account only that portion of the dividend which bore the same ratio
to the amount of such dividend as the aggregate dividends received
by such company during such taxable year to its gross income for
such taxable year.
Subsec. (b)(3)(A). Pub. L. 98-369, Sec. 52(c), substituted
provisions directing that in the case of 1 or more sales or other
dispositions of stock and securities, the term "gross income"
include only the excess of (i) the net short-term capital gain from
such sales or dispositions, over (ii) the net long-term capital
loss from such sales or dispositions for provisions which had
directed that the term "gross income" not include gain from the
sale or other disposition of stock or securities.
Subsec. (b)(4). Pub. L. 98-369, Sec. 52(b), added par. (4).
1981 - Subsec. (b). Pub. L. 97-34, Sec. 302(c)(4), (d)(1),
provided for general amendment of subsec. (b) so as to include
provisions relating to taxable interest described in section 128 of
this title, applicable to taxable years beginning after Dec. 31,
1984. Section 16(a) of Pub. L. 98-369, repealed section 302(c) of
Pub. L. 97-34, and provided that this title shall be applied and
administered as if section 302(c), and the amendments made by
section 302(c), had not been enacted.
1980 - Subsec. (b). Pub. L. 96-223, Sec. 404(b)(6), temporarily
substituted "Other dividends and taxable interest" for "Other
dividends" in heading, substituted "Deduction under section 243"
for "General rule" in heading for par. (1), struck out "the
exclusion under section 116 and" after "in computing" in text of
par. (1) following subpar. (B), added par. (2), redesignated former
pars. (2) and (3) as (3) and (4), respectively, and, in par. (4) as
so redesignated, substituted "116(b)(2)" for "116(b)" and
"116(c)(2)" for "116(c)" in subpar. (B) and added subpar. (C).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 201(d)(8), struck out
"section 34(a) (relating to credit for dividends received by
individuals)," before "section 116" and the comma before "and".
Subsec. (b). Pub. L. 88-272, Secs. 201(d)(9), (10), 229(a)(4),
substituted "45 days" for "30 days" in par. (2), and struck out
"the credit under section 34(a)," before "the exclusion" in par.
(1), and "the credit under section 34," before "the exclusion" in
par. (2).
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dividends received or
accrued after Dec. 31, 1987, in taxable years ending after such
date, see section 10221(e)(1) of Pub. L. 100-203, set out as a note
under section 243 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 612(b)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 612(c) of
Pub. L. 99-514, set out as a note under section 301 of this title.
Amendment by section 655(a)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Oct. 22, 1986, see section 655(b) of
Pub. L. 99-514, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 16(a) of Pub. L. 98-369 applicable to
taxable years ending after Dec. 31, 1983, see section 18(a) of Pub.
L. 98-369, set out as a note under section 48 of this title.
Section 52(d) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years of regulated investment companies beginning after the date of
the enactment of this Act [July 18, 1984]."
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable
years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see
section 404(c) of Pub. L. 96-223, set out as a note under section
265 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 201(d)(8)-(10) of Pub. L. 88-272 applicable
to dividends received after Dec. 31, 1964, in taxable years ending
after such date, see section 201(e) of Pub. L. 88-272, set out as a
note under section 22 of this title.
Amendment by section 229(a)(4) of Pub. L. 88-272 applicable to
taxable years of regulated investment companies ending on or after
Feb. 26, 1964, see section 229(c) of Pub. L. 88-272, set out as a
note under section 852 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 243, 857 of this
title.
-End-
-CITE-
26 USC Sec. 855 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART I - REGULATED INVESTMENT COMPANIES
-HEAD-
Sec. 855. Dividends paid by regulated investment company after
close of taxable year
-STATUTE-
(a) General rule
For purposes of this chapter, if a regulated investment company -
(1) declares a dividend prior to 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 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
company elects in such return in accordance with regulations
prescribed by the Secretary, be considered as having been paid
during such taxable year, except as provided in subsections (b),
(c) and (d).
(b) Receipt by shareholder
Except as provided in section 852(b)(7), amounts to which
subsection (a) is applicable shall be treated as received by the
shareholder in the taxable year in which the distribution is made.
(c) Notice to shareholders
In the case of amounts to which subsection (a) is applicable, any
notice to shareholders required under this part with respect to
such amounts shall be made not later than 60 days after the close
of the taxable year in which the distribution is made.
(d) Foreign tax election
If an investment company to which section 853 is applicable for
the taxable year makes a distribution as provided in subsection (a)
of this section, the shareholders shall consider the amounts
described in section 853(b)(2) allocable to such distribution as
paid or received, as the case may be, in the taxable year in which
the distribution is made.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 274; Pub. L. 86-779, Sec.
10(b)(2), Sept. 14, 1960, 74 Stat. 1009; Pub. L. 88-272, title II,
Sec. 229(a)(5), Feb. 26, 1964, 78 Stat. 99; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L.
99-514, title VI, Secs. 651(b)(1)(B), 655(a)(5), Oct. 22, 1986, 100
Stat. 2296, 2299; Pub. L. 100-647, title I, Sec. 1006(l)(1)(B),
Nov. 10, 1988, 102 Stat. 3413.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b). Pub. L. 100-647 substituted "section
852(b)(7)" for "section 852(b)(6)".
1986 - Subsec. (b). Pub. L. 99-514, Sec. 651(b)(1)(B),
substituted "Except as provided in section 852(b)(6), amounts" for
"Amounts".
Subsec. (c). Pub. L. 99-514, Sec. 655(a)(5), substituted "60
days" for "45 days".
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1964 - Subsec. (c). Pub. L. 88-272 substituted "45 days" for "30
days".
1960 - Subsec. (c). Pub. L. 86-779 substituted "this part" for
"this subchapter".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 651(b)(1)(B) of Pub. L. 99-514 applicable to
calendar years beginning after Dec. 31, 1986, see section 651(d) of
Pub. L. 99-514, set out as an Effective Date note under section
4982 of this title.
Amendment by section 655(a)(5) of Pub. L. 99-514 applicable to
taxable years beginning after Oct. 22, 1986, see section 655(b) of
Pub. L. 99-514, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to taxable years of
regulated investment companies ending on or after Feb. 26, 1964,
see section 229(c) of Pub. L. 88-272, set out as a note under
section 852 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years of real estate investment trusts beginning after Dec. 31,
1960, see section 10(k) of Pub. L. 86-779, set out as an Effective
Date note under section 856 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 265, 852, 860, 4982 of
this title.
-End-
-CITE-
26 USC PART II - REAL ESTATE INVESTMENT TRUSTS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
PART II - REAL ESTATE INVESTMENT TRUSTS
-MISC1-
Sec.
856. Definition of real estate investment trust.
857. Taxation of real estate investment trusts and their
beneficiaries.
858. Dividends paid by real estate investment trust after
close of taxable year.
859. Adoption of annual accounting period.
AMENDMENTS
1978 - Pub. L. 95-600, title III, Sec. 362(d)(7), Nov. 6, 1978,
92 Stat. 2852, substituted in item 859 "Adoption of annual
accounting period" for "Deduction of deficiency dividends" and
struck out item 860 "Adoption of annual accounting period".
1976 - Pub. L. 94-455, title XVI, Secs. 1601(a)(2), 1604(i)(2),
Oct. 4, 1976, 90 Stat. 1745, 1752, added items 859 and 860.
1960 - Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1003,
added part II analysis.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 59, 59A, 172, 243, 382, 854
of this title.
-End-
-CITE-
26 USC Sec. 856 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 856. Definition of real estate investment trust
-STATUTE-
(a) In general
For purposes of this title, the term "real estate investment
trust" means a corporation, trust, or association -
(1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of
beneficial interest;
(3) which (but for the provisions of this part) would be
taxable as a domestic corporation;
(4) which is neither (A) a financial institution referred to in
section 582(c)(2), nor (B) an insurance company to which
subchapter L applies;
(5) the beneficial ownership of which is held by 100 or more
persons;
(6) subject to the provisions of subsection (k), which is not
closely held (as determined under subsection (h)); and
(7) which meets the requirements of subsection (c).
(b) Determination of status
The conditions described in paragraphs (1) to (4), inclusive, of
subsection (a) must be met during the entire taxable year, and the
condition described in paragraph (5) must exist during at least 335
days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months.
(c) Limitations
A corporation, trust, or association shall not be considered a
real estate investment trust for any taxable year unless -
(1) it files with its return for the taxable year an election
to be a real estate investment trust or has made such election
for a previous taxable year, and such election has not been
terminated or revoked under subsection (g);
(2) at least 95 percent (90 percent for taxable years beginning
before January 1, 1980) of its gross income (excluding gross
income from prohibited transactions) is derived from -
(A) dividends;
(B) interest;
(C) rents from real property;
(D) gain from the sale or other disposition of stock,
securities, and real property (including interests in real
property and interests in mortgages on real property) which is
not property described in section 1221(a)(1);
(E) abatements and refunds of taxes on real property;
(F) income and gain derived from foreclosure property (as
defined in subsection (e));
(G) amounts (other than amounts the determination of which
depends in whole or in part on the income or profits of any
person) received or accrued as consideration for entering into
agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase
or lease real property (including interests in real property
and interests in mortgages on real property); and
(H) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction solely by reason of
section 857(b)(6);
(3) at least 75 percent of its gross income (excluding gross
income from prohibited transactions) is derived from -
(A) rents from real property;
(B) interest on obligations secured by mortgages on real
property or on interests in real property;
(C) gain from the sale or other disposition of real property
(including interests in real property and interests in
mortgages on real property) which is not property described in
section 1221(a)(1);
(D) dividends or other distributions on, and gain (other than
gain from prohibited transactions) from the sale or other
disposition of, transferable shares (or transferable
certificates of beneficial interest) in other real estate
investment trusts which meet the requirements of this part;
(E) abatements and refunds of taxes on real property;
(F) income and gain derived from foreclosure property (as
defined in subsection (e));
(G) amounts (other than amounts the determination of which
depends in whole or in part on the income or profits of any
person) received or accrued as consideration for entering into
agreements (i) to make loans secured by mortgages on real
property or on interests in real property or (ii) to purchase
or lease real property (including interests in real property
and interests in mortgages on real property);
(H) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction solely by reason of
section 857(b)(6); and
(I) qualified temporary investment income; and
(4) at the close of each quarter of the taxable year -
(A) at least 75 percent of the value of its total assets is
represented by real estate assets, cash and cash items
(including receivables), and Government securities; and
(B)(i) not more than 25 percent of the value of its total
assets is represented by securities (other than those
includible under subparagraph (A)),
(ii) not more than 20 percent of the value of its total
assets is represented by securities of one or more taxable REIT
subsidiaries, and
(iii) except with respect to a taxable REIT subsidiary and
securities includible under subparagraph (A) -
(I) not more than 5 percent of the value of its total
assets is represented by securities of any one issuer,
(II) the trust does not hold securities possessing more
than 10 percent of the total voting power of the outstanding
securities of any one issuer, and
(III) the trust does not hold securities having a value of
more than 10 percent of the total value of the outstanding
securities of any one issuer.
A real estate investment trust which meets the requirements of
this paragraph at the close of any quarter shall not lose its
status as a real estate investment trust because of a discrepancy
during a subsequent quarter between the value of its various
investments and such requirements unless such discrepancy exists
immediately after the acquisition of any security or other
property and is wholly or partly the result of such acquisition.
A real estate investment trust which does not meet such
requirements at the close of any quarter by reason of a
discrepancy existing immediately after the acquisition of any
security or other property which is wholly or partly the result
of such acquisition during such quarter shall not lose its status
for such quarter as a real estate investment trust if such
discrepancy is eliminated within 30 days after the close of such
quarter and in such cases it shall be considered to have met such
requirements at the close of such quarter for purposes of
applying the preceding sentence.
(5) For purposes of this part -
(A) The term "value" means, with respect to securities for
which market quotations are readily available, the market value
of such securities; and with respect to other securities and
assets, fair value as determined in good faith by the trustees,
except that in the case of securities of real estate investment
trusts such fair value shall not exceed market value or asset
value, whichever is higher.
(B) The term "real estate assets" means real property
(including interests in real property and interests in
mortgages on real property) and shares (or transferable
certificates of beneficial interest) in other real estate
investment trusts which meet the requirements of this part.
Such term also includes any property (not otherwise a real
estate asset) attributable to the temporary investment of new
capital, but only if such property is stock or a debt
instrument, and only for the 1-year period beginning on the
date the real estate trust receives such capital.
(C) The term "interests in real property" includes fee
ownership and co-ownership of land or improvements thereon,
leaseholds of land or improvements thereon, options to acquire
land or improvements thereon, and options to acquire leaseholds
of land or improvements thereon, but does not include mineral,
oil, or gas royalty interests.
(D) Qualified temporary investment income. -
(i) In general. - The term "qualified temporary investment
income" means any income which -
(I) is attributable to stock or a debt instrument (within
the meaning of section 1275(a)(1)),
(II) is attributable to the temporary investment of new
capital, and
(III) is received or accrued during the 1-year period
beginning on the date on which the real estate investment
trust receives such capital.
(ii) New capital. - The term "new capital" means any amount
received by the real estate investment trust -
(I) in exchange for stock (or certificates of beneficial
interests) in such trust (other than amounts received
pursuant to a dividend reinvestment plan), or
(II) in a public offering of debt obligations of such
trust which have maturities of at least 5 years.
(E) A regular or residual interest in a REMIC shall be
treated as a real estate asset, and any amount includible in
gross income with respect to such an interest shall be treated
as interest on an obligation secured by a mortgage on real
property; except that, if less than 95 percent of the assets of
such REMIC are real estate assets (determined as if the real
estate investment trust held such assets), such real estate
investment trust shall be treated as holding directly (and as
receiving directly) its proportionate share of the assets and
income of the REMIC. For purposes of determining whether any
interest in a REMIC qualifies under the preceding sentence, any
interest held by such REMIC in another REMIC shall be treated
as a real estate asset under principles similar to the
principles of the preceding sentence, except that, if such
REMIC's are part of a tiered structure, they shall be treated
as one REMIC for purposes of this subparagraph. The principles
of the preceding provisions of this subparagraph shall apply to
regular interests in a FASIT.
(F) All other terms shall have the same meaning as when used
in the Investment Company Act of 1940, as amended (15 U.S.C.
80a-1 and following).
(G) Treatment of certain hedging instruments. - Except to the
extent provided by regulations, any -
(i) payment to a real estate investment trust under an
interest rate swap or cap agreement, option, futures
contract, forward rate agreement, or any similar financial
instrument, entered into by the trust in a transaction to
reduce the interest rate risks with respect to any
indebtedness incurred or to be incurred by the trust to
acquire or carry real estate assets, and
(ii) gain from the sale or other disposition of any such
investment,
shall be treated as income qualifying under paragraph (2).
(6) A corporation, trust, or association which fails to meet
the requirements of paragraph (2) or (3), or of both such
paragraphs, for any taxable year shall nevertheless be considered
to have satisfied the requirements of such paragraphs for such
taxable year if -
(A) the nature and amount of each item of its gross income
described in such paragraphs is set forth in a schedule
attached to its income tax return for such taxable year;
(B) the inclusion of any incorrect information in the
schedule referred to in subparagraph (A) is not due to fraud
with intent to evade tax; and
(C) the failure to meet the requirements of paragraph (2) or
(3), or of both such paragraphs, is due to reasonable cause and
not due to willful neglect.
(7) Straight debt safe harbor in applying paragraph (4). -
Securities of an issuer which are straight debt (as defined in
section 1361(c)(5) without regard to subparagraph (B)(iii)
thereof) shall not be taken into account in applying paragraph
(4)(B)(iii)(III) if -
(A) the issuer is an individual, or
(B) the only securities of such issuer which are held by the
trust or a taxable REIT subsidiary of the trust are straight
debt (as so defined), or
(C) the issuer is a partnership and the trust holds at least
a 20 percent profits interest in the partnership.
(d) Rents from real property defined
(1) Amounts included
For purposes of paragraphs (2) and (3) of subsection (c), the
term "rents from real property" includes (subject to paragraph
(2)) -
(A) rents from interests in real property,
(B) charges for services customarily furnished or rendered in
connection with the rental of real property, whether or not
such charges are separately stated, and
(C) rent attributable to personal property which is leased
under, or in connection with, a lease of real property, but
only if the rent attributable to such personal property for the
taxable year does not exceed 15 percent of the total rent for
the taxable year attributable to both the real and personal
property leased under, or in connection with, such lease.
For purposes of subparagraph (C), with respect to each lease of
real property, rent attributable to personal property for the
taxable year is that amount which bears the same ratio to total
rent for the taxable year as the average of the fair market
values of the personal property at the beginning and at the end
of the taxable year bears to the average of the aggregate fair
market values of both the real property and the personal property
at the beginning and at the end of such taxable year.
(2) Amounts excluded
For purposes of paragraphs (2) and (3) of subsection (c), the
term "rents from real property" does not include -
(A) except as provided in paragraphs (4) and (6), any amount
received or accrued, directly or indirectly, with respect to
any real or personal property, if the determination of such
amount depends in whole or in part on the income or profits
derived by any person from such property (except that any
amount so received or accrued shall not be excluded from the
term "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales);
(B) except as provided in paragraph (8), any amount received
or accrued directly or indirectly from any person if the real
estate investment trust owns, directly or indirectly -
(i) in the case of any person which is a corporation, stock
of such person possessing 10 percent or more of the total
combined voting power of all classes of stock entitled to
vote, or 10 percent or more of the total value of shares of
all classes of stock of such person; or
(ii) in the case of any person which is not a corporation,
an interest of 10 percent or more in the assets or net
profits of such person; and
(C) any impermissible tenant service income (as defined in
paragraph (7)).
(3) Independent contractor defined
For purposes of this subsection and subsection (e), the term
"independent contractor" means any person -
(A) who does not own, directly or indirectly, more than 35
percent of the shares, or certificates of beneficial interest,
in the real estate investment trust; and
(B) if such person is a corporation, not more than 35 percent
of the total combined voting power of whose stock (or 35
percent of the total shares of all classes of whose stock), or,
if such person is not a corporation, not more than 35 percent
of the interest in whose assets or net profits is owned,
directly or indirectly, by one or more persons owning 35
percent or more of the shares or certificates of beneficial
interest in the trust.
In the event that any class of stock of either the real estate
investment trust or such person is regularly traded on an
established securities market, only persons who own, directly or
indirectly, more than 5 percent of such class of stock shall be
taken into account as owning any of the stock of such class for
purposes of applying the 35 percent limitation set forth in
subparagraph (B) (but all of the outstanding stock of such class
shall be considered outstanding in order to compute the
denominator for purpose of determining the applicable percentage
of ownership).
(4) Special rule for certain contingent rents
Where a real estate investment trust receives or accrues, with
respect to real or personal property, any amount which would be
excluded from the term "rents from real property" solely because
the tenant of the real estate investment trust receives or
accrues, directly or indirectly, from subtenants any amount the
determination of which depends in whole or in part on the income
or profits derived by any person from such property, only a
proportionate part (determined pursuant to regulations prescribed
by the Secretary) of the amount received or accrued by the real
estate investment trust from that tenant will be excluded from
the term "rents from real property".
(5) Constructive ownership of stock
For purposes of this subsection, the rules prescribed by
section 318(a) for determining the ownership of stock shall apply
in determining the ownership of stock, assets, or net profits of
any person; except that -
(A) "10 percent" shall be substituted for "50 percent" in
subparagraph (C) of paragraphs (2) and (3) of section 318(a),
and
(B) section 318(a)(3)(A) shall be applied in the case of a
partnership by taking into account only partners who own
(directly or indirectly) 25 percent or more of the capital
interest, or the profits interest, in the partnership.
(6) Special rule for certain property subleased by tenant of real
estate investment trusts
(A) In general
If -
(i) a real estate investment trust receives or accrues,
with respect to real or personal property, amounts from a
tenant which derives substantially all of its income with
respect to such property from the subleasing of substantially
all of such property, and
(ii) a portion of the amount such tenant receives or
accrues, directly or indirectly, from subtenants consists of
qualified rents,
then the amounts which the trust receives or accrues from the
tenant shall not be excluded from the term "rents from real
property" by reason of being based on the income or profits of
such tenant to the extent the amounts so received or accrued
are attributable to qualified rents received or accrued by such
tenant.
(B) Qualified rents
For purposes of subparagraph (A), the term "qualified rents"
means any amount which would be treated as rents from real
property if received by the real estate investment trust.
(7) Impermissible tenant service income
For purposes of paragraph (2)(C) -
(A) In general
The term "impermissible tenant service income" means, with
respect to any real or personal property, any amount received
or accrued directly or indirectly by the real estate investment
trust for -
(i) services furnished or rendered by the trust to the
tenants of such property, or
(ii) managing or operating such property.
(B) Disqualification of all amounts where more than de minimis
amount
If the amount described in subparagraph (A) with respect to a
property for any taxable year exceeds 1 percent of all amounts
received or accrued during such taxable year directly or
indirectly by the real estate investment trust with respect to
such property, the impermissible tenant service income of the
trust with respect to the property shall include all such
amounts.
(C) Exceptions
For purposes of subparagraph (A) -
(i) services furnished or rendered, or management or
operation provided, through an independent contractor from
whom the trust itself does not derive or receive any income
or through a taxable REIT subsidiary of such trust shall not
be treated as furnished, rendered, or provided by the trust,
and
(ii) there shall not be taken into account any amount which
would be excluded from unrelated business taxable income
under section 512(b)(3) if received by an organization
described in section 511(a)(2).
(D) Amount attributable to impermissible services
For purposes of subparagraph (A), the amount treated as
received for any service (or management or operation) shall not
be less than 150 percent of the direct cost of the trust in
furnishing or rendering the service (or providing the
management or operation).
(E) Coordination with limitations
For purposes of paragraphs (2) and (3) of subsection (c),
amounts described in subparagraph (A) shall be included in the
gross income of the corporation, trust, or association.
(8) Special rule for taxable REIT subsidiaries
For purposes of this subsection, amounts paid to a real estate
investment trust by a taxable REIT subsidiary of such trust shall
not be excluded from rents from real property by reason of
paragraph (2)(B) if the requirements of either of the following
subparagraphs are met:
(A) Limited rental exception
The requirements of this subparagraph are met with respect to
any property if at least 90 percent of the leased space of the
property is rented to persons other than taxable REIT
subsidiaries of such trust and other than persons described in
section 856(d)(2)(B). The preceding sentence shall apply only
to the extent that the amounts paid to the trust as rents from
real property (as defined in paragraph (1) without regard to
paragraph (2)(B)) from such property are substantially
comparable to such rents made by the other tenants of the
trust's property for comparable space.
(B) Exception for certain lodging facilities
The requirements of this subparagraph are met with respect to
an interest in real property which is a qualified lodging
facility leased by the trust to a taxable REIT subsidiary of
the trust if the property is operated on behalf of such
subsidiary by a person who is an eligible independent
contractor.
(9) Eligible independent contractor
For purposes of paragraph (8)(B) -
(A) In general
The term "eligible independent contractor" means, with
respect to any qualified lodging facility, any independent
contractor if, at the time such contractor enters into a
management agreement or other similar service contract with the
taxable REIT subsidiary to operate the facility, such
contractor (or any related person) is actively engaged in the
trade or business of operating qualified lodging facilities for
any person who is not a related person with respect to the real
estate investment trust or the taxable REIT subsidiary.
(B) Special rules
Solely for purposes of this paragraph and paragraph (8)(B), a
person shall not fail to be treated as an independent
contractor with respect to any qualified lodging facility by
reason of any of the following:
(i) The taxable REIT subsidiary bears the expenses for the
operation of the facility pursuant to the management
agreement or other similar service contract.
(ii) The taxable REIT subsidiary receives the revenues from
the operation of such facility, net of expenses for such
operation and fees payable to the operator pursuant to such
agreement or contract.
(iii) The real estate investment trust receives income from
such person with respect to another property that is
attributable to a lease of such other property to such person
that was in effect as of the later of -
(I) January 1, 1999, or
(II) the earliest date that any taxable REIT subsidiary
of such trust entered into a management agreement or other
similar service contract with such person with respect to
such qualified lodging facility.
(C) Renewals, etc., of existing leases
For purposes of subparagraph (B)(iii) -
(i) a lease shall be treated as in effect on January 1,
1999, without regard to its renewal after such date, so long
as such renewal is pursuant to the terms of such lease as in
effect on whichever of the dates under subparagraph (B)(iii)
is the latest, and
(ii) a lease of a property entered into after whichever of
the dates under subparagraph (B)(iii) is the latest shall be
treated as in effect on such date if -
(I) on such date, a lease of such property from the trust
was in effect, and
(II) under the terms of the new lease, such trust
receives a substantially similar or lesser benefit in
comparison to the lease referred to in subclause (I).
(D) Qualified lodging facility
For purposes of this paragraph -
(i) In general
The term "qualified lodging facility" means any lodging
facility unless wagering activities are conducted at or in
connection with such facility by any person who is engaged in
the business of accepting wagers and who is legally
authorized to engage in such business at or in connection
with such facility.
(ii) Lodging facility
The term "lodging facility" means a hotel, motel, or other
establishment more than one-half of the dwelling units in
which are used on a transient basis.
(iii) Customary amenities and facilities
The term "lodging facility" includes customary amenities
and facilities operated as part of, or associated with, the
lodging facility so long as such amenities and facilities are
customary for other properties of a comparable size and class
owned by other owners unrelated to such real estate
investment trust.
(E) Operate includes manage
References in this paragraph to operating a property shall be
treated as including a reference to managing the property.
(F) Related person
Persons shall be treated as related to each other if such
persons are treated as a single employer under subsection (a)
or (b) of section 52.
(e) Special rules for foreclosure property
(1) Foreclosure property defined
For purposes of this part, the term "foreclosure property"
means any real property (including interests in real property),
and any personal property incident to such real property,
acquired by the real estate investment trust as the result of
such trust having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by
agreement or process of law, after there was default (or default
was imminent) on a lease of such property or on an indebtedness
which such property secured. Such term does not include property
acquired by the real estate investment trust as a result of
indebtedness arising from the sale or other disposition of
property of the trust described in section 1221(a)(1) which was
not originally acquired as foreclosure property.
(2) Grace period
Except as provided in paragraph (3), property shall cease to be
foreclosure property with respect to the real estate investment
trust as of the close of the 3d taxable year following the
taxable year in which the trust acquired such property.
(3) Extensions
If the real estate investment trust establishes to the
satisfaction of the Secretary that an extension of the grace
period is necessary for the orderly liquidation of the trust's
interests in such property, the Secretary may grant one extension
of the grace period for such property. Any such extension shall
not extend the grace period beyond the close of the 3d taxable
year following the last taxable year in the period under
paragraph (2).
(4) Termination of grace period in certain cases
Any foreclosure property shall cease to be such on the first
day (occurring on or after the day on which the real estate
investment trust acquired the property) on which -
(A) a lease is entered into with respect to such property
which, by its terms, will give rise to income which is not
described in subsection (c)(3) (other than subparagraph (F) of
such subsection), or any amount is received or accrued,
directly or indirectly, pursuant to a lease entered into on or
after such day which is not described in such subsection,
(B) any construction takes place on such property (other than
completion of a building, or completion of any other
improvement, where more than 10 percent of the construction of
such building or other improvement was completed before default
became imminent), or
(C) if such day is more than 90 days after the day on which
such property was acquired by the real estate investment trust
and the property is used in a trade or business which is
conducted by the trust (other than through an independent
contractor (within the meaning of section (d)(3)) from whom the
trust itself does not derive or receive any income).
For purposes of subparagraph (C), property shall not be treated
as used in a trade or business by reason of any activities of the
real estate investment trust with respect to such property to the
extent that such activities would not result in amounts received
or accrued, directly or indirectly, with respect to such property
being treated as other than rents from real property.
(5) Taxpayer must make election
Property shall be treated as foreclosure property for purposes
of this part only if the real estate investment trust so elects
(in the manner provided in regulations prescribed by the
Secretary) on or before the due date (including any extensions of
time) for filing its return of tax under this chapter for the
taxable year in which such trust acquires such property. A real
estate investment trust may revoke any such election for a
taxable year by filing the revocation (in the manner provided by
the Secretary) on or before the due date (including any extension
of time) for filing its return of tax under this chapter for the
taxable year. If a trust revokes an election for any property, no
election may be made by the trust under this paragraph with
respect to the property for any subsequent taxable year.
(6) Special rule for qualified health care properties
For purposes of this subsection -
(A) Acquisition at expiration of lease
The term "foreclosure property" shall include any qualified
health care property acquired by a real estate investment trust
as the result of the termination of a lease of such property
(other than a termination by reason of a default, or the
imminence of a default, on the lease).
(B) Grace period
In the case of a qualified health care property which is
foreclosure property solely by reason of subparagraph (A), in
lieu of applying paragraphs (2) and (3) -
(i) the qualified health care property shall cease to be
foreclosure property as of the close of the second taxable
year after the taxable year in which such trust acquired such
property, and
(ii) if the real estate investment trust establishes to the
satisfaction of the Secretary that an extension of the grace
period in clause (i) is necessary to the orderly leasing or
liquidation of the trust's interest in such qualified health
care property, the Secretary may grant one or more extensions
of the grace period for such qualified health care property.
Any such extension shall not extend the grace period beyond the
close of the 6th year after the taxable year in which such
trust acquired such qualified health care property.
(C) Income from independent contractors
For purposes of applying paragraph (4)(C) with respect to
qualified health care property which is foreclosure property by
reason of subparagraph (A) or paragraph (1), income derived or
received by the trust from an independent contractor shall be
disregarded to the extent such income is attributable to -
(i) any lease of property in effect on the date the real
estate investment trust acquired the qualified health care
property (without regard to its renewal after such date so
long as such renewal is pursuant to the terms of such lease
as in effect on such date), or
(ii) any lease of property entered into after such date if
-
(I) on such date, a lease of such property from the trust
was in effect, and
(II) under the terms of the new lease, such trust
receives a substantially similar or lesser benefit in
comparison to the lease referred to in subclause (I).
(D) Qualified health care property
(i) In general
The term "qualified health care property" means any real
property (including interests therein), and any personal
property incident to such real property, which -
(I) is a health care facility, or
(II) is necessary or incidental to the use of a health
care facility.
(ii) Health care facility
For purposes of clause (i), the term "health care facility"
means a hospital, nursing facility, assisted living facility,
congregate care facility, qualified continuing care facility
(as defined in section 7872(g)(4)), or other licensed
facility which extends medical or nursing or ancillary
services to patients and which, immediately before the
termination, expiration, default, or breach of the lease of
or mortgage secured by such facility, was operated by a
provider of such services which was eligible for
participation in the medicare program under title XVIII of
the Social Security Act with respect to such facility.
(f) Interest
(1) In general
For purposes of paragraphs (2)(B) and (3)(B) of subsection (c),
the term "interest" does not include any amount received or
accrued, directly or indirectly, if the determination of such
amount depends in whole or in part on the income or profits of
any person except that -
(A) any amount so received or accrued shall not be excluded
from the term "interest" solely by reason of being based on a
fixed percentage or percentages of receipts or sales, and
(B) where a real estate investment trust receives any amount
which would be excluded from the term "interest" solely because
the debtor of the real estate investment trust receives or
accrues any amount the determination of which depends in whole
or in part on the income or profits of any person, only a
proportionate part (determined pursuant to regulations
prescribed by the Secretary) of the amount received or accrued
by the real estate investment trust from the debtor will be
excluded from the term "interest".
(2) Special rule
If -
(A) a real estate investment trust receives or accrues with
respect to an obligation secured by a mortgage on real property
or an interest in real property amounts from a debtor which
derives substantially all of its gross income with respect to
such property (not taking into account any gain on any
disposition) from the leasing of substantially all of its
interests in such property to tenants, and
(B) a portion of the amount which such debtor receives or
accrues, directly or indirectly, from tenants consists of
qualified rents (as defined in subsection (d)(6)(B)),
then the amounts which the trust receives or accrues from such
debtor shall not be excluded from the term "interest" by reason
of being based on the income or profits of such debtor to the
extent the amounts so received are attributable to qualified
rents received or accrued by such debtor.
(g) Termination of election
(1) Failure to qualify
An election under subsection (c)(1) made by a corporation,
trust, or association shall terminate if the corporation, trust,
or association is not a real estate investment trust to which the
provisions of this part apply for the taxable year with respect
to which the election is made, or for any succeeding taxable
year. Such termination shall be effective for the taxable year
for which the corporation, trust, or association is not a real
estate investment trust to which the provisions of this part
apply, and for all succeeding taxable years.
(2) Revocation
An election under subsection (c)(1) made by a corporation,
trust, or association may be revoked by it for any taxable year
after the first taxable year for which the election is effective.
A revocation under this paragraph shall be effective for the
taxable year in which made and for all succeeding taxable years.
Such revocation must be made on or before the 90th day after the
first day of the first taxable year for which the revocation is
to be effective. Such revocation shall be made in such manner as
the Secretary shall prescribe by regulations.
(3) Election after termination or revocation
Except as provided in paragraph (4), if a corporation, trust,
or association has made an election under subsection (c)(1) and
such election has been terminated or revoked under paragraph (1)
or paragraph (2), such corporation, trust, or association (and
any successor corporation, trust, or association) shall not be
eligible to make an election under subsection (c)(1) for any
taxable year prior to the fifth taxable year which begins after
the first taxable year for which such termination or revocation
is effective.
(4) Exception
If the election of a corporation, trust, or association has
been terminated under paragraph (1), paragraph (3) shall not
apply if -
(A) the corporation, trust, or association does not willfully
fail to file within the time prescribed by law an income tax
return for the taxable year with respect to which the
termination of the election under subsection (c)(1) occurs;
(B) the inclusion of any incorrect information in the return
referred to in subparagraph (A) is not due to fraud with intent
to evade tax; and
(C) the corporation, trust, or association establishes to the
satisfaction of the Secretary that its failure to qualify as a
real estate investment trust to which the provisions of this
part apply is due to reasonable cause and not due to willful
neglect.
(h) Closely held determinations
(1) Section 542(a)(2) applied
(A) In general
For purposes of subsection (a)(6), a corporation, trust, or
association is closely held if the stock ownership requirement
of section 542(a)(2) is met.
(B) Waiver of partnership attribution, etc.
For purposes of subparagraph (A) -
(i) paragraph (2) of section 544(a) shall be applied as if
such paragraph did not contain the phrase "or by or for his
partner", and
(ii) sections 544(a)(4)(A) and 544(b)(1) shall be applied
by substituting "the entity meet the stock ownership
requirement of section 542(a)(2)" for "the corporation a
personal holding company".
(2) Subsections (a)(5) and (6) not to apply to 1st year
Paragraphs (5) and (6) of subsection (a) shall not apply to the
1st taxable year for which an election is made under subsection
(c)(1) by any corporation, trust, or association.
(3) Treatment of trusts described in section 401(a)
(A) Look-thru treatment
(i) In general
Except as provided in clause (ii), in determining whether
the stock ownership requirement of section 542(a)(2) is met
for purposes of paragraph (1)(A), any stock held by a
qualified trust shall be treated as held directly by its
beneficiaries in proportion to their actuarial interests in
such trust and shall not be treated as held by such trust.
(ii) Certain related trusts not eligible
Clause (i) shall not apply to any qualified trust if one or
more disqualified persons (as defined in section 4975(e)(2),
without regard to subparagraphs (B) and (I) thereof) with
respect to such qualified trust hold in the aggregate 5
percent or more in value of the interests in the real estate
investment trust and such real estate investment trust has
accumulated earnings and profits attributable to any period
for which it did not qualify as a real estate investment
trust.
(B) Coordination with personal holding company rules
If any entity qualifies as a real estate investment trust for
any taxable year by reason of subparagraph (A), such entity
shall not be treated as a personal holding company for such
taxable year for purposes of part II of subchapter G of this
chapter.
(C) Treatment for purposes of unrelated business tax
If any qualified trust holds more than 10 percent (by value)
of the interests in any pension-held REIT at any time during a
taxable year, the trust shall be treated as having for such
taxable year gross income from an unrelated trade or business
in an amount which bears the same ratio to the aggregate
dividends paid (or treated as paid) by the REIT to the trust
for the taxable year of the REIT with or within which the
taxable year of the trust ends (the "REIT year") as -
(i) the gross income (less direct expenses related thereto)
of the REIT for the REIT year from unrelated trades or
businesses (determined as if the REIT were a qualified
trust), bears to
(ii) the gross income (less direct expenses related
thereto) of the REIT for the REIT year.
This subparagraph shall apply only if the ratio determined
under the preceding sentence is at least 5 percent.
(D) Pension-held REIT
The purposes of subparagraph (C) -
(i) In general
A real estate investment trust is a pension-held REIT if
such trust would not have qualified as a real estate
investment trust but for the provisions of this paragraph and
if such trust is predominantly held by qualified trusts.
(ii) Predominantly held
For purposes of clause (i), a real estate investment trust
is predominantly held by qualified trusts if -
(I) at least 1 qualified trust holds more than 25 percent
(by value) of the interests in such real estate investment
trust, or
(II) 1 or more qualified trusts (each of whom own more
than 10 percent by value of the interests in such real
estate investment trust) hold in the aggregate more than 50
percent (by value) of the interests in such real estate
investment trust.
(E) Qualified trust
For purposes of this paragraph, the term "qualified trust"
means any trust described in section 401(a) and exempt from tax
under section 501(a).
(i) Treatment of certain wholly owned subsidiaries
(1) In general
For purposes of this title -
(A) a corporation which is a qualified REIT subsidiary shall
not be treated as a separate corporation, and
(B) all assets, liabilities, and items of income, deduction,
and credit of a qualified REIT subsidiary shall be treated as
assets, liabilities, and such items (as the case may be) of the
real estate investment trust.
(2) Qualified REIT subsidiary
For purposes of this subsection, the term "qualified REIT
subsidiary" means any corporation if 100 percent of the stock of
such corporation is held by the real estate investment trust.
Such term shall not include a taxable REIT subsidiary.
(3) Treatment of termination of qualified subsidiary status
For purposes of this subtitle, if any corporation which was a
qualified REIT subsidiary ceases to meet the requirements of
paragraph (2), such corporation shall be treated as a new
corporation acquiring all of its assets (and assuming all of its
liabilities) immediately before such cessation from the real
estate investment trust in exchange for its stock.
(j) Treatment of shared appreciation mortgages
(1) In general
Solely for purposes of subsection (c) of this section and
section 857(b)(6), any income derived from a shared appreciation
provision shall be treated as gain recognized on the sale of the
secured property.
(2) Treatment of income
For purposes of applying subsection (c) of this section and
section 857(b)(6) to any income described in paragraph (1) -
(A) the real estate investment trust shall be treated as
holding the secured property for the period during which it
held the shared appreciation provision (or, if shorter, for the
period during which the secured property was held by the person
holding such property), and
(B) the secured property shall be treated as property
described in section 1221(a)(1) if it is so described in the
hands of the person holding the secured property (or it would
be so described if held by the real estate investment trust).
(3) Coordination with prohibited transactions safe harbor
For purposes of section 857(b)(6)(C) -
(A) the real estate investment trust shall be treated as
having sold the secured property when it recognizes any income
described in paragraph (1), and
(B) any expenditures made by any holder of the secured
property shall be treated as made by the real estate investment
trust.
(4) Coordination with 4-year holding period
(A) In general
For purposes of section 857(b)(6)(C), if a real estate
investment trust is treated as having sold secured property
under paragraph (3)(A), the trust shall be treated as having
held such property for at least 4 years if -
(i) the secured property is sold or otherwise disposed of
pursuant to a case under title 11 of the United States Code,
(ii) the seller is under the jurisdiction of the court in
such case, and
(iii) the disposition is required by the court or is
pursuant to a plan approved by the court.
(B) Exception
Subparagraph (A) shall not apply if -
(i) the secured property was acquired by the seller with
the intent to evict or foreclose, or
(ii) the trust knew or had reason to know that default on
the obligation described in paragraph (5)(A) would occur.
(5) Definitions
For purposes of this subsection -
(A) Shared appreciation provision
The term "shared appreciation provision" means any provision
-
(i) which is in connection with an obligation which is held
by the real estate investment trust and is secured by an
interest in real property, and
(ii) which entitles the real estate investment trust to
receive a specified portion of any gain realized on the sale
or exchange of such real property (or of any gain which would
be realized if the property were sold on a specified date) or
appreciation in value as of any specified date.
(B) Secured property
The term "secured property" means the real property referred
to in subparagraph (A).
(k) Requirement that entity not be closely held treated as met in
certain cases
A corporation, trust, or association -
(1) which for a taxable year meets the requirements of section
857(f)(1), and
(2) which does not know, or exercising reasonable diligence
would not have known, whether the entity failed to meet the
requirement of subsection (a)(6),
shall be treated as having met the requirement of subsection (a)(6)
for the taxable year.
(l) Taxable REIT subsidiary
For purposes of this part -
(1) In general
The term "taxable REIT subsidiary" means, with respect to a
real estate investment trust, a corporation (other than a real
estate investment trust) if -
(A) such trust directly or indirectly owns stock in such
corporation, and
(B) such trust and such corporation jointly elect that such
corporation shall be treated as a taxable REIT subsidiary of
such trust for purposes of this part.
Such an election, once made, shall be irrevocable unless both
such trust and corporation consent to its revocation. Such
election, and any revocation thereof, may be made without the
consent of the Secretary.
(2) Thirty-five percent ownership in another taxable REIT
subsidiary
The term "taxable REIT subsidiary" includes, with respect to
any real estate investment trust, any corporation (other than a
real estate investment trust) with respect to which a taxable
REIT subsidiary of such trust owns directly or indirectly -
(A) securities possessing more than 35 percent of the total
voting power of the outstanding securities of such corporation,
or
(B) securities having a value of more than 35 percent of the
total value of the outstanding securities of such corporation.
The preceding sentence shall not apply to a qualified REIT
subsidiary (as defined in subsection (i)(2)). The rule of section
856(c)(7) shall apply for purposes of subparagraph (B).
(3) Exceptions
The term "taxable REIT subsidiary" shall not include -
(A) any corporation which directly or indirectly operates or
manages a lodging facility or a health care facility, and
(B) any corporation which directly or indirectly provides to
any other person (under a franchise, license, or otherwise)
rights to any brand name under which any lodging facility or
health care facility is operated.
Subparagraph (B) shall not apply to rights provided to an
eligible independent contractor to operate or manage a lodging
facility if such rights are held by such corporation as a
franchisee, licensee, or in a similar capacity and such lodging
facility is either owned by such corporation or is leased to such
corporation from the real estate investment trust.
(4) Definitions
For purposes of paragraph (3) -
(A) Lodging facility
The term "lodging facility" has the meaning given to such
term by subsection (d)(9)(D)(ii).
(B) Health care facility
The term "health care facility" has the meaning given to such
term by subsection (e)(6)(D)(ii).
-SOURCE-
(Added Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1004;
amended Pub. L. 88-272, title II, Sec. 225(k)(4), Feb. 26, 1964, 78
Stat. 94; Pub. L. 88-554, Sec. 4(b)(4), Aug. 31, 1964, 78 Stat.
763; Pub. L. 93-625, Sec. 6(a), (b), (d)(1), Jan. 3, 1975, 88 Stat.
2112-2114; Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(O), (2),
title XVI, Secs. 1602(a), 1603(a), (c)(1)-(4), 1604(a)-(c)(1),
(d)-(f)(3)(A), (g), (k)(1), (2)(A), title XIX, Secs. 1901(a)(111),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 1746, 1748-1753, 1783,
1834; Pub. L. 95-600, title III, Sec. 363(a), (c), title VII, Sec.
701(t)(2), Nov. 6, 1978, 92 Stat. 2852, 2853, 2912; Pub. L. 98-369,
div. A, title X, Sec. 1001(b)(12), (e), July 18, 1984, 98 Stat.
1011, 1012; Pub. L. 99-514, title VI, Secs. 661(a), 662, 663,
671(b)(1), title IX, Sec. 901(d)(4)(E), Oct. 22, 1986, 100 Stat.
2299, 2300, 2302, 2317, 2380; Pub. L. 100-647, title I, Sec.
1006(p)(1), (3), (4)(A), (5), (q), (t)(11), Nov. 10, 1988, 102
Stat. 3416, 3417, 3422; Pub. L. 103-66, title XIII, Sec. 13149(a),
Aug. 10, 1993, 107 Stat. 445; Pub. L. 104-188, title I, Secs.
1621(b)(5), 1704(t)(35), Aug. 20, 1996, 110 Stat. 1867, 1889; Pub.
L. 105-34, title XII, Secs. 1251(b)-1253, 1255(a), (b)(1), 1257,
1258, 1261, 1262, Aug. 5, 1997, 111 Stat. 1031-1036; Pub. L.
106-170, title V, Secs. 532(c)(2)(H)-(K), 541-542(b)(3)(A)(i),
(B)(i), 543, 551(a), 561(a), Dec. 17, 1999, 113 Stat. 1930,
1940-1943, 1948, 1949; Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 319(9), (10)], Dec. 21, 2000, 114 Stat. 2763, 2763A-646.)
-REFTEXT-
REFERENCES IN TEXT
The Investment Company Act of 1940, referred to in subsec.
(c)(5)(F), is title I of act Aug. 22, 1940, ch. 686, 54 Stat. 789,
as amended, which is classified generally to subchapter I (Sec.
80a-1 et seq.) of chapter 2D of Title 15, Commerce and Trade. For
complete classification of this Act to the Code, see section 80a-51
of Title 15 and Tables.
The Social Security Act, referred to in subsec. (e)(6)(D)(ii), is
act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title XVIII
of the Act is classified generally to subchapter XVIII (Sec. 1395
et seq.) of chapter 7 of Title 42, The Public Health and Welfare.
For complete classification of this Act to the Code, see section
1305 of Title 42 and Tables.
-MISC1-
AMENDMENTS
2000 - Subsec. (c)(7). Pub. L. 106-554, Sec. 1(a)(7) [title III,
Sec. 319(9)], substituted "paragraph (4)(B)(iii)(III)" for
"paragraph (4)(B)(ii)(III)" in introductory provisions.
Subsec. (l)(4)(A). Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
319(10)], substituted "subsection (d)(9)(D)(ii)" for "paragraph
(9)(D)(ii)".
1999 - Subsec. (c)(2)(D), (3)(C). Pub. L. 106-170, Sec.
532(c)(2)(H), (I), substituted "section 1221(a)(1)" for "section
1221(1)".
Subsec. (c)(4)(B). Pub. L. 106-170, Sec. 541(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"not more than 25 percent of the value of its total assets is
represented by securities (other than those includible under
subparagraph (A)) for purposes of this calculation limited in
respect of any one issuer to an amount not greater in value than 5
percent of the value of the total assets of the trust and to not
more than 10 percent of the outstanding voting securities of such
issuer."
Subsec. (c)(7). Pub. L. 106-170, Sec. 541(b), added par. (7).
Subsec. (d)(1). Pub. L. 106-170, Sec. 542(b)(3)(A)(i),
substituted "fair market values" for "adjusted bases" in two places
in concluding provisions.
Subsec. (d)(2)(B). Pub. L. 106-170, Sec. 542(b)(2), inserted
"except as provided in paragraph (8)," after "(B)" in introductory
provisions.
Subsec. (d)(2)(B)(i). Pub. L. 106-170, Sec. 542(b)(3)(B)(i),
substituted "value" for "number".
Subsec. (d)(3). Pub. L. 106-170, Sec. 561(a), inserted concluding
provisions.
Subsec. (d)(7)(C)(i). Pub. L. 106-170, Sec. 542(a), inserted "or
through a taxable REIT subsidiary of such trust" after "income".
Subsec. (d)(8), (9). Pub. L. 106-170, Sec. 542(b)(1), added pars.
(8) and (9).
Subsec. (e)(1). Pub. L. 106-170, Sec. 532(c)(2)(J), substituted
"section 1221(a)(1)" for "section 1221(1)".
Subsec. (e)(6). Pub. L. 106-170, Sec. 551(a), added par. (6).
Subsec. (i)(2). Pub. L. 106-170, Sec. 543(b), inserted at end
"Such term shall not include a taxable REIT subsidiary."
Subsec. (j)(2)(B). Pub. L. 106-170, Sec. 532(c)(2)(K),
substituted "section 1221(a)(1)" for "section 1221(1)".
Subsec. (l). Pub. L. 106-170, Sec. 543(a), added subsec. (l).
1997 - Subsec. (a)(6). Pub. L. 105-34, Sec. 1251(b)(2), inserted
"subject to the provisions of subsection (k)," before "which is
not".
Subsec. (c)(3)(I). Pub. L. 105-34, Sec. 1255(a)(1), inserted
"and" at end.
Subsec. (c)(4). Pub. L. 105-34, Sec. 1255(a)(2), (3),
redesignated par. (5) as (4) and struck out former par. (4) which
read as follows: "less than 30 percent of its gross income is
derived from the sale or other disposition of -
"(A) stock or securities held for less than 1 year;
"(B) property in a transaction which is a prohibited
transaction; and
"(C) real property (including interests in real property and
interests in mortgages on real property) held for less than 4
years other than -
"(i) property compulsorily or involuntarily converted within
the meaning of section 1033, and
"(ii) property which is foreclosure property within the
definition of section 856(e); and".
Subsec. (c)(5). Pub. L. 105-34, Sec. 1255(a)(3), redesignated
par. (6) as (5). Former par. (5) redesignated (4).
Subsec. (c)(5)(G). Pub. L. 105-34, Sec. 1258, amended heading and
text of subpar. (G) generally. Prior to amendment, text read as
follows: "Except to the extent provided by regulations, any -
"(i) payment to a real estate investment trust under a bona
fide interest rate swap or cap agreement entered into by the real
estate investment trust to hedge any variable rate indebtedness
of such trust incurred or to be incurred to acquire or carry real
estate assets, and
"(ii) any gain from the sale or other disposition of such
agreement,
shall be treated as income qualifying under paragraph (2)."
Pub. L. 105-34, Sec. 1255(b)(1), struck out "and such agreement
shall be treated as a security for purposes of paragraph (4)(A)"
after "under paragraph (2)" in concluding provisions.
Subsec. (c)(6), (7). Pub. L. 105-34, Sec. 1255(a)(3),
redesignated par. (7) as (6). Former par. (6) redesignated (5).
Subsec. (c)(8). Pub. L. 105-34, Sec. 1255(a)(2), struck out
heading and text of par. (8). Text read as follows: "In the case of
the taxable year in which a real estate investment trust is
completely liquidated, there shall not be taken into account under
paragraph (4) any gain from the sale, exchange, or distribution of
any property after the adoption of the plan of complete
liquidation."
Subsec. (d)(2). Pub. L. 105-34, Sec. 1252(a), added subpar. (C)
and struck out former subpar. (C) and concluding provisions which
read as follows:
"(C) any amount received or accrued, directly or indirectly,
with respect to any real or personal property if the real estate
investment trust furnishes or renders services to the tenants of
such property, or manages or operates such property, other than
through an independent contractor from whom the trust itself does
not derive or receive any income.
Subparagraph (C) shall not apply with respect to any amount if such
amount would be excluded from unrelated business taxable income
under section 512(b)(3) if received by an organization described in
section 511(a)(2)."
Subsec. (d)(5). Pub. L. 105-34, Sec. 1253, substituted "except
that - " and subpars. (A) and (B) for "except that '10 percent'
shall be substituted for '50 percent' in subparagraph (C) of
section 318(a)(2) and 318(a)(3)."
Subsec. (d)(7). Pub. L. 105-34, Sec. 1252(b), added par. (7).
Subsec. (e)(2). Pub. L. 105-34, Sec. 1257(a)(1), which directed
amendment of par. (2) by substituting "as of the close of the 3d
taxable year following the taxable year in which the trust acquired
such property" for "on the date which is 2 years after the date the
trust acquired such property", was executed by making the
substitution for "on the date which is 2 years after the date such
trust acquired such property" to reflect the probable intent of
Congress.
Subsec. (e)(3). Pub. L. 105-34, Sec. 1257(a)(2), substituted
"grant one extension" for "grant one or more extensions" and "Any
such extension shall not extend the grace period beyond the close
of the 3d taxable year following the last taxable year in the
period under paragraph (2)." for "Any such extension shall not
extend the grace period beyond the date which is 6 years after the
date such trust acquired such property."
Subsec. (e)(4). Pub. L. 105-34, Sec. 1257(c), inserted concluding
provisions "For purposes of subparagraph (C), property shall not be
treated as used in a trade or business by reason of any activities
of the real estate investment trust with respect to such property
to the extent that such activities would not result in amounts
received or accrued, directly or indirectly, with respect to such
property being treated as other than rents from real property."
Subsec. (e)(5). Pub. L. 105-34, Sec. 1257(b), substituted "A real
estate investment trust may revoke any such election for a taxable
year by filing the revocation (in the manner provided by the
Secretary) on or before the due date (including any extension of
time) for filing its return of tax under this chapter for the
taxable year. If a trust revokes an election for any property, no
election may be made by the trust under this paragraph with respect
to the property for any subsequent taxable year." for "Any such
election shall be irrevocable."
Subsec. (i)(2). Pub. L. 105-34, Sec. 1262, struck out "at all
times during the period such corporation was in existence" after
"real estate investment trust".
Subsec. (j)(4). Pub. L. 105-34, Sec. 1261(a), added par. (4).
Former par. (4) redesignated (5).
Subsec. (j)(5). Pub. L. 105-34, Sec. 1261(a), redesignated par.
(4) as (5).
Subsec. (j)(5)(A)(ii). Pub. L. 105-34, Sec. 1261(b), inserted
before period at end "or appreciation in value as of any specified
date".
Subsec. (k). Pub. L. 105-34, Sec. 1251(b)(1), added subsec. (k).
1996 - Subsec. (a)(4). Pub. L. 104-188, Sec. 1704(t)(35),
substituted "section 582(c)(2)" for "section 582(c)(5)".
Subsec. (c)(6)(E). Pub. L. 104-188, Sec. 1621(b)(5), inserted at
end "The principles of the preceding provisions of this
subparagraph shall apply to regular interests in a FASIT."
1993 - Subsec. (h)(3). Pub. L. 103-66 added par. (3).
1988 - Subsec. (c)(6)(D). Pub. L. 100-647, Sec. 1006(t)(11),
struck out subpar. (D), as added by Pub. L. 99-514, Sec. 671(b)(1),
which read as follows: "A regular or residual interest in a REMIC
shall be treated as an interest in real property, and any amount
includible in gross income with respect to such an interest shall
be treated as interest; except that, if less than 95 percent of the
assets of such REMIC are interests in real property (determined as
if the taxpayer held such assets), such interest shall be so
treated only in the proportion which the assets of the REMIC
consist of such interests."
Subsec. (c)(6)(D)(i)(I). Pub. L. 100-647, Sec. 1006(p)(1),
substituted "debt instrument (within the meaning of section
1275(a)(1))" for "debt instrument".
Subsec. (c)(6)(D)(ii)(I). Pub. L. 100-647, Sec. 1006(p)(5),
substituted "stock (or certificates of beneficial interests) in
such trust" for "stock in such trust".
Subsec. (c)(6)(E), (F). Pub. L. 100-647, Sec. 1006(t)(11), added
subpar. (E) and redesignated former subpar. (E) as (F).
Subsec. (c)(6)(G). Pub. L. 100-647, Sec. 1006(p)(4)(A), added
subpar. (G).
Subsec. (c)(8). Pub. L. 100-647, Sec. 1006(p)(3), added par. (8).
Subsec. (d)(6)(A). Pub. L. 100-647, Sec. 1006(q)(1), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "If -
"(i) a real estate investment trust receives or accrues, with
respect to real or personal property, amounts from a tenant which
derives substantially all of its income with respect to such
property from the subleasing of substantially all of such
property, and
"(ii) such tenant receives or accrues, directly or indirectly,
from subtenants only amounts which are qualified rents,
then the amounts that the trust receives or accrues from the tenant
shall not be excluded from the term 'rents from real property'
solely by reason of being based on the income or profits of such
tenant."
Subsec. (f). Pub. L. 100-647, Sec. 1006(q)(2), amended subsec.
(f) generally, making changes in content and structure.
1986 - Subsec. (a)(4). Pub. L. 99-514, Sec. 901(d)(4)(E),
substituted "referred to in section 582(c)(5)" for "to which
section 585, 586, or 593 applies".
Subsec. (a)(6). Pub. L. 99-514, Sec. 661(a)(1), amended par. (6)
generally. Prior to amendment, par. (6) read as follows: "which
would not be a personal holding company (as defined in section 542)
if all of its adjusted ordinary gross income (as defined in section
543(b)(2)) constituted personal holding company income (as defined
in section 543); and".
Subsec. (c)(3)(I). Pub. L. 99-514, Sec. 662(b)(1), added subpar.
(I).
Subsec. (c)(6)(B). Pub. L. 99-514, Sec. 662(b)(2), inserted "Such
term also includes any property (not otherwise a real estate asset)
attributable to the temporary investment of new capital, but only
if such property is stock or a debt instrument, and only for the
1-year period beginning on the date the real estate trust receives
such capital."
Subsec. (c)(6)(D). Pub. L. 99-514, Sec. 671(b)(1), added subpar.
(D) relating to REMIC interest. Former subpar. (D) redesignated
(E).
Pub. L. 99-514, Sec. 662(b)(3), added subpar. (D) relating to
qualified temporary investment income. Former subpar. (D)
redesignated (E).
Subsec. (c)(6)(E). Pub. L. 99-514, Secs. 662(b)(3), 671(b)(1),
made identical redesignations of former subpar. (D) as (E).
Subsec. (d)(2). Pub. L. 99-514, Sec. 663(a), (b)(3), inserted
reference to par. (6) in subpar. (A) and inserted at end
"Subparagraph (C) shall not apply with respect to any amount if
such amount would be excluded from unrelated business taxable
income under section 512(b)(3) if received by an organization
described in section 511(a)(2)."
Subsec. (d)(6). Pub. L. 99-514, Sec. 663(b)(1), added par. (6).
Subsec. (f). Pub. L. 99-514, Sec. 663(b)(2), amended subsec. (f)
generally, restating former introductory provisions and par. (1) as
introductory provisions of par. (1) and as subpar. (A), restating
provisions of par. (2), adding subpar. (1)(B), and striking out
former concluding provisions which read as follows: "The provisions
of this subsection shall apply only with respect to amounts
received or accrued pursuant to loans made after May 27, 1976. For
purposes of the preceding sentence, a loan is considered to be made
before May 28, 1976, if such loan is made pursuant to a binding
commitment entered into before May 28, 1976."
Subsec. (h). Pub. L. 99-514, Sec. 661(a)(2), added subsec. (h).
Subsec. (i). Pub. L. 99-514, Sec. 662(a), added subsec. (i).
Subsec. (j). Pub. L. 99-514, Sec. 662(c), added subsec. (j).
1984 - Subsec. (c)(4)(A). Pub. L. 98-369 substituted "6 months"
for "1 year", applicable to property acquired after June 22, 1984,
and before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
1978 - Subsec. (c)(2)(H). Pub. L. 95-600, Sec. 363(a)(1), added
subpar. (H).
Subsec. (c)(3)(D). Pub. L. 95-600, Sec. 701(t)(2), inserted
"(other than gain from prohibited transactions)" after "on, and
gain".
Subsec. (c)(3)(H). Pub. L. 95-600, Sec. 363(a)(2), added subpar.
(H).
Subsec. (c)(4)(B). Pub. L. 95-600, Sec. 363(a)(3), substituted
"property in a transaction which is a prohibited transaction" for
"section 1221(1) property (other than foreclosure property)".
Subsec. (e)(3). Pub. L. 95-600, Sec. 363(c), substituted "the
Secretary may grant one or more extensions of the grace period for
such property" for "the Secretary may extend the grace period for
such property" and "shall not extend the grace period beyond the
date which is 6 years after the date such trust acquired such
property" for "shall be for a period of not more than one year, and
not more than two extensions shall be granted with respect to any
property".
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1603(a), 1604(f)(1),
(2), in introductory provisions substituted "this title" for "this
subtitle" and "a corporation, trust, or association" for "an
unincorporated trust or an unincorporated association", in par. (1)
inserted "or directors" after "trustees", and in par. (4)
substituted reference to which is neither (A) a financial
institution to which section 585, 586, or 593 applies, nor (B) an
insurance company to which subchapter L applies for reference to
which does not hold any property primarily for sale to customers in
the ordinary course of its trade or business.
Subsec. (c). Pub. L. 94-455, Sec. 1604(f)(3)(A), in introductory
provision substituted "A corporation, trust, or association" for "A
trust or association".
Subsec. (c)(1). Pub. L. 94-455, Secs. 1604(k)(2)(A),
1901(a)(111)(A), struck out reference to which began after Dec. 31,
1960 and inserted reference to such election has not been
terminated or revoked under subsec. (g).
Subsec. (c)(2). Pub. L. 94-455, Secs. 1603(c)(2), 1604(a),
(c)(1), in introductory provision substituted "95 percent (90
percent for taxable years beginning before January 1, 1980) of its
gross income (excluding gross income from prohibited transactions)"
for "90 percent of its gross income", in subpar. (D) inserted
reference to which is not property not described in section
1221(1), and added subpar. (G).
Subsec. (c)(3). Pub. L. 94-455, Secs. 1603(c)(1), (3),
1604(c)(1), in introductory provision inserted "(excluding gross
income from prohibited transactions) 75 percent of its gross
income", in subpar. (C) inserted reference to which is not property
described in section 1221(1), and added subpar. (G).
Subsec. (c)(4). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Secs. 1402(b)(1)(O), 1604(d), in subpar. (A)
provided that "6 months" would be changed to "9 months" for taxable
years beginning in 1977, added subpar. (B), and redesignated former
subpar. (B) as (C), and in subpar. (C) as so redesignated,
substituted "(including interest in real property and interest in
mortgages on real property" for "(including interest in real
property)" and inserted reference to property which is foreclosure
property within the definition of section 856(e).
Subsec. (c)(6)(C). Pub. L. 94-455, Sec. 1604(e), inserted
reference to options to acquire land or improvements thereon, and
options to acquire leaseholds of land or improvements thereon.
Subsec. (c)(6)(D). Pub. L. 94-455, Sec. 1901(a)(111)(B), inserted
"(15 U.S.C. 80a-1 and following)" after ", as amended".
Subsec. (c)(7). Pub. L. 94-455, Sec. 1602(a), added par. (7).
Subsec. (d). Pub. L. 94-455, Sec. 1604(b), among other changes,
inserted provisions including in definition of rents from real
property charges for services customarily furnished or rendered in
connection with rental of real property and rent attributable to
personal property which is leased under, or in connection with, a
lease of real property, provisions relating to the computation of
the amount of rent attributable to personal property, and
provisions relating to the special rule for certain contingent
rents.
Subsec. (e)(1). Pub. L. 94-455, Sec. 1603(c)(4), inserted
provision relating to the exclusion, from definition of foreclosure
property, of property acquired by the real estate investment trust
or other disposition of property of the trust described in section
1221(1) of this title.
Subsec. (e)(3), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary" each time appearing.
Subsec. (f). Pub. L. 94-455, Sec. 1604(g), added subsec. (f).
Subsec. (g). Pub. L. 94-455, Sec. 1604(k)(1), added subsec. (g).
1975 - Subsec. (a)(4). Pub. L. 93-625, Sec. 6(b), inserted
"(other than foreclosure property, as defined in subsection (e))"
after "property".
Subsec. (c)(2)(F), (3)(F). Pub. L. 93-625, Sec. 6(d)(1), added
subpar. (F) to pars. (2) and (3).
Subsec. (e). Pub. L. 93-625, Sec. 6(a), added subsec. (e).
1964 - Subsec. (a)(6). Pub L. 88-272 substituted "adjusted
ordinary gross income (as defined in section 543(b)(2))" for "gross
income".
Subsec. (d). Pub. L. 88-5544 inserted reference to subparagraph
(C) of section 318(a)(3) of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by section 532(c)(2)(H)-(K) of Pub. L. 106-170
applicable to any instrument held, acquired, or entered into, any
transaction entered into, and supplies held or acquired on or after
Dec. 17, 1999, see section 532(d) of Pub. L. 106-170, set out as a
note under section 170 of this title.
Pub. L. 106-170, title V, Sec. 542(b)(3)(A)(ii), Dec. 17, 1999,
113 Stat. 1943, provided that: "The amendment made by this
subparagraph [amending this section] shall apply to taxable years
beginning after December 31, 2000."
Pub. L. 106-170, title V, Sec. 542(b)(3)(B)(ii), Dec. 17, 1999,
113 Stat. 1943, provided that: "The amendment made by this
subparagraph [amending this section] shall apply to amounts
received or accrued in taxable years beginning after December 31,
2000, except for amounts paid pursuant to leases in effect on July
12, 1999, or pursuant to a binding contract in effect on such date
and at all times thereafter."
Pub. L. 106-170, title V, Sec. 546, Dec. 17, 1999, 113 Stat.
1946, provided that:
"(a) In General. - The amendments made by this subpart [subpart A
(Secs. 541-547) of title V of Pub. L. 106-170, amending this
section and sections 163 and 857 of this title] shall apply to
taxable years beginning after December 31, 2000.
"(b) Transitional Rules Related to Section 541. -
"(1) Existing arrangements. -
"(A) In general. - Except as otherwise provided in this
paragraph, the amendment made by section 541 [amending this
section] shall not apply to a real estate investment trust with
respect to -
"(i) securities of a corporation held directly or
indirectly by such trust on July 12, 1999;
"(ii) securities of a corporation held by an entity on July
12, 1999, if such trust acquires control of such entity
pursuant to a written binding contract in effect on such date
and at all times thereafter before such acquisition;
"(iii) securities received by such trust (or a successor)
in exchange for, or with respect to, securities described in
clause (i) or (ii) in a transaction in which gain or loss is
not recognized; and
"(iv) securities acquired directly or indirectly by such
trust as part of a reorganization (as defined in section
368(a)(1) of the Internal Revenue Code of 1986) with respect
to such trust if such securities are described in clause (i),
(ii), or (iii) with respect to any other real estate
investment trust.
"(B) New trade or business or substantial new assets. -
Subparagraph (A) shall cease to apply to securities of a
corporation as of the first day after July 12, 1999, on which
such corporation engages in a substantial new line of business,
or acquires any substantial asset, other than -
"(i) pursuant to a binding contract in effect on such date
and at all times thereafter before the acquisition of such
asset;
"(ii) in a transaction in which gain or loss is not
recognized by reason of section 1031 or 1033 of the Internal
Revenue Code of 1986; or
"(iii) in a reorganization (as so defined) with another
corporation the securities of which are described in
paragraph (1)(A) of this subsection.
"(C) Limitation on transition rules. - Subparagraph (A) shall
cease to apply to securities of a corporation held, acquired,
or received, directly or indirectly, by a real estate
investment trust as of the first day after July 12, 1999, on
which such trust acquires any additional securities of such
corporation other than -
"(i) pursuant to a binding contract in effect on July 12,
1999, and at all times thereafter; or
"(ii) in a reorganization (as so defined) with another
corporation the securities of which are described in
paragraph (1)(A) of this subsection.
"(2) Tax-free conversion. - If -
"(A) at the time of an election for a corporation to become a
taxable REIT subsidiary, the amendment made by section 541 does
not apply to such corporation by reason of paragraph (1); and
"(B) such election first takes effect before January 1, 2004,
such election shall be treated as a reorganization qualifying
under section 368(a)(1)(A) of such Code."
Pub. L. 106-170, title V, Sec. 551(b), Dec. 17, 1999, 113 Stat.
1949, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2000."
Pub. L. 106-170, title V, Sec. 561(b), Dec. 17, 1999, 113 Stat.
1950, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2000."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1263 of Pub. L. 105-34, set out as
a note under section 852 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1621(b)(5) of Pub. L. 104-188 effective
Sept. 1, 1997, see section 1621(d) of Pub. L. 104-188, set out as a
note under section 26 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Section 13149(b) of Pub. L. 103-66 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1993."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(p)(4)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to taxable years ending after the date of the enactment of
this Act [Nov. 10, 1988]."
Amendment by section 1006(p)(1), (3), (5), (q), (t)(11) of Pub.
L. 100-647 effective, except as otherwise provided, as if included
in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1006(p)(2) of Pub. L. 100-647 provided that:
"Notwithstanding section 669 of the Reform Act [Pub. L. 99-514, set
out below], the amendment made by section 662(c) of the Reform Act
[amending this section] shall apply to taxable years beginning
after December 31, 1986, but only in the case of obligations
acquired after October 22, 1986."
Section 669 of subtitle G (Secs. 661-668) of title VI of Pub. L.
99-514, as amended by Pub. L. 100-647, title I, Sec. 1018(u)(29),
Nov. 10, 1988, 102 Stat. 3591, provided that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle [amending this
section and sections 857 to 860, 4981, and 6697 of this title]
shall apply to taxable years beginning after December 31, 1986.
"(b) Section 668. - The amendments made by section 668 [amending
sections 857, 858, and 4981 of this title] shall apply to calendar
years beginning after December 31, 1986.
"(c) Retention of Existing Transitional Rule. - The amendment
made by section 663(b)(2) [amending this section] shall not apply
with respect to amounts received or accrued pursuant to loans made
before May 28, 1976. For purposes of the preceding sentence, a loan
is considered to be made before May 28, 1976, if such loan is made
pursuant to a binding commitment entered into before May 28, 1976."
Amendment by section 671(b)(1) of Pub. L. 99-514 effective Jan.
1, 1987, see section 675(a) of Pub. L. 99-514, as amended, set out
as an Effective Date note under section 860A of this title.
Amendment by section 901(d)(4)(E) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 901(e) of
Pub. L. 99-514, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 363(d) of Pub. L. 95-600 provided that: "The amendments
made by subsections (a) [amending this section] and (b) [amending
section 857 of this title] shall apply to taxable years ending
after the date of the enactment of this Act [Nov. 6, 1978]. The
amendment made by subsection (c) [amending this section] shall
apply to extensions granted after the date of the enactment of this
Act with respect to periods beginning after December 31, 1977."
Amendment by section 701(t)(2) of Pub. L. 95-600 effective Oct.
4, 1976, see section 701(t)(5) of Pub. L. 95-600, set out as a note
under section 859 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 1608(d) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Except as provided in paragraphs (2) and (3), the amendments
made by sections 1603, 1604, and 1605 [enacting sections 860 and
4981 of this title and amending this section and sections 275, 857,
858, 6161, 6211 to 6214, 6344, 6512, 6601, and 7422 of this title]
shall apply to taxable years of real estate investment trusts
beginning after the date of the enactment of this Act [Oct. 4,
1976].
"(2) If, as a result of a determination (as defined in section
859(c) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954]), occurring after the date of enactment of this Act [Oct. 4,
1976], with respect to the real estate investment trust, such trust
does not meet the requirement of section 856(a)(4) of the Internal
Revenue Code of 1986 (as in effect before the amendment of such
section by this Act) for any taxable year beginning on or before
the date of the enactment of this Act, such trust may elect, within
60 days after such determination in the manner provided in
regulations prescribed by the Secretary of the Treasury or his
delegate, to have the provisions of section 1603 (other than
paragraphs (1), (2), (3), and (4) of section 1603(c)) apply with
respect to such taxable year. Where the provisions of section 1603
apply to a real estate investment trust with respect to any taxable
year beginning on or before the date of the enactment of this Act -
"(A) credit or refund of any overpayment of tax which results
from the application of section 1603 to such taxable year shall
be made as if on the date of the determination (as defined in
section 859(c) of the Internal Revenue Code of 1986) 2 years
remained before the expiration of the period of limitation
prescribed by section 6511 of such Code on the filing of claim
for refund for the taxable year to which the overpayment relates,
"(B) the running of the statute of limitations provided in
section 6501 of such Code on the making of assessments, and the
bringing of distraint or a proceeding in court for collection, in
respect of any deficiency (as defined in section 6211 of such
Code) established by such a determination, and all interest,
additions to tax, additional amounts, or assessable penalties in
respect thereof, shall be suspended for a period of 2 years after
the date of such determination, and
"(C) the collection of any deficiency (as defined in section
6211 of such Code) established by such determination and all
interest, additions to tax, additional amounts, and assessable
penalties in respect thereof shall, except in cases of jeopardy,
be stayed until the expiration of 60 days after the date of such
determination.
No distraint or proceeding in court shall be begun for the
collection of an amount the collection of which is stayed under
subparagraph (C) during the period for which the collection of such
amount is stayed.
"(3) Section 856(g)(3) of the Internal Revenue Code of 1986, as
added by section 1604 of this Act, shall not apply with respect to
a termination of an election, filed by a taxpayer under section
856(c)(1) of such Code on or before the date of the enactment of
this Act [Oct. 4, 1976], unless the provisions of part II of
subchapter M of chapter 1 of subtitle A of such Code apply to such
taxpayer for a taxable year ending after the date of the enactment
of this Act for which such election is in effect."
EFFECTIVE DATE OF 1975 AMENDMENT
Section 6(e) of Pub. L. 93-625, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and section
857 of this title] apply to foreclosure property acquired after
December 31, 1973. Notwithstanding the provisions of section
856(e)(5) of the Internal Revenue Code of 1986 [formerly I.R.C.
1954] (as added by subsection (a) of this section) any taxpayer
required to make an election with respect to foreclosure property
sooner than 90 days after the date of enactment of this Act [Jan.
3, 1975], may make that election at any time before the 91st day
after the date of enactment of this Act."
EFFECTIVE DATE OF 1964 AMENDMENTS
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of sections 302 and 304 of this title, such amendments
shall not apply to distributions in payment for stock acquisitions
or redemptions, if such acquisitions or redemptions occurred before
Aug. 31, 1964, see section 4(c) of Pub. L. 88-554, set out as a
note under section 318 of this title.
Amendment by Pub. L. 88-272 applicable to taxable years beginning
after Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out
as a note under section 316 of this title.
EFFECTIVE DATE
Section 10(k) of Pub. L. 86-779 provided that: "The amendments
made by this section [enacting this section and sections 857 and
858 and amending sections 11, 34, 116, 243, 318, 443, 852, 855, and
1504 of this title] shall apply with respect to taxable years of
real estate investment trusts beginning after December 31, 1960."
STUDY RELATING TO TAXABLE REIT SUBSIDIARIES
Pub. L. 106-170, title V, Sec. 547, Dec. 17, 1999, 113 Stat.
1947, provided that: "The Secretary of the Treasury shall conduct a
study to determine how many taxable REIT subsidiaries are in
existence and the aggregate amount of taxes paid by such
subsidiaries. The Secretary shall submit a report to the Congress
describing the results of such study."
TRUST NOT DISQUALIFIED IN CERTAIN CASES WHERE INCOME TESTS NOT MET
Section 1608(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by section 1602 [amending this section and section
857 of this title] shall apply to taxable years of real estate
investment trusts beginning after the date of the enactment of this
Act [Oct. 4, 1976]. In addition, the amendments made by section
1602 shall apply to a taxable year of a real estate investment
trust beginning before the date of the enactment of this Act if, as
the result of a determination (as defined in section 859(c) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]) with respect
to such trust occurring after the date of the enactment of this
Act, such trust for such taxable years does not meet the
requirements of section 856(c)(2) or section 856(c)(3), or of both
such sections, of such Code as in effect for such taxable year. In
any case, the amendment made by section 1602(a) requiring a
schedule to be attached to the income tax return of certain real
estate investment trusts shall apply only to taxable years of such
trusts beginning after the date of the enactment of this Act. If
the amendments made by section 1602 apply to a taxable year ending
on or before the date of enactment of this Act, the reference to
paragraph (2)(B) in section 857(b)(5) of such Code, as amended,
shall be considered to be a reference to paragraph (2)(C) of
section 857(b) of such Code, as in effect immediately before the
enactment of this Act."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 108, 163, 291, 318, 501,
857, 859, 860G, 860L, 1212, 6049, 6655, 7701, 7704 of this title.
-End-
-CITE-
26 USC Sec. 857 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 857. Taxation of real estate investment trusts and their
beneficiaries
-STATUTE-
(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) for the taxable year.
(F) There shall be excluded an amount equal to any net income
derived from prohibited transactions.
(3) Capital gains
(A) Alternative tax in case of capital gains
If for any taxable year a real estate investment trust has a
net capital gain, then, in lieu of the tax imposed by
subsection (b)(1), there is hereby imposed a tax (if such tax
is less than the tax imposed by such subsection) which shall
consist of the sum of -
(i) a tax, computed as provided in subsection (b)(1), on
the real estate investment trust taxable income (determined
by excluding such net capital gain and by computing the
deduction for dividends paid without regard to capital gain
dividends), and
(ii) a tax determined at the rate provided in section
1201(a) on the excess of the net capital gain over the
deduction for dividends paid (as defined in section 561)
determined with reference to capital gains dividends only.
(B) 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.
(C) 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.
(D) 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
subparagraph (A)(ii) 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 subparagraph (A)(ii) 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
subparagraph (A)(ii) 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.
(E) 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.
(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 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 subparagraph (A), (B), (C), (D),
(E), or (G) of section 856(c)(3), 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) 90 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 from prohibited
transactions over the deductions 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 4
years;
(ii) aggregate expenditures made by the trust, or any
partner of the trust, during the 4-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;
(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 4 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.
(D) Special rules
In applying subparagraph (C) 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.
(E) Sales not meeting requirements
In determining whether or not any sale constitutes a
"prohibited transaction" for purposes of subparagraph (A), the
fact that such sale does not meet the requirements of
subparagraph (C) of this paragraph shall not be taken into
account; and such determination, in the case of a sale not
meeting such requirements, shall be made as if subparagraphs
(C) and (D) had not been enacted.
(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, and excess
interest.
(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 (E)) 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 certain amounts
Clause (i) shall not apply to amounts received directly or
indirectly by a real estate investment trust -
(I) for services furnished or rendered by a taxable REIT
subsidiary that are described in paragraph (1)(B) of
section 856(d), or
(II) from a taxable REIT subsidiary that are described in
paragraph (7)(C)(ii) of such section.
(iii) 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.
(iv) 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).
(v) 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.
(vi) 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.
(vii) 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 (E)) 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) Coordination with section 482
The imposition of tax under subparagraph (A) shall be in lieu
of any distribution, apportionment, or allocation under section
482.
(F) 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 period
For purposes of this paragraph, the rules of paragraphs (3)
and (4) of section 246(c) shall apply in determining the period
for which the taxpayer has held any share of stock or
beneficial interest; except that "6 months" shall be
substituted for the number of days specified in subparagraph
(B) (!1) of section 246(c)(3).
(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)
For purposes of section 1(h)(11) (relating to maximum rate of
tax on dividends) -
(A) rules similar to the rules of subparagraphs (B) and (C)
of section 854(b)(1) shall apply to dividends received from a
real estate investment trust which meets the requirements of
this part, and
(B) for purposes of such rules, such a trust shall be treated
as receiving qualified dividend income during any taxable year
in an amount equal to the sum of -
(i) the excess of real estate investment trust taxable
income computed under section 857(b)(2) for the preceding
taxable year over the tax payable by the trust under section
857(b)(1) for such preceding taxable year, and
(ii) the excess of the income subject to tax by reason of
the application of the regulations under section 337(d) for
the preceding taxable year over the tax payable by the trust
on such income for such preceding taxable year.
(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 is not allowable in computing its
taxable income for such taxable year. 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).
(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.
(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) 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.
-SOURCE-
(Added Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1006;
amended Pub. L. 88-272, title II, Sec. 201(d)(11), Feb. 26, 1964,
78 Stat. 32; Pub. L. 91-172, title V, Sec. 511(c)(3), Dec. 30,
1969, 83 Stat. 637; Pub. L. 93-625, Sec. 6(c), (d)(2)-(4), Jan. 3,
1975, 88 Stat. 2113, 2114; Pub. L. 94-455, title XIV, Sec.
1402(b)(1)(P), (2), title XVI, Secs. 1601(c), 1602(b), 1603(b),
(c)(5), 1604(c)(2), (f)(3)(B), (j), (k)(2)(B), 1605(b)(2), 1606(a),
(d), 1607(a), (b)(1)(A), (2), (3), title XIX, Secs. 1901(a)(112),
(b)(1)(V), (33)(K), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732,
1746-1748, 1750-1757, 1783, 1792, 1801, 1834; Pub. L. 95-600, title
III, Secs. 301(b)(12), 362(d)(3), 363(b), title IV, Sec. 403(c)(3),
Nov. 6, 1978, 92 Stat. 2822, 2851, 2852, 2868; Pub. L. 96-222,
title I, Sec. 103(a)(1), Apr. 1, 1980, 94 Stat. 208; Pub. L.
96-223, title IV, Sec. 404(b)(8), Apr. 2, 1980, 94 Stat. 307; Pub.
L. 97-34, title III, Sec. 302(c)(5), (d)(1), Aug. 13, 1981, 95
Stat. 273, 274; Pub. L. 98-369, div. A, title I, Secs. 16(a),
55(b), title X, Sec. 1001(b)(13), (e), July 18, 1984, 98 Stat. 505,
572, 1011, 1012; Pub. L. 99-514, title VI, Secs. 612(b)(7), 661(b),
664, 665(a), (b)(1), 666, 668(b)(1)(A), (2), (3), Oct. 22, 1986,
100 Stat. 2251, 2300, 2303-2305, 2307, 2308; Pub. L. 100-647, title
I, Secs. 1006(r), (s)(2), (4), (5), 1018(u)(28), Nov. 10, 1988, 102
Stat. 3418, 3419, 3591; Pub. L. 101-508, title XI, Sec.
11704(a)(37), Nov. 5, 1990, 104 Stat. 1388-520; Pub. L. 105-34,
title XII, Secs. 1251(a), 1254(a), (b)(1), 1255(b)(2), (3), 1256,
1259, 1260, Aug. 5, 1997, 111 Stat. 1030, 1032-1035; Pub. L.
105-206, title VI, Sec. 6012(g), July 22, 1998, 112 Stat. 819; Pub.
L. 106-170, title V, Secs. 532(c)(2)(L), (M), 545, 556(a), (b),
566(a)(2), (b), Dec. 17, 1999, 113 Stat. 1930, 1944, 1949, 1950;
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 311(b)], Dec. 21,
2000, 114 Stat. 2763, 2763A-640; Pub. L. 107-147, title IV, Secs.
413(a), 417(13), Mar. 9, 2002, 116 Stat. 54, 56; Pub. L. 108-27,
title III, Sec. 302(d), May 28, 2003, 117 Stat. 763.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-REFTEXT-
REFERENCES IN TEXT
Section 246(c)(3) of this title, referred to in subsec.
(b)(8)(B), was amended by Pub. L. 105-34, title X, Sec. 1015(b)(2),
Aug. 5, 1997, 111 Stat. 922, to strike out subpar. (B) and
redesignate subpar. (C) as (B).
-MISC1-
AMENDMENTS
2003 - Subsec. (c). Pub. L. 108-27, Secs. 302(d), 303,
temporarily reenacted subsec. heading without change and amended
text generally. Prior to amendment, text read as follows: "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 as a dividend." See Effective and Termination
Dates of 2003 Amendment note below.
2002 - Subsec. (b)(7)(B)(i). Pub. L. 107-147, Sec. 417(13),
substituted "section 856(d)" for "subsection 856(d)".
Pub. L. 107-147, Sec. 413(a)(1), substituted "to the extent the
amount of the rents" for "the amount of which".
Subsec. (b)(7)(C). Pub. L. 107-147, Sec. 413(a)(2), substituted
"to the extent the amount" for "if the amount".
2000 - Subsec. (b)(7)(B)(ii). Pub. L. 106-554 amended heading and
text of cl. (ii) generally. Prior to amendment, text read as
follows: "Clause (i) shall not apply to amounts received directly
or indirectly by a real estate investment trust for services
described in paragraph (1)(B) or (7)(C)(i) of section 856(d)."
1999 - Subsec. (a)(1)(A)(i), (ii). Pub. L. 106-170, Sec. 556(a),
substituted "90 percent" for "95 percent (90 percent for taxable
years beginning before January 1, 1980)".
Subsec. (b)(2)(E). Pub. L. 106-170, Sec. 545(b), substituted
"paragraphs (5) and (7)" for "paragraph (5)".
Subsec. (b)(4)(B)(i). Pub. L. 106-170, Sec. 532(c)(2)(L),
substituted "section 1221(a)(1)" for "section 1221(1)".
Subsec. (b)(5)(A)(i). Pub. L. 106-170, Sec. 556(b), substituted
"90 percent" for "95 percent (90 percent in the case of taxable
years beginning before January 1, 1980)".
Subsec. (b)(6)(B)(iii). Pub. L. 106-170, Sec. 532(c)(2)(M),
substituted "section 1221(a)(1)" for "section 1221(1)".
Subsec. (b)(7) to (9). Pub. L. 106-170, Sec. 545(a), added par.
(7) and redesignated former pars. (7) and (8) as (8) and (9),
respectively.
Subsec. (d)(3)(A). Pub. L. 106-170, Sec. 566(a)(2), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "shall be treated for purposes of this subsection and
subsection (a)(2)(B) as made from the earliest earnings and profits
accumulated in any taxable year to which the provisions of this
part did not apply rather than the most recently accumulated
earnings and profits, and".
Subsec. (d)(3)(B). Pub. L. 106-170, Sec. 566(b), inserted "and
section 858" before period at end.
1998 - Subsec. (d)(3)(A). Pub. L. 105-206 substituted "earliest
earnings and profits accumulated in any taxable year to which the
provisions of this part did not apply" for "earliest accumulated
earnings and profits (other than earnings and profits to which
subsection (a)(2)(A) applies)".
1997 - Subsec. (a)(2), (3). Pub. L. 105-34, Sec. 1251(a)(1),
redesignated par. (3) as (2) and struck out former par. (2) which
read as follows: "the real estate investment trust complies for
such year with regulations prescribed by the Secretary for the
purpose of ascertaining the actual ownership of the outstanding
shares, or certificates of beneficial interest, of such trust,
and".
Subsec. (b)(3)(D), (E). Pub. L. 105-34, Sec. 1254(a), added
subpar. (D) and redesignated former subpar. (D) as (E).
Subsec. (b)(5). Pub. L. 105-34, Sec. 1255(b)(2), substituted
"section 856(c)(6)" for "section 856(c)(7)" in introductory
provisions.
Subsec. (b)(6)(C). Pub. L. 105-34, Sec. 1255(b)(3), substituted
"section 856(c)(5)(B)" for "section 856(c)(6)(B)" in introductory
provisions.
Subsec. (b)(6)(C)(iii). Pub. L. 105-34, Sec. 1260, substituted
"(other than sales of foreclosure property or sales to which
section 1033 applies)" for "(other than foreclosure property)" in
subcls. (I) and (II).
Subsec. (b)(7)(A)(i). Pub. L. 105-34, Sec. 1254(b)(1),
substituted "subparagraph (B) or (D)" for "subparagraph (B)".
Subsec. (d)(3). Pub. L. 105-34, Sec. 1256, added par. (3).
Subsec. (e)(2)(B) to (D). Pub. L. 105-34, Sec. 1259, redesignated
subpar. (C) as (B) and substituted a comma for period at end, added
subpars. (C) and (D), and struck out former subpar. (B) which read
as follows: "in the case of a real estate investment trust using
the cash receipts and disbursements method of accounting, the
amount (if any) by which -
"(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). Pub. L. 105-34, Sec. 1251(a)(2), added subsec.
(f) and redesignated former subsec. (f) as (g).
1990 - Subsec. (b)(3)(C). Pub. L. 101-508 amended Pub. L.
100-647, Sec. 1018(u)(28). See 1988 Amendment note below.
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1006(s)(4), inserted at
end "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."
Subsec. (b)(3)(C). Pub. L. 100-647, Sec. 1018(u)(28), as amended
by Pub. L. 101-508, substituted "such net capital loss shall" for
"such net capital loss such".
Pub. L. 100-647, Sec. 1006(s)(2), substituted "the taxable income
of the real estate investment trust" for "real estate investment
trust taxable income".
Subsec. (b)(8). Pub. L. 100-647, Sec. 1006(s)(5), substituted "in
October, November, or December" for "in December" and "in such a
month" for "in such month" in introductory text, "on December 31 of
such calendar year" for "on such date", in subpars. (A) and (B),
and "during January" for "before February 1" in last sentence.
Subsec. (e)(2)(B)(i). Pub. L. 100-647, Sec. 1006(r), substituted
"with respect to instruments" for "as original issue discount on
instruments".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 661(b), struck out "and"
at end of par. (1), substituted ", and" for the period at end of
par. (2), and added par. (3) and last sentence.
Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 664(a), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
"the sum of -
"(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). Pub. L. 99-514, Sec. 666(b)(2), struck out
"and there shall be included an amount equal to any net loss
derived from prohibited transactions" after "prohibited
transactions".
Subsec. (b)(3)(C). Pub. L. 99-514, Sec. 668(b)(3), inserted at
end "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 such 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
real estate investment trust taxable income."
Pub. L. 99-514, Sec. 665(a)(2), (b)(1), inserted "(or mailed to
its shareholders or holders of beneficial interests with its annual
report for the taxable year)", struck out last sentence which read
as follows: "For purposes of this subparagraph, the net capital
gain shall be deemed not to exceed the real estate investment trust
taxable income (determined without regard to the deduction for
dividends paid (as defined in section 561) for the taxable year)."
Subsec. (b)(3)(D). Pub. L. 99-514, Sec. 665(a)(1), added subpar.
(D).
Subsec. (b)(6)(B)(ii). Pub. L. 99-514, Sec. 666(b)(1), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"the term 'net loss derived from prohibited transactions' means the
excess of the deductions allowed by this chapter which are directly
connected with prohibited transactions over the gain from
prohibited transactions; and".
Subsec. (b)(6)(C)(ii). Pub. L. 99-514, Sec. 666(a)(2),
substituted "30 percent" for "20 percent".
Subsec. (b)(6)(C)(iii). Pub. L. 99-514, Sec. 666(a)(1), amended
cl. (iii) generally. Prior to amendment, cl. (iii) read as follows:
"during the taxable year the trust does not make more than 5 sales
of property (other than foreclosure property); and".
Subsec. (b)(6)(C)(v). Pub. L. 99-514, Sec. 666(a)(3), added cl.
(v).
Subsec. (b)(8). Pub. L. 99-514, Sec. 668(b)(1)(A), added par.
(8).
Subsec. (c). Pub. L. 99-514, Sec. 612(b)(7), which directed that
"section 116 (relating to an exclusion for dividends received by
individuals), and" be struck out, was executed by striking out
"section 116 (relating to an exclusion for dividends received by
individuals) and" before "section 243" as the probable intent of
Congress.
Subsec. (d). Pub. L. 99-514, Sec. 668(b)(2), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows: "The
earnings and profits of a real estate investment trust for any
taxable year (but not its accumulated earnings and profits) shall
not be reduced by any amount which is not allowable as a deduction
in computing its taxable income for such taxable year. 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)."
Subsecs. (e), (f). Pub. L. 99-514, Sec. 664(b), added subsec. (e)
and redesignated former subsec. (e) as (f).
1984 - Subsec. (b)(3)(B). Pub. L. 98-369, Sec. 1001(b)(13), (e),
substituted "6 months" for "1 year", applicable to property
acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
Subsec. (b)(7). Pub. L. 98-369, Sec. 55(b), substituted
provisions relating to loss on sale or exchange of stock held 6
months or less for provisions which related to loss on sale or
exchange of stock held 31 days or less.
Pub. L. 98-369, Sec. 1001(b)(13), (e), substituted "6 months" for
"1 year", applicable to property acquired after June 22, 1984, and
before Jan. 1, 1988. See Effective Date of 1984 Amendment note
below.
Subsec. (c). Pub. L. 98-369, Sec. 16(a), repealed amendments made
by Pub. L. 97-34, Sec. 302(c). See 1981 Amendment note below.
1981 - Subsec. (c). Pub. L. 97-34, Sec. 302(c)(5), (d)(1),
provided for general amendment of subsec. (c) so as to include
provisions relating to treatment for section 128 of this title,
adjustments to gross income and aggregate interest received, and
notice to shareholders, applicable to taxable years beginning after
Dec. 31, 1984. Section 16(a) of Pub. L. 98-369, repealed section
302(c) of Pub. L. 97-34, and provided that this title shall be
applied and administered as if section 302(c), and the amendments
made by section 302(c), had not been enacted.
1980 - Subsec. (b)(4)(A). Pub. L. 96-222 substituted provisions
computing the tax on the net income from foreclosure property of
every real estate investment trust by multiplying the net income
from foreclosure property by the highest rate of tax specified in
section 11(b) for provisions determining the tax on the net income
from foreclosure of property of every real estate investment trust
by applying section 11 to such income as if such income constituted
the taxable income of a corporation taxable under section 11 and
struck out provisions requiring that for purposes of the preceding
sentence, the surtax exemption be zero.
Subsec. (c). Pub. L. 96-223 temporarily substituted "Limitations
applicable to dividends received from real estate investment
trusts" for "Restrictions applicable to dividends received from
real estate investment trusts" in heading, designated existing
provisions as par. (1), substituted "(1) Capital gain dividend. -
For purposes of section 116 (relating to exclusion for dividends
and interest received by individuals), a capital gain dividend (as
defined in subsection (b)(3)(C)) received from a real estate
investment trust shall not be considered a dividend" for "For
purposes of section 116 (relating to an exclusion for dividends
received by individuals) and 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 as a dividend" in par. (1) as so
designated, and added pars. (2) to (6).
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 301(b)(12),
substituted "a tax" for "a normal tax and surtax".
Subsec. (b)(3)(A)(ii). Pub. L. 95-600, Sec. 403(c)(3),
substituted "a tax determined at the rate provided in section
1201(a) on" for "a tax of 30 percent of".
Subsec. (b)(3)(C). Pub. L. 95-600, Sec. 362(d)(3), substituted
"section 860(e)" for "section 859(c)".
Subsec. (b)(6)(C) to (E). Pub. L. 95-600, Sec. 363(b), added
subpars. (C) to (E).
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1604(j), (k)(2)(B),
1906(b)(13)(A), substituted "(other than subsection (d) of this
section and subsection (g) of section 856)" for "(other than
subsection (d) of this section)" in provisions preceding par. (1),
in par. (1) redesignated existing subpars. (A) and (B) as cls. (i)
and (ii), respectively, of subpar. (A), added subpar. (B), in both
cls. (i) and (ii) of subpar. (A) as redesignated raised the
percentage to 95 percent for taxable years beginning on and after
Jan. 1, 1980, and, in cl. (i) of subpar. (A) as redesignated,
inserted provision for the exclusion of net capital gain, and
struck out "or his delegate" after "Secretary" in par. (2).
Subsec. (b)(1). Pub. L. 94-455, Sec. 1901(b)(1)(V), struck out
provision that, for purposes of computing the normal tax under
section 11, the taxable income and the dividends paid deduction of
such real estate investment trust for the taxable year (computed
without regard to capital gains dividends) would be reduced by the
deduction provided by section 22 (relating to partially tax-exempt
interest.
Subsec. (b)(2). Pub. L. 94-455, Secs. 1602(b)(2), 1603(c)(5),
1606(a), (d), 1607(b)(1)(A), (2), struck out subpar. (A) which
provided for the exclusion of the excess, if any, of the net
long-term capital gain over the net short-term capital loss, and
subpar. (E) which prohibited the allowance of the net operating
loss deduction provided in section 172, redesignated subpars. (B),
(C), (D), and (F) as subpars. (A), (B), (C), and (D), respectively,
added subpars. (E) and (F), and in subpar. (B) as redesignated
substituted "subparagraph (D)" for "paragraph (F)" and struck out
"shall be computed without regard to capital gains dividends and"
after "shall be allowed, but".
Subsec. (b)(3)(A). Pub. L. 94-455, Sec. 1607(a), substituted
provisions setting an alternative tax in case of capital gains
under which, if for any taxable year, a real estate investment
trust has a net capital gain, then, in lieu of the tax imposed by
subsection (b)(1), there is imposed a tax (if such tax is less than
the tax imposed by such subsection) to consist of the sum of a tax,
computed as provided in subsection (b)(1), on the real estate
investment trust taxable income (determined by excluding such net
capital gain and by computing the deduction for dividends paid
without regard to capital gain dividends), and a tax of 30 percent
of the excess of the net capital gain over the deduction for
dividends paid (as defined in section 561) determined with
reference to capital gains dividends only, for provisions posing a
tax for each taxable year determined as provided in section
1201(a), on the excess, if any, of the net long-term capital gain
over the sum of the net short-term capital loss and the deduction
for dividends paid (as defined in section 561) determined with
reference to capital gains dividends only.
Subsec. (b)(3)(B). Pub. L. 94-455, Sec. 1402(b)(2), provided that
"9 months" would be changed to "1 year".
Pub. L. 94-455, Sec. 1402(b)(1)(P), provided that "6 months"
would be changed to "9 months" for taxable years beginning in 1977.
Subsec. (b)(3)(C). Pub. L. 94-455, Secs. 1601(c), 1607(b)(3),
1901(a)(112), (b)(33)(K), inserted "; 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 859(c)), 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" after "30 days after the
close of its taxable year", substituted "net capital gain" for
"excess of the net long-term capital gain over the net short-term
capital loss" in provision covering the portion of distributions
which shall be capital gain dividends, inserted provision that the
net capital gain be deemed not to exceed the real estate investment
trust taxable income, and struck out provision which specified the
source of deductions for dividends paid in the case of taxable
years beginning before Jan. 1, 1975.
Subsec. (b)(4)(B)(i). Pub. L. 94-455, Sec. 1604(c)(2), inserted
reference to subparagraph (G) of section 856(c)(3).
Subsec. (b)(5). Pub. L. 94-455, Sec. 1602(b)(1), added par. (5).
Former par. (5) redesignated (7) and amended.
Subsec. (b)(6). Pub. L. 94-455, Sec. 1603(b), added par. (6).
Subsec. (b)(7). Pub. L. 94-455, Sec. 1402(b)(2), provided that "9
months" would be changed to "1 year".
Pub. L. 94-455, Secs. 1402(b)(1)(P), 1602(b)(1), redesignated
par. (5) as (7) and provided that "6 months" would be changed to "9
months" for taxable years beginning in 1977.
Subsec. (d). Pub. L. 94-455, Sec. 1604(f)(3)(B), substituted "a
domestic corporation, trust," for "a domestic unincorporated
trust".
Subsec. (e). Pub. L. 94-455, Sec. 1605(b)(2), added subsec. (e).
1975 - Subsec. (a)(1). Pub. L. 93-625, Sec. 6(d)(2), incorporated
existing par. (1) provisions in par. (1) introductory text and
provisions designated as subpar. (A), substituted in subpar. (A)
"(determined without regard to the deduction for dividends paid (as
defined in section 561))" for "(determined without regard to
subsection (b)(2)(C))", and added subpar. (B).
Subsec. (b)(2)(C). Pub. L. 93-625, Sec. 6(d)(4), provided for
computation of deduction for dividends paid without regard to that
portion of such deduction which is attributable to the amount
excluded under subparagraph (F).
Subsec. (b)(2)(F). Pub. L. 93-625, Sec. 6(d)(3), added subpar.
(F).
Subsec. (b)(4), (5). Pub. L. 93-625, Sec. 6(c), added par. (4)
and redesignated former par. (4) as (5).
1969 - Subsec. (b)(3)(A). Pub. L. 91-172, Sec. 511(c)(3)(A),
substituted "determined as provided in section 1201(a), on" for "of
25 percent of."
Subsec. (b)(3)(C). Pub. L. 91-172, Sec. 511(c)(3)(B), inserted
provision requiring for the purposes of the deduction for capital
gains dividends paid, in the case of a taxable year beginning
before Jan. 1, 1975, the deduction for dividends paid shall first
be made from the amount subject to tax in accordance with section
1201(a)(1)(B), to the extent thereof, and then from the amount
subject to tax in accordance with section 1201(a)(1)(A).
1964 - Subsec. (c). Pub. L. 88-272 struck out "section 34(a)
(relating to credit for dividends received by individuals)," before
"section 116" and the comma before "and".
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title IV, Sec. 413(b), Mar. 9, 2002, 116 Stat.
54, provided that: "The amendments made by this section [amending
this section] shall take effect as if included in section 545 of
the Tax Relief Extension Act of 1999 [Pub. L. 106-170]."
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Ticket to Work and Work Incentives Improvement
Act of 1999, Pub. L. 106-170, to which such amendment relates, see
section 1(a)(7) [title III, Sec. 311(d)] of Pub. L. 106-554, set
out as a note under section 30A of this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by section 532(c)(2)(L), (M) of Pub. L. 106-170
applicable to any instrument held, acquired, or entered into, any
transaction entered into, and supplies held or acquired on or after
Dec. 17, 1999, see section 532(d) of Pub. L. 106-170, set out as a
note under section 170 of this title.
Amendment by section 545 of Pub. L. 106-170 applicable to taxable
years beginning after Dec. 31, 2000, see section 546(a) of Pub. L.
106-170, set out as a note under section 856 of this title.
Pub. L. 106-170, title V, Sec. 556(c), Dec. 17, 1999, 113 Stat.
1949, provided that: "The amendments made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2000."
Amendment by section 566(a)(2), (b) of Pub. L. 106-170 applicable
to distributions after Dec. 31, 2000, see section 566(d) of Pub. L.
106-170, set out as a note under section 852 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to taxable years beginning
after Aug. 5, 1997, see section 1263 of Pub. L. 105-34, set out as
a note under section 852 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(s)(5) of Pub. L. 100-647 provided that the amendment
made by that section is effective with respect to dividends
declared in 1988 and subsequent calendar years.
Amendment by sections 1006(r), (s)(2), (4) and 1018(u)(28) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 612(b)(7) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 612(c) of
Pub. L. 99-514, set out as a note under section 301 of this title.
Amendments by sections 661(b), 664, 665(a), (b)(1), and 666 of
Pub. L. 99-514 applicable to taxable years beginning after Dec. 31,
1986, see section 669(a) of Pub. L. 99-514, set out as a note under
section 856 of this title.
Amendment by section 668(b)(1)(A), (2), (3) of Pub. L. 99-514
applicable to calendar years beginning after Dec. 31, 1986, see
section 669(b) of Pub. L. 99-514, set out as a note under section
856 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 16(a) of Pub. L. 98-369 applicable to
taxable years ending after Dec. 31, 1983, see section 18(a) of Pub.
L. 98-369, set out as a note under section 48 of this title.
Amendment by section 55(b) of Pub. L. 98-369 applicable to losses
incurred with respect to shares of stock and beneficial interest
with respect to which the taxpayer's holding period begins after
July 18, 1984, see section 55(c) of Pub. L. 98-369, set out as a
note under section 852 of this title.
Amendment by section 1001(b)(13) of Pub. L. 98-369 applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988, see
section 1001(e) of Pub. L. 98-369, set out as a note under section
166 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE AND TERMINATION DATES OF 1980 AMENDMENT
Amendment by Pub. L. 96-223 applicable with respect to taxable
years beginning after Dec. 31, 1980, and before Jan. 1, 1982, see
section 404(c) of Pub. L. 96-223, set out as a note under section
265 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by section 301(b)(12) of Pub. L. 95-600 applicable to
taxable years beginning after Dec. 31, 1978, see section 301(c) of
Pub. L. 95-600, set out as a note under section 11 of this title.
Amendment by section 362(d)(3) of Pub. L. 95-600 applicable with
respect to determinations (as defined in section 860(e) of this
title) after Nov. 6, 1978, see section 362(e) of Pub. L. 95-600,
set out as an Effective Date note under section 860 of this title.
Amendment by section 363(b) of Pub. L. 95-600 applicable to
taxable years ending after Nov. 6, 1978, see section 363(d) of Pub.
L. 95-600, set out as a note under section 856 of this title.
Amendment by section 403(c)(3) of Pub. L. 95-600 effective on
Nov. 6, 1978, see section 403(d)(3) of Pub. L. 95-600, set out as a
note under section 528 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning in 1977.
Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment
made by that section is effective with respect to taxable years
beginning after Dec. 31, 1977.
Section 1608(a) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by section 1601 [enacting sections 859 and 6697 of
this title and amending this section and sections 316, 381, 6422,
6503, and 6515 of this title] shall apply with respect to
determinations (as defined in section 859(c) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) occurring after the
date of the enactment of this Act [Oct. 4, 1976]. If the amendments
made by section 1601 apply to a taxable year ending on or before
the date of enactment of this Act:
"(1) the reference to section 857(b)(3)(A)(ii) in sections
857(b)(3)(C) and 859(b)(1)(B) of such Code as amended, shall be
considered to be a reference to 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
Pub. L. 94-455, see section 1608(b) of Pub. L. 94-455, set out as a
Trust Not Disqualified in Certain Cases Where Income Tests Not Met
note under section 856 of this title.
For effective date of amendment by sections 1603, 1604, and 1605
of Pub. L. 94-455, see section 1608(d) of Pub. L. 94-455, set out
as a note under section 856 of this title.
Section 1608(c) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by sections 1606 and 1607 [amending this section
and sections 46, 172, and 443 of this title] shall apply to taxable
years ending after the date of the enactment of this Act [Oct. 4,
1976]; except that in the case of a taxpayer which has a net
operating loss (as defined in section 172(c) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) for any taxable year
ending after the date of enactment of this Act [Oct. 4, 1976] for
which the provisions of part II of subchapter M of chapter 1 of
subtitle A of such Code apply to such taxpayer, such loss shall not
be a net operating loss carryback under section 172 of such Code to
any taxable year ending on or before the date of enactment of this
Act [Oct. 4, 1976]."
Amendment by section 1901(a)(112), (b)(1)(V), (33)(K) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 93-625 applicable to foreclosure property
acquired after Dec. 31, 1973, see section 6(e) of Pub. L. 93-625,
set out as a note under section 856 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable with respect to taxable
years beginning after Dec. 31, 1969, see section 511(d) of Pub. L.
91-172, set out as an Effective Date note under section 1201 of
this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable with respect to dividends
received after Dec. 31, 1964, in taxable years ending after such
date, see section 201(e) of Pub. L. 88-272, set out as a note under
section 22 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years of real estate
investment trusts beginning after Dec. 31, 1960, see section 10(k)
of Pub. L. 86-779, set out as a note under section 856 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 1, 172, 291, 443, 774,
854, 856, 858, 860, 860E, 860G, 1201, 4981 of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 858 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 858. Dividends paid by real estate investment trust after
close of taxable year
-STATUTE-
(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)(8), 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).
-SOURCE-
(Added Pub. L. 86-779, Sec. 10(a), Sept. 14, 1960, 74 Stat. 1008;
amended Pub. L. 94-455, title XVI, Secs. 1604(h), title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1752, 1834; Pub. L. 99-514,
title VI, Secs. 665(b)(2), 668(b)(1)(B), Oct. 22, 1986, 100 Stat.
2304, 2307; Pub. L. 100-647, title I, Sec. 1018(u)(27), Nov. 10,
1988, 102 Stat. 3591.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1018(u)(27), made
technical correction to directory language of Pub. L. 99-514, see
1986 Amendment note below.
1986 - Subsec. (b). Pub. L. 99-514, Sec. 668(b)(1)(B), as amended
by Pub. L. 100-647, Sec. 1018(u)(27), substituted "Except as
provided in section 857(b)(8), amounts" for "Amounts".
Subsec. (c). Pub. L. 99-514, Sec. 665(b)(2), inserted "(or mailed
to its shareholders or holders of beneficial interests with its
annual report for the taxable year)".
1976 - Subsec. (a). Pub. L. 94-455, Secs. 1604(h),
1906(b)(13)(A), inserted "(and specifies in dollar amounts)" after
"to the extent the trust elects in such return" and substituted
"paid only during such taxable year" for "paid during such taxable
year", and struck out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 665(b)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, and by section
668(b)(1)(B) of Pub. L. 99-514 applicable to calendar years
beginning after Dec. 31, 1986, see section 669 of Pub. L. 99-514,
set out as a note under section 856 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1604(h) of Pub. L.
94-455, see section 1608(d) of Pub. L. 94-455, set out as a note
under section 856 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years of real estate
investment trusts beginning after Dec. 31, 1960, see section 10(k)
of Pub. L. 86-779, set out as a note under section 856 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 857, 860, 4981 of this
title.
-End-
-CITE-
26 USC Sec. 859 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART II - REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 859. Adoption of annual accounting period
-STATUTE-
(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).
-SOURCE-
(Added Pub. L. 94-455, title XVI, Sec. 1604(i)(1), Oct. 4, 1976, 90
Stat. 1752, Sec. 860; renumbered Sec. 859 and amended Pub. L.
95-600, title III, Sec. 362(d)(6), title VII, Sec. 701(t)(1), Nov.
6, 1978, 92 Stat. 2852, 2911; Pub. L. 99-514, title VI, Sec.
661(c), Oct. 22, 1986, 100 Stat. 2300.)
-MISC1-
PRIOR PROVISIONS
A prior section 859, added Pub. L. 94-455, title XVI, Sec.
1601(a)(1), Oct. 4, 1976, 90 Stat. 1742; amended Pub. L. 95-600,
title VII, Sec. 701(t)(4), Nov. 6, 1978, 92 Stat. 2912, related to
a deduction for deficiency dividends, prior to repeal by Pub. L.
95-600, title III, Sec. 362(d)(6), Nov. 6, 1978, 92 Stat. 2852. See
section 860 of this title.
AMENDMENTS
1986 - Pub. L. 99-514 designated existing provisions as subsec.
(a) and added subsec. (b).
1978 - Pub. L. 95-600, Sec. 701(t)(1), designated existing
provisions as par. (1), substituted "change to any accounting
period" for "change to or adopt any annual accounting period", and
added par. (2) and provision for nonapplicability of par. (2) to a
real estate investment trust for any taxable year beginning on or
before Oct. 4, 1976.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 669 of Pub. L. 99-514, set out as
a note under section 856 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Repeal of prior section 859 of this title and redesignation of
section 860 of this title as this section by section 362(d)(6) of
Pub. L. 95-600 applicable with respect to determinations (as
defined in section 860(e) of this title) after Nov. 6, 1978, see
section 362(e) of Pub. L. 95-600, set out as an Effective Date note
under section 860 of this title.
Section 701(t)(5) of Pub. L. 95-600 provided that: "The
amendments made by this subsection [amending this section and
sections 275, 856, 6212, and 6501 of this title] shall take effect
on October 4, 1976."
-End-
-CITE-
26 USC PART III - PROVISIONS WHICH APPLY TO BOTH
REGULATED INVESTMENT COMPANIES AND REAL
ESTATE INVESTMENT TRUSTS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART III - PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS
-HEAD-
PART III - PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS
-MISC1-
Sec.
860. Deduction for deficiency dividends.
-End-
-CITE-
26 USC Sec. 860 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART III - PROVISIONS WHICH APPLY TO BOTH REGULATED INVESTMENT
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS
-HEAD-
Sec. 860. Deduction for deficiency dividends
-STATUTE-
(a) General rule
If a determination with respect to any qualified investment
entity results in any adjustment for any taxable year, a deduction
shall be allowed to such entity for the amount of deficiency
dividends for purposes of determining the deduction for dividends
paid (for purposes of section 852 or 857, whichever applies) for
such year.
(b) Qualified investment entity defined
For purposes of this section, the term "qualified investment
entity" means -
(1) a regulated investment company, and
(2) a real estate investment trust.
(c) Rules for application of section
(1) Interest and additions to tax determined with respect to the
amount of deficiency dividend deduction allowed
For purposes of determining interest, additions to tax, and
additional amounts -
(A) the tax imposed by this chapter (after taking into
account the deduction allowed by subsection (a)) on the
qualified investment entity for the taxable year with respect
to which the determination is made shall be deemed to be
increased by an amount equal to the deduction allowed by
subsection (a) with respect to such taxable year,
(B) the last date prescribed for payment of such increase in
tax shall be deemed to have been the last date prescribed for
the payment of tax (determined in the manner provided by
section 6601(b)) for the taxable year with respect to which the
determination is made, and
(C) such increase in tax shall be deemed to be paid as of the
date the claim for the deficiency dividend deduction is filed.
(2) Credit or refund
If the allowance of a deficiency dividend deduction results in
an overpayment of tax for any taxable year, credit or refund with
respect to such overpayment shall be made as if on the date of
the determination 2 years remained before the expiration of the
period of limitations on the filing of claim for refund for the
taxable year to which the overpayment relates.
(d) Adjustment
For purposes of this section -
(1) Adjustment in the case of regulated investment company
In the case of any regulated investment company, the term
"adjustment" means -
(A) any increase in the investment company taxable income of
the regulated investment company (determined without regard to
the deduction for dividends paid (as defined in section 561)),
(B) any increase in the amount of the excess described in
section 852(b)(3)(A) (relating to the excess of the net capital
gain over the deduction for capital gain dividends paid), and
(C) any decrease in the deduction for dividends paid (as
defined in section 561) determined without regard to capital
gains dividends.
(2) Adjustment in the case of real estate investment trust
In the case of any real estate investment trust, the term
"adjustment" means -
(A) any increase in the sum of -
(i) the real estate investment trust taxable income of the
real estate investment trust (determined without regard to
the deduction for dividends paid (as defined in section 561)
and by excluding any net capital gain), and
(ii) the excess of the net income from foreclosure property
(as defined in section 857(b)(4)(B)) over the tax on such
income imposed by section 857(b)(4)(A),
(B) any increase in the amount of the excess described in
section 857(b)(3)(A)(ii) (relating to the excess of the net
capital gain over the deduction for capital gains dividends
paid), and
(C) any decrease in the deduction for dividends paid (as
defined in section 561) determined without regard to capital
gains dividends.
(e) Determination
For purposes of this section, the term "determination" means -
(1) a decision by the Tax Court, or a judgment, decree, or
other order by any court of competent jurisdiction, which has
become final;
(2) a closing agreement made under section 7121; or
(3) under regulations prescribed by the Secretary, an agreement
signed by the Secretary and by, or on behalf of, the qualified
investment entity relating to the liability of such entity for
tax.
(f) Deficiency dividends
(1) Definition
For purposes of this section, the term "deficiency dividends"
means a distribution of property made by the qualified investment
entity on or after the date of the determination and before
filing claim under subsection (g), which would have been
includible in the computation of the deduction for dividends paid
under section 561 for the taxable year with respect to which the
liability for tax resulting from the determination exists if
distributed during such taxable year. No distribution of property
shall be considered as deficiency dividends for purposes of
subsection (a) unless distributed within 90 days after the
determination, and unless a claim for a deficiency dividend
deduction with respect to such distribution is filed pursuant to
subsection (g).
(2) Limitations
(A) Ordinary dividends
The amount of deficiency dividends (other than deficiency
dividends qualifying as capital gain dividends) paid by a
qualified investment entity for the taxable year with respect
to which the liability for tax resulting from the determination
exists shall not exceed the sum of -
(i) the excess of the amount of increase referred to in
subparagraph (A) of paragraph (1) or (2) of subsection (d)
(whichever applies) over the amount of any increase in the
deduction for dividends paid (computed without regard to
capital gain dividends) for such taxable year which results
from such determination, and
(ii) the amount of decreased (!1) referred to in
subparagraph (C) of paragraph (1) or (2) of subsection (d)
(whichever applies).
(B) Capital gain dividends
The amount of deficiency dividends qualifying as capital gain
dividends paid by a qualified investment entity for the taxable
year with respect to which the liability for tax resulting from
the determination exists shall not exceed the amount by which
(i) the increase referred to in subparagraph (B) of paragraph
(1) or (2) of subsection (d) (whichever applies), exceeds (ii)
the amount of any dividends paid during such taxable year which
are designated as capital gain dividends after such
determination.
(3) Effect on dividends paid deduction
(A) For taxable year in which paid
Deficiency dividends paid in any taxable year shall not be
included in the amount of dividends paid for such year for
purposes of computing the dividends paid deduction for such
year.
(B) For prior taxable year
Deficiency dividends paid in any taxable year shall not be
allowed for purposes of section 855(a) or 858(a) in the
computation of the dividends paid deduction for the taxable
year preceding the taxable year in which paid.
(g) Claim required
No deficiency dividend deduction shall be allowed under
subsection (a) unless (under regulations prescribed by the
Secretary) claim therefore is filed within 120 days after the date
of the determination.
(h) Suspension of statute of limitations and stay of collection
(1) Suspension of running of statute
If the qualified investment entity files a claim as provided in
subsection (g), the running of the statute of limitations
provided in section 6501 on the making of assessments, and the
bringing of distraint or a proceeding in court for collection, in
respect of the deficiency established by a determination under
this section, 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 the
determination.
(2) Stay of collection
In the case of any deficiency established by a determination
under this section -
(A) the collection of the deficiency, 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 120 days after the date of the
determination, and
(B) if claim for a deficiency dividend deduction is filed
under subsection (g), the collection of such part of the
deficiency as is not reduced by the deduction for deficiency
dividends provided in subsection (a) shall be stayed until the
date the claim is disallowed (in whole or in part), and if
disallowed in part collection shall be made only with respect
to the part disallowed.
No distraint or proceeding in court shall be begun for the
collection of an amount the collection of which is stayed under
subparagraph (A) or (B) during the period for which the
collection of such amount is stayed.
(i) Deduction denied in case of fraud
No deficiency dividend deduction shall be allowed under
subsection (a) if the determination contains a finding that any
part of any deficiency attributable to an adjustment with respect
to the taxable year is due to fraud with intent to evade tax or to
willfull (!2) failure to file an income tax return within the time
prescribed by law or prescribed by the Secretary in pursuance of
law.
(j) Penalty
For assessable penalty with respect to liability for tax of a
regulated investment company which is allowed a deduction under
subsection (a), see section 6697.
-SOURCE-
(Added Pub. L. 95-600, title III, Sec. 362(a), Nov. 6, 1978, 92
Stat. 2848; amended Pub. L. 96-222, title I, Sec. 103(a)(11)(B),
(C), Apr. 1, 1980, 94 Stat. 213; Pub. L. 99-514, title VI, Sec.
667(b)(1), Oct. 22, 1986, 100 Stat. 2306.)
-MISC1-
PRIOR PROVISIONS
A prior section 860 was renumbered section 859 of this title.
AMENDMENTS
1986 - Subsec. (j). Pub. L. 99-514 substituted "regulated
investment company" for "qualified investment entity".
1980 - Subsec. (f). Pub. L. 96-222 substituted in heading
"Deficiency" for "Efficiency" and in par. (2)(A)(i) "(computed
without regard" for "computed without regard".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 669 of Pub. L. 99-514, set out as
a note under section 856 of this title.
EFFECTIVE DATE
Section 362(e) of Pub. L. 95-600, as amended by Pub. L. 96-222,
title I, Sec. 103(a)(11)(A), Apr. 1, 1980, 94 Stat. 212; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [enacting this section, amending
sections 316, 381, 852, 857, 6422, 6503, 6515, and 6697 of this
title, repealing section 859 of this title, and redesignating prior
section 860 as 859 of this title] shall apply with respect to
determinations (as defined in section 860(e) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) after the date of the
enactment of this Act [Nov. 6, 1978]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 316, 381, 852, 857, 4981,
4982, 6422, 6503, 6515, 6697 of this title.
-FOOTNOTE-
(!1) So in original. Probably should be "decrease".
(!2) So in original. Probably should be "willful".
-End-
-CITE-
26 USC PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-MISC1-
Sec.
860A. Taxation of REMIC's.
860B. Taxation of holders of regular interests.
860C. Taxation of residual interests.
860D. REMIC defined.
860E. Treatment of income in excess of daily accruals on
residual interests.
860F. Other rules.
860G. Other definitions and special rules.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in section 382 of this title.
-End-
-CITE-
26 USC Sec. 860A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860A. Taxation of REMIC's
-STATUTE-
(a) General rule
Except as otherwise provided in this part, a REMIC shall not be
subject to taxation under this subtitle (and shall not be treated
as a corporation, partnership, or trust for purposes of this
subtitle).
(b) Income taxable to holders
The income of any REMIC shall be taxable to the holders of
interests in such REMIC as provided in this part.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2309; amended Pub. L. 100-647, title I, Sec. 1006(t)(20),
Nov. 10, 1988, 102 Stat. 3426.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647 substituted "this subtitle"
for "this chapter" in two places.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section 675(a)-(c) of subtitle H (Secs. 671-675) of title VI of
Pub. L. 99-514, as amended by Pub. L. 100-647, title I, Sec.
1006(w)(1), Nov. 10, 1988, 102 Stat. 3427, provided that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle [enacting this part
and amending sections 582, 593, 856, 1272, 6049, and 7701 of this
title] shall take effect on January 1, 1987.
"(b) Rules for Accruing Original Issue Discount. - The amendment
made by section 672 [amending section 1272 of this title] shall
apply to debt instruments issued after December 31, 1986, in
taxable years ending after such date.
"(c) Treatment of Taxable Mortgage Pools. -
"(1) In general. - The amendment made by section 673 [amending
section 7701 of this title] shall take effect on January 1, 1992.
"(2) Treatment of existing entities. - The amendment made by
section 673 shall not apply to any entity in existence on
December 31, 1991. The preceding sentence shall cease to apply
with respect to any entity as of the 1st day after December 31,
1991, on which there is a substantial transfer of cash or other
property to such entity.
"(3) Special rule for coordination with wash-sale rules. -
Notwithstanding paragraphs (1) and (2), for purposes of applying
section 860F(d) of the Internal Revenue Code of 1986 (as added by
this part [this subtitle]), the amendment made by section 673
shall apply to taxable years beginning after December 31, 1986."
STUDY OF AMENDMENTS BY PUB. L. 99-514
Section 675(d) of Pub. L. 99-514, as added by Pub. L. 100-647,
title I, Sec. 1006(w)(2), Nov. 10, 1988, 102 Stat. 3427, directed
Secretary of the Treasury to conduct a study of the operation of
the amendments made by this part [this subtitle] and their
competitive impact on savings and loan institutions and similar
financial institutions and, not later than Jan. 1, 1990, report to
Congress, prior to repeal by Pub. L. 101-508, title XI, Sec.
11832(5), Nov. 5, 1990, 104 Stat. 1388-559.
-End-
-CITE-
26 USC Sec. 860B 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860B. Taxation of holders of regular interests
-STATUTE-
(a) General rule
In determining the tax under this chapter of any holder of a
regular interest in a REMIC, such interest (if not otherwise a debt
instrument) shall be treated as a debt instrument.
(b) Holders must use accrual method
The amounts includible in gross income with respect to any
regular interest in a REMIC shall be determined under the accrual
method of accounting.
(c) Portion of gain treated as ordinary income
Gain on the disposition of a regular interest shall be treated as
ordinary income to the extent such gain does not exceed the excess
(if any) of -
(1) the amount which would have been includible in the gross
income of the taxpayer with respect to such interest if the yield
on such interest were 110 percent of the applicable Federal rate
(as defined in section 1274(d) without regard to paragraph (2)
thereof) as of the beginning of the taxpayer's holding period,
over
(2) the amount actually includible in gross income with respect
to such interest by the taxpayer.
(d) Cross reference
For special rules in determining inclusion of original issue
discount on regular interests, see section 1272(a)(6).
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2309.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 6049 of this title.
-End-
-CITE-
26 USC Sec. 860C 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860C. Taxation of residual interests
-STATUTE-
(a) Pass-thru of income or loss
(1) In general
In determining the tax under this chapter of any holder of a
residual interest in a REMIC, such holder shall take into account
his daily portion of the taxable income or net loss of such REMIC
for each day during the taxable year on which such holder held
such interest.
(2) Daily portion
The daily portion referred to in paragraph (1) shall be
determined -
(A) by allocating to each day in any calendar quarter its
ratable portion of the taxable income (or net loss) for such
quarter, and
(B) by allocating the amount so allocated to any day among
the holders (on such day) of residual interests in proportion
to their respective holdings on such day.
(b) Determination of taxable income or net loss
For purposes of this section -
(1) Taxable income
The taxable income of a REMIC shall be determined under an
accrual method of accounting and, except as provided in
regulations, in the same manner as in the case of an individual,
except that -
(A) regular interests in such REMIC (if not otherwise debt
instruments) shall be treated as indebtedness of such REMIC,
(B) market discount on any market discount bond shall be
included in gross income for the taxable years to which it is
attributable as determined under the rules of section
1276(b)(2) (and sections 1276(a) and 1277 shall not apply),
(C) there shall not be taken into account any item of income,
gain, loss, or deduction allocable to a prohibited transaction,
(D) the deductions referred to in section 703(a)(2) (other
than any deduction under section 212) shall not be allowed, and
(E) the amount of the net income from foreclosure property
(if any) shall be reduced by the amount of the tax imposed by
section 860G(c).
(2) Net loss
The net loss of any REMIC is the excess of -
(A) the deductions allowable in computing the taxable income
of such REMIC, over
(B) its gross income.
Such amount shall be determined with the modifications set forth
in paragraph (1).
(c) Distributions
Any distribution by a REMIC -
(1) shall not be included in gross income to the extent it does
not exceed the adjusted basis of the interest, and
(2) to the extent it exceeds the adjusted basis of the
interest, shall be treated as gain from the sale or exchange of
such interest.
(d) Basis rules
(1) Increase in basis
The basis of any person's residual interest in a REMIC shall be
increased by the amount of the taxable income of such REMIC taken
into account under subsection (a) by such person with respect to
such interest.
(2) Decreases in basis
The basis of any person's residual interest in a REMIC shall be
decreased (but not below zero) by the sum of the following
amounts:
(A) any distributions to such person with respect to such
interest, and
(B) any net loss of such REMIC taken into account under
subsection (a) by such person with respect to such interest.
(e) Special rules
(1) Amounts treated as ordinary
Any amount taken into account under subsection (a) by any
holder of a residual interest in a REMIC shall be treated as
ordinary income or ordinary loss, as the case may be.
(2) Limitation on losses
(A) In general
The amount of the net loss of any REMIC taken into account by
a holder under subsection (a) with respect to any calendar
quarter shall not exceed the adjusted basis of such holder's
residual interest in such REMIC as of the close of such
calendar quarter (determined without regard to the adjustment
under subsection (d)(2)(B) for such calendar quarter).
(B) Indefinite carryforward
Any loss disallowed by reason of subparagraph (A) shall be
treated as incurred by the REMIC in the succeeding calendar
quarter with respect to such holder.
(3) Cross reference
For special treatment of income in excess of daily accruals,
see section 860E.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2309; amended Pub. L. 100-647, title I, Sec. 1006(t)(1),
(8)(C), (21), Nov. 10, 1988, 102 Stat. 3419, 3421, 3426.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b)(1). Pub. L. 100-647, Sec. 1006(t)(21),
substituted "and, except as provided in regulations, in the same
manner" for "and in the same manner" in introductory provisions.
Subsec. (b)(1)(E). Pub. L. 100-647, Sec. 1006(t)(8)(C), added
subpar. (E).
Subsec. (e)(1). Pub. L. 100-647, Sec. 1006(t)(1), substituted
"ordinary" for "ordinary income" in heading and amended text
generally. Prior to amendment, text read as follows: "Any amount
included in the gross income of any holder of a residual interest
in a REMIC by reason of subsection (a) shall be treated as ordinary
income."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 860E of this title.
-End-
-CITE-
26 USC Sec. 860D 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860D. REMIC defined
-STATUTE-
(a) General rule
For purposes of this title, the terms "real estate mortgage
investment conduit" and "REMIC" mean any entity -
(1) to which an election to be treated as a REMIC applies for
the taxable year and all prior taxable years,
(2) all of the interests in which are regular interests or
residual interests,
(3) which has 1 (and only 1) class of residual interests (and
all distributions, if any, with respect to such interests are pro
rata),
(4) as of the close of the 3rd month beginning after the
startup day and at all times thereafter, substantially all of the
assets of which consist of qualified mortgages and permitted
investments,
(5) which has a taxable year which is a calendar year, and
(6) with respect to which there are reasonable arrangements
designed to ensure that -
(A) residual interests in such entity are not held by
disqualified organizations (as defined in section 860E(e)(5)),
and
(B) information necessary for the application of section
860E(e) will be made available by the entity.
In the case of a qualified liquidation (as defined in section
860F(a)(4)(A)), paragraph (4) shall not apply during the
liquidation period (as defined in section 860F(a)(4)(B)).
(b) Election
(1) In general
An entity (otherwise meeting the requirements of subsection
(a)) may elect to be treated as a REMIC for its 1st taxable year.
Such an election shall be made on its return for such 1st taxable
year. Except as provided in paragraph (2), such an election shall
apply to the taxable year for which made and all subsequent
taxable years.
(2) Termination
(A) In general
If any entity ceases to be a REMIC at any time during the
taxable year, such entity shall not be treated as a REMIC for
such taxable year or any succeeding taxable year.
(B) Inadvertent terminations
If -
(i) an entity ceases to be a REMIC,
(ii) the Secretary determines that such cessation was
inadvertent,
(iii) no later than a reasonable time after the discovery
of the event resulting in such cessation, steps are taken so
that such entity is once more a REMIC, and
(iv) such entity, and each person holding an interest in
such entity at any time during the period specified pursuant
to this subsection, agrees to make such adjustments
(consistent with the treatment of such entity as a REMIC or a
C corporation) as may be required by the Secretary with
respect to such period,
then, notwithstanding such terminating event, such entity shall
be treated as continuing to be a REMIC (or such cessation shall
be disregarded for purposes of subparagraph (A)) whichever the
Secretary determines to be appropriate.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2311; amended Pub. L. 100-647, title I, Sec. 1006(t)(2)(A),
(16)(A), (19), Nov. 10, 1988, 102 Stat. 3419, 3423, 3426; Pub. L.
101-508, title XI, Sec. 11704(a)(8), Nov. 5, 1990, 104 Stat.
1388-518.)
-MISC1-
AMENDMENTS
1990 - Subsec. (a). Pub. L. 101-508 inserted closing parenthesis
before period at end.
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1006(t)(19), inserted
at end "In the case of a qualified liquidation (as defined in
section 860F(a)(4)(A)), paragraph (4) shall not apply during the
liquidation period (as defined in section 860F(a)(4)(B)."
Subsec. (a)(4). Pub. L. 100-647, Sec. 1006(t)(2)(A)(i),
substituted "3rd month beginning after" for "4th month ending
after".
Pub. L. 100-647, Sec. 1006(t)(2)(A)(ii), substituted "and at all
times thereafter" for "and each quarter ending thereafter".
Subsec. (a)(6). Pub. L. 100-647, Sec. 1006(t)(16)(A), added par.
(6).
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(t)(2)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A)(ii) [amending this section]
shall take effect on January 1, 1988."
Section 1006(t)(16)(D)(i) of Pub. L. 100-647 provided that: "The
amendments made by subparagraph (A) [amending this section] shall
apply in the case of any REMIC where the start-up day (as defined
in section 860G(a)(9) of the 1986 Code, as in effect on the day
before the date of the enactment of this Act [Nov. 10, 1988]) is
after March 31, 1988; except that such amendments shall not apply
in the case of a REMIC formed pursuant to a binding written
contract in effect on such date."
Amendment by section 1006(t)(2)(A)(i), (19) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 860G, 860L of this title.
-End-
-CITE-
26 USC Sec. 860E 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860E. Treatment of income in excess of daily accruals on
residual interests
-STATUTE-
(a) Excess inclusions may not be offset by net operating losses
(1) In general
The taxable income of any holder of a residual interest in a
REMIC for any taxable year shall in no event be less than the
excess inclusion for such taxable year.
(2) Special rule for affiliated groups
All members of an affiliated group filing a consolidated return
shall be treated as 1 taxpayer for purposes of this subsection.
(3) Coordination with section 172
Any excess inclusion for any taxable year shall not be taken
into account -
(A) in determining under section 172 the amount of any net
operating loss for such taxable year, and
(B) in determining taxable income for such taxable year for
purposes of the 2nd sentence of section 172(b)(2).
(4) Coordination with minimum tax
For purposes of part VI of subchapter A of this chapter -
(A) the reference in section 55(b)(2) to taxable income shall
be treated as a reference to taxable income determined without
regard to this subsection,
(B) the alternative minimum taxable income of any holder of a
residual interest in a REMIC for any taxable year shall in no
event be less than the excess inclusion for such taxable year,
and
(C) any excess inclusion shall be disregarded for purposes of
computing the alternative tax net operating loss deduction.
(b) Organizations subject to unrelated business tax
If the holder of any residual interest in a REMIC is an
organization subject to the tax imposed by section 511, the excess
inclusion of such holder for any taxable year shall be treated as
unrelated business taxable income of such holder for purposes of
section 511.
(c) Excess inclusion
For purposes of this section -
(1) In general
The term "excess inclusion" means, with respect to any residual
interest in a REMIC for any calendar quarter, the excess (if any)
of -
(A) the amount taken into account with respect to such
interest by the holder under section 860C(a), over
(B) the sum of the daily accruals with respect to such
interest for days during such calendar quarter while held by
such holder.
To the extent provided in regulations, if residual interests in a
REMIC do not have significant value, the excess inclusions with
respect to such interests shall be the amount determined under
subparagraph (A) without regard to subparagraph (B).
(2) Determination of daily accruals
(A) In general
For purposes of this subsection, the daily accrual with
respect to any residual interest for any day in any calendar
quarter shall be determined by allocating to each day in such
quarter its ratable portion of the product of -
(i) the adjusted issue price of such interest at the
beginning of such quarter, and
(ii) 120 percent of the long-term Federal rate (determined
on the basis of compounding at the close of each calendar
quarter and properly adjusted for the length of such
quarter).
(B) Adjusted issue price
For purposes of this paragraph, the adjusted issue price of
any residual interest at the beginning of any calendar quarter
is the issue price of the residual interest (adjusted for
contributions) -
(i) increased by the amount of daily accruals for prior
quarters, and
(ii) decreased (but not below zero) by any distribution
made with respect to such interest before the beginning of
such quarter.
(C) Federal long-term rate
For purposes of this paragraph, the term "Federal long-term
rate" means the Federal long-term rate which would have applied
to the residual interest under section 1274(d) (determined
without regard to paragraph (2) thereof) if it were a debt
instrument.
(d) Treatment of residual interests held by real estate investment
trusts
If a residual interest in a REMIC is held by a real estate
investment trust, under regulations prescribed by the Secretary -
(1) any excess of -
(A) the aggregate excess inclusions determined with respect
to such interests, over
(B) the real estate investment trust taxable income (within
the meaning of section 857(b)(2), excluding any net capital
gain),
shall be allocated among the shareholders of such trust in
proportion to the dividends received by such shareholders from
such trust, and
(2) any amount allocated to a shareholder under paragraph (1)
shall be treated as an excess inclusion with respect to a
residual interest held by such shareholder.
Rules similar to the rules of the preceding sentence shall apply
also in the case of regulated investment companies, common trust
funds, and organizations to which part I of subchapter T applies.
(e) Tax on transfers of residual interests to certain
organizations, etc.
(1) In general
A tax is hereby imposed on any transfer of a residual interest
in a REMIC to a disqualified organization.
(2) Amount of tax
The amount of the tax imposed by paragraph (1) on any transfer
of a residual interest shall be equal to the product of -
(A) the amount (determined under regulations) equal to the
present value of the total anticipated excess inclusions with
respect to such interest for periods after such transfer,
multiplied by
(B) the highest rate of tax specified in section 11(b)(1).
(3) Liability
The tax imposed by paragraph (1) on any transfer shall be paid
by the transferor; except that, where such transfer is through an
agent for a disqualified organization, such tax shall be paid by
such agent.
(4) Transferee furnishes affidavit
The person (otherwise liable for any tax imposed by paragraph
(1)) shall be relieved of liability for the tax imposed by
paragraph (1) with respect to any transfer if -
(A) the transferee furnishes to such person an affidavit that
the transferee is not a disqualified organization, and
(B) as of the time of the transfer, such person does not have
actual knowledge that such affidavit is false.
(5) Disqualified organization
For purposes of this section, the term "disqualified
organization" means -
(A) the United States, any State or political subdivision
thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the
foregoing,
(B) any organization (other than a cooperative described in
section 521) which is exempt from tax imposed by this chapter
unless such organization is subject to the tax imposed by
section 511, and
(C) any organization described in section 1381(a)(2)(C).
For purposes of subparagraph (A), the rules of section
168(h)(2)(D) (relating to treatment of certain taxable
instrumentalities) shall apply; except that, in the case of the
Federal Home Loan Mortgage Corporation, clause (ii) of such
section shall not apply.
(6) Treatment of pass-thru entities
(A) Imposition of tax
If, at any time during any taxable year of a pass-thru
entity, a disqualified organization is the record holder of an
interest in such entity, there is hereby imposed on such entity
for such taxable year a tax equal to the product of -
(i) the amount of excess inclusions for such taxable year
allocable to the interest held by such disqualified
organization, multiplied by
(ii) the highest rate of tax specified in section 11(b)(1).
(B) Pass-thru entity
For purposes of this paragraph, the term "pass-thru entity"
means -
(i) any regulated investment company, real estate
investment trust, or common trust fund,
(ii) any partnership, trust, or estate, and
(iii) any organization to which part I of subchapter T
applies.
Except as provided in regulations, a person holding an interest
in a pass-thru entity as a nominee for another person shall,
with respect to such interest, be treated as a pass-thru
entity.
(C) Tax to be deductible
Any tax imposed by this paragraph with respect to any excess
inclusion of any pass-thru entity for any taxable year shall,
for purposes of this title (other than this subsection), be
applied against (and operate to reduce) the amount included in
gross income with respect to the residual interest involved.
(D) Exception where holder furnishes affidavit
No tax shall be imposed by subparagraph (A) with respect to
any interest in a pass-thru entity for any period if -
(i) the record holder of such interest furnishes to such
pass-thru entity an affidavit that such record holder is not
a disqualified organization, and
(ii) during such period, the pass-thru entity does not have
actual knowledge that such affidavit is false.
(7) Waiver
The Secretary may waive the tax imposed by paragraph (1) on any
transfer if -
(A) within a reasonable time after discovery that the
transfer was subject to tax under paragraph (1), steps are
taken so that the interest is no longer held by the
disqualified organization, and
(B) there is paid to the Secretary such amounts as the
Secretary may require.
(8) Administrative provisions
For purposes of subtitle F, the taxes imposed by this
subsection shall be treated as excise taxes with respect to which
the deficiency procedures of such subtitle apply.
(f) Treatment of variable insurance contracts
Except as provided in regulations, with respect to any variable
contract (as defined in section 817), there shall be no adjustment
in the reserve to the extent of any excess inclusion.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2311; amended Pub. L. 100-647, title I, Sec. 1006(t)(13),
(15), (16)(B), (17), (23), (26), (27), Nov. 10, 1988, 102 Stat.
3423, 3426, 3427; Pub. L. 104-188, title I, Secs. 1616(b)(10),
1704(h)(1), Aug. 20, 1996, 110 Stat. 1857, 1881.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(1). Pub. L. 104-188, Sec. 1616(b)(10)(A),
substituted "The" for "Except as provided in paragraph (2), the".
Subsec. (a)(2). Pub. L. 104-188, Sec. 1616(b)(10)(B), (C),
redesignated par. (3) as (2), struck out ", except that paragraph
(2) shall be applied separately with respect to each corporation
which is a member of such group and to which section 593 applies"
after "of this subsection", and struck out former par. (2) which
read as follows: "Exception for certain financial institutions. -
Paragraph (1) shall not apply to any organization to which section
593 applies. The Secretary may by regulations provide that the
preceding sentence shall not apply where necessary or appropriate
to prevent avoidance of tax imposed by this chapter."
Subsec. (a)(3). Pub. L. 104-188, Sec. 1616(b)(10)(B),
redesignated par. (5) as (3). Former par. (3) redesignated (2).
Subsec. (a)(4). Pub. L. 104-188, Sec. 1616(b)(10)(B), (D),
redesignated par. (6) as (4), struck out at end "The preceding
sentence shall not apply to any organization to which section 593
applies, except to the extent provided in regulations prescribed by
the Secretary under paragraph (2).", and struck out former par. (4)
which related to certain subsidiaries being treated as single
corporations to which section 593 applied.
Subsec. (a)(5). Pub. L. 104-188, Sec. 1616(b)(10)(B),
redesignated par. (5) as (3).
Subsec. (a)(6). Pub. L. 104-188, Sec. 1616(b)(10)(B),
redesignated par. (6) as (4).
Pub. L. 104-188, Sec. 1704(h)(1), added par. (6).
1988 - Subsec. (a)(3), (4). Pub. L. 100-647, Sec. 1006(t)(15),
added pars. (3) and (4).
Subsec. (a)(5). Pub. L. 100-647, Sec. 1006(t)(27), added par.
(5).
Subsec. (c)(2)(B). Pub. L. 100-647, Sec. 1006(t)(13), (17),
substituted "issue price of the residual interest (adjusted for
contributions)" for "issue price of residual interest" in
introductory text, and in cl. (ii) inserted "(but not below zero)"
after "decreased".
Subsec. (d). Pub. L. 100-647, Sec. 1006(t)(23), inserted at end
"Rules similar to the rules of the preceding sentence shall apply
also in the case of regulated investment companies, common trust
funds, and organizations to which part I of subchapter T applies."
Subsec. (e). Pub. L. 100-647, Sec. 1006(t)(16)(B), added subsec.
(e).
Subsec. (f). Pub. L. 100-647, Sec. 1006(t)(26), added subsec.
(f).
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1616(b)(10) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1995, but not applicable to
any residual interest held by a taxpayer if such interest has been
held by such taxpayer at all times since Oct. 31, 1995, see section
1616(c)(1), (4) of Pub. L. 104-188, set out as a note under section
593 of this title.
Section 1704(h)(2) of Pub. L. 104-188 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 671 of the
Tax Reform Act of 1986 [Pub. L. 99-514] unless the taxpayer elects
to apply such amendment only to taxable years beginning after the
date of the enactment of this Act [Aug. 20, 1996]."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(t)(16)(D)(ii)-(iv) of Pub. L. 100-647 provided that:
"(ii) The amendments made by subparagraphs (B) and (C) [amending
this section and section 26 of this title] (except to the extent
they relate to paragraph (6) of section 860E(e) of the 1986 Code as
added by such amendments) shall apply to transfers after March 31,
1988; except that such amendments shall not apply to any transfer
pursuant to a binding written contract in effect on such date.
"(iii) Except as provided in clause (iv), the amendments made by
subparagraphs (B) and (C) (to the extent they relate to paragraph
(6) of section 860E(e) of the 1986 Code as so added) shall apply to
excess inclusions for periods after March 31, 1988 but only to the
extent such inclusions are -
"(I) allocable to an interest in a pass-thru entity acquired
after March 31, 1988, or
"(II) allocable to an interest in a pass-thru entity acquired
on or before March 31, 1988, but attributable to a residual
interest acquired by the pass-thru entity after March 31, 1988.
For purposes of the preceding sentence, any interest in a pass-thru
entity (or residual interest) acquired after March 31, 1988,
pursuant to a binding written contract in effect on such date shall
be treated as acquired before such date.
"(iv) In the case of any real estate investment trust, regulated
investment company, common trust fund, or publicly traded
partnership, no tax shall be imposed under section 860E(e)(6) of
the 1986 Code (as added by the amendment made by subparagraph (B))
for any taxable year beginning before January 1, 1989."
Amendment by section 1006(t)(13), (15), (17), (23), (26), (27) of
Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 774, 857, 860C, 860D,
860F, 860J, 860K, 7701 of this title.
-End-
-CITE-
26 USC Sec. 860F 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860F. Other rules
-STATUTE-
(a) 100 percent tax on prohibited transactions
(1) Tax imposed
There is hereby imposed for each taxable year of a REMIC a tax
equal to 100 percent of the net income derived from prohibited
transactions.
(2) Prohibited transaction
For purposes of this part, the term "prohibited transaction"
means -
(A) Disposition of qualified mortgage
The disposition of any qualified mortgage transferred to the
REMIC other than a disposition pursuant to -
(i) the substitution of a qualified replacement mortgage
for a qualified mortgage (or the repurchase in lieu of
substitution of a defective obligation),
(ii) a disposition incident to the foreclosure, default, or
imminent default of the mortgage,
(iii) the bankruptcy or insolvency of the REMIC, or
(iv) a qualified liquidation.
(B) Income from nonpermitted assets
The receipt of any income attributable to any asset which is
neither a qualified mortgage nor a permitted investment.
(C) Compensation for services
The receipt by the REMIC of any amount representing a fee or
other compensation for services.
(D) Gain from disposition of cash flow investments
Gain from the disposition of any cash flow investment other
than pursuant to any qualified liquidation.
(3) Determination of net income
For purposes of paragraph (1), the term "net income derived
from prohibited transactions" means the excess of the gross
income from prohibited transactions over the deductions allowed
by this chapter which are directly connected with such
transactions; except that there shall not be taken into account
any item attributable to any prohibited transaction for which
there was a loss.
(4) Qualified liquidation
For purposes of this part -
(A) In general
The term "qualified liquidation" means a transaction in which
-
(i) the REMIC adopts a plan of complete liquidation,
(ii) such REMIC sells all its assets (other than cash)
within the liquidation period, and
(iii) all proceeds of the liquidation (plus the cash), less
assets retained to meet claims, are credited or distributed
to holders of regular or residual interests on or before the
last day of the liquidation period.
(B) Liquidation period
The term "liquidation period" means the period -
(i) beginning on the date of the adoption of the plan of
liquidation, and
(ii) ending at the close of the 90th day after such date.
(5) Exceptions
Notwithstanding subparagraphs (A) and (D) of paragraph (2), the
term "prohibited transaction" shall not include any disposition -
(A) required to prevent default on a regular interest where
the threatened default resulted from a default on 1 or more
qualified mortgages, or
(B) to facilitate a clean-up call (as defined in
regulations).
(b) Treatment of transfers to the REMIC
(1) Treatment of transferor
(A) Nonrecognition gain or loss
No gain or loss shall be recognized to the transferor on the
transfer of any property to a REMIC in exchange for regular or
residual interests in such REMIC.
(B) Adjusted bases of interests
The adjusted bases of the regular and residual interests
received in a transfer described in subparagraph (A) shall be
equal to the aggregate adjusted bases of the property
transferred in such transfer. Such amount shall be allocated
among such interests in proportion to their respective fair
market values.
(C) Treatment of nonrecognized gain
If the issue price of any regular or residual interest
exceeds its adjusted basis as determined under subparagraph
(B), for periods during which such interest is held by the
transferor (or by any other person whose basis is determined in
whole or in part by reference to the basis of such interest in
the hand of the transferor) -
(i) in the case of a regular interest, such excess shall be
included in gross income (as determined under rules similar
to rules of section 1276(b)), and
(ii) in the case of a residual interest, such excess shall
be included in gross income ratably over the anticipated
period during which the REMIC will be in existence.
(D) Treatment of nonrecognized loss
If the adjusted basis of any regular or residual interest
received in a transfer described in subparagraph (A) exceeds
its issue price, for periods during which such interest is held
by the transferor (or by any other person whose basis is
determined in whole or in part by reference to the basis of
such interest in the hand of the transferor) -
(i) in the case of a regular interest, such excess shall be
allowable as a deduction under rules similar to the rules of
section 171, and
(ii) in the case of a residual interest, such excess shall
be allowable as a deduction ratably over the anticipated
period during which the REMIC will be in existence.
(2) Basis to REMIC
The basis of any property received by a REMIC in a transfer
described in paragraph (1)(A) shall be its fair market value
immediately after such transfer.
(c) Distributions of property
If a REMIC makes a distribution of property with respect to any
regular or residual interest -
(1) notwithstanding any other provision of this subtitle, gain
shall be recognized to such REMIC on the distribution in the same
manner as if it had sold such property to the distributee at its
fair market value, and
(2) the basis of the distributee in such property shall be its
fair market value.
(d) Coordination with wash sale rules
For purposes of section 1091 -
(1) any residual interest in a REMIC shall be treated as a
security, and
(2) in applying such section to any loss claimed to have been
sustained on the sale or other disposition of a residual interest
in a REMIC -
(A) except as provided in regulations, any residual interest
in any REMIC and any interest in a taxable mortgage pool (as
defined in section 7701(i)) comparable to a residual interest
in a REMIC shall be treated as substantially identical stock or
securities, and
(B) subsections (a) and (e) of such section shall be applied
by substituting "6 months" for "30 days" each place it appears.
(e) Treatment under subtitle F
For purposes of subtitle F, a REMIC shall be treated as a
partnership (and holders of residual interests in such REMIC shall
be treated as partners). Any return required by reason of the
preceding sentence shall include the amount of the daily accruals
determined under section 860E(c). Such return shall be filed by the
REMIC. The determination of who may sign such return shall be made
without regard to the first sentence of this subsection.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2313; amended Pub. L. 100-647, title I, Sec. 1006(t)(3), (4),
(14), (18)(A), (22)(B)-(E), Nov. 10, 1988, 102 Stat. 3419, 3420,
3423, 3426; Pub. L. 104-188, title I, Sec. 1704(t)(74), Aug. 20,
1996, 110 Stat. 1891.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(5). Pub. L. 104-188 substituted "paragraph
(2)" for "paragraph (1)" in introductory provisions.
1988 - Subsec. (a)(2)(A). Pub. L. 100-647, Sec. 1006(t)(3)(B)(i),
struck out at end "Notwithstanding the preceding sentence, the term
'prohibited transaction' shall not include any disposition required
to prevent default on a regular interest where the threatened
default resulted from a default on 1 or more qualified mortgages."
Subsec. (a)(2)(A)(i). Pub. L. 100-647, Sec. 1006(t)(3)(A),
amended cl. (i) generally. Prior to amendment, cl. (i) read as
follows: "the substitution of a qualified replacement mortgage for
a qualified mortgage,".
Subsec. (a)(2)(A)(iii), (C). Pub. L. 100-647, Sec.
1006(t)(22)(B), (C), substituted "REMIC" for "real estate mortgage
pool".
Subsec. (a)(2)(D). Pub. L. 100-647, Sec. 1006(t)(3)(C), struck
out "described in subsection (b)" before period at end.
Subsec. (a)(5). Pub. L. 100-647, Sec. 1006(t)(3)(B)(ii), added
par. (5).
Subsec. (b)(1)(A). Pub. L. 100-647, Sec. 1006(t)(4), substituted
"the transfer of any property to a REMIC in exchange for regular or
residual interests in such REMIC" for "the transfer of any property
to a REMIC".
Subsec. (b)(1)(C)(ii). Pub. L. 100-647, Sec. 1006(t)(22)(D),
substituted "REMIC" for "real estate mortgage pool".
Subsec. (b)(1)(D)(ii). Pub. L. 100-647, Sec. 1006(t)(14),
(22)(E), amended cl. (ii) identically, substituting "REMIC" for
"real estate mortgage pool".
Subsec. (e). Pub. L. 100-647, Sec. 1006(t)(18)(A), inserted at
end "Such return shall be filed by the REMIC. The determination of
who may sign such return shall be made without regard to the first
sentence of this subsection."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(t)(18)(B) of Pub. L. 100-647 provided that: "Unless
the REMIC otherwise elects, the amendment made by subparagraph (A)
[amending this section] shall not apply to any REMIC where the
start-up day (as defined in section 860G(a)(9) of the 1986 Code as
in effect on the day before the date of the enactment of this Act
[Nov. 10, 1988]) is before the date of the enactment of this Act."
Amendment by section 1006(t)(3), (4), (14), (22)(B)-(E) of Pub.
L. 100-647 effective, except as otherwise provided, as if included
in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as a note under section 1 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 860D, 860L of this title.
-End-
-CITE-
26 USC Sec. 860G 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART IV - REAL ESTATE MORTGAGE INVESTMENT CONDUITS
-HEAD-
Sec. 860G. Other definitions and special rules
-STATUTE-
(a) Definitions
For purposes of this part -
(1) Regular interest
The term "regular interest" means any interest in a REMIC which
is issued on the startup day with fixed terms and which is
designated as a regular interest if -
(A) such interest unconditionally entitles the holder to
receive a specified principal amount (or other similar amount),
and
(B) interest payments (or other similar amount), if any, with
respect to such interest at or before maturity -
(i) are payable based on a fixed rate (or to the extent
provided in regulations, at a variable rate), or
(ii) consist of a specified portion of the interest
payments on qualified mortgages and such portion does not
vary during the period such interest is outstanding.
The interest shall not fail to meet the requirements of
subparagraph (A) merely because the timing (but not the amount)
of the principal payments (or other similar amounts) may be
contingent on the extent of prepayments on qualified mortgages
and the amount of income from permitted investments.
(2) Residual interest
The term "residual interest" means an interest in a REMIC which
is issued on the startup day, which is not a regular interest,
and which is designated as a residual interest.
(3) Qualified mortgage
The term "qualified mortgage" means -
(A) any obligation (including any participation or
certificate of beneficial ownership therein) which is
principally secured by an interest in real property and which -
(i) is transferred to the REMIC on the startup day in
exchange for regular or residual interests in the REMIC, or
(ii) is purchased by the REMIC within the 3-month period
beginning on the startup day if, except as provided in
regulations, such purchase is pursuant to a fixed-price
contract in effect on the startup day,
(B) any qualified replacement mortgage,
(C) any regular interest in another REMIC transferred to the
REMIC on the startup day in exchange for regular or residual
interests in the REMIC, and
(D) any regular interest in a FASIT which is transferred to,
or purchased by, the REMIC as described in clauses (i) and (ii)
of subparagraph (A) but only if 95 percent or more of the value
of the assets of such FASIT is at all times attributable to
obligations described in subparagraph (A) (without regard to
such clauses).
For purposes of subparagraph (A), any obligation secured by stock
held by a person as a tenant-stockholder (as defined in section
216) in a cooperative housing corporation (as so defined) shall
be treated as secured by an interest in real property.
(4) Qualified replacement mortgage
The term "qualified replacement mortgage" means any obligation
-
(A) which would be a qualified mortgage if transferred on the
startup day in exchange for regular or residual interests in
the REMIC, and
(B) which is received for -
(i) another obligation within the 3-month period beginning
on the startup day, or
(ii) a defective obligation within the 2-year period
beginning on the startup day.
(5) Permitted investments
The term "permitted investments" means any -
(A) cash flow investment,
(B) qualified reserve asset, or
(C) foreclosure property.
(6) Cash flow investment
The term "cash flow investment" means any investment of amounts
received under qualified mortgages for a temporary period before
distribution to holders of interests in the REMIC.
(7) Qualified reserve asset
(A) In general
The term "qualified reserve asset" means any intangible
property which is held for investment and as part of a
qualified reserve fund.
(B) Qualified reserve fund
For purposes of subparagraph (A), the term "qualified reserve
fund" means any reasonably required reserve to provide for full
payment of expenses of the REMIC or amounts due on regular
interests in the event of defaults on qualified mortgages or
lower than expected returns on cash flow investments. The
amount of any such reserve shall be promptly and appropriately
reduced as payments of qualified mortgages are received.
(C) Special rule
A reserve shall not be treated as a qualified reserve for any
taxable year (and all subsequent taxable years) if more than 30
percent of the gross income from the assets in such fund for
the taxable year is derived from the sale or other disposition
of property held for less than 3 months. For purposes of the
preceding sentence, gain on the disposition of a qualified
reserve asset shall not be taken into account if the
disposition giving rise to such gain is required to prevent
default on a regular interest where the threatened default
resulted from a default on 1 or more qualified mortgages.
(8) Foreclosure property
The term "foreclosure property" means property -
(A) which would be foreclosure property under section 856(e)
(without regard to paragraph (5) thereof) if acquired by a real
estate investment trust, and
(B) which is acquired in connection with the default or
imminent default of a qualified mortgage held by the REMIC.
Solely for purposes of section 860D(a), the determination of
whether any property is foreclosure property shall be made
without regard to section 856(e)(4).
(9) Startup day
The term "startup day" means the day on which the REMIC issues
all of its regular and residual interests. To the extent provided
in regulations, all interests issued (and all transfers to the
REMIC) during any period (not exceeding 10 days) permitted in
such regulations shall be treated as occurring on the day during
such period selected by the REMIC for purposes of this paragraph.
(10) Issue price
The issue price of any regular or residual interest in a REMIC
shall be determined under section 1273(b) in the same manner as
if such interest were a debt instrument; except that if the
interest is issued for property, paragraph (3) of section 1273(b)
shall apply whether or not the requirements of such paragraph are
met.
(b) Treatment of nonresident aliens and foreign corporations
If the holder of a residual interest in a REMIC is a nonresident
alien individual or a foreign corporation, for purposes of sections
871(a), 881, 1441, and 1442 -
(1) amounts includible in the gross income of such holder under
this part shall be taken into account when paid or distributed
(or when the interest is disposed of), and
(2) no exemption from the taxes imposed by such sections (and
no reduction in the rates of such taxes) shall apply to any
excess inclusion.
The Secretary may by regulations provide that such amounts shall be
taken into account earlier than as provided in paragraph (1) where
necessary or appropriate to prevent the avoidance of tax imposed by
this chapter.
(c) Tax on income from foreclosure property
(1) In general
A tax is hereby imposed for each taxable year on the net income
from foreclosure property of each REMIC. Such tax shall be
computed by multiplying the net income from foreclosure property
by the highest rate of tax specified in section 11(b).
(2) Net income from foreclosure property
For purposes of this part, the term "net income from
foreclosure property" means the amount which would be the REMIC's
net income from foreclosure property under section 857(b)(4)(B)
if the REMIC were a real estate investment trust.
(d) Tax on contributions after startup date
(1) In general
Except as provided in paragraph (2), if any amount is
contributed to a REMIC after the startup day, there is hereby
imposed a tax for the taxable year of the REMIC in which the
contribution is received equal to 100 percent of the amount of
such contribution.
(2) Exceptions
Paragraph (1) shall not apply to any contribution which is made
in cash and is described in any of the following subparagraphs:
(A) Any contribution to facilitate a clean-up call (as
defined in regulations) or a qualified liquidation.
(B) Any payment in the nature of a guarantee.
(C) Any contribution during the 3-month period beginning on
the startup day.
(D) Any contribution to a qualified reserve fund by any
holder of a residual interest in the REMIC.
(E) Any other contribution permitted in regulations.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this part,
including regulations -
(1) to prevent unreasonable accumulations of assets in a REMIC,
(2) permitting determinations of the fair market value of
property transferred to a REMIC and issue price of interests in a
REMIC to be made earlier than otherwise provided,
(3) requiring reporting to holders of residual interests of
such information as frequently as is necessary or appropriate to
permit such holders to compute their taxable income accurately,
(4) providing appropriate rules for treatment of transfers of
qualified replacement mortgages to the REMIC where the transferor
holds any interest in the REMIC, and
(5) providing that a mortgage will be treated as a qualified
replacement mortgage only if it is part of a bona fide
replacement (and not part of a swap of mortgages).
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 671(a), Oct. 22, 1986, 100
Stat. 2315; amended Pub. L. 100-647, title I, Sec.
1006(t)(5)(A)-(E), (6)-(8)(B), (9)(A), (10), Nov. 10, 1988, 102
Stat. 3420-3422; Pub. L. 101-239, title VII, Sec. 7811(c)(9), Dec.
19, 1989, 103 Stat. 2408; Pub. L. 101-508, title XI, Sec.
11704(a)(9), Nov. 5, 1990, 104 Stat. 1388-518; Pub. L. 104-188,
title I, Sec. 1621(b)(6), Aug. 20, 1996, 110 Stat. 1867.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(3)(D). Pub. L. 104-188 added subpar. (D).
1990 - Subsec. (a)(3)(A). Pub. L. 101-508 struck out comma after
"secured" in introductory provisions.
1989 - Subsec. (a)(3). Pub. L. 101-239 substituted "subparagraph
(A)" for "this subparagraph" in last sentence.
1988 - Subsec. (a)(1). Pub. L. 100-647, Sec. 1006(t)(5)(A),
amended par. (1) generally. Prior to amendment, par. (1) read as
follows: "The term 'regular interest' means an interest in a REMIC
the terms of which are fixed on the startup day, and which -
"(A) unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and
"(B) provides that interest payments (or other similar
amounts), if any, at or before maturity are payable based on a
fixed rate (or to the extent provided in regulations, at a
variable rate).
An interest shall not fail to meet the requirements of subparagraph
(A) merely because the timing (but not the amount) of the principal
payments (or other similar amounts) may be contingent on the extent
of prepayments on qualified mortgages and the amount of income from
permitted investments."
Subsec. (a)(2). Pub. L. 100-647, Sec. 1006(t)(5)(B), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "The
term 'residual interest' means an interest in a REMIC which is not
a regular interest and is designated as a residual interest."
Subsec. (a)(3). Pub. L. 100-647, Sec. 1006(t)(6)(B), inserted at
end "For purposes of this subparagraph, any obligation secured by
stock held by a person as a tenant-stockholder (as defined in
section 216) in a cooperative housing corporation (as so defined)
shall be treated as secured by an interest in real property."
Subsec. (a)(3)(A). Pub. L. 100-647, Sec. 1006(t)(6)(A), struck
out "directly or indirectly,".
Subsec. (a)(3)(A)(i). Pub. L. 100-647, Sec. 1006(t)(5)(C)(i),
substituted "on the startup day in exchange for regular or residual
interests in the REMIC" for "on or before the startup day".
Subsec. (a)(3)(A)(ii). Pub. L. 100-647, Sec. 1006(t)(5)(C)(ii),
inserted before comma at end "if, except as provided in
regulations, such purchase is pursuant to a fixed-price contract in
effect on the startup day".
Subsec. (a)(3)(C). Pub. L. 100-647, Sec. 1006(t)(5)(C)(iii),
substituted "on the startup day in exchange for regular or residual
interests in the REMIC" for "on or before the startup day".
Subsec. (a)(4)(A). Pub. L. 100-647, Sec. 1006(t)(5)(D), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "which would be described in paragraph (3)(A) if it were
transferred to the REMIC on or before the startup day, and".
Subsec. (a)(7)(B). Pub. L. 100-647, Sec. 1006(t)(7), inserted
before period at end of first sentence "or lower than expected
returns on cash flow investments".
Subsec. (a)(8). Pub. L. 100-647, Sec. 1006(t)(8)(A), substituted
"section 856(e) (without regard to paragraph (5) thereof)" for
"section 856(e)" in subpar. (A) and amended last sentence
generally. Prior to amendment, last sentence read as follows:
"Property shall cease to be foreclosure property with respect to
the REMIC on the date which is 1 year after the date such real
estate mortgage pool acquired such property."
Subsec. (a)(9). Pub. L. 100-647, Sec. 1006(t)(5)(E), amended par.
(9) generally. Prior to amendment, par. (9) read as follows: "The
term 'startup day' means any day selected by a REMIC which is on or
before the 1st day on which interests in such REMIC are issued."
Subsec. (c). Pub. L. 100-647, Sec. 1006(t)(8)(B), added subsec.
(c). Former subsec. (c) redesignated (d).
Subsec. (d). Pub. L. 100-647, Sec. 1006(t)(9)(A), added subsec.
(d). Former subsec. (d) redesignated (e).
Pub. L. 100-647, Sec. 1006(t)(8)(B), redesignated former subsec.
(c) as (d).
Subsec. (e). Pub. L. 100-647, Sec. 1006(t)(9)(A), redesignated
former subsec. (d) as (e).
Subsec. (e)(4), (5). Pub. L. 100-647, Sec. 1006(t)(10), added
pars. (4) and (5).
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section
1621(d) of Pub. L. 104-188, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(t)(5)(F) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall not
apply to any REMIC where the startup day (as defined in section
860G(a)(9) of the 1986 Code as in effect on the day before the date
of the enactment of this Act [Nov. 10, 1988]) is before July 1,
1987."
Section 1006(t)(9)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
not apply to any REMIC where the startup day (as defined in section
860G(a)(9) of the 1986 Code as in effect on the day before the date
of the enactment of this Act [Nov. 10, 1988]) is before July 1,
1987."
Amendment by section 1006(t)(6)-(8)(B), (10) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 860C, 860L, 1259 of this
title.
-End-
-CITE-
26 USC PART V - FINANCIAL ASSET SECURITIZATION INVESTMENT
TRUSTS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART V - FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
-HEAD-
PART V - FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
-MISC1-
Sec.
860H. Taxation of a FASIT; other general rules.
860I. Gain recognition on contributions to a FASIT and in
other cases.
860J. Non-FASIT losses not to offset certain FASIT
inclusions.
860K. Treatment of transfers of high-yield interests to
disqualified holders.
860L. Definitions and other special rules.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in section 382 of this title.
-End-
-CITE-
26 USC Sec. 860H 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART V - FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
-HEAD-
Sec. 860H. Taxation of a FASIT; other general rules
-STATUTE-
(a) Taxation of FASIT
A FASIT as such shall not be subject to taxation under this
subtitle (and shall not be treated as a trust, partnership,
corporation, or taxable mortgage pool).
(b) Taxation of holder of ownership interest
In determining the taxable income of the holder of the ownership
interest in a FASIT -
(1) all assets, liabilities, and items of income, gain,
deduction, loss, and credit of a FASIT shall be treated as
assets, liabilities, and such items (as the case may be) of such
holder,
(2) the constant yield method (including the rules of section
1272(a)(6)) shall be applied under an accrual method of
accounting in determining all interest, acquisition discount,
original issue discount, and market discount and all premium
deductions or adjustments with respect to each debt instrument of
the FASIT,
(3) there shall not be taken into account any item of income,
gain, or deduction allocable to a prohibited transaction, and
(4) interest accrued by the FASIT which is exempt from tax
imposed by this subtitle shall, when taken into account by such
holder, be treated as ordinary income.
(c) Treatment of regular interests
For purposes of this title -
(1) a regular interest in a FASIT, if not otherwise a debt
instrument, shall be treated as a debt instrument,
(2) section 163(e)(5) shall not apply to such an interest, and
(3) amounts includible in gross income with respect to such an
interest shall be determined under an accrual method of
accounting.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1621(a), Aug. 20, 1996, 110
Stat. 1858.)
-MISC1-
EFFECTIVE DATE
Part effective Sept. 1, 1997, see section 1621(d) of Pub. L.
104-188, set out as an Effective Date of 1996 Amendment note under
section 26 of this title.
-End-
-CITE-
26 USC Sec. 860I 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART V - FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
-HEAD-
Sec. 860I. Gain recognition on contributions to a FASIT and in
other cases
-STATUTE-
(a) Treatment of property acquired by FASIT
(1) Property acquired from holder of ownership interest or
related person
If property is sold or contributed to a FASIT by the holder of
the ownership interest in such FASIT (or by a related person)
gain (if any) shall be recognized to such holder (or person) in
an amount equal to the excess (if any) of such property's value
under subsection (d) on the date of such sale or contribution
over its adjusted basis on such date.
(2) Property acquired other than from holder of ownership
interest or related person
Property which is acquired by a FASIT other than in a
transaction to which paragraph (1) applies shall be treated -
(A) as having been acquired by the holder of the ownership
interest in the FASIT for an amount equal to the FASIT's cost
of acquiring such property, and
(B) as having been sold by such holder to the FASIT at its
value under subsection (d) on such date.
(b) Gain recognition on property outside FASIT which supports
regular interests
If property held by the holder of the ownership interest in a
FASIT (or by any person related to such holder) supports any
regular interest in such FASIT -
(1) gain shall be recognized to such holder (or person) in the
same manner as if such holder (or person) had sold such property
at its value under subsection (d) on the earliest date such
property supports such an interest, and
(2) such property shall be treated as held by such FASIT for
purposes of this part.
(c) Deferral of gain recognition
The Secretary may prescribe regulations which -
(1) provide that gain otherwise recognized under subsection (a)
or (b) shall not be recognized before the earliest date on which
such property supports any regular interest in such FASIT or any
indebtedness of the holder of the ownership interest (or of any
person related to such holder), and
(2) provide such adjustments to the other provisions of this
part to the extent appropriate in the context of the treatment
provided under paragraph (1).
(d) Valuation
For purposes of this section -
(1) In general
The value of any property under this subsection shall be -
(A) in the case of a debt instrument which is not traded on
an established securities market, the sum of the present values
of the reasonably expected payments under such instrument
determined (in the manner provided by regulations prescribed by
the Secretary) -
(i) as of the date of the event resulting in the gain
recognition under this section, and
(ii) by using a discount rate equal to 120 percent of the
applicable Federal rate (as defined in section 1274(d)), or
such other discount rate specified in such regulations,
compounded semiannually, and
(B) in the case of any other property, its fair market value.
(2) Special rule for revolving loan accounts
For purposes of paragraph (1) -
(A) each extension of credit (other than the accrual of
interest) on a revolving loan account shall be treated as a
separate debt instrument, and
(B) payments on such extensions of credit having
substantially the same terms shall be applied to such
extensions beginning with the earliest such extension.
(e) Special rules
(1) Nonrecognition rules not to apply
Gain required to be recognized under this section shall be
recognized notwithstanding any other provision of this subtitle.
(2) Basis adjustments
The basis of any property on which gain is recognized under
this section shall be increased by the amount of gain so
recognized.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1621(a), Aug. 20, 1996, 110
Stat. 1859.)
-MISC1-
TREATMENT OF EXISTING SECURITIZATION ENTITIES
Section 1621(e) of Pub. L. 104-188 provided that:
"(1) In general. - In the case of the holder of the ownership
interest in a pre-effective date FASIT -
"(A) gain shall not be recognized under section 860L(d)(2) of
the Internal Revenue Code of 1986 on property deemed contributed
to the FASIT, and
"(B) gain shall not be recognized under section 860I of such
Code on property contributed to such FASIT,
until such property (or portion thereof) ceases to be properly
allocable to a pre-FASIT interest.
"(2) Allocation of property to pre-fasit interest. - For purposes
of paragraph (1), property shall be allocated to a pre-FASIT
interest in such manner as the Secretary of the Treasury may
prescribe, except that all property in a FASIT shall be treated as
properly allocable to pre-FASIT interests if the fair market value
of all such property does not exceed 107 percent of the aggregate
principal amount of all outstanding pre-FASIT interests.
"(3) Definitions. - For purposes of this subsection -
"(A) Pre-effective date fasit. - The term 'pre-effective date
FASIT' means any FASIT if the entity (with respect to which the
election under section 860L(a)(3) of such Code was made) is in
existence on August 31, 1997.
"(B) Pre-fasit interest. - The term 'pre-FASIT interest' means
any interest in the entity referred to in subparagraph (A) which
was issued before the startup day (other than any interest held
by the holder of the ownership interest in the FASIT)."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 860L of this title.
-End-
-CITE-
26 USC Sec. 860J 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART V - FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
-HEAD-
Sec. 860J. Non-FASIT losses not to offset certain FASIT inclusions
-STATUTE-
(a) In general
The taxable income of the holder of the ownership interest or any
high-yield interest in a FASIT for any taxable year shall in no
event be less than the sum of -
(1) such holder's taxable income determined solely with respect
to such interests (including gains and losses from sales and
exchanges of such interests), and
(2) the excess inclusion (if any) under section 860E(a)(1) for
such taxable year.
(b) Coordination with section 172
Any increase in the taxable income of any holder of the ownership
interest or a high-yield interest in a FASIT for any taxable year
by reason of subsection (a) shall be disregarded -
(1) in determining under section 172 the amount of any net
operating loss for such taxable year, and
(2) in determining taxable income for such taxable year for
purposes of the second sentence of section 172(b)(2).
(c) Coordination with minimum tax
For purposes of part VI of subchapter A of this chapter -
(1) the reference in section 55(b)(2) to taxable income shall
be treated as a reference to taxable income determined without
regard to this section,
(2) the alternative minimum taxable income of any holder of the
ownership interest or a high-yield interest in a FASIT for any
taxable year shall in no event be less than such holder's taxable
income determined solely with respect to such interests, and
(3) any increase in taxable income under this section shall be
disregarded for purposes of computing the alternative tax net
operating loss deduction.
(d) Affiliated groups
All members of an affiliated group filing a consolidated return
shall be treated as one taxpayer for purposes of this section.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1621(a), Aug. 20, 1996, 110
Stat. 1860.)
-End-
-CITE-
26 USC Sec. 860K 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART V - FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
-HEAD-
Sec. 860K. Treatment of transfers of high-yield interests to
disqualified holders
-STATUTE-
(a) General rule
In the case of any high-yield interest which is held by a
disqualified holder -
(1) the gross income of such holder shall not include any
income (other than gain) attributable to such interest, and
(2) amounts not includible in the gross income of such holder
by reason of paragraph (1) shall be included (at the time
otherwise includible under paragraph (1)) in the gross income of
the most recent holder of such interest which is not a
disqualified holder.
(b) Exceptions
Rules similar to the rules of paragraphs (4) and (7) of section
860E(e) shall apply to the tax imposed by reason of the inclusion
in gross income under subsection (a).
(c) Disqualified holder
For purposes of this section, the term "disqualified holder"
means any holder other than -
(1) an eligible corporation (as defined in section 860L(a)(2)),
or
(2) a FASIT.
(d) Treatment of interests held by securities dealers
(1) In general
Subsection (a) shall not apply to any high-yield interest held
by a disqualified holder if such holder is a dealer in securities
who acquired such interest exclusively for sale to customers in
the ordinary course of business (and not for investment).
(2) Change in dealer status
(A) In general
In the case of a dealer in securities which is not an
eligible corporation (as defined in section 860L(a)(2)), if -
(i) such dealer ceases to be a dealer in securities, or
(ii) such dealer commences holding the high-yield interest
for investment,
there is hereby imposed (in addition to other taxes) an excise
tax equal to the product of the highest rate of tax specified
in section 11(b)(1) and the income of such dealer attributable
to such interest for periods after the date of such cessation
or commencement.
(B) Holding for 31 days or less
For purposes of subparagraph (A)(ii), a dealer shall not be
treated as holding an interest for investment before the
thirty-second day after the date such dealer acquired such
interest unless such interest is so held as part of a plan to
avoid the purposes of this paragraph.
(C) Administrative provisions
The deficiency procedures of subtitle F shall apply to the
tax imposed by this paragraph.
(e) Treatment of high-yield interests in pass-thru entities
(1) In general
If a pass-thru entity (as defined in section 860E(e)(6)) issues
a debt or equity interest -
(A) which is supported by any regular interest in a FASIT,
and
(B) which has an original yield to maturity which is greater
than each of -
(i) the sum determined under clauses (i) and (ii) of
section 163(i)(1)(B) with respect to such debt or equity
interest, and
(ii) the yield to maturity to such entity on such regular
interest (determined as of the date such entity acquired such
interest),
there is hereby imposed on the pass-thru entity a tax (in
addition to other taxes) equal to the product of the highest rate
of tax specified in section 11(b)(1) and the income of the holder
of such debt or equity interest which is properly attributable to
such regular interest. For purposes of the preceding sentence,
the yield to maturity of any equity interest shall be determined
under regulations prescribed by the Secretary.
(2) Exception
Paragraph (1) shall not apply to arrangements not having as a
principal purpose the avoidance of the purposes of this
subsection.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1621(a), Aug. 20, 1996, 110
Stat. 1861.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 26 of this title.
-End-
-CITE-
26 USC Sec. 860L 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts
PART V - FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS
-HEAD-
Sec. 860L. Definitions and other special rules
-STATUTE-
(a) FASIT
(1) In general
For purposes of this title, the terms "financial asset
securitization investment trust" and "FASIT" mean any entity -
(A) for which an election to be treated as a FASIT applies
for the taxable year,
(B) all of the interests in which are regular interests or
the ownership interest,
(C) which has only one ownership interest and such ownership
interest is held directly by an eligible corporation,
(D) as of the close of the third month beginning after the
day of its formation and at all times thereafter, substantially
all of the assets of which (including assets treated as held by
the entity under section 860I(b)(2)) consist of permitted
assets, and
(E) which is not described in section 851(a).
A rule similar to the rule of the last sentence of section
860D(a) shall apply for purposes of this paragraph.
(2) Eligible corporation
For purposes of paragraph (1)(C), the term "eligible
corporation" means any domestic C corporation other than -
(A) a corporation which is exempt from, or is not subject to,
tax under this chapter,
(B) an entity described in section 851(a) or 856(a),
(C) a REMIC, and
(D) an organization to which part I of subchapter T applies.
(3) Election
An entity (otherwise meeting the requirements of paragraph (1))
may elect to be treated as a FASIT. Except as provided in
paragraph (5), such an election shall apply to the taxable year
for which made and all subsequent taxable years unless revoked
with the consent of the Secretary.
(4) Termination
If any entity ceases to be a FASIT at any time during the
taxable year, such entity shall not be treated as a FASIT after
the date of such cessation.
(5) Inadvertent terminations, etc.
Rules similar to the rules of section 860D(b)(2)(B) shall apply
to inadvertent failures to qualify or remain qualified as a
FASIT.
(6) Permitted assets not treated as interest in FASIT
Except as provided in regulations prescribed by the Secretary,
any asset which is a permitted asset at the time acquired by a
FASIT shall not be treated at any time as an interest in such
FASIT.
(b) Interests in FASIT
For purposes of this part -
(1) Regular interest
(A) In general
The term "regular interest" means any interest which is
issued by a FASIT on or after the startup date with fixed terms
and which is designated as a regular interest if -
(i) such interest unconditionally entitles the holder to
receive a specified principal amount (or other similar
amount),
(ii) interest payments (or other similar amounts), if any,
with respect to such interest are determined based on a fixed
rate, or, except as otherwise provided by the Secretary, at a
variable rate permitted under section 860G(a)(1)(B)(i),
(iii) such interest does not have a stated maturity
(including options to renew) greater than 30 years (or such
longer period as may be permitted by regulations),
(iv) the issue price of such interest does not exceed 125
percent of its stated principal amount, and
(v) the yield to maturity on such interest is less than the
sum determined under section 163(i)(1)(B) with respect to
such interest.
An interest shall not fail to meet the requirements of clause
(i) merely because the timing (but not the amount) of the
principal payments (or other similar amounts) may be contingent
on the extent that payments on debt instruments held by the
FASIT are made in advance of anticipated payments and on the
amount of income from permitted assets.
(B) High-yield interests
(i) In general
The term "regular interest" includes any high-yield
interest.
(ii) High-yield interest
The term "high-yield interest" means any interest which
would be described in subparagraph (A) but for -
(I) failing to meet the requirements of one or more of
clauses (i), (iv), or (v) thereof, or
(II) failing to meet the requirement of clause (ii)
thereof but only if interest payments (or other similar
amounts), if any, with respect to such interest consist of
a specified portion of the interest payments on permitted
assets and such portion does not vary during the period
such interest is outstanding.
(2) Ownership interest
The term "ownership interest" means the interest issued by a
FASIT after the startup day which is designated as an ownership
interest and which is not a regular interest.
(c) Permitted assets
For purposes of this part -
(1) In general
The term "permitted asset" means -
(A) cash or cash equivalents,
(B) any debt instrument (as defined in section 1275(a)(1))
under which interest payments (or other similar amounts), if
any, at or before maturity meet the requirements applicable
under clause (i) or (ii) of section 860G(a)(1)(B),
(C) foreclosure property,
(D) any asset -
(i) which is an interest rate or foreign currency notional
principal contract, letter of credit, insurance, guarantee
against payment defaults, or other similar instrument
permitted by the Secretary, and
(ii) which is reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor
on interests issued by the FASIT,
(E) contract rights to acquire debt instruments described in
subparagraph (B) or assets described in subparagraph (D),
(F) any regular interest in another FASIT, and
(G) any regular interest in a REMIC.
(2) Debt issued by holder of ownership interest not permitted
asset
The term "permitted asset" shall not include any debt
instrument issued by the holder of the ownership interest in the
FASIT or by any person related to such holder or any direct or
indirect interest in such a debt instrument. The preceding
sentence shall not apply to cash equivalents and to any other
investment specified in regulations prescribed by the Secretary.
(3) Foreclosure property
(A) In general
The term "foreclosure property" means property -
(i) which would be foreclosure property under section
856(e) (determined without regard to paragraph (5) thereof)
if such property were real property acquired by a real estate
investment trust, and
(ii) which is acquired in connection with the default or
imminent default of a debt instrument held by the FASIT
unless the security interest in such property was created for
the principal purpose of permitting the FASIT to invest in
such property.
Solely for purposes of subsection (a)(1), the determination of
whether any property is foreclosure property shall be made
without regard to section 856(e)(4).
(B) Authority to reduce grace period
In the case of property other than real property and other
than personal property incident to real property, the Secretary
may by regulation reduce for purposes of subparagraph (A) the
periods otherwise applicable under paragraphs (2) and (3) of
section 856(e).
(d) Startup day
For purposes of this part -
(1) In general
The term "startup day" means the date designated in the
election under subsection (a)(3) as the startup day of the FASIT.
Such day shall be the beginning of the first taxable year of the
FASIT.
(2) Treatment of property held on startup day
All property held (or treated as held under section 860I(b)(2))
by an entity as of the startup day shall be treated as
contributed to such entity on such day by the holder of the
ownership interest in such entity.
(e) Tax on prohibited transactions
(1) In general
There is hereby imposed for each taxable year of a FASIT a tax
equal to 100 percent of the net income derived from prohibited
transactions. Such tax shall be paid by the holder of the
ownership interest in the FASIT.
(2) Prohibited transactions
For purposes of this part, the term "prohibited transaction"
means -
(A) except as provided in paragraph (3), the receipt of any
income derived from any asset that is not a permitted asset,
(B) except as provided in paragraph (3), the disposition of
any permitted asset other than foreclosure property,
(C) the receipt of any income derived from any loan
originated by the FASIT, and
(D) the receipt of any income representing a fee or other
compensation for services (other than any fee received as
compensation for a waiver, amendment, or consent under
permitted assets (other than foreclosure property) held by the
FASIT).
(3) Exception for income from certain dispositions
(A) In general
Paragraph (2)(B) shall not apply to a disposition which would
not be a prohibited transaction (as defined in section
860F(a)(2)) by reason of -
(i) clause (ii), (iii), or (iv) of section 860F(a)(2)(A),
or
(ii) section 860F(a)(5),
if the FASIT were treated as a REMIC and permitted assets
(other than cash or cash equivalents) were treated as qualified
mortgages.
(B) Substitution of debt instruments; reduction of
over-collateralization
Paragraph (2)(B) shall not apply to -
(i) the substitution of a debt instrument described in
subsection (c)(1)(B) for another debt instrument which is a
permitted asset, or
(ii) the distribution of a debt instrument contributed by
the holder of the ownership interest to such holder in order
to reduce over-collateralization of the FASIT,
but only if a principal purpose of acquiring the debt
instrument which is disposed of was not the recognition of gain
(or the reduction of a loss) as a result of an increase in the
market value of the debt instrument after its acquisition by
the FASIT.
(C) Liquidation of class of regular interests
Paragraph (2)(B) shall not apply to the complete liquidation
of any class of regular interests.
(D) Income from dispositions of former hedge assets
Paragraph (2)(A) shall not apply to income derived from the
disposition of -
(i) an asset which was described in subsection (c)(1)(D)
when first acquired by the FASIT but on the date of such
disposition was no longer described in subsection
(c)(1)(D)(ii), or
(ii) a contract right to acquire an asset described in
clause (i).
(4) Net income
For purposes of this subsection, net income shall be determined
in accordance with section 860F(a)(3).
(f) Coordination with other provisions
(1) Wash sales rules
Rules similar to the rules of section 860F(d) shall apply to
the ownership interest in a FASIT.
(2) Section 475
Except as provided by the Secretary by regulations, if any
security which is sold or contributed to a FASIT by the holder of
the ownership interest in such FASIT was required to be
marked-to-market under section 475 by such holder, section 475
shall continue to apply to such security; except that in applying
section 475 while such security is held by the FASIT, the fair
market value of such security for purposes of section 475 shall
not be less than its value under section 860I(d).
(g) Related person
For purposes of this part, a person (hereinafter in this
subsection referred to as the "related person") is related to any
person if -
(1) the related person bears a relationship to such person
specified in section 267(b) or section 707(b)(1), or
(2) the related person and such person are engaged in trades or
businesses under common control (within the meaning of
subsections (a) and (b) of section 52).
For purposes of paragraph (1), in applying section 267(b) or
707(b)(1), "20 percent" shall be substituted for "50 percent".
(h) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this part,
including regulations to prevent the abuse of the purposes of this
part through transactions which are not primarily related to
securitization of debt instruments by a FASIT.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1621(a), Aug. 20, 1996, 110
Stat. 1862; amended Pub. L. 105-34, title XVI, Sec. 1601(f)(6),
Aug. 5, 1997, 111 Stat. 1091.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(1)(A). Pub. L. 105-34, Sec. 1601(f)(6)(A),
substituted "on or after the startup date" for "after the startup
date" in introductory provisions.
Subsec. (d)(2). Pub. L. 105-34, Sec. 1601(f)(6)(B), substituted
"section 860I(b)(2)" for "section 860I(c)(2)".
Subsec. (e)(2)(A). Pub. L. 105-34, Sec. 1601(f)(6)(E)(ii),
inserted "except as provided in paragraph (3)," before "the
receipt".
Subsec. (e)(2)(B). Pub. L. 105-34, Sec. 1601(f)(6)(C), inserted
"other than foreclosure property" after "any permitted asset".
Subsec. (e)(3)(A). Pub. L. 105-34, Sec. 1601(f)(6)(D), struck out
"if the FASIT were treated as a REMIC and debt instruments
described in subsection (c)(1)(B) were treated as qualified
mortgages." after "section 860F(a)(5)," in cl. (ii) and inserted
concluding provisions "if the FASIT were treated as a REMIC and
permitted assets (other than cash or cash equivalents) were treated
as qualified mortgages."
Subsec. (e)(3)(D). Pub. L. 105-34, Sec. 1601(f)(6)(E)(i), added
subpar. (D).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which it relates, see section 1601(j) of Pub. L.
105-34, set out as a note under section 23 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 860K of this title.
-End-
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