Real Estate Investment and Jobs Act of 2014 - Amends the Internal Revenue Code to: (1) increase from 5% to 10% the allowable ownership interest in real estate investment trust (REIT) stock for purposes of tax exemptions allowed by the Foreign Investment in Real Property Tax Act (FIRPTA) relating to foreign investment in U.S. real property interests; (2) require a U.S. real property holding corporation to make its status readily accessible and publicly available; (3) require brokers who sell an interest in a U.S. real property holding corporation to deduct and withhold 10% on the amount realized from the sale, with specified exceptions; (4) include regulated investment companies (RICs) and real estate investment companies (REITs) in the definition of U.S. real property interests; and (5) deny dividends derived from RICs and REITs a tax deduction for the U.S. source portion of dividends from certain foreign corporations.
[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5487 Introduced in House (IH)]
113th CONGRESS
2d Session
H. R. 5487
To amend the Internal Revenue Code of 1986 to exempt certain stock of
real estate investment trusts from the tax on foreign investments in
United States real property interests, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 16, 2014
Mr. Brady of Texas (for himself and Mr. Crowley) introduced the
following bill; which was referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to exempt certain stock of
real estate investment trusts from the tax on foreign investments in
United States real property interests, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Real Estate Investment and Jobs Act
of 2014''.
SEC. 2. EXCEPTION FROM FIRPTA FOR CERTAIN STOCK OF REAL ESTATE
INVESTMENT TRUSTS.
(a) In General.--Paragraph (3) of section 897(c) of the Internal
Revenue Code of 1986 is amended--
(1) by striking all that precedes ``If any class'' and
inserting the following:
``(3) Exceptions for certain stock.--
``(A) Exception for stock regularly traded on
established securities markets.--'',
(2) by inserting before the period the following: ``. In
the case of any class of stock of a real estate investment
trust, the preceding sentence shall be applied by substituting
`10 percent' for `5 percent''', and
(3) by adding at the end the following new subparagraph:
``(B) Exception for certain stock in real estate
investment trusts.--
``(i) In general.--Stock of a real estate
investment trust held by a qualified
shareholder shall not be treated as a United
States real property interest except to the
extent that an investor in the qualified
shareholder (other than an investor that is a
qualified shareholder) holds more than 10
percent of the stock of such real estate
investment trust (determined by applying the
constructive ownership rules of section
897(c)(6)(C)).
``(ii) Qualified shareholder.--For purposes
of this subparagraph, the term `qualified
shareholder' means an entity--
``(I) that is eligible for benefits
of a comprehensive income tax treaty
with the United States which includes
an exchange of information program,
``(II) that is a qualified
collective investment vehicle,
``(III) whose principal class of
interests is listed and regularly
traded on one or more recognized stock
exchanges (as defined in such
comprehensive income tax treaty), and
``(IV) that maintains records on
the identity of each person who, at any
time during the qualified shareholder's
taxable year, is the direct owner of 5
percent or more of the class of
interest described in clause (III).
``(iii) Qualified collective investment
vehicle.--For purposes of this subparagraph,
the term `qualified collective investment
vehicle' means an entity that--
``(I) would be eligible for a
reduced rate of withholding under such
comprehensive income tax treaty with
respect to ordinary dividends paid by a
real estate investment trust, even if
such entity holds more than 10 percent
of the stock of such real estate
investment trust, or
``(II) is designated as a qualified
collective investment vehicle by the
Secretary and is either--
``(aa) fiscally transparent
within the meaning of section
894, or
``(bb) required to include
dividends in its gross income,
but is entitled to a deduction
for distributions to its
investors.''.
(b) Distributions by Real Estate Investment Trusts.--Paragraph (1)
of section 897(h) of the Internal Revenue Code of 1986 is amended--
(1) by inserting ``(10 percent in the case of stock of a
real estate investment trust)'' after ``5 percent of such class
of stock'', and
(2) by inserting ``, and any distribution to a qualified
shareholder (as defined in subsection (c)(3)(B)(ii)) shall not
be treated as gain recognized from the sale or exchange of a
United States real property interest to the extent that the
stock of the real estate investment trust held by such
qualified shareholder is not treated as a United States real
property interest under subsection (c)(3)(B)'' before the
period at the end of the second sentence.
(c) Definition.--Subparagraph (B) of section 897(h)(4) of the
Internal Revenue Code of 1986 is amended by adding at the end the
following: ``In determining whether a qualified investment entity is
domestically controlled--
``(i) a qualified investment entity shall
be permitted to presume that stock held by a
holder of less than 5 percent of a class of
stock regularly traded on an established
securities market in the United States is held
by United States persons throughout the testing
period except to the extent that the qualified
investment entity has actual knowledge
regarding stock ownership,
``(ii) any stock in the qualified
investment entity held by another qualified
investment entity--
``(I) any class of stock of which
is regularly traded on an established
stock exchange, or
``(II) which is a regulated
investment company which issues
redeemable securities (within the
meaning of section 2 of the Investment
Company Act of 1940),
shall be treated as held by a foreign person
unless such other qualified investment entity
is domestically controlled (as determined under
this subparagraph) in which case such stock
shall be treated as held by a United States
person, and
``(iii) any stock in the qualified
investment entity held by any other qualified
investment entity not described in subclause
(I) or (II) of clause (ii) shall only be
treated as held by a United States person to
the extent that the stock of such other
qualified investment entity is (or is treated
under this subparagraph as) held by a United
States person.''.
(d) Conforming Amendment.--Subparagraph (C) of section 897(c)(6) of
the Internal Revenue Code of 1986 is amended--
(1) by striking ``more than 5 percent'' and inserting
``more than 5 or 10 percent, whichever is applicable,'', and
(2) by striking ``substituting `5 percent' for `50
percent')'' and inserting ``substituting `5 percent or 10
percent, whichever is applicable' for `50 percent')''.
(e) Effective Dates.--
(1) In general.--The amendments made by subsection (a)
shall apply to dispositions on and after the date of the
enactment of this Act.
(2) Distributions.--The amendments made by subsection (b)
shall apply to any distribution by a real estate investment
trust on or after the date of the enactment of this Act which
is treated as a deduction for a taxable year of such trust
ending after such date.
(3) Definitions.--The amendments made by subsections (c)
and (d) shall take effect on the date of the enactment of this
Act.
SEC. 3. UNITED STATES REAL PROPERTY INTEREST.
(a) United States Real Property Interest.--Subparagraph (B) of
section 897(c)(1) of the Internal Revenue Code of 1986 is amended by
striking all that precedes ``(i) as of the date of the disposition''
and inserting the following:
``(B) Exclusion for interest in certain
corporations.--The term `United States real property
interest' does not include any interest in a
corporation (other than a qualified investment entity
(as defined in subsection (h)(4)(A)(i)) if--''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 4. REQUIRED NOTIFICATION OF FIRPTA STATUS.
(a) In General.--Section 6039C of the Internal Revenue Code of 1986
is amended by redesignating subsection (d) as subsection (e) and by
inserting after subsection (c) the following new subsection:
``(d) Required Notification of Status as United States Real
Property Holding Corporation; Presumption of Foreign Control for
Qualified Investment Entities.--
``(1) Required notification of status as united states real
property holding corporation.--Any United States real property
holding corporation (as defined in section 897(c)(2)) is hereby
required to make its status as a United States real property
holding corporation readily accessible, and in the case of a
publicly traded corporation, publicly available. Under
regulations prescribed by the Secretary, such notifications may
include disclosure of such status on Form 1099s sent to
shareholders, in annual reports, on websites, and, in the case
of privately held corporations, on stock certificates.
``(2) Presumption of foreign control of qualified
investment entities.--In the absence of disclosure to the
contrary (in such form and manner as the Secretary may
prescribe), any qualified investment entity (as defined in
section 897(h)(4)(A)) will be presumed for purposes of section
897 to be foreign controlled.
``(3) Penalty for failure to make notification of status.--
The penalty provided under section 6721 shall apply to any
failure to comply with the requirements of paragraph (1), with
the following modifications--
``(A) in the case of a corporation other than a
corporation which meets the gross receipts test of
section 6721(d)(2), the minimum penalty imposed under
such section shall be equal to the maximum penalty
provided under section 6721(a)(1),
``(B) in the case of a corporation which holds
United States real estate with a gross fair market
value of at least $1,000,000,000--
``(i) the minimum penalty imposed under
such section shall be equal to $5,000,000, and
``(ii) in the case of an intentional
failure, the minimum penalty imposed under such
section shall be the greater of the penalty
provided under section 6721(e) or
$10,000,000.''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 5. REQUIRE FIRPTA WITHHOLDING BY BROKERS ON SALES BY SHAREHOLDERS
OWNING A MORE THAN 5 PERCENT INTEREST.
(a) In General.--Section 1445(e) of the Internal Revenue Code of
1986 is amended by redesignating paragraph (7) as paragraph (8) and by
inserting after paragraph (6) the following new paragraph:
``(7) Broker withholding obligation on certain dispositions
of nondomestically controlled united states real property
holding corporations.--
``(A) In general.--In the case of any disposition
of an interest in a United States real property holding
corporation (as defined in section 897(c)(2)) involving
a broker (as defined in section 6045(c)), such broker
shall be required to deduct and withhold a tax equal to
10 percent of the amount realized on the disposition.
``(B) Exceptions.--
``(i) Domestic qualified investment
entities and real estate investment trusts.--
Subparagraph (A) shall not apply to sales of
stock of a domestically controlled qualified
investment entity (as defined in section
897(h)(4)) or stock of a real estate investment
trust that is not treated as a United States
real property interest pursuant to section
897(c)(3)(B).
``(ii) Greater than 5 percent interest in
united states real property holding
corporation.--Subparagraph (A) shall not apply
if the transferee held a greater than 5 percent
interest (or in the case of the disposition of
any class of stock of a real estate investment
trust that is regularly traded on an
established securities market, a greater than
10 percent interest) in the United States real
property holding corporation. In determining
whether that threshold is met, brokers are
permitted to rely on public statements made by
public companies, including statements related
to the status of the company as a United States
real property holding corporation or as a
domestically controlled qualified investment
entity.
``(iii) Lack of broker knowledge.--
Subparagraph (A) shall apply only if the broker
had actual knowledge (or reasonably should have
known) of their withholding obligation.''.
(b) Conforming Amendment.--Section 1445(b)(6) of the Internal
Revenue Code of 1986 is amended by striking ``This paragraph'' and
inserting ``Except as provided in subsection (e)(7), this paragraph''.
(c) Effective Date.--The amendments made by this section shall
apply to dispositions after the date of the enactment of this Act.
SEC. 6. INTERESTS IN RICS AND REITS NOT EXCLUDED FROM DEFINITION OF
UNITED STATES REAL PROPERTY INTERESTS.
(a) In General.--Section 897(c)(1)(B) of the Internal Revenue Code
of 1986 is amended by striking ``and'' at the end of clause (i), by
striking the period at the end of clause (ii)(II) and inserting ``,
and'', and by adding at the end the following new clause:
``(iii) neither such corporation nor any
predecessor of such corporation was a regulated
investment company or a real estate investment
company at any time during the period described
in subparagraph (A)(ii).''.
(b) Effective Date.--The amendment made by this section shall apply
to dispositions after the date of the enactment of this Act.
SEC. 7. DIVIDENDS DERIVED FROM RICS AND REITS INELIGIBLE FOR DEDUCTION
FOR UNITED STATES SOURCE PORTION OF DIVIDENDS FROM
CERTAIN FOREIGN CORPORATIONS.
(a) In General.--Section 245(a) of the Internal Revenue Code of
1986 is amended by adding at the end the following new paragraph:
``(12) Dividends derived from rics and reits ineligible for
deduction.--Regulated investment companies and real estate
investment trusts shall not be treated as domestic corporations
for purposes of paragraph (5)(B).''.
(b) Effective Date.--The amendment made by this section shall apply
to dividends received from regulated investment companies and real
estate investment trusts on or after the date of the enactment of this
Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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