To amend the Internal Revenue Code of 1986 to simplify certain provisions applicable to real estate investment trusts, and for other purposes.

SA 4390. Mr. HATCH (for himself, Mr. Salazar, and Mr. Kerry)
submitted an amendment intended to be proposed by him to the bill H.R.
3221, moving the United States toward greater energy independence and
security, developing innovative new technologies, reducing carbon
emissions, creating green jobs, protecting consumers, increasing clean
renewable energy production, and modernizing our energy infrastructure,
and to amend the Internal Revenue Code of 1986 to provide tax
incentives for the production of renewable energy and energy
conservation; which was ordered to lie on the table; as follows:

At the end add the following:

TITLE VIII--REIT INVESTMENT DIVERSIFICATION AND EMPOWERMENT

SEC. 800. SHORT TITLE; AMENDMENT OF 1986 CODE.

(a) Short Title.--This title may be cited as the ``REIT
Investment Diversification and Empowerment Act of 2008''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this title an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered
to be made to a section or other provision of the Internal
Revenue Code of 1986.

Subtitle A--Foreign Currency and Other Qualified Activities

SEC. 801. REVISIONS TO REIT INCOME TESTS.

(a) Addition of Permissible Income Categories.--Section
856(c) (relating to limitations) is amended--
(1) by striking ``and'' at the end of paragraph (2)(G) and
by inserting after paragraph (2)(H) the following new
subparagraphs:
``(I) passive foreign exchange gains; and
``(J) any other item of income or gain as determined by the
Secretary;'', and
(2) by striking ``and'' at the end of paragraphs (3)(H) and
(3)(I) and by inserting after paragraph (3)(I) the following
new subparagraphs:
``(J) real estate foreign exchange gains; and
``(K) any other item of income or gain as determined by the
Secretary; and''.
(b) Rules Regarding Foreign Currency Transactions.--Section
856 (defining real estate investment trust) is amended by
adding at the end the following new subsection:
``(n) Rules Regarding Foreign Currency Transactions.--With
respect to any taxable year--
``(1) Real estate foreign exchange gains.--For purposes of
subsection (c)(3)(J), the term `real estate foreign exchange
gains' means--
``(A) foreign currency gains (as defined in section
988(b)(1)) which are attributable to--
``(i) any item described in subsection (c)(3) (other than
in subparagraph (J) thereof),
``(ii) the acquisition or ownership of obligations secured
by mortgages on real property or on interests in real
property (other than foreign currency gains attributable to
any item described in clause (i)), or
``(iii) becoming or being the obligor under obligations
secured by mortgages on real property or on interests in real
property (other than foreign currency gains attributable to
any item described in clause (i)),
``(B) gains described in section 987 attributable to a
qualified business unit (as defined by section 989) of the
real estate investment trust, but only if such qualified
business unit meets the requirements under--
``(i) subsection (c)(3) (without regard to subparagraph (J)
thereof) for the taxable year, and
``(ii) subsection (c)(4)(A) at the close of each quarter
that the real estate investment trust has directly or
indirectly held the qualified business unit, and
``(C) any other foreign currency gains as determined by the
Secretary.
``(2) Passive foreign exchange gains.--For purposes of
subsection (c)(2)(I), the term `passive foreign exchange
gains' means--
``(A) real estate foreign exchange gains,
``(B) foreign currency gains (as defined in section
988(b)(1)) which are not described in subparagraph (A) and
which are attributable to any item described in subsection
(c)(2) (other than in subparagraph (I) thereof), and
``(C) any other foreign currency gains as determined by the
Secretary.''.
(c) Addition to REIT Hedging Rule.--Subparagraph (G) of
section 856(c)(5) is amended to read as follows:
``(G) Treatment of certain hedging instruments.--Except to
the extent as determined by the Secretary--
``(i) any income of a real estate investment trust from a
hedging transaction (as defined in clause (ii) or (iii) of
section 1221(b)(2)(A)) which is clearly identified pursuant
to section 1221(a)(7), including gain from the sale or
disposition of such a transaction, shall not constitute gross
income under paragraphs (2) and (3) to the extent that the
transaction hedges any indebtedness incurred or to be
incurred by the trust to acquire or carry real estate assets,
and
``(ii) any income of a real estate investment trust from a
transaction entered into by the trust primarily to manage
risk of currency fluctuations with respect to any item
described in paragraph (2) or (3), including gain from the
termination of such a transaction, shall not constitute gross
income under paragraphs (2) and (3), but only if such
transaction is clearly identified as such before the close of
the day on which it was acquired, originated, or entered into
(or such other time as the Secretary may prescribe).''.
(d) Authority to Exclude Items of Income From REIT Income
Tests.--Section 856(c)(5) is amended by adding at the end the
following new subparagraph:
``(H) Secretarial authority to exclude other items of
income.--The Secretary is authorized to determine whether any
item of income or gain which does not otherwise qualify under
paragraph (2) or (3) may be considered as not constituting
gross income solely for purposes of this part.''.

SEC. 802. REVISIONS TO REIT ASSET TESTS.

(a) Clarification of Valuation Test.--The first sentence in
the matter following section 856(c)(4)(B)(iii)(III) is
amended by inserting ``(including a discrepancy caused solely
by the change in the foreign currency exchange rate used to
value a foreign asset)'' after ``such requirements''.
(b) Clarification of Permissible Asset Category.--Section
856(c)(5), as amended by this Act, is amended by adding at
the end the following new subparagraph:
``(I) Cash.--The term `cash' includes foreign currency if
the real estate investment trust or its qualified business
unit (as defined in section 989) uses such foreign currency
as its functional currency (as defined in section 985(b)).''.

SEC. 803. CONFORMING FOREIGN CURRENCY REVISIONS.

(a) Net Income From Foreclosure Property.--Clause (i) of
section 857(b)(4)(B) is amended to read as follows:
``(i) gain (including any foreign currency gain, as defined
in section 988(b)(1)) from the sale or other disposition of
foreclosure property described in section 1221(a)(1) and the
gross income for the taxable year derived from foreclosure
property (as defined in section 856(e)), but only to the
extent such gross income is not described in (or, in the case
of foreign currency gain, not attributable to gross income
described in) section 856(c)(3) other than subparagraph (F)
thereof, over''.
(b) Net Income From Prohibited Transactions.--Clause (i) of
section 857(b)(6)(B) is amended to read as follows:
``(i) the term `net income derived from prohibited
transactions' means the excess of the gain (including any
foreign currency gain, as defined in section 988(b)(1)) from
prohibited transactions over the deductions (including any
foreign currency loss, as defined in section 988(b)(2))
allowed by this chapter which are directly connected with
prohibited transactions;''.

Subtitle B--Taxable Reit Subsidiaries

SEC. 811. CONFORMING TAXABLE REIT SUBSIDIARY ASSET TEST.

Section 856(c)(4)(B)(ii) is amended by striking ``20
percent'' and inserting ``25 percent''.

Subtitle C--Dealer Sales

SEC. 821. HOLDING PERIOD UNDER SAFE HARBOR.

Section 857(b)(6) (relating to income from prohibited
transactions) is amended--

[[Page S2498]]

(1) by striking ``4 years'' in subparagraphs (C)(i),
(C)(iv), and (D)(i) and inserting ``2 years'',
(2) by striking ``4-year period'' in subparagraphs (C)(ii),
(D)(ii), and (D)(iii) and inserting ``2-year period'', and
(3) by striking ``real estate asset''and all that follows
through ``if'' in the matter preceding clause (i) of
subparagraphs (C) and (D), respectively, and inserting ``real
estate asset (as defined in section 856(c)(5)(B)) and which
is described in section 1221(a)(1) if''.

SEC. 822. DETERMINING VALUE OF SALES UNDER SAFE HARBOR.

Section 857(b)(6) is amended--
(1) by striking the semicolon at the end of subparagraph
(C)(iii) and inserting ``, or (III) the fair market value of
property (other than sales of foreclosure property or sales
to which section 1033 applies) sold during the taxable year
does not exceed 10 percent of the fair market value of all of
the assets of the trust as of the beginning of the taxable
year;'', and
(2) by adding ``or'' at the end of subclause (II) of
subparagraph (D)(iv) and by adding at the end of such
subparagraph the following new subclause:
``(III) the fair market value of property (other than sales
of foreclosure property or sales to which section 1033
applies) sold during the taxable year does not exceed 10
percent of the fair market value of all of the assets of the
trust as of the beginning of the taxable year,''.

Subtitle D--Health Care Reits

SEC. 831. CONFORMITY FOR HEALTH CARE FACILITIES.

(a) Related Party Rentals.--Subparagraph (B) of section
856(d)(8) (relating to special rule for taxable REIT
subsidiaries) is amended to read as follows:
``(B) Exception for certain lodging facilities and health
care property.--The requirements of this subparagraph are met
with respect to an interest in real property which is a
qualified lodging facility (as defined in paragraph (9)(D))
or a qualified health care property (as defined in subsection
(e)(6)(D)(i)) leased by the trust to a taxable REIT
subsidiary of the trust if the property is operated on behalf
of such subsidiary by a person who is an eligible independent
contractor. For purposes of this section, a taxable REIT
subsidiary is not considered to be operating or managing a
qualified health care property or qualified lodging facility
solely because it--
``(i) directly or indirectly possesses a license, permit,
or similar instrument enabling it to do so, or
``(ii) employs individuals working at such property or
facility located outside the United States, but only if an
eligible independent contractor is responsible for the daily
supervision and direction of such individuals on behalf of
the taxable REIT subsidiary pursuant to a management
agreement or similar service contract.''.
(b) Eligible Independent Contractor.--Subparagraphs (A) and
(B) of section 856(d)(9) (relating to eligible independent
contractor) are amended to read as follows:
``(A) In general.--The term `eligible independent
contractor' means, with respect to any qualified lodging
facility or qualified health care property (as defined in
subsection (e)(6)(D)(i)), any independent contractor if, at
the time such contractor enters into a management agreement
or other similar service contract with the taxable REIT
subsidiary to operate such qualified lodging facility or
qualified health care property, such contractor (or any
related person) is actively engaged in the trade or business
of operating qualified lodging facilities or qualified health
care properties, respectively, for any person who is not a
related person with respect to the real estate investment
trust or the taxable REIT subsidiary.
``(B) Special rules.--Solely for purposes of this paragraph
and paragraph (8)(B), a person shall not fail to be treated
as an independent contractor with respect to any qualified
lodging facility or qualified health care property (as so
defined) by reason of the following:
``(i) The taxable REIT subsidiary bears the expenses for
the operation of such qualified lodging facility or qualified
health care property pursuant to the management agreement or
other similar service contract.
``(ii) The taxable REIT subsidiary receives the revenues
from the operation of such qualified lodging facility or
qualified health care property, net of expenses for such
operation and fees payable to the operator pursuant to such
agreement or contract.
``(iii) The real estate investment trust receives income
from such person with respect to another property that is
attributable to a lease of such other property to such person
that was in effect as of the later of--

``(I) January 1, 1999, or
``(II) the earliest date that any taxable REIT subsidiary
of such trust entered into a management agreement or other
similar service contract with such person with respect to
such qualified lodging facility or qualified health care
property.''.

(c) Taxable Reit Subsidiaries.--The last sentence of
section 856(l)(3) is amended--
(1) by inserting ``or a health care facility'' after ``a
lodging facility'', and
(2) by inserting ``or health care facility'' after ``such
lodging facility''.

Subtitle E--Effective Dates and Sunset

SEC. 841 EFFECTIVE DATES AND SUNSET.

(a) In General.--Except as otherwise provided in this
section, the amendments made by this title shall apply to
taxable years beginning after the date of the enactment of
this Act.
(b) REIT Income Tests.--
(1) The amendment made by section 801(a) and (b) shall
apply to gains and items of income recognized after the date
of the enactment of this Act.
(2) The amendment made by section 801(c) shall apply to
transactions entered into after the date of the enactment of
this Act.
(3) The amendment made by section 801(d) shall apply after
the date of the enactment of this Act.
(c) Conforming Foreign Currency Revisions.--
(1) The amendment made by section 803(a) shall apply to
gains recognized after the date of the enactment of this Act.
(2) The amendment made by section 803(b) shall apply to
gains and deductions recognized after the date of the
enactment of this Act.
(d) Dealer Sales.--The amendments made by subtitle C shall
apply to sales made after the date of the enactment of this
Act.
(e) Sunset.--All amendments made by this title shall not
apply to taxable years beginning after the date which is 5
years after the date of the enactment of this Act. The
Internal Revenue Code of 1986 shall be applied and
administered to taxable years described in the preceding
sentence as if the amendments so described had never been
enacted.
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