DEFICIENCY DIVIDEND PROCEDURE.

SEC. 1601. DEFICIENCY DIVIDEND PROCEDURE. (a) In General.— (1) Part II of subchapter M of chapter 1 (relating to real estate investment trusts) is amended by adding at the end thereof the following new section: “SEC. 859. DEDUCTION FOR DEFICIENCY DIVIDENDS. “(a) General Rule.— If a determination (as defined in subsection (c)) with respect to a real estate investment trust results in any adjustment (as defined in subsection (b)(1)) for any taxable year, a deduction shall be allowed to such trust for the amount of deficiency dividends (as defined in subsection (d)) for purposes of determining 90 STAT. 1743the deduction for dividends paid (for purposes of section 857) for such. year. “(b) Rules for Application of Section.— “(1) Adjustment.— For purposes of this section, 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. “(2) 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 real estate investment trust 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 tux (determined in the manner provided by section 6601 (c)) 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 file date the claim for the deficiency dividend deduction is filed. “(3) Credit or refund.— If the allowance of a deficiency dividend deduction results in an overpayment of tux 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. “(c) 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 real estate investment trust relating to the liability of such trust for tax. 90 STAT. 1744 “(d) Deficiency Dividends.— “(1) Definition.— For purposes of this section, the term ‘deficiency dividends’ means a distribution of property made by the real estate investment trust on or after the date of the determination and before filing claim under subsection (e), 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 (e). “(2) Limitations.— “(A) Ordinary dividends.— The amount of deficiency dividends (other than deficiency dividends qualifying as capital gain dividends) paid by a real estate investment trust 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 subsection (b)(1) 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 decrease referred to in subparagraph (C) of subsection (b)(1). “(B) Capital gain dividends.— The amount of deficiency dividends qualifying as capital gain dividends paid by a real estate investment trust 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 subsection (b)(1) 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 858(a) in the computation of the dividends paid deduction for the taxable year preceding the taxable year in which paid. “(e) Claim Required.— No deficiency dividend deduction shall be allowed under subsection (a) unless (under regulations prescribed by the Secretary) claim therefor is filed within 120 days after the date of the determination. “(f) Suspension of Statute of Limitations and Stay of Collection.— “(1) Suspension of running of statute.— If the real estate investment trust files a claim as provided in subsection (e), the 90 STAT. 1745running 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 (e), 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. “(g) 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 willful failure to file an income tax return within the time prescribed by law or prescribed by the Secretary in pursuance of law. “(h) Penalty.— “For assessable penalty with respect to liability for tax of real estate investment trust which is allowed a deduction under subsection (a), see section 6697.” (2) The table of sections for such part II is amended by adding at the end thereof the following new item: “Sec. 859. Deduction for deficiency dividends.” (b) Penalty.— (1) Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section: “SEC. 6697. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR TAX OF REAL ESTATE INVESTMENT TRUSTS. “(a) Civil Penalty.— In addition to any other penalty provided by law, any real estate investment trust whose tax liability for any taxable year is deemed to be increased pursuant to section 859(b)(2)(A) (relating to interest and additions to tax determined with respect to the amount of the deduction for deficiency dividends allowed) shall pay a penalty in an amount equal to the amount of interest for which such trust is liable that is attributable solely to such increase, “(b) 50-Percent Limitation.— The penalty payable under this section with respect to any determination shall not exceed one-half of the amount of the deduction allowed by section 859(a) for such taxable year. 90 STAT. 1746 “(c) Deficiency Procedures Not To Apply.— Subchapter B of chapter 63 (relating to deficiency procedure for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).” (2) The table of sections for such subchapter B is amended by adding at the end thereof the following: “Sec. 6697. Assessable penalties with respect to liability for tax of real estate investment trusts.” (c) Late Designation and Payment of Capital Gain Dividend.— The first sentence of subparagraph (C) of section 857(b)(3)(defining capital gain dividend) is amended by inserting before the period at the end thereof the following: “; 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”. (d) Definition of Dividend.— Subsection (b) of section 316 (relating to the definition of dividend) is amended by adding a new paragraph (3) at the end thereof, to read as follows: “(3) Deficiency dividend distributions by a real estate investment trust.— The term ‘dividend’ also means any distribution of property (whether or not a dividend as defined in subsection (a)) which constitutes a ‘deficiency dividend’ as defined in section 859(d).” (e) Carryover of Deficiency Dividend.— Section 381 (c) (relating to carryovers in certain corporate acquisitions) is amended by adding a new paragraph (25) at the end thereof, to read as follows: “(25) Deficiency dividend of real estate investment trust.— If the acquiring corporation pays a deficiency dividend (as defined in section 859(d)) with respect to the distributor or transferor corporation, such distributor or transferor corporation shall, with respect to such payments, be entitled to the deficiency dividend deduction provided in section 859,” (f) Technical Amendments.— (1) Section 6422 (relating to certain cross references) is amended by adding a new paragraph (14) at the end thereof to read as follows: “(14) for credit or refund in case of deficiency dividends paid by a real estate investment trust, see section 859.” (2) Section 6503(i) (relating to certain cross references) is amended by adding a new paragraph (5) at the end thereof, to read as follows: “(5) Deficiency dividends of a real estate investment trust, see section 859(f).” (3) Section 6515 (relating to certain cross references) is amended by adding a new paragraph (8) at the end thereof, to read as follows: “(8) Deficiency dividends of real estate investment trust, see section 859.”