TRUST NOT DISQUALIFIED IN CERTAIN CASES WHERE INCOME TESTS WERE NOT MET.

SEC. 1602. TRUST NOT DISQUALIFIED IN CERTAIN CASES WHERE INCOME TESTS WERE NOT MET. (a) Disqualification Not Applied.— Section 856(c) (relating to limitations) is amended by adding at the end thereof the following new paragraph: 90 STAT. 1747 “(7) 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 nave 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.”. (b) Imposition of Special Taxes.— (1) Section 857(b) (relating to method of taxation of real estate investment trusts, etc.) is amended by redesignating paragraph (5) as paragraph (7) and by inserting after paragraph (4) the following new paragraph: “(5) Imposition of tax in case of failure to meet certain requirements.— If section 856(c)(7) 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) 95 percent (90 percent in the case of taxable years beginning before January 1, 1980) 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).” (2) Section 857(b)(2) (relating to real estate investment trust taxable income) is amended by inserting after subparagraph (D)(as redesignated by section 1606(a) of this Act) the following new subparagraph: “(E) There shall be deducted an amount equal to the tax imposed by paragraph (5) for the taxable year.”.