TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA GAINS.

SEC. 505. TREATMENT OF DISTRIBUTIONS ATTRIBUTABLE TO FIRPTA GAINS. (a) Qualified Investment Entity.—(1) In general.—Section 897(h)(1) is amended—(A) by striking “a nonresident alien individual or a foreign corporation” in the first sentence and inserting “a nonresident alien individual, a foreign corporation, or other qualified investment entity”, (B) by striking “such nonresident alien individual or foreign corporation” in the first sentence and inserting “such nonresident alien individual, foreign corporation, or other qualified investment entity”, and 120 STAT. 356(C) by striking the second sentence and inserting the following new sentence: “Notwithstanding the preceding sentence, any distribution by a qualified investment entity to a nonresident alien individual or a foreign corporation with respect to any class of stock which is regularly traded on an established securities market located in the United States shall not be treated as gain recognized from the sale or exchange of a United States real property interest if such individual or corporation did not own more than 5 percent of such class of stock at any time during the 1-year period ending on the date of such distribution.”. (2) Exception to termination of application of section 897 rules to regulated investment companies.—Clause (ii) of section 897(h)(4)(A) is amended by adding at the end the following new sentence: “Notwithstanding the preceding sentence, an entity described in clause (i)(II) shall be treated as a qualified investment entity for purposes of applying paragraphs (1) and (5) and section 1445 with respect to any distribution by the entity to a nonresident alien individual or a foreign corporation which is attributable directly or indirectly to a distribution to the entity from a real estate investment trust.”. (b) Withholding on Distributions Treated as Gain From United States Real Property Interests.—Section 1445(e) (relating to special rules for distributions, etc. by corporations, partnerships, trusts, or estates) is amended by redesignating paragraph (6) as paragraph (7) and by inserting after paragraph (5) the following new paragraph: “(6) Distributions by regulated investment companies and real estate investment trusts.—If any portion of a distribution from a qualified investment entity (as defined in section 897(h)(4)) to a nonresident alien individual or a foreign corporation is treated under section 897(h)(1) as gain realized by such individual or corporation from the sale or exchange of a United States real property interest, the qualified investment entity shall deduct and withhold under subsection (a) a tax equal to 35 percent (or, to the extent provided in regulations, 15 percent (20 percent in the case of taxable years beginning after December 31, 2010)) of the amount so treated.”. (c) Treatment of Certain Distributions as Dividends.—(1) In general.—Section 852(b)(3) (relating to capital gains) is amended by adding at the end the following new subparagraph: “(E) Certain distributions.—In the case of a distribution to which section 897 does not apply by reason of the second sentence of section 897(h)(1), the amount of such distribution which would be included in computing long-term capital gains for the shareholder under subparagraph (B) or (D) (without regard to this subparagraph)—“(i) shall not be included in computing such shareholder’s long-term capital gains, and “(ii) shall be included in such shareholder’s gross income as a dividend from the regulated investment company.”. (2) Conforming amendment.—Section 871(k)(2) (relating to short-term capital gain dividends) is amended by adding at the end the following new subparagraph: 120 STAT. 357 “(E) Certain distributions.—In the case of a distribution to which section 897 does not apply by reason of the second sentence of section 897(h)(1), the amount which would be treated as a short-term capital gain dividend to the shareholder (without regard to this subparagraph)—“(i) shall not be treated as a short-term capital gain dividend, and “(ii) shall be included in such shareholder’s gross income as a dividend from the regulated investment company.”. (d) Effective Dates.—The amendments made by this section shall apply to taxable years of qualified investment entities beginning after December 31, 2005, except that no amount shall be required to be withheld under section 1441, 1442, or 1445 of the Internal Revenue Code of 1986 with respect to any distribution before the date of the enactment of this Act if such amount was not otherwise required to be withheld under any such section as in effect before such amendments.