REVISIONS TO REIT INCOME TESTS.

SEC. 3031. REVISIONS TO REIT INCOME TESTS.(a) Foreign Currency Gains Not Gross Income in Applying REIT Income Tests.—Section 856 (defining real estate investment trust) is amended by adding at the end the following new subsection:“(n) Rules Regarding Foreign Currency Transactions.—“(1) In general.—For purposes of this part—“(A) passive foreign exchange gain for any taxable year shall not constitute gross income for purposes of subsection (c)(2), and“(B) real estate foreign exchange gain for any taxable year shall not constitute gross income for purposes of subsection (c)(3).“(2) Real estate foreign exchange gain.—For purposes of this subsection, the term ‘real estate foreign exchange gain’ means—“(A) foreign currency gain (as defined in section 988(b)(1)) which is attributable to—122 STAT. 2898“(i) any item of income or gain described in subsection (c)(3),“(ii) the acquisition or ownership of obligations secured by mortgages on real property or on interests in real property (other than foreign currency gain attributable to any item of income or gain 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 gain attributable to any item of income or gain described in clause (i)),“(B) section 987 gain 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) 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 gain as determined by the Secretary.“(3) Passive foreign exchange gain.—For purposes of this subsection, the term ‘passive foreign exchange gain’ means—“(A) real estate foreign exchange gain,“(B) foreign currency gain (as defined in section 988(b)(1)) which is not described in subparagraph (A) and which is attributable to—“(i) any item of income or gain described in subsection (c)(2),“(ii) the acquisition or ownership of obligations (other than foreign currency gain attributable to any item of income or gain described in clause (i)), or“(iii) becoming or being the obligor under obligations (other than foreign currency gain attributable to any item of income or gain described in clause (i)), and“(C) any other foreign currency gain as determined by the Secretary.“(4) Exception for income from substantial and regular trading.—Notwithstanding this subsection or any other provision of this part, any section 988 gain derived by a corporation, trust, or association from dealing, or engaging in substantial and regular trading, in securities (as defined in section 475(c)(2)) shall constitute gross income which does not qualify under paragraph (2) or (3) of subsection (c). This paragraph shall not apply to income which does not constitute gross income by reason of subsection (c)(5)(G).”.(b) 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 122 STAT. 2899 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 of income or gain described in paragraph (2) or (3) (or any property which generates such income or gain), 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).”.(c) 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:“(J) Secretarial authority to exclude other items of income.—To the extent necessary to carry out the purposes of this part, the Secretary is authorized to determine, solely for purposes of this part, whether any item of income or gain which—“(i) does not otherwise qualify under paragraph (2) or (3) may be considered as not constituting gross income for purposes of paragraphs (2) or (3), or“(ii) otherwise constitutes gross income not qualifying under paragraph (2) or (3) may be considered as gross income which qualifies under paragraph (2) or (3).”.