I 118TH CONGRESS 1ST SESSION H. R. 3749 To amend the Internal Revenue Code of 1986 to modify the treatment of certain rents received by real estate investment trusts from related parties. IN THE HOUSE OF REPRESENTATIVES MAY 30, 2023 Mr. LAHOOD (for himself and Mr. SCHNEIDER) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to modify the treatment of certain rents received by real estate investment trusts from related parties. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Retail Revitalization 4 Act of 2023’’. 5 SEC. 2. MODIFICATION OF TREATMENT OF CERTAIN RENTS 6 RECEIVED BY REAL ESTATE INVESTMENT 7 TRUST FROM RELATED PARTIES. 8 (a) SPECIAL RULE FOR DISTRESSED TENANTS.— 9 VerDate Sep 11 2014 23:46 Jun 20, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H3749.IH H3749 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 3749 IH (1) IN GENERAL.—Section 856(d) of the Inter- 1 nal Revenue Code of 1986 is amended by adding at 2 the end the following new paragraph: 3 ‘‘(10) SPECIAL RULE FOR DISTRESSED TEN- 4 ANTS.— 5 ‘‘(A) IN GENERAL.—Except as otherwise 6 provided by the Secretary, in the case of a real 7 estate investment trust which makes a qualified 8 acquisition of a qualified tenant during the 4- 9 year period beginning on the date of the enact- 10 ment of this paragraph, paragraph (2)(B) shall 11 be applied with respect to such tenant by sub- 12 stituting ‘50 percent’ for ‘10 percent’ each 13 place it appears therein. 14 ‘‘(B) QUALIFIED ACQUISITION.—For pur- 15 poses of this paragraph— 16 ‘‘(i) IN GENERAL.—The term ‘quali- 17 fied acquisition’ means the acquisition by a 18 real estate investment trust of stock, as- 19 sets, or net profits in connection with the 20 bankruptcy, insolvency (within the mean- 21 ing of section 108(d)(3)), or cash flow in- 22 solvency of a qualified tenant. 23 ‘‘(ii) CASH FLOW INSOLVENCY.—For 24 purposes of clause (i), a qualified tenant 25 VerDate Sep 11 2014 23:46 Jun 20, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3749.IH H3749 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 3749 IH shall be treated as having cash flow insol- 1 vency following a reasonable determination 2 by the real estate investment trust, based 3 upon an examination of the facts and cir- 4 cumstances, that such tenant’s revenue is 5 insufficient to cover its debt service pay- 6 ments based on such tenant’s applicable fi- 7 nancial statement (as defined in section 8 451(b)(3)). 9 ‘‘(C) QUALIFIED TENANT.—For purposes 10 of this paragraph— 11 ‘‘(i) IN GENERAL.—The term ‘quali- 12 fied tenant’ means, with respect to any ac- 13 quisition referred to in subparagraph (B), 14 any person from which the real estate in- 15 vestment trust received or accrued rents 16 from real property pursuant to a lease 17 which was in effect on the date of the en- 18 actment of this paragraph. 19 ‘‘(ii) RENEWALS, ETC., OF EXISTING 20 LEASES.—For purposes of clause (i), a 21 lease shall be treated as in effect on the 22 date of the enactment of this paragraph if 23 the conditions of paragraph (9)(C) are sat- 24 isfied. 25 VerDate Sep 11 2014 23:46 Jun 20, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H3749.IH H3749 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 3749 IH ‘‘(iii) SUCCESSORS.—The term ‘quali- 1 fied tenant’ shall include a person if such 2 person is a successor to a qualified tenant 3 within the meaning of subsection (g) (with- 4 out regard to such person’s status as a 5 real estate investment trust or any con- 6 tinuity of shareholder interest requirement) 7 or for purposes of section 381. 8 ‘‘(D) LIMITATION ON PERIOD FOR WHICH 9 TREATMENT APPLIES.—With respect to any 10 qualified acquisition, subparagraph (A) shall 11 apply only to amounts received or accrued dur- 12 ing the 7-taxable-year period beginning with the 13 taxable year which includes the date of such ac- 14 quisition. 15 ‘‘(E) COORDINATION WITH CERTAIN 16 OTHER PROVISIONS.—For purposes of clauses 17 (i) and (v) of paragraph (8)(A), whether a per- 18 son is described in paragraph (2)(B) shall be 19 determined after application of subparagraph 20 (A) of this paragraph.’’. 21 (2) CONFORMING AMENDMENT.—Section 22 856(d)(2)(B) of such Code is amended by striking 23 ‘‘paragraph (8)’’ and inserting ‘‘paragraphs (8) and 24 (10)’’. 25 VerDate Sep 11 2014 23:46 Jun 20, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H3749.IH H3749 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 3749 IH (3) EFFECTIVE DATE.—The amendments made 1 by this subsection shall apply to qualified acquisi- 2 tions (as defined in section 856(d)(10)(B) of the In- 3 ternal Revenue Code of 1986, as added by this sub- 4 section) after the date of the enactment of this Act, 5 in taxable years ending after such date. 6 (b) INCREASE IN PERCENTAGE OF OWNERSHIP AT 7 WHICH RENTS ARE GENERALLY DISQUALIFIED.— 8 (1) IN GENERAL.—Section 856(d)(2)(B) of 9 such Code is amended by striking ‘‘10 percent’’ each 10 place it appears and inserting ‘‘30 percent’’. 11 (2) EFFECTIVE DATE.—The amendment made 12 by this subsection shall apply to taxable years end- 13 ing after the date of the enactment of this Act. 14 (c) INCREASE IN PERCENTAGE OF OWNERSHIP AT 15 WHICH CONSTRUCTIVE OWNERSHIP RULES BEGIN TO 16 APPLY.— 17 (1) IN GENERAL.—Section 856(d)(5) of such 18 Code is amended— 19 (A) by striking ‘‘10 percent’’ in subpara- 20 graph (A) and inserting ‘‘30 percent’’, and 21 (B) by striking ‘‘25 percent’’ in subpara- 22 graph (B) and inserting ‘‘30 percent’’. 23 VerDate Sep 11 2014 23:46 Jun 20, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H3749.IH H3749 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 3749 IH (2) EFFECTIVE DATE.—The amendments made 1 by this subsection shall apply to taxable years end- 2 ing after the date of the enactment of this Act. 3 (d) LIMITATION ON APPLICATION OF CONSTRUCTIVE 4 OWNERSHIP RULES.— 5 (1) IN GENERAL.—Section 856(d)(5) of such 6 Code is amended by striking ‘‘and’’ at the end of 7 subparagraph (A), by striking the period at the end 8 of subparagraph (B) and inserting ‘‘, and’’, and by 9 adding at the end the following: 10 ‘‘(C) except as otherwise provided by the 11 Secretary, stock, assets, and net profits con- 12 structively owned by a partnership, estate, 13 trust, or corporation by reason of the applica- 14 tion of section 318(a)(3) (after application of 15 subparagraphs (A) and (B)) shall not be con- 16 sidered as owned by it for purposes of again ap- 17 plying such section in order to make another 18 person the constructive owner of such stock, as- 19 sets, or net profits. 20 Subparagraph (C) shall not prevent any person from 21 being the constructive owner of stock, assets, or net 22 profits of any person as the result of any other ap- 23 plication of section 318(a) (as modified by this para- 24 graph).’’. 25 VerDate Sep 11 2014 23:46 Jun 20, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H3749.IH H3749 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 3749 IH (2) NO INFERENCE.—Nothing in the amend- 1 ments made by paragraph (1) shall be construed to 2 create any inference with respect to the proper appli- 3 cation of section 318 of the Internal Revenue Code 4 of 1986 to cases other than cases to which such 5 amendments apply. 6 (3) EFFECTIVE DATE.—The amendments made 7 by this subsection shall apply to taxable years end- 8 ing after the date of the enactment of this Act. 9 (e) MODIFICATION OF RENTAL EXCEPTION FOR 10 TAXABLE REIT SUBSIDIARIES.— 11 (1) IN GENERAL.—Section 856(d)(8)(A)(i) of 12 such Code is amended to read as follows: 13 ‘‘(i) IN GENERAL.—The requirements 14 of this subparagraph are met with respect 15 to any property if— 16 ‘‘(I) not more than 30 percent of 17 the leasable space of such property is 18 rented to taxable REIT subsidiaries 19 and other persons described in para- 20 graph (2)(B) (determined without re- 21 gard to paragraph (10)), and 22 ‘‘(II) not more than 50 percent 23 of the leasable space of such property 24 is rented to taxable REIT subsidiaries 25 VerDate Sep 11 2014 23:46 Jun 20, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H3749.IH H3749 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 3749 IH and other persons described in para- 1 graph (2)(B) (determined after the 2 application of paragraph (10)).’’. 3 (2) EFFECTIVE DATE.—The amendment made 4 by this subsection shall apply to taxable years end- 5 ing after the date of the enactment of this Act. 6 Æ VerDate Sep 11 2014 23:46 Jun 20, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6301 E:\BILLS\H3749.IH H3749 kjohnson on DSK79L0C42PROD with BILLS