Page:United States Statutes at Large Volume 100 Part 3.djvu/497

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2305

shareholders or holders of beneficial interests with its annual report for the taxable year)". SEC. 666. MODIFICATIONS OF PROHIBITED TRANSACTION RULES. (a) EXEMPTIONS FROM PROHIBITED TRANSACTIONS RULES.—

(1) Clause (iii) of section 857(b)(6)(C) (relating to certain sales not to constitute prohibited transactions) is amended to read as follows: "(iii)(I) during the taxable year the trust does not make more than 7 sales of property (other than foreclosure property), or (II) the aggregate adjusted bases (as determined for purposes of computing earnings and protlts) of property (other than foreclosure property) sold during the taxable year does not exceed 10 percent of the aggregate bases (as so determined) of all of the assets of the trust as of the beginning of the taxable year; and". (2) Clause (ii) of section 8570aX6)(C) is amended by striking out "20 percent" and inserting in lieu thereof "30 percent". (3) Subparagraph (C) of section 857(b)(6) is amended by striking out "and" at the end of clause (iii), by striking out the period at the end of clause (iv) and inserting in lieu thereof "; and", and by inserting after clause (iv) the following new clause: "(v) if the requirement of clause (iii)(I) is not satisfied, substantially all of the marketing and development expenditures with respect to the property were made through an independent contractor (as defined in section 856(d)(3)) from whom the trust itself does not derive or receive any income." (b) NET LOSS FROM PROHIBITED TRANSACTIONS.— (1) L o s s FROM PROHIBITED TRANSACTIONS NOT ALLOWED TO OFFSET GAIN FROM SUCH TRANSACTIONS.—ClaUSe (li) o f Section

857(b)(6)(B) (relating to income from prohibited transactions) is amended to read as follows: "(ii) in determining the amount of the net income derived from prohibited transactions, there shall not be taken into account any item attributable to any prohibited transaction for which there was a loss; and". (2) NET LOSS MAY REDUCE TAXABLE INCOME.—Subparagraph (F)

of section 8570t))(2) (defining real estate investment trust taxable income) is amended by striking out "and there shall be included an amount equal to any net loss derived from prohibited transactions". SEC. 667. DEFICIENCY DIVIDENDS OF REAL ESTATE INVESTMENT TRUSTS NOT SUBJECT TO PENALTY UNDER SECTION 6697.

(a) GENERAL RULE.—The section heading and subsection (a) of section 6697 (relating to assessable penalties with respect to liability for tax of qualified investment entities) are amended to read as follows: "SEC. 6697. ASSESSABLE PENALTIES WITH RESPECT TO LIABILITY FOR T A X O F REGULATED INVESTMENT COMPANIES.

"(a) CIVIL PENALTY.—In addition to any other penalty provided by law, any regulated investment company whose tax liability for any taxable year is deemed to be increased pursuant to section 860(c)(l)(A) shall pay a penalty in an amount equal to the amount of

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