26 U.S.C. § 269B: Stapled entities

if a domestic corporation and a foreign corporation are stapled entities, the foreign corporation shall be treated as a domestic corporation. in applying section 1563, stock in a second corporation which constitutes a stapled interest with respect to stock of a first corporation shall be treated as owned by such first corporation, and in applying subchapter M for purposes of determining whether any stapled entity is a regulated investment company or a real estate investment trust, all entities which are stapled entities with respect to each other shall be treated as 1 entity. The Secretary shall prescribe such regulations as may be necessary to prevent avoidance or evasion of Federal income tax through the use of stapled entities. Such regulations may include (but shall not be limited to) regulations providing the extent to which 1 of such entities shall be treated as owning the other entity (to the extent of the stapled interest) and regulations providing that any tax imposed on the foreign corporation referred to in subsection (a)(1) may, if not paid by such corporation, be collected from the domestic corporation referred to in such subsection or the shareholders of such foreign corporation. The term “entity” means any corporation, partnership, trust, association, estate, or other form of carrying on a business or activity. The term “stapled entities” means any group of 2 or more entities if more than 50 percent in value of the beneficial ownership in each of such entities consists of stapled interests. Two or more interests are stapled interests if, by reason of form of ownership, restrictions on transfer, or other terms or conditions, in connection with the transfer of 1 of such interests the other such interests are also transferred or required to be transferred. Nothing in section 894 or 7852(d) or in any other provision of law shall be construed as permitting an exemption, by reason of any treaty obligation of the United States heretofore or hereafter entered into, from the provisions of this section. Subsection (a)(1) shall not apply if it is established to the satisfaction of the Secretary that the domestic corporation and the foreign corporation referred to in such subsection are foreign owned. the total combined voting power of all classes of stock of such corporation entitled to vote, and the total value of the stock of the corporation, Except as otherwise provided in this subsection, the amendments made by this section [enacting this section] shall take effect on the date of the enactment of this Act [ July 18, 1984 ]. Except as otherwise provided in this subsection, in the case of any interests which on June 30, 1983 , were stapled interests (as defined in section 269B(c)(3) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this section)), the amendments made by this section shall take effect on January 1, 1985 ( January 1, 1987 , in the case of stapled interests in a foreign corporation). all members of such group were stapled entities as of June 30, 1983 , and as of June 30, 1983 , such group included one or more real estate investment trusts. Paragraph (1) of section 269B(a) of such Code shall not apply to a domestic corporation and a qualified Puerto Rican corporation which, on June 30, 1983 , were stapled entities. which is described in section 957(c) of such Code or would be so described if any dividends it received from any other corporation described in such section 957(c) were treated as gross income of the type described in such section 957(c), and does not, at any time during the taxable year, own (within the meaning of section 958 of such Code but before applying paragraph (2) of section 269B(a) of such Code) any stock of any corporation which is not described in such section 957(c). In the case of any entity which was a stapled entity as of June 30, 1983 , subsection (d) of section 269B of such Code shall not apply to any treaty benefit to which such entity was entitled as of June 30, 1983 . In the case of any foreign corporation and domestic corporation which as of June 30, 1983 , were stapled entities, such domestic corporation may elect (in lieu of applying paragraph (1) of section 269B(a) of such Code) to be treated as owning all interests in the foreign corporation which constitute stapled interests with respect to stock of the domestic corporation. Any election under subparagraph (A) shall be made not later than 180 days after the date of the enactment of this Act and shall be made in such manner as the Secretary of the Treasury or his delegate shall prescribe. Any election under subparagraph (A), once made, may be revoked only with the consent of the Secretary of the Treasury or his delegate. which was created pursuant to a written board of directors resolution adopted on April 5, 1984 , and all members of such group were stapled entities as of June 16, 1985 . at least 75 percent of the gross income of which is derived from interest on obligations secured by mortgages on real property (as defined in section 856 of such Code), with respect to which the interest on the obligations described in clause (i) made or acquired by such trust (other than to persons who are independent contractors, as defined in section 856(d)(3) of such Code) is at an arm’s length rate or a rate not more than 1 percentage point greater than the associated borrowing cost of the trust, and with respect to which any real property held by the trust is not used in the trade or business of any other member of the group of stapled entities.” Notwithstanding paragraph (3) of section 136(c) of the Tax Reform Act of 1984 [ Pub. L. 98–369 , set out above] (relating to stapled stock; stapled entities), the REIT gross income provisions shall be applied by treating the activities and gross income of members of the stapled REIT group properly allocable to any nonqualified real property interest held by the exempt REIT or any stapled entity which is a member of such group (or treated under subsection (c) as held by such REIT or stapled entity) as the activities and gross income of the exempt REIT in the same manner as if the exempt REIT and such group were one entity. The term ‘nonqualified real property interest’ means, with respect to any exempt REIT, any interest in real property acquired after March 26, 1998 , by the exempt REIT or any stapled entity. the acquisition is pursuant to a written agreement (including a put option, buy-sell agreement, and an agreement relating to a third party default) which was binding on such date and at all times thereafter on such REIT or stapled entity; or the acquisition is described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission. any improvement to land owned or leased by the exempt REIT or any member of the stapled REIT group; and any repair to, or improvement of, any improvement owned or leased by the exempt REIT or any member of the stapled REIT group, any lease of a qualified real property interest if such lease is not otherwise such an interest; or any renewal of a lease which is a qualified real property interest, the cost of such property; or if such property is substituted basis property (as defined in section 7701(a)(42) of the Internal Revenue Code of 1986), the fair market value of the property at the time of acquisition. For purposes of clause (i), an improvement shall be treated as placed in service before January 1, 2000 , if such improvement is placed in service before January 1, 2004 , pursuant to a binding contract in effect on December 31, 1999 , and at all times thereafter. The term ‘nonqualified real property interest’ shall not include any interest in real property acquired solely as a result of a direct or indirect contribution, distribution, or other transfer of such interest from the exempt REIT or any member of the stapled REIT group to such REIT or any such member, but only to the extent the aggregate of the interests of the exempt REIT and all stapled entities in such interest in real property (determined in accordance with subsection (c)(1)) is not increased by reason of the transfer. such stapled entity was a stapled entity with respect to such REIT as of March 26, 1998 , and at all times thereafter; and as of March 26, 1998 , and at all times thereafter, such REIT was a real estate investment trust. The term ‘qualified real property interest’ means any interest in real property other than a nonqualified real property interest. Any exempt REIT and any stapled entity shall be treated as holding their proportionate shares of each interest in real property held by any 10-percent subsidiary entity of the exempt REIT or stapled entity, as the case may be. Except as provided in subparagraph (B), any interest in real property held by a 10-percent subsidiary entity of an exempt REIT or stapled entity shall be treated as a nonqualified real property interest. In the case of an entity which was a 10-percent subsidiary entity of an exempt REIT or stapled entity on March 26, 1998 , and at all times thereafter, an interest in real property held by such subsidiary entity shall be treated as a qualified real property interest if such interest would be so treated if held or acquired directly by the exempt REIT or the stapled entity. If, after March 26, 1998 , an exempt REIT or stapled entity increases its ownership interest in a subsidiary entity to which paragraph (2)(B) applies above its ownership interest in such subsidiary entity as of such date, the additional portion of each interest in real property which is treated as held by the exempt REIT or stapled entity by reason of such increased ownership shall be treated as a nonqualified real property interest. percentage ownership of an entity shall be determined in accordance with subsection (e)(4); interests in the entity which are acquired by an exempt REIT or a member of the stapled REIT group in any acquisition described in an agreement, announcement, or filing described in subsection (b)(2) shall be treated as acquired on March 26, 1998 ; and except as provided in guidance prescribed by the Secretary, any change in proportionate ownership which is attributable solely to fluctuations in the relative fair market values of different classes of stock shall not be taken into account. an exempt REIT or stapled entity held directly or indirectly at least 60 percent of the capital or profits interest in a partnership; and 90 percent or more of the capital interests and 90 percent or more of the profits interests in such partnership (other than interests held directly or indirectly by the exempt REIT or stapled entity) are, or will be, redeemable or exchangeable for consideration the amount of which is determined by reference to the value of shares of stock in the exempt REIT or stapled entity (or both), If, as of January 1, 1999 , more than one partnership owned by any exempt REIT or stapled entity meets the requirements of subparagraph (A), only the largest such partnership on such date (determined by aggregate asset bases) shall be treated as meeting such requirements. For purposes of subparagraph (A), an interest in a partnership formed after March 26, 1998 , shall be treated as held by an exempt REIT or stapled entity on March 26, 1998 , if such partnership is formed to mirror the stapling of an exempt REIT and a stapled entity in connection with an acquisition agreed to or announced on or before March 26, 1998 . the interest income from such obligation which is properly allocable to the property described in paragraph (2); and the income of any member of the stapled REIT group from services described in paragraph (2) with respect to such property. Except as otherwise provided in this subsection, the term ‘nonqualified obligation’ means any obligation secured by a mortgage on an interest in real property if the income of any member of the stapled REIT group for services furnished with respect to such property would be impermissible tenant service income were such property held by the exempt REIT and such services furnished by the exempt REIT. payments under which would be treated as interest if received by a REIT; and the rate of interest on which does not exceed an arm’s length rate. which is secured on March 26, 1998 , by an interest in real property; and which is held on such date by the exempt REIT or any entity which is a member of the stapled REIT group on such date and at all times thereafter, A rule similar to the rule of subsection (b)(5) shall apply for purposes of this subsection. A rule similar to the rule of subsection (c)(3) shall apply for purposes of this subsection. This subsection shall not apply to the portion of any interest in real property that the exempt REIT or stapled entity holds or is treated as holding under this section without regard to this subsection. paragraphs (2), (3), and (6) of section 856(c) of the Internal Revenue Code of 1986; and section 857(b)(5) of such Code. The term ‘exempt REIT’ means a real estate investment trust to which section 269B of the Internal Revenue Code of 1986 does not apply by reason of paragraph (3) of section 136(c) of the Tax Reform Act of 1984. all entities which are stapled entities with respect to the exempt REIT; and all entities which are 10-percent subsidiary entities of the exempt REIT or any such stapled entity. The term ‘10-percent subsidiary entity’ means, with respect to any exempt REIT or stapled entity, any entity in which the exempt REIT or stapled entity (as the case may be) directly or indirectly holds at least a 10-percent interest. A corporation which would, but for this subparagraph, be treated as a 10-percent subsidiary of an exempt REIT shall not be so treated if such corporation is taxable under section 11 of the Internal Revenue Code of 1986. in the case of an interest in a corporation, ownership of 10 percent (by vote or value) of the stock in such corporation; in the case of an interest in a partnership, ownership of 10 percent of the capital or profits interest in the partnership; and in any other case, ownership of 10 percent of the beneficial interests in the entity. Terms used in this section which are used in section 269B or section 856 of such Code shall have the respective meanings given such terms by such section. The Secretary may prescribe such guidance as may be necessary or appropriate to carry out the purposes of this section, including guidance to prevent the avoidance of such purposes and to prevent the double counting of income. This section shall apply to taxable years ending after March 26, 1998 .”