(a) General rule
Except as otherwise provided by regulations, for purposes of this title—
(1) if a domestic corporation and a foreign corporation are stapled entities, the foreign corporation shall be treated as a domestic corporation.
(2) 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
(3) 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.
(b) Secretary to prescribe regulations
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.
For purposes of this section—
The term “entity” means any corporation, partnership, trust, association, estate, or other form of carrying on a business or activity.
(2) Stapled entities
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.
(3) 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.
(d) Special rule for treaties
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.
(e) Subsection (a)(1) not to apply in certain cases
(1) In general
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.
(2) Foreign owned
For purposes of paragraph (1), a corporation is foreign owned if less than 50 percent of—
(A) the total combined voting power of all classes of stock of such corporation entitled to vote, and
(B) the total value of the stock of the corporation,
is held directly (or indirectly through applying paragraphs (2) and (3) of section 958(a) and paragraph (4) of section 318(a)) by United States persons (as defined in section 7701(a)(30)).
(Added Pub. L. 98–369, div. A, title I, §136(a), July 18, 1984, 98 Stat. 669; amended Pub. L. 99– 4, title XVIII, §1810(j), Oct. 22, 1986, 100 Stat. 2829.)
1986—Subsec. (b). Pub. L. 99– 4, §1810(j)(1), inserted “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”.
Subsec. (e). Pub. L. 99– 4, §1810(j)(2), added subsec. (e).
Effective Date of 1986 Amendment
Amendment by Pub. L. 99– 4 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99– 4, set out as a note under section 48 of this title.
Section 136(c) of Pub. L. 98–369, as amended by Pub. L. 99– 4, §2, Oct. 22, 1986, 100 Stat. 2095, provided that:
“(A) all members of such group were stapled entities as of June 30, 1983, and
“(B) as of June 30, 1983, such group included one or more real estate investment trusts.
“(A) 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.
“(B) For purposes of subparagraph (A), the term ‘qualified Puerto Rican corporation’ means any corporation organized in Puerto Rico—
“(i) 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
“(ii) 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).
“(i) which was created pursuant to a written board of directors resolution adopted on April 5, 1984, and
“(ii) all members of such group were stapled entities as of June 16, 1985.
“(i) 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),
“(ii) 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
“(iii) 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.”
Termination of Exception for Certain Real Estate Investment Trusts From the Treatment of Stapled Entities
Pub. L. 105–206, title VII, §7002, July 22, 1998, 112 Stat. 827, provided that:
“(A) 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
“(B) the acquisition is described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission.
“(i) any improvement to land owned or leased by the exempt REIT or any member of the stapled REIT group; and
“(ii) any repair to, or improvement of, any improvement owned or leased by the exempt REIT or any member of the stapled REIT group,
if such ownership or leasehold interest is a qualified real property interest.
“(i) any lease of a qualified real property interest if such lease is not otherwise such an interest; or
“(ii) any renewal of a lease which is a qualified real property interest,
but only if the rent on any lease referred to in clause (i) or any renewal referred to in clause (ii) does not exceed an arm’s length rate.
“(I) the cost of such property; or
“(II) 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.
“(A) such stapled entity was a stapled entity with respect to such REIT as of March 26, 1998, and at all times thereafter; and
“(B) as of March 26, 1998, and at all times thereafter, such REIT was a real estate investment trust.
“(A) percentage ownership of an entity shall be determined in accordance with subsection (e)(4);
“(B) 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
“(C) 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.
“(i) an exempt REIT or stapled entity held directly or indirectly at least 60 percent of the capital or profits interest in a partnership; and
“(ii) 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),
paragraph (3) shall not apply to such partnership, and such REIT or entity shall be treated for all purposes of this section as holding all of the capital and profits interests in such partnership.
“(A) the interest income from such obligation which is properly allocable to the property described in paragraph (2); and
“(B) the income of any member of the stapled REIT group from services described in paragraph (2) with respect to such property.
If the income referred to in subparagraph (A) or (B) is of a 10-percent subsidiary entity, only the portion of such income which is properly allocable to the exempt REIT’s or the stapled entity’s interest in the subsidiary entity shall be taken into account.
“(A) payments under which would be treated as interest if received by a REIT; and
“(B) the rate of interest on which does not exceed an arm’s length rate.
“(A) which is secured on March 26, 1998, by an interest in real property; and
“(B) 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,
but only so long as such obligation is secured by such interest, and the interest payable on such obligation is not changed to a rate which exceeds an arm’s length rate unless such change is pursuant to the terms of the obligation in effect on March 26, 1998. The preceding sentence shall not cease to apply by reason of the refinancing of the obligation if (immediately after the refinancing) the principal amount of the obligation resulting from the refinancing does not exceed the principal amount of the refinanced obligation (immediately before the refinancing) and the interest payable on such refinanced obligation does not exceed an arm’s length rate.
“(A) paragraphs (2), (3), and (6) of section 856(c) of the Internal Revenue Code of 1986; and
“(B) section 857(b)(5) of such Code.
“(A) all entities which are stapled entities with respect to the exempt REIT; and
“(B) all entities which are 10-percent subsidiary entities of the exempt REIT or any such stapled entity.
“(i) in the case of an interest in a corporation, ownership of 10 percent (by vote or value) of the stock in such corporation;
“(ii) in the case of an interest in a partnership, ownership of 10 percent of the capital or profits interest in the partnership; and
“(iii) in any other case, ownership of 10 percent of the beneficial interests in the entity.
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of Pub. L. 99– 4 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99– 4, as amended, set out as a note under section 401 of this title.