controlled taxable REIT subsidiary

(8) Special rule for taxable REIT subsidiaries For purposes of this subsection, amounts paid to a real estate investment trust by a taxable REIT subsidiary of such trust shall not be excluded from rents from real property by reason of paragraph (2)(B) if the requirements of either of the following subparagraphs are met: (A) Limited rental exception (i) In general The requirements of this subparagraph are met with respect to any property if at least 90 percent of the leased space of the property is rented to persons other than taxable REIT subsidiaries of such trust and other than persons described in paragraph (2)(B). (ii) Rents must be substantially comparable Clause (i) shall apply only to the extent that the amounts paid to the trust as rents from real property (as defined in paragraph (1) without regard to paragraph (2)(B)) from such property are substantially comparable to such rents paid by the other tenants of the trust’s property for comparable space. (iii) Times for testing rent comparability The substantial comparability requirement of clause (ii) shall be treated as met with respect to a lease to a taxable REIT subsidiary of the trust if such requirement is met under the terms of the lease— (I) at the time such lease is entered into, (II) at the time of each extension of the lease, including a failure to exercise a right to terminate, and (III) at the time of any modification of the lease between the trust and the taxable REIT subsidiary if the rent under such lease is effectively increased pursuant to such modification. With respect to subclause (III), if the taxable REIT subsidiary of the trust is a controlled taxable REIT subsidiary of the trust, the term “rents from real property” shall not in any event include rent under such lease to the extent of the increase in such rent on account of such modification. (iv) Controlled taxable REIT subsidiary For purposes of clause (iii), the term “controlled taxable REIT subsidiary” means, with respect to any real estate investment trust, any taxable REIT subsidiary of such trust if such trust owns directly or indirectly— (I) stock possessing more than 50 percent of the total voting power of the outstanding stock of such subsidiary, or (II) stock having a value of more than 50 percent of the total value of the outstanding stock of such subsidiary. (v) Continuing qualification based on third party actions If the requirements of clause (i) are met at a time referred to in clause (iii), such requirements shall continue to be treated as met so long as there is no increase in the space leased to any taxable REIT subsidiary of such trust or to any person described in paragraph (2)(B). (vi) Correction period If there is an increase referred to in clause (v) during any calendar quarter with respect to any property, the requirements of clause (iii) shall be treated as met during the quarter and the succeeding quarter if such requirements are met at the close of such succeeding quarter. (B) Exception for certain lodging facilities and health care property The requirements of this subparagraph are met with respect to an interest in real property which is a qualified lodging facility (as defined in paragraph (9)(D)) or a qualified health care property (as defined in subsection (e)(6)(D)(i)) leased by the trust to a taxable REIT subsidiary of the trust if the property is operated on behalf of such subsidiary by a person who is an eligible independent contractor. For purposes of this section, a taxable REIT subsidiary is not considered to be operating or managing a qualified health care property or qualified lodging facility solely because it— (i) directly or indirectly possesses a license, permit, or similar instrument enabling it to do so, or (ii) employs individuals working at such facility or property located outside the United States, but only if an eligible independent contractor is responsible for the daily supervision and direction of such individuals on behalf of the taxable REIT subsidiary pursuant to a management agreement or similar service contract.

Source

26 USC § 856(d)(8)


Scoping language

For purposes of this section
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