Section 1 Short title
This Act may be cited as the “Retail Revitalization Act of 2023”.
Retail Revitalization Act of 2023
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.
Sec. 2 Modification of treatment of certain rents received by real estate investment trust from related parties
Special rule for distressed tenants—
In general— Section 856(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
“(10) Special rule for distressed tenants
“(A) In general—Except as otherwise provided by the Secretary, in the case of a real estate investment trust which makes a qualified acquisition of a qualified tenant during the 4-year period beginning on the date of the enactment of this paragraph, paragraph (2)(B) shall be applied with respect to such tenant by substituting “50 percent” for “10 percent” each place it appears therein.
“(B) Qualified acquisition—For purposes of this paragraph—
“(i) In general—The term “qualified acquisition” means the acquisition by a real estate investment trust of stock, assets, or net profits in connection with the bankruptcy, insolvency (within the meaning of section 108(d)(3)), or cash flow insolvency of a qualified tenant.
“(ii) Cash flow insolvency—For purposes of clause (i), a qualified tenant shall be treated as having cash flow insolvency following a reasonable determination by the real estate investment trust, based upon an examination of the facts and circumstances, that such tenant’s revenue is insufficient to cover its debt service payments based on such tenant’s applicable financial statement (as defined in section 451(b)(3)).
“(C) Qualified tenant—For purposes of this paragraph—
“(i) In general—The term “qualified tenant” means, with respect to any acquisition referred to in subparagraph (B), any person from which the real estate investment trust received or accrued rents from real property pursuant to a lease which was in effect on the date of the enactment of this paragraph.
“(ii) Renewals, etc., of existing leases—For purposes of clause (i), a lease shall be treated as in effect on the date of the enactment of this paragraph if the conditions of paragraph (9)(C) are satisfied.
“(iii) Successors—The term “qualified tenant” shall include a person if such person is a successor to a qualified tenant within the meaning of subsection (g) (without regard to such person’s status as a real estate investment trust or any continuity of shareholder interest requirement) or for purposes of section 381.
“(D) Limitation on period for which treatment applies—With respect to any qualified acquisition, subparagraph (A) shall apply only to amounts received or accrued during the 7-taxable-year period beginning with the taxable year which includes the date of such acquisition.
“(E) Coordination with certain other provisions—For purposes of clauses (i) and (v) of paragraph (8)(A), whether a person is described in paragraph (2)(B) shall be determined after application of subparagraph (A) of this paragraph.”
Conforming amendment— Section 856(d)(2)(B) of such Code is amended by striking “paragraph (8)” and inserting “paragraphs (8) and (10)”.
Effective date— The amendments made by this subsection shall apply to qualified acquisitions (as defined in section 856(d)(10)(B) of the Internal Revenue Code of 1986, as added by this subsection) after the date of the enactment of this Act, in taxable years ending after such date.
Increase in percentage of ownership at which rents are generally disqualified—
In general— Section 856(d)(2)(B) of such Code is amended by striking “10 percent” each place it appears and inserting “30 percent”.
Effective date— The amendment made by this subsection shall apply to taxable years ending after the date of the enactment of this Act.
Increase in percentage of ownership at which constructive ownership rules begin To apply—
In general— Section 856(d)(5) of such Code is amended—
by striking “10 percent” in subparagraph (A) and inserting “30 percent”, and
by striking “25 percent” in subparagraph (B) and inserting “30 percent”.
Effective date— The amendments made by this subsection shall apply to taxable years ending after the date of the enactment of this Act.
Limitation on application of constructive ownership rules—
In general— Section 856(d)(5) of such Code is amended by striking “and” at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting “, and”, and by adding at the end the following:
“(C) except as otherwise provided by the Secretary, stock, assets, and net profits constructively owned by a partnership, estate, trust, or corporation by reason of the application of section 318(a)(3) (after application of subparagraphs (A) and (B)) shall not be considered as owned by it for purposes of again applying such section in order to make another person the constructive owner of such stock, assets, or net profits.”
No inference— Nothing in the amendments made by paragraph (1) shall be construed to create any inference with respect to the proper application of section 318 of the Internal Revenue Code of 1986 to cases other than cases to which such amendments apply.
Effective date— The amendments made by this subsection shall apply to taxable years ending after the date of the enactment of this Act.
Modification of rental exception for taxable REIT subsidiaries—
In general— Section 856(d)(8)(A)(i) of such Code is amended to read as follows:
“(i) In general—The requirements of this subparagraph are met with respect to any property if—
“(I) not more than 30 percent of the leasable space of such property is rented to taxable REIT subsidiaries and other persons described in paragraph (2)(B) (determined without regard to paragraph (10)), and
“(II) not more than 50 percent of the leasable space of such property is rented to taxable REIT subsidiaries and other persons described in paragraph (2)(B) (determined after the application of paragraph (10)).”
Effective date— The amendment made by this subsection shall apply to taxable years ending after the date of the enactment of this Act.