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TITLE 26-INTERNAL REVENUE CODE such property at foreclosure, or having other- wise reduced such property to ownership or possession by agreement or process of law, after there was default (or default was immi- nent) on a lease of such property or on an in- debtedness which such property secured. Such term does not include property acquired by the real estate investment trust as a result of indebtedness arising from the sale or uther disposition of property of the trust described in section 1221(1) which was not originally ac- quired as foreclosure property. (2) Grace period Except as provided in paragraph (3), prop- erty shall cease to be foreclosure property with respect to the real estate investment trust on the date which is 2 years after the date such trust acquired such property. (3) Extensions If the real estate investment trust estab- lishes to the satisfaction of the Secretary that an extension of the grace period is neces- sary for the orderly liq'idation of the trust's interest in such property, the Secretary may extend the grace period for such property. Any such extension shall be for a period of not more than 1 year, and not more than 2 extensions shall be granted with respect to any property. (4) Termination of grace period in certain cases Any foreclosure property shall cease to be such on the first day (occurring on or after the day on which the real estate investment trust acquired the property) on which- (A) a lease is entered into with respect to such property which, by its terms, will give rise to income which is not described in sub- section (c)(3) (other than subparagraph (F) of such subsection), or any amount is re- ceived or accrued, directly or indirectly, pursuant to a lease entered into on or after such day which is not described in such sub- section, (B) any construction takes place on such property (other than completion of a build- ing, or completion of any other improve- ment, where more than 10 percent of the construction of such building or other im- provement was completed before default became imminent), or (C) if such day is more than 90 days after the day on which such property was ac- quired by the real estate investment trust and the property is used in a trade or busi- ness which is conducted by the trust (other than through an independent contractor (within the meaning of section (d)(3)) from whom the trust itself does not derive or re- ceive any income). (5) Taxpayer must make election Property shall be treated as foreclosure property for purposes of this part only if the real estate investment trust so elects (in the manner provided in regulations prescribed by the Secretary on or before the due date (in- cluding any extensions of time) for filing its return of tax under this chapter for the tax- able year in which such trust acquires such property. Any such election shall be irrevoca- ble. (f) Interest For purposes of paragraphs (2)(B) and (3)(B) of subsection (c), the term "interest" does not include any amount received or accrued, direct- ly or indirectly, if the determination of such amount depends in whole or in part on the income or profits of any person except that: (1) any amount so received or accrued shall not be excluded from the term "interest" solely by reason of being based on a fixed per- centage or percentages of receipts or sales, and (2) where a real estate investment trust re- ceives or accrues any amount which would be excluded from the term "interest" solely be- cause the debtor of the real estate investment trust receives or accrues any amount the de- termination of which depends in whole or in part on the income or profits of any person, only a proportionate part (determined pursu- ant to regulations prescribed by the Secre- tary) of the amount received or accrued by the real estate investment trust from such debtor will be excluded from the term "inter- est". The provisions of this subsection shall apply only with respect to amounts received or ac- crued pursuant to loans made after May 27, 1976. For purposes of the preceding sentence, a loan is considered to be made before May 28, 1976, if such loan is made pursuant to a binding commitment entered into before May 28, 1976. (g) Termination of election (1) Failure to qualify An election under subsection (c)(1) made by a corporation, trust, or association shall ter- miante if the corporation, trust, or associ- ation is not a real estate investment trust to which the provisions of this part apply for the taxable year with respect to which the election is made, or for any succeeding tax- able year. Such termination shall be effective for the taxable year for which the corpora- tion, trust, or association is not a real estate investment trust to which the provisions of this part apply, and for all succeeding taxable years. (2) Revocation An election under subsection (c)(1) made by a corporation, trust, or association may be re- voked by it for any taxable year after the first taxable year for which the election is ef- fective. A revocation under this paragraph shall be effective for the taxable year in which made and for all succeeding taxable years. Such revocation must be made on or before the 90th day after the first day of the first taxable year for which the revocation is to be effective. Such revocation shall be made in such manner as the Secretary shall pre- scribe by regulations. (3) Election after termination or revocation Except as provided in paragraph (4), if a corporation, trust, or association has made an election under subsection (c)(1) and such elec- tion has been terminated or revoked under paragraph (1) or paragraph (2), such corpora- tion, trust, or association (and any successor corporation, trust, or association) shall not be eligible to make an election under subsection § 856 Page 546