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TITLE 26-INTERNAL REVENUE CODE (B) Net income from foreclosure property For purposes of this part, the term "net income from foreclosure property" means the excess of- (i) gain from the sale or other disposi- tion of foreclosure property described in section 1221(1) and the gross income for the taxable year derived from foreclosure property (as defined in section 856(e)), but only to the extent such gross income is not described in subparagraph (A), (B), (C), (D), (E), or (G) of section 856(c)(3), over (ii) the deductions allowed by this chap- ter which are directly connected with the production of the income referred to in clause (I). (5) Imposition of tax in case of failure to meet cer- tain requirements -If section 856(c)(7) applies to a real estate investment trust for any taxable year, there is hereby imposed on such trust a tax in an amount equal to the greater of- (A) the excess of- (i) 95 percent (90 percent in the case of * taxable years beginning before January 1, 1980) of the gross i ncome (excluding gross income from prohibited transactions) of the real estate investment trust, over (ii) the amount of such gross income which is derived from sources referred to in section 856(c)(2); or (B) the excess of- (i) 75 percent of the gross !ncome (ex- cluding gross income from prohibited transactions) of the real estate investment trust, over (ii) the amount of such gross income which is derived from sources referred to in section 856(c)(3), multiplied by a fraction the numerator of which is the real estate investment trust taxable income for the taxable year (deter- mined without regard to the deductions provided in paragraphs (2)(B) and (2)(E), without regard to any net operating loss de- duction, and by excluding any net capital gain) and the denominator of which is the gross income for the taxable year (exclud- ing gross income from prohibited transac- tions; gross income and gain from foreclo- sure property (as defined in section 856(e), but only to the extent such gross income and gain is not described in subparagraph (A), (B), (C), (D), (E), or (G) of section 856(c)(3)); long-term capital gain; and short- term capital gain to the extent of any short- term capital loss). (6) Income from prohibited transactions (A) Imposition of tax There is hereby imposed for each taxable yepr of every real estate investment trust a tax equal to 100 percent of the net income derived from prohibited transactions. (B) Definitions For purposes of this part- (i) the term "net income derived from prohibited transactions" means the excess of the gain from prohibited transactions over the deductions allowed by this chap- ter which are directly connected with pro- hibited transactions; (ii) the term "net loss derived from pro- hibited transactions" means the excess of the deductions allowed by this chapter which are directly connected with prohib- ited transactions over the gain from pro- hibited transactions; and (iii) the term "prohibited transaction" means a sale or other disposition of prop- erty described in section 1221(1) which is not foreclosure property. (7) Loss on sale or exchange of stock held less than 31 days If- (A) under subparagraph (B) of paragraph (3) a shareholder of, or a holder of a benefi- cial interest in, a real estate investment trust is required, with respect to any share or beneficial interest, to treat any amount as a long-term capital gain, and (B) such share or interest is held by the taxpayer for less than 31 days, then any loss on the sale or exchange of such share or interest shall, to the extent of the amount described in subparagraph (A) of this paragraph, be treated as loss from the sale or exchange of a capital asset held for more than 9 months. For purposes of this para- graph, the rules of section 246(c)(3) shall apply in determining whether any share of stock or beneficial interest has been held for less than 31 days; except that "30 days" shall be substituted for the number of days speci- fied in subparagraph (B) of section 246(c)(3). (c) Restrictions applicable to dividends received from real pstate investment trusts For purposes of section 116 (relating to an ex- clusion for dividends received by individuals) and section 243 (relating to deductions for divi- dends received by corporations), a dividend re- ceived from a real estate investment trust which meets the requirements of this part shall not be considered as a dividend. d) Earnings and profits The earnings and profits of a real estate in- vestment trust for any taxable year (but not its accumulated earnings and profits) shall not be reduced by any amount which is not allowable as a deduction in computing its taxable income for such taxable year. For purposes of this sub- section, the term "real estate investment trust" includes a domestic corporation, trust, or asso- ciation which is a real estate investment trust determined withbut regard to the requirements of subsection (a). (e) Cross reference For provisions relating to excise tax based on certain real estate investment trust taxable income not distribut- ed during the taxable year, see section 4981. (Added Pub. L. 86-779, § 10(a), Sept. 14, 1960, 74 Stat. 1006, and amended Pub. L. 88-272, title II, § 201(d)(11), Feb. 26, 1964, 78 Stat. 32, Pub. L. 91-172, title V, §511(c)(3), Dec. 30, 1969, 83 Stat. 637; Pub. L. 93-625, § 6(c), (d)(2)-(4), Jan. 3, 1975, 88 Stat. 2113, 2114; Pub. L. 94-455, title XIV, § 1402(b)(1)(P), title XVI, §§ 1601(c), 1602(b), 1603(b), (c)(5), 1604(c)(2), (f)(3)(B), (j), (k)(2)(B), 1605(b)(2), 1606(a), (d), 1607(a), (b)(1)(A), (2), (3), title XIX, §§ 1901(a)(112), 8 57 Page 550