In addition to funding the government through the remainder of the fiscal year ending September 30, 2018, the "Consolidated Appropriations Act, 2018" (the Act), enacted into law on March 23, 2018, contains several tax provisions, including tax technical corrections for bills other than the Tax Cuts and Jobs Act (the TCJA).

Items notable for the real estate industry include:

Low income housing credit

The Act increases the State housing credit ceiling on low income housing credits by 12.5% for 2018, 2019, 2020, and 2021. In addition, the Act adds a third optional test to the "20-50" and "40-60" tests for a qualified low-income housing project, and is effective for elections made after March 23, 2018. See Tax Alert 2018-0704 for more information.

FIRPTA

Section 897(l), as enacted by the "Protecting America from Tax Hikes Acts of 2015" (PATH Act), created an exemption from FIRPTA for "qualified foreign pension funds" as defined by the statute and created special rules under FIRPTA for "qualified shareholders." The Act includes technical corrections to these and certain other FIRPTA provisions, retroactively effective as if enacted under the PATH Act, including:

— A qualified foreign pension fund is not treated as a nonresident alien individual or as a foreign corporation for purposes of FIRPTA.

— An entity all of the interests, which are held by a qualified foreign pension fund, is treated as a qualified foreign pension fund.

— Qualified foreign pension funds can be established by a country or a political subdivision of a country or by one or more employers.

— Permissible beneficiaries of qualified foreign pension funds include employees, former employees, self-employed individuals, or persons designated by such employees, as a result of or in consideration for services rendered by such employees to their employers.

— The annual information reporting requirement by the qualified foreign pension fund to the relevant tax authorities in the country in which the qualified foreign pension fund is established or operates can be satisfied if such information is either provided, or is otherwise available, to the relevant tax authorities.

— The investment income of the qualified foreign pension fund can be excluded from its gross income or taxed at a reduced rate.

— The definition of a collective investment vehicle under Section 897(k) is clarified.

— The application of the PATH Act's rules on domestically controlled REIT determinations to testing periods ending after the enactment of the PATH Act is clarified.

REIT ancillary personal property and other REIT technical corrections

Section 856(c)(9)(A), as enacted under the PATH Act, provides that personal property is treated as a qualifying real estate asset for purposes of the REIT 75% asset test to the extent that rents attributable to such personal property (which is leased in connection with real property) are treated as rents from real property under the 15% ancillary personal property test of Section 856(d)(1)(C). The Act includes a technical correction to clarify that gain on the disposition of such ancillary personal property is treated as qualifying gain from the disposition of real property for purposes of the REIT 75% and 95% income tests, provided the personal property is leased in connection with real property for one year or more, and the FMV at the time of sale does not exceed 15% of the personal and real property sold. This technical correction is retroactively effective as if enacted under the PATH Act.

Section 856(c)(9)(B), as enacted under the PATH Act, provides that if a mortgage loan receivable is secured by a mortgage on both real property and personal property, and if the fair market value of the personal property does not exceed 15% of the total fair market value of all the secured property, the personal property is effectively treated as real property in assessing whether the mortgage loan is treated as a qualifying mortgage loan (in its entirety) for purposes of the REIT 75% asset test. The personal property also is effectively treated as real property for purposes of determining whether the interest income derived from the mortgage loan is treated as qualifying interest from a mortgage obligation for purposes of the REIT 75% income test. The Act includes a technical correction to clarify that gain on the disposition of such a mortgage loan is also treated as a qualifying gain from the disposition of a mortgage obligation for purposes of the REIT 75% and 95% income tests. This technical correction is retroactively effective as if enacted under the PATH Act.

The Act also makes clerical corrections to several REIT provisions, including correcting a cross-cite in Section 856(c)(7)(B) (which contains a relief provision for de minimis asset test failures) to properly cross-cite to the 5% and 10% asset tests described in Section 856(c)(4)(B)(iv).

Partnership centralized audit regime

The Act includes an extensive set of technical corrections to the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015, relating to issues that include: scope of adjustments to partnership audit rules, determination of imputed underpayments, alternative procedure to filing amended returns for purposes of modifying imputed underpayments, treatment of passthrough partners in tiered structures, treatment of failure of partnership to pay imputed underpayment, and other technical corrections. See the forthcoming Partnership Alert for more information.

Implications

Real estate owners and advisors will want to review and understand the implications of these newly enacted provisions affecting the real estate industry. The FIRPTA changes provide much welcomed guidance, particularly with respect to government-sponsored foreign pension funds. There is still much uncertainty as to when Congress may enact a technical corrections bill addressing the TCJA.

———————————————