§ 897.  Disposition of investment in United States real property.

(a) General rule.
   (1) Treatment as effectively connected with United States trade or business. For purposes of this title, gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a United States real property interest shall be taken into account--
      (A) in the case of a nonresident alien individual, under section 871([b])(1), or
      (B) in the case of a foreign corporation, under section 882(a)(1),
   as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business.
   (2) Minimum tax on nonresident alien individuals.
      (A) In general. In the case of any nonresident alien individual, the taxable excess for purposes of section 55(b)(1)(A) shall not be less than the lesser of--
         (i) the individual's alternative minimum taxable income (as defined in section 55(b)(2)) for the taxable year, or
         (ii) the individual's net United States real property gain for the taxable year.
      (B) Net United States real property gain. For purposes of subparagraph (A), the term "net United States real property gain" means the excess of--
         (i) the aggregate of the gains for the taxable year from dispositions of United States real property interests, over
         (ii) the aggregate of the losses for the taxable year from dispositions of such interests.
 
(b) Limitation on losses of individuals. In the case of an individual, a loss shall be taken into account under subsection (a) only to the extent such loss would be taken into account under section 165(c) (determined without regard to subsection (a) of this section).
 
(c) United States real property interest. For purposes of this section
   (1) United States real property interest.
      (A) In general. Except as provided in subparagraph (B), the term "United States real property interest" means--
         (i) an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the Virgin Islands, and
         (ii) any interest (other than an interest solely as a creditor) in any domestic corporation unless the taxpayer establishes (at such time and in such manner as the Secretary by regulations prescribes) that such corporation was at no time a United States real property holding corporation during the shorter of--
            (I) the period after June 18, 1980, during which the taxpayer held such interest, or
            (II) the 5-year period ending on the date of the disposition of such interest.
      (B) Exclusion for interest in certain corporations. The term "United States real property interest" does not include any interest in a corporation if--
         (i) as of the date of the disposition of such interest, such corporation did not hold any United States real property interests, and
         (ii) all of the United States real property interests held by such corporation at any time during the shorter of the periods described in subparagraph (A)(ii)--
            (I) were disposed of in transactions in which the full amount of the gain (if any) was recognized, or
            (II) ceased to be United States real property interests by reason of the application of this subparagraph to 1 or more other corporations.
   (2) United States real property holding corporation. The term "United States real property holding corporation" means any corporation if--
      (A) the fair market value of its United States real property interests equals or exceeds 50 percent of
      (B) the fair market value of--
         (i) its United States real property interests,
         (ii) its interests in real property located outside the United States, plus
         (iii) any other of its assets which are used or held for use in a trade or business.
   (3) Exception for stock regularly traded on established securities markets. If any class of stock of a corporation is regularly traded on an established securities market, stock of such class shall be treated as a United States real property interest only in the case of a person who, at some time during the shorter of the periods described in paragraph (1)(A)(ii), held more than 5 percent of such class of stock.
   (4) Interests held by foreign corporations and by partnerships, trusts, and estates. For purposes of determining whether any corporation is a United States real property holding corporation--
      (A) Foreign corporations. Paragraph (1)(A)(ii) shall be applied by substituting "any corporation (whether foreign or domestic)" for "any domestic corporation".
      (B) Assets held by partnerships, etc. Under regulations prescribed by the Secretary, assets held by a partnership, trust, or estate shall be treated as held proportionately by its partners or beneficiaries. Any asset treated as held by a partner or beneficiary by reason of this subparagraph which is used or held for use by the partnership, trust, or estate in a trade or business shall be treated as so used or held by the partner or beneficiary. Any asset treated as held by a partner or beneficiary by reason of this subparagraph shall be so treated for purposes of applying this subparagraph successively to partnerships, trusts, or estates which are above the first partnership, trust, or estate in a chain thereof.
   (5) Treatment of controlling interests.
      (A) In general. Under regulations, for purposes of determining whether any corporation is a United States real property holding corporation, if any corporation (hereinafter in this paragraph referred to as the "first corporation") holds a controlling interest in a second corporation--
         (i) the stock which the first corporation holds in the second corporation shall not be taken into account,
         (ii) the first corporation shall be treated as holding a portion of each asset of the second corporation equal to the percentage of the fair market value of the stock of the second corporation represented by the stock held by the first corporation, and
         (iii) any asset treated as held by the first corporation by reason of clause (ii) which is used or held for use by the second corporation in a trade or business shall be treated as so used or held by the first corporation.
      Any asset treated as held by the first corporation by reason of the preceding sentence shall be so treated for purposes of applying the preceding sentence successively to corporations which are above the first corporation in a chain of corporations.
      (B) Controlling interest. For purposes of subparagraph (A), the term "controlling interest" means 50 percent or more of the fair market value of all classes of stock of a corporation.
   (6) Other special rules.
      (A) Interest in real property. The term "interest in real property" includes fee ownership and co-ownership of land or improvements thereon, leaseholds of land or improvements thereon, options to acquire land or improvements thereon, and options to acquire leaseholds of land or improvements thereon.
      (B) Real property includes associated personal property. The term "real property" includes movable walls, furnishings, and other personal property associated with the use of the real property.
      (C) Constructive ownership rules. For purposes of determining under paragraph (3) whether any person holds more than 5 percent of any class of stock and of determining under paragraph (5) whether a person holds a controlling interest in any corporation, section 318(a) shall apply (except that paragraphs (2)(C) and (3)(C) of section 318(a) shall be applied by substituting "5 percent" for "50 percent").
 
(d) Treatment of distributions by foreign corporations.
   (1) In general. Except to the extent otherwise provided in regulations, notwithstanding any other provision of this chapter, gain shall be recognized by a foreign corporation on the distribution (including a distribution in liquidation or redemption) of a United States real property interest in an amount equal to the excess of the fair market value of such interest (as of the time of the distribution) over its adjusted basis.
   (2) Exceptions. Gain shall not be recognized under paragraph (1)--
      (A) if--
         (i) at the time of the receipt of the distributed property, the distributee would be subject to taxation under this chapter on a subsequent disposition of the distributed property, and
         (ii) the basis of the distributed property in the hands of the distributee is no greater than the adjusted basis of such property before the distribution, increased by the amount of gain (if any) recognized by the distributing corporation, or
      (B) if such nonrecognition is provided in regulations prescribed by the Secretary under subsection (e)(2).
 
(e) Coordination with nonrecognition provisions.
   (1) In general. Except to the extent otherwise provided in subsection (d) and paragraph (2) of this subsection, any nonrecognition provision shall apply for purposes of this section to a transaction only in the case of an exchange of a United States real property interest for an interest the sale of which would be subject to taxation under this chapter.
   (2) Regulations. The Secretary shall prescribe regulations (which are necessary or appropriate to prevent the avoidance of Federal income taxes) providing--
      (A) the extent to which nonrecognition provisions shall, and shall not, apply for purposes of this section, and
      (B) the extent to which--
         (i) transfers of property in reorganization, and
         (ii) changes in interests in, or distributions from, a partnership, trust, or estate,
      shall be treated as sales of property at fair market value.
   (3) Nonrecognition provision defined. For purposes of this subsection, the term "nonrecognition provision" means any provision of this title for not recognizing gain or loss.
 
(f) [Deleted]
 
(g) Special rule for sales of interest in partnerships, trusts, and estates. Under regulations prescribed by the Secretary, the amount of any money, and the fair market value of any property, received by a nonresident alien individual or foreign corporation in exchange for all or part of its interest in a partnership, trust, or estate shall, to the extent attributable to United States real property interests, be considered as an amount received from the sale or exchange in the United States of such property.
 
(h) Special rules for REITS. For purposes of this section--
   (1) Look-through of distributions. Any distribution by a REIT to a nonresident alien individual or a foreign corporation shall, to the extent attributable to gain from sales or exchanges by the REIT of United States real property interests, be treated as gain recognized by such nonresident alien individual or foreign corporation from the sale or exchange of a United States real property interest.
   (2) Sale of stock in domestically-controlled REIT not taxed. The term "United States real property interest" does not include any interest in a domestically-controlled REIT.
   (3) Distributions by domestically-controlled REITS. In the case of a domestically-controlled REIT, rules similar to the rules of subsection (d) shall apply to the foreign ownership percentage of any gain.
   (4) Definitions.
      (A) REIT. The term "REIT" means a real estate investment trust.
      (B) Domestically-controlled REIT. The term "domestically-controlled REIT" means a REIT in which at all times during the testing period less than 50 percent in value of the stock was held directly or indirectly by foreign persons.
      (C) Foreign ownership percentage. The term "foreign ownership percentage" means that percentage of the stock of the REIT which was held (directly or indirectly) by foreign persons at the time during the testing period during which the direct and indirect ownership of stock by foreign persons was greatest.
      (D) Testing period. The term "testing period" means whichever of the following periods is the shortest:
         (i) the period beginning on June 19, 1980, and ending on the date of the disposition or of the distribution, as the case may be,
         (ii) the 5-year period ending on the date of the disposition or of the distribution, as the case may be, or
         (iii) the period during which the REIT was in existence.
 
(i) Election by foreign corporation to be treated as domestic corporation.
   (1) In general. If--
      (A) a foreign corporation holds a United States real property interest, and
      (B) under any treaty obligation of the United States the foreign corporation is entitled to nondiscriminatory treatment with respect to that interest, then such foreign corporation may make an election to be treated as a domestic corporation for purposes of this section, section 1445, and section 6039C.
   (2) Revocation only with consent. Any election under paragraph (1), once made, may be revoked only with the consent of the Secretary.
   (3) Making of election. An election under paragraph (1) may be made only--
      (A) if all of the owners of all classes of interests (other than interests solely as a creditor) in the foreign corporation at the time of the election consent to the making of the election and agree that gain, if any, from the disposition of such interest after June 18, 1980, which would be taken into account under subsection (a) shall be taxable notwithstanding any provision to the contrary in a treaty to which the United States is a party, and
      (B) subject to such other conditions as the Secretary may prescribe by regulations with respect to the corporation or its shareholders.
   In the case of a class of interest (other than an interest solely as a creditor) which is regularly traded on an established securities market, the consent described in subparagraph (A) need only be made by any person if such person held more than 5 percent of such class of interest at some time during the shorter of the periods described in subsection (c)(1)(A)(ii). The constructive ownership rules of subsection (c)(6)(C) shall apply in determining whether a person held more than 5 percent of a class of interest.
   (4) Exclusive method of claiming nondiscrimination. The election provided by paragraph (1) shall be the exclusive remedy for any person claiming discriminatory treatment with respect to this section, section 1445, and section 6039C.
 
(j) Certain contributions to capital. Except to the extent otherwise provided in regulations, gain shall be recognized by a nonresident alien individual or foreign corporation on the transfer of a United States real property interest to a foreign corporation if the transfer is made as paid in surplus or as a contribution to capital, in the amount of the excess of --
   (1) the fair market value of such property transferred, over
   (2) the sum of--
      (A) the adjusted basis of such property in the hands of the transferor, plus
      (B) the amount of gain, if any, recognized to the transferor under any other provision at the time of the transfer.

HISTORY; ANCILLARY LAWS AND DIRECTIVES
 
Amendments:
   In 1996, P.L. 104-188, Sec. 1702(g)(2) (effective as if included in the provision of P.L. 101-508 to which the amendment relates, as provided by Sec. 1702(i), which appears as 26 USCS § 38 note), deleted subsec. (f), which read:
   "(f) Distributions by domestic corporations to foreign shareholders. If a domestic corporation distributes a United States real property interest to a nonresident alien individual or a foreign corporation in a distribution to which section 301 applies, notwithstanding any other provision of this chapter, the basis of such United States real property interest in the hands of such nonresident alien individual or foreign corporation shall not exceed--
      "(1) the adjusted basis of such property before the distribution, increased by
      "(2) the sum of --
         "(A) any gain recognized by the distributing corporation on the distribution, and
         "(B) any tax paid under this chapter by the distributee on such distribution.".
   In 1993, P.L. 103-66, Sec. 13203(c) (applicable to taxable years beginning after 12/31/92, as provided by Sec. 13203(d)), amended subsec. (a)(2) by deleting "21-percent" preceding "Minimum" in the heading, and by substituting "the taxable excess for purposes of section 55(b)(1)(A) shall not be less than" for "the amount determined under section 55(b)(1)(A) shall not be less than 21 percent of" in subpara. (A).
   In 1990, P.L. 101-508, Sec. 11801(a)(30), repealed subsec. (k), effective 11/5/90 except as provided in Sec. 11821(b) of this Act, reproduced in note following Code Sec. 861.
   Prior to repeal, subsec. (k) read as follows:
   "(k) Foreign corporations acquired before enactment.
      "If--
      "(1) a foreign corporation adopts, or has adopted, a plan of liquidation described in section 334(b)(2)(A), and
      "(2) the 12-month period described in section 334(b)(2)(B) for the acquisition by purchase of the stock of the foreign corporation, began after December 31, 1979, and before November 26, 1980.
   then such foreign corporation may make an election to be treated, for the period following June 18, 1980, as a domestic corporation pursuant to section 897(i)(1). Notwithstanding an election under the preceding sentence, any selling shareholder of such corporation shall be considered to have sold the stock of a foreign corporation."
   In 1988, P.L. 100-647, Sec. 1006(e)(19), repealed subsec. (1), effective for any distribution incomplete liquidation, and any sale or exchange, made by a corporation after 7/31/86, unless such corporation is completely liquidated before 1/1/87. For special rules, see Sec. 633(c), (d)(1)-(6), (e), (f), (g) of P.L. 99-514 reproduced in note following Code Sec. 336.
   Prior to repeal, subsec. (1) read as follows:
   "(l) Special rule for certain United States shareholders of liquidating foreign corporations.
      "If a corporation adopts a plan of complete liquidation and if, solely by reason of section 897(d), section 337(a) does not apply to sales or exchanges, or section 336 does not apply to distributions, of United States real property interests by such corporation, then, in the case of any shareholder who is a United States citizen or resident and who has held stock in such corporation continuously since June 18, 1980, for the first taxable year of such shareholder in which he receives a distribution in complete liquidation with respect to such stock--
      "(1) the amount realized by such shareholder on the distribution shall be increased by his proportionate share of the amount by which the tax imposed by this subtitle on such corporation would have been reduced if section 897(d) had not been applicable, and
      "(2) for purposes of this title, such shareholder shall be deemed to have paid, on the last day prescribed by law for the payment of the tax imposed by this subtitle on such shareholder for such taxable year, an amount of tax equal to the amount of the increase described in paragraph (1)."
   --P.L. 100-647, Sec. 1012(m)(1), deleted "and" at the end of Sec. 1228(a)(3) of P.L. 99-514, amended Sec. 1228(a)(4) of P.L. 99-514 and added Secs. 1228(a)(5) through (a)(6) of P.L. 99-514 and added the sentence at the end of Sec. 1228(a) of P.L. 99-514 . . . Sec. 1012(m)(2), repealed Sec. 1228(c) of P.L. 99-514. Amendments above apply to the special rules for applying Code Sec. 897, reproduced below.
   Prior to amendment, Sec. 1228(a)(4) of P.L. 99-514 read as follows:
      "(4) an election under this section applies to such transfer, sale, exchange, or other disposition."
   Prior to repeal, Sec. 1228(c) of P.L. 99-514 read as follows:
   "(c) Election. An election under this section shall be made at such time and in such manner as the Secretary of the Treasury or his delegate may prescribe, and an election under this section may only be made with respect to 1 transfer, sale, exchange, or other disposition."
   In 1986, P.L. 99-514, Sec. 631(e)(12)(A), deleted para. (d)(2) . . . Sec. 631(e)(12)(B), deleted the heading of para. (d)(1) . . . Sec. 631(e)(12)(C), redesignated subpara. (d)(1)(A) as para. (d)(1), redesignated subpara. (d)(1)(B) as para. (d)(2), redesignated clause (d)(1)(B)(i) as subpara. (d)(2)(A), redesignated subclauses (d)(1)(B)(i)(I) and (II) as clauses (d)(2)(A)(i) and (ii), redesignated clause (d)(1)(B)(ii) as subpara. (d)(2)(B) . . . Sec. 631(e)(12)(D), substituted "paragraph (1)" for "subparagraph (A)" in para. (d)(2) [as redesignated by Sec. 631(e)(12)(C) of this Act, see above] . . . Sec. 631(e)(12)(E), deleted ", etc.," after "distributions" in heading of subsec. (d), effective as provided in Secs. 633(c), (d)(1) - (d)(6), (e), (f) and (g) of this Act, reproduced in note following Code Sec. 336, and as provided in Sec. 633(a) of this Act which reads as follows:
   "(a) General rule.
   Except as otherwise provided in this section, the amendments made by this subtitle shall apply to--
      "(1) any distribution in complete liquidation, and any sale or exchange, made by a corporation after July 31, 1986, unless such corporation is completely liquidated before January 1, 1987,
      "(2) any transaction described in section 338 of the Internal Revenue Code of 1986 for which the acquisition date occurs after December 31, 1986, and
      "(3) any distribution (not in complete liquidation) made after December 31, 1986."
   Prior to deletion, para. (d)(2) read as follows:.
      "(2) Section 337 not to apply. Section 337 shall not apply to any sale or exchange of a United States real property interest by a foreign corporation."
   Prior to deletion, the heading of para. (d)(1) read as follows:
      "(1) Distributions."
   --P.L. 99-514, Sec. 701(e)(4)(G), amended the heading of para. (a)(2) and subpara. (a)(2)(A), effective for tax. yrs. begin. after 12/31/86.
   Prior to amendment, the heading of para. (a)(2) and subpara. (a)(2)(A) read as follows:
      "(2) 20-Percent minimum tax on nonresident alien individuals.
         "(A) In General. In the case of any nonresident alien individual, the amount determined under section 55(a)(1) for the taxable year shall not be less than 20 percent of the lesser of--
            "(i) the individual's alternative minimum taxable income (as defined in section 55(b)) for the taxable year, or
            "(ii) the individual's net United States real property gain for the taxable year."
   --P.L. 99-514, Sec. 1228, [as amended by Secs. 1012(m)(1) and 1012(m)(2) of P.L. 100-647, see above], provides as follows:
   "Sec. 1228. Special rule for applying section 897.
   "(a) In general.--
      "For purposes of section 897 of the Internal Revenue Code of 1986, gain shall not be recognized on the transfer, sale, exchange, or other disposition, of shares of stock of a United States real property holding company, if--
      "(1) such United States real property holding company is a Delaware corporation incorporated on January 17, 1984,
      "(2) the transfer, sale, exchange, or other disposition is to any member of a qualified ownership group,
      "(3) the recipient of the share of stock elects, for purposes of such section 897, a carryover basis in the transferred shares, and
      "(4) the transfer, sale, exchange, or other disposition is part of a single integrated plan, whereby the stock of the corporation described in paragraph (1) becomes owned directly by the 2 corporations specifically referred to in subsection (b) or by such 2 corporations and by 1 or both of their jointly owned direct subsidiaries,
      "(5) within 20 days after each transfer sale, exchange, or other disposition, the person making such transfer, sale, exchange, or other disposition notifies the Internal Revenue Service of the transaction, the date of the transaction, the basis of the stock involved, the holding period for such stock, and such other information as the Internal Revenue Service may require, and
      "(6) the integrated plan is completed before the date 4 years after the date of the enactment of the Technical and Miscellaneous Revenue Act of 1988. In the case of any underpayment attributable to a failure to meet any requirement of this subsection, the period during which such underpayment may be assessed shall in no event expire before the date 5 years after the date of the enactment of the Technical and Miscellaneous Revenue Act of 1988.
   "(b) Member of a qualified ownership group.--
      For purposes of this section, the term "member of a qualified ownership group" means a corporation incorporated on June 16, 1890, under the laws of the Netherlands or a corporation incorporated on October 18, 1897, under the laws of the United Kingdom or any corporation owned directly or indirectly by either or both such corporations.
   "(c) Election.-- [Repealed by Sec. 1012(m)(2) of P.L. 100-647, see above]
   "(d) Effective date.--
      "The provisions of this section shall take effect on the date of the enactment of this section."
   --P.L. 99-514, Sec. 1810(f)(1)(A), substituted ", section 1445, and section 6039C" for "and section 6039C" in para. (i)(1) . . . Sec. 1810(f)(1)(B), substituted "this section, section 1445, and section 6039C" for "this section and section 6039C" in para. (i)(4), effective for any disposition on or after 1/1/85.
   In 1983, P.L. 97-448, Sec. 306(a)(1)(A)(i), redesignated the second Sec. 201(c) of P.L. 97-248 as Sec. 201(d) of P.L. 97-248, see below.
   In 1982, P.L. 97-248, Sec. 201(d)(6), [as redesignated by Sec. 306(a)(1)(A)(i) of P.L. 97-448, see above] amended subpara. (a)(2)(A), effective for tax. yrs. begin. after 12/31/82.
   Prior to amendment, subpara. (a)(2)(A) read as follows:
         "(A) In general. In the case of any nonresident alien individual, the amount determined under section 55(a)(1)(A) for the taxable year shall not be less than 20 percent of whichever of the following is the least:
            "(i) the individual's alternative minimum taxable income (as defined in section 55(b)(1)) for the taxable year,
            "(ii) the individual's net United States real property gain for the taxable year, or (iii) $ 60.000."
   In 1981, P.L. 97-34, Sec. 831(a)(1), substituted "United States or the Virgin Islands" for "United States" in clause (c)(1)(A)(i) . . . Sec. 831(b), amended subpara. (c)(4)(B) . . . Sec. 831(c), amended subpara. (d)(1)(B) . . . Sec. 831(d), amended subsec. (i) . . . Sec. 831(f), added subsec. (j) . . . Sec. 831(g), added subsecs. (k) and (l) . . . Sec. 831(h), amended Sec. 1125[(c)](2)(B) of P.L. 96-499 [part of the effective date for amendment made by Sec. 1122(a) of P.L. 96-499, see below] effective for dispositions after 6/18/80 in tax. yrs. end. after 6/18/80.
   Prior to amendment, subpara. (c)(4)(B) read as follows:
         "(B) Interests held by partnerships, etc. United States real property interests held by a partnership, trust, or estate shall be treated as owned proportionately by its partners or beneficiaries."
   Prior to amendment, subpara. (d)(1)(B) read as follows:
         "(B) Exception where there is a carryover basis. Subparagraph (A) shall not apply if the basis of the distributed property in the hands of the distributee is the same as the adjusted basis of such property before the distribution increased by the amount of any gain recognized by the distributing corporation."
   Prior to amendment, subsec. (i) read as follows:
   "(i) Election by foreign corporation to be treated as domestic corporation
      "(1) In general. If--
         "(A) a foreign corporation has a permanent establishment in the United States, and
         "(B) under any treaty, such permanent establishment may not be treated less favorably than domestic corporations carrying on the same activities,
   then such foreign corporation may make an election to be treated as a domestic corporation for purposes of this section and section 6039C.
      "(2) Revocation only with consent. An election under paragraph (1), once made, may be revoked only with the consent of the Secretary.
      "(3) Making of election. An election under paragraph (1) may be made only subject to such conditions as may be prescribed by the Secretary."
   Prior to amendment, Sec. 1125(c)(2)(B) of P.L. 96-499 read as follows:
         "(B) the new treaty is signed before January 1, 1985, then paragraph (1) shall be applied with respect to obligations under the old treaty by substituting for "December 31, 1984" the date (not later than 2 years after the new treaty was signed) specified in the new treaty (or accompanying exchange of notes)."
   In 1980, P.L. 96-499, Sec. 1122(a), added Code Sec. 897, effective for dispositions after 6/18/80. Secs. 1125(c) [as amended by Sec. 831(h) of P.L. 97-34, see above] and (d) this Act provide:
   "(c) Special rule for treaties.--
      "(1) In general. Except as provided in paragraph (2), after December 31, 1984, nothing in section 894(a) or 7852(d) of the Internal Revenue Code of 1954 or in any other provision of law shall be treated as requiring, by reason of any treaty obligation of the United States, an exemption from (or reduction of) any tax imposed by section 871 or 882 of such Code on a gain described in section 897 of such Code.
      "(2) Special rule for treaties renegotiated before 1985. If--
         "(A) any treaty (hereinafter in this paragraph referred to as the "old treaty") is renegotiated to resolve conflicts between such treaty and the provisions of section 897 of the Internal Revenue Code of 1954, and
         "(B) the new treaty is signed on or after January 1, 1981, and before January 1, 1985,
   then paragraph (1) shall be applied with respect to obligations under the old treaty by substituting for "December 31, 1984" the date (not later than 2 years after the new treaty was signed) specified in the new treaty (or accompanying exchange of notes)."
   "(d) Adjustment in basis for certain transactions between related persons.--
      "(1) In general. In the case of any disposition after December 31, 1979, of a United States real property interest (as defined in section 897(c) of the Internal Revenue Code of 1954) to a related person (within the meaning of section 453(f)(1) of such Code), the basis of the interest in the hands of the person acquiring it shall be reduced by the amount of any nontaxed gain.
      "(2) Nontaxed gain. For purposes of paragraph (1), the term "nontaxed gain" means any gain which is not subject to tax under section 871(b)(1) or 882(a)(1) of such Code--
         "(A) because the disposition occurred before June 19, 1980, or
         "(B) because of any treaty obligation of the United States."

NOTES:
 
                          CODE OF FEDERAL REGULATIONS
   Nonresident aliens and foreign corporations--miscellaneous provisions, 26 CFR §§ 1.891 et seq. 
 
                               CROSS REFERENCES
   Treatment of nonresident aliens and foreign corporations with respect to real estate mortgage investment conduits, 26 USCS § 860G(b).
   Determination of amount of and recognition of gain or loss, 26 USCS §§ 1001 et seq.
   Basis rules of general application, 26 USCS §§ 1011 et seq. 
 
                                RESEARCH GUIDE 
Am Jur:
   33 Am Jur 2d, Federal Taxation (1999) P 1552.
   33 Am Jur 2d, Federal Taxation (1998) P 1552.
   33 Am Jur 2d, Federal Taxation (1997) P 1552.
   33 Am Jur 2d, Federal Taxation (1996) P 1552.
   33 Am Jur 2d, Federal Taxation (1995) P 1552.
   33A Am Jur 2d, Federal Taxation (1999) P 5001.
   33A Am Jur 2d, Federal Taxation (1998) P 5001.
   34 Am Jur 2d, Federal Taxation (1999) PP 30551-30555, 30557-30559, 30561, 30564, 30656.
   34 Am Jur 2d, Federal Taxation (1998) PP 30551-30555, 30557-30559, 30561, 30564, 30656.
   34 Am Jur 2d, Federal Taxation (1997) PP 30551-30558, 30561, 30564.
   34 Am Jur 2d, Federal Taxation (1996) PP 30551-30556, 30558, 30559, 30561, 30564.
   34 Am Jur 2d, Federal Taxation (1995) P P 30551-30556, 30558, 30559, 30561, 30564. 
 
Immigration:
   2A Immigration Law Service, Taxation § 26:22. 
 
RIA Coordinators:
   19A Fed Tax Coord 2d P P O-10114, 10450-10486, 10852.
   2 Partnership & S Corp Coord, S Corporations P 39,627. 
 
Law Review Articles:
   Pedersen and Sharp. Real Estate Investments by Foreign Persons After the Foreign Investment in Real Property Tax Act of 1980. 11 Real Estate L J 47, Summer, 1982.

                        INTERPRETIVE NOTES AND DECISIONS
   Foreign corporation realizes capital gain from sale of installment note which corporation received in connection with sale of its interest in United States real estate; since corporation failed to elect out of installment sale treatment with respect to note, its interest in installment obligation is interest other than solely as creditor. Botai Corp., N.V. v Commissioner (1990) TC Memo 1990-475, 60 TCM 681.
   Where foreign corporation owning a United States real property in trust liquidates into United States real property holding company, it must recognize gain on distribution of real property interest in amount equal to difference between fair market value and foreign corporation's adjusted basis prior to distribution, unless foreign corporation had validly elected under § 897(i) to be treated as domestic corporation, in which case no gain recognition would be required since United States real property holding company would take foreign corporation's adjusted basis in United States real property interest under § 334(b)(1). Rev Rul 87-66, 1987-2 CB 168.
   Treaty between United States and Argentina, which reciprocally excludes from taxation in one country international shipping income derived by enterprise of other country, does not apply to gains realized upon sale of United States real property by Argentinian shipping enterprise; exclusion of international shipping income is limited to shipping income, and does not include nonshipping income. Rev Rul 90-37, 1990-17 IRB 9.
   Foreign corporation is not required to recognize gain realized on distribution of United States real property interest pursuant to subsidiary liquidation provided that domestic corporation which is parent owns 80 percent of voting stock and value of foreign corporation. Rev Proc 90-19, 1990-14 IRB 17.
   Corporation organized under laws of Guam is foreign corporation for purposes of 26 USCS § 897 and therefore gain or loss from disposition of United States real estate must be taken into account under 26 USCS § 882; further, Guamanian corporation is subject to reporting requirements of 26 USCS § 6039C. Rev Rul 82-114, 1982-1 CB 104.
   Under 26 USCS § 897(e), when foreign corporation exchanges one U.S. real property interest for another U.S. real property, in transaction qualifying under 26 USCS § 351, sale of which will be subject to U.S. taxation, nonrecognition provision of § 351 will apply for purposes of § 897. Rev Rul 84-160, 1984-2 CB 125.