Disallowance of indirect deduction through pass-thru entity

The Secretary shall prescribe regulations which prohibit the indirect deduction through pass-thru entities of amounts which are not allowable as a deduction if paid or incurred directly by an individual and which contain such reporting requirements as may be necessary to carry out the purposes of this subsection.

(A) In general Paragraph (1) shall not apply with respect to any publicly offered regulated investment company.

(B) Publicly offered regulated investment companies For purposes of this subsection— (i) In general The term “publicly offered regulated investment company” means a regulated investment company the shares of which are— (I) continuously offered pursuant to a public offering (within the meaning of section 4 of the Securities Act of 1933, as amended ( 15 U.S.C. 77a to 77aa)), (II) regularly traded on an established securities market, or (III) held by or for no fewer than 500 persons at all times during the taxable year. (ii) Secretary may reduce 500 person requirement The Secretary may by regulation decrease the minimum shareholder requirement of clause (i)(III) in the case of regulated investment companies which experience a loss of shareholders through net redemptions of their shares.

Paragraph (1) shall not apply—

(A) with respect to cooperatives and real estate investment trusts, and

(B) except as provided in regulations, with respect to estates and trusts.