A new income tax treaty override?

Senator Baucus’s proposal (below) to expand FIRPTA  for foreigners’ income seems to override a number of old (pre-FIRPTA) treaties.  It would tax sales of shares that the Code did not previously tax.

Since transactions that were blessed before would be taxed if the proposal passes, isn’t this a new treaty override?  Surely if we redefine USRPI to include sales of all U.S. corporations with any interest in real property, however contingent (interests including, say, deposits in a bank owning mortgages), we would override treaties anew.  Right?   Isn’t any expansion of the definition of USRPI a treaty violation?

3. Modifications to tax on foreign investments in United States real property interests (sec. 93 of the Common Provisions discussion draft and secs. 897 and 1445 of the Code) 

Explanation of Provision 

Modification to the rule that excepts certain stock from the definition of a USRPI 

The provision would modify the rule that stock of a corporation is not a USRPI on disposition if, as of the time of disposition, such corporation does not own any U.S. real property interests, and all of the U.S. real property interests held by such corporation at any time during the five-year period ending with the date of disposition (or the period after June 18, 1980, during which the interest was held, if shorter), were disposed of in transactions in which the full amount of gain (if any) was recognized. 

Under the provision, that rule would not apply to any interest in a corporation that is or was taxable as a REIT or RIC under subchapter M during the relevant time period, or that is a successor to a corporation taxable under subchapter M in which the taxpayer held an interest at any time during the five year period ending with the date of disposition of the interest in the successor. Thus, for example, no portion of recognized gain of such entity (or a predecessor) during the five-year period ending on the date of disposition can have been deductible to the corporation, or taxed to the corporation with such tax eligible to be refunded to nontaxable shareholders, under subchapter M. 

From JCT explanation of Baucus plan.

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