Category Archives: RICs, REITs and other Special Entities

PATH Act Brings FIRPTA Changes

▪ Written by
The Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”), signed December 18, 2015, introduces significant changes to the Foreign Investment in Real Property Tax Act (FIRPTA), particularly concerning REITs. The reforms are generally intended to make foreign investment in U.S. real estate more attractive, though some revenue-raising measures are thrown in the mix. Among the PATH Act's taxpayer-friendly FIRPTA updates: The ownership threshold for foreign “portfolio investors” in publicly traded REITs increases from 5% to 10%. These investors are exempt from FIRPTA tax [...]Read more

IRS Private Letter Ruling Holds that Pass-Through Interests in Mortgages Can Qualify as Registered Form Obligations

▪ Written by
In late January, the IRS issued a private letter ruling (P.L.R. 201504004) dealing with whether interests in a non-grantor trust and a partnership are considered to be in registered form, a precursor to qualification for payments thereon to the portfolio interest exemption. Although the ruling answers in the affirmative, it does not ultimately state whether the particular payments addressed in the ruling would be eligible for the portfolio interest exemption. To qualify for the portfolio interest exemption, and avoid U.S. withholding tax on payments of U.S.-source interest to a foreign person, [...]Read more

Letter Ruling Addresses C Corporation’s Conversion to a REIT

▪ Written by
The IRS recently released the letter ruling (PLR 201503010) that was likely issued to Iron Mountain, a US multinational document storage company, on its conversion to a REIT. The taxpayer in the ruling proposed retaining its leases and ownership interests in warehouse-like buildings and racking structures therein in the corporation that would elect REIT status and moving its document storage activities into taxable REIT subsidiaries. The letter ruling contained more than a dozen separate rulings, evincing the complexity of transitioning from a C corporation to a REIT, particularly when [...]Read more

REIT Real Property Regulation Proposed

▪ Written by
Prop. Reg. section 1.856-10 will define real property that will satisfy the income and asset requirements for REITs. It will replace Reg. section 1.856-3(d). It claims to be a clarification of existing law and not a modification that would cause significant reclassifications for existing REITs, and that seems to be true. It embodies the positions stated in the much briefer current regulation, plus several revenue rulings and letter rulings issued over the years. The regulation aims to rationalize the process of identifying real property so that REITs can decide for themselves whether they own [...]Read more

REIT Conversions

▪ Written by and
LTR 201314002 has caused quite a buzz in the investment community. Stock pickers want to know how far the envelope can be pushed on the definition of a real estate investment trust. The ruling seemed to allow it to be pushed fairly far, to include racks in buildings where computer servers are stored, called data centers. However, two companies in somewhat similar businesses recently filed information with the SEC indicating that the IRS was closely examining whether their real estate should receive REIT treatment. Facts A domestic consolidated group headed by a parent is now in the business of [...]Read more

Accelerating Income

▪ Written by and
LTR 201150023 allowed a taxpayer to obtain an exemption for income by voluntarily accelerating the income. The taxpayer is a REIT that converted from C corporation status and thereafter sold property (through disregarded entities) to a lower tier subsidiary of a taxable REIT subsidiary. The sale had been on the installment method taxed under section 453, evidently with no installment to be paid within the ten year recognition period for built in gain taxation under section 1374. However, due to the 2010 amendment to section 1374(d)(7)(B) to exempt certain gain recognized within the ten year period [...]Read more

Section 336(e) Alternative

▪ Written by and

The ruling treated an intra group sale of stock as if it were a qualified stock purchase, with the result that the assets in the sold corporaiton received a basis step up when the sold corporation was distributed to the shareholders and the original holding company was sold to a REIT that wanted the real estate assets of the original group.