Tagextenders

REITs Targeted In Extenders Bill

Capitol buildingBy:   Amanda Wilson

Earlier this year, I discussed the IRS’s recent no rule policy on spin-offs, and how that would likely have a chilling impact on spin-offs, particularly the common practice of businesses spinning off their real estate in a REIT (discussed here).  My prediction is coming true as this week Yahoo announced that it was cancelling its Alibaba spin-off since it could not get an IRS private letter ruling that the spin-off would be tax-free.

Well, REITs are being further targeted.  Yesterday, a two-year tax extenders bill was introduced in the House.  This was not a surprise.  The surprise was that the bill includes two provisions that will have major impacts on REITs.  First, the bill provides that a spin-off of a REIT will only be tax free if, immediately after the distribution, both the distributing and controlled corporations were REITs (the IRS no rule policy had a similar provision).  So a REIT can divide and spin-off its assets, but existing C corporations would no longer be able to spin-off their real estate in a REIT.  If enacted, this provision would currently apply to deals in progress.  In other words, any spin-offs currently in the planning stage wouldnot be grandfathered in and would be killed by this bill.

The bill also introduces a new rule that targets fixed percentage rent and interest income received from a related party.  If a REIT receives such rent or income from a single C corporation tenant and it exceeds 25% of the combined rent and interest income received by the REIT, the new bill would provide that this income no longer qualifies as rents from real property and interest (i.e., is no longer good REIT income).

Stay tuned to see what happens!

Extenders Bill Expected in the House

Capitol buildingBy:  Amanda Wilson

It seems that this time every year, Congress struggles with whether it will pass temporary tax breaks referred to as “tax extenders” (see discussion of last year’s extenders package here).  As we count down the days to 2016, we once again find ourselves in this position.  There had been some talk about Congress passing a permanent extenders package so that we would not do this annual dance, but this talk has gone nowhere so far.

Yesterday, the republican members of the House Ways and Means committee (the committee charged with tax issues in the House of Republicans) indicated that the dance is about to start again.  They plan introduce a two-year tax extenders bill shortly.  Hopefully this will spur the discussions and provide taxpayers with some tax relief as a nice holiday gift.

Stay tuned!

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