Taghouse of representatives

Ryan Says Tax Reform Coming, But Later This Year

Capitol buildingBy: Amanda Wilson

On Friday, House Speaker Ryan stated publicly that tax reform legislation will be included in one of two must pass budget resolutions this year, but it will be included in the fiscal 2018 budget resolution rather than in the earlier fiscal 2017 budget resolution.  So per Speaker Ryan, reform legislation is coming, but later in the year.

Speaker Ryan also stated that the Affordable Care Act repeal legislation will be included in the earlier fiscal 2017 budget resolution.

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!

Carried Interests – Here We Go Again

Capitol buildingBy:  Amanda Wilson

Following up on last week’s blog post on carried interests, a new bill was introduced Friday in the House of Representatives targeting carried interests.  This bill, H.R. 2889, is titled the Carried Interest Fairness Act of 2015.  One of the main consequences of the bill is that, if enacted into law, partners that provide investment management services to an investment partnership would find their distributive shares of capital gains recharacterized as ordinary income .

This is not the first time that legislation has been introduced targeting carried interests and, if unsuccessful, it is unlikely to be the last.  Carried interest income continues to be a target of the Obama administration and members of Congress.

For now, we will monitor this bill and let you know if there are any developments.

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