The PATH Act Brings Important REIT Changes

New law ahead road signBY:  Amanda Wilson

The recently enacted PATH Act included several important changes to the REIT tax rules.  A full discussion of these changes can be found here.



IRS No Rule Policy Expected to Cool Down Spin-offs

By:  Amanda Wilson

On Monday, the IRS released Notice 2015-59.  In it, the IRS announced that the IRS will no longer issue private letter rulings on whether a distribution satisfies the requirements of Section 355 for a tax-free spin-off where (i) the spin-off  involves a real estate investment trust or a regulated investment company, (ii) the active business is small compared to the other assets, or (iii) the investment assets are significantly greater than the other business assets.  In the case of transactions involving REITs, the IRS stated that it was generally not concerned about transactions in which both the distributing corporation and the controlled corporation have been and will continue to be REITs or where the distributing corporation has been a REIT for a substantial period of time.  The IRS further stated that it will continue to rule on such transactions.

The notice also provided that the IRS and Treasury believe that the types of transactions on which the IRS will no longer rule may not satisfy the requirements of Section 355 and are studying this issue.

This notice will likely have a significant cooling effect on companies that were considering a spin-off.

IRS Presses Pause on Issuing Rulings

By: Amanda Wilson

The IRS announced earlier this week that it may temporarily stop reviewing private letter ruling requests on the issue of whether a spin-off qualifies as tax-free under Section 355. More specifically, the IRS may hit pause on these rulings while it considers how much trade or business is sufficient to satisfy the active trade or business requirement of Section 355.

The IRS stated that any ruling requests that have previously been submitted will be reviewed and considered, although this may change. I have to wonder how the current staffing crisis at the IRS is impacting this process.


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