• IRS Eliminates REIT Loophole

    Screen Shot 2016-06-08 at 6.18.05 AMThe Wall Street Journal reports that the Internal Revenue Service has shut down an apparent gap in a tax law that otherwise could have allowed companies across industries to continue spinning off their property holdings into tax-advantaged real-estate investment trusts.  The December law was written in response to a wave of deals by retailers, hotels and others that sought the tax-beneficial status of being a real-estate investment trust, or REIT. The law banned companies created in tax-free spinoffs from electing REIT status for 10 years after the transaction. But the law didn’t prevent spun-off companies from merging into an existing REIT, among other possible workarounds.

    The regulations from the IRS and Treasury Department end that prospect. They take effect immediately. The rules would require spun-off companies that later get REIT status to pay corporate taxes as if they sold their appreciated real estate, a tax that would undermine much of the purpose of putting it in a REIT.

    REITs pay no corporate-level tax on most of their profits and effectively pass those profits through to their shareholders. Corporations, by contrast, pay an income tax, and then investors subject to tax must pay again when they receive dividends or capital gains.

    Legal experts indicated that the regulations don’t prevent entire companies from converting from corporations into REITs as long as they qualify under the existing definitions. That means data centers, billboard owners and other companies that aren’t necessarily thought of as traditional real-estate firms can still become REITs if they qualify and the whole company makes the move.

    Both Lamar and Outfront operate as Real Estate Investment Trusts.


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