Real Estate Investment Trust Corner

Generally speaking, a highly punitive tax is imposed on income that a real estate investment trust ("REIT") earns from a "prohibited transaction" (i.e., property held primarily for sale) -- a tax equal to 100% of the net income derived from the prohibited transaction. Given the p...

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Bibliographic Details
Published in:Journal of Passthrough Entities 2014-05, Vol.17 (3), p.27
Main Author: Cullen, Daniel F
Format: Article
Language:English
Subjects:
Equity funds
Expenditures
Fair market value
Federal court decisions
Foreclosure
Ground leases
Internal Revenue Code
Investments
Letter rulings
Limited liability companies
Liquidation
Net income
Private equity
Profits
Prohibited transactions
REITs
Safe harbor
Sales
Student housing
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Summary:Generally speaking, a highly punitive tax is imposed on income that a real estate investment trust ("REIT") earns from a "prohibited transaction" (i.e., property held primarily for sale) -- a tax equal to 100% of the net income derived from the prohibited transaction. Given the punitive nature of this tax, REITs often structure their dispositions in a manner that qualifies for the safe harbor from this tax as provided under the Code. This column provides an overview of a recent Private Letter Ruling (the "Ruling") issued by the IRS in connection with certain sales made pursuant to a "plan of liquidation" by a REIT in connection with the overall winding down and dissolution of an affiliated closed-end real estate private equity fund in light of the REIT prohibited transactions safe harbor. A prohibited transaction is generally defined as the sale or other disposition of property that is described in Code Sec. 1221(a)(1) and which is not foreclosure property.
ISSN:1099-7407