The Resource The evolution of REIT spin-offs

The evolution of REIT spin-offs

The evolution of REIT spin-offs
The evolution of REIT spin-offs
Based on the recent issuance of private letter rulings, an operating company now has an opportunity to distribute a controlled corporation that becomes a REIT in a tax-free distribution under Code Sec. 368(a)(1)(D) and/or Code Sec. 355. The IRS seems to have pacified major concerns of taxpayers in regard to business purpose and active trade or business. However, the IRS is not issuing comprehensive rulings on nonrecognition transactions anymore, so taxpayers will need to have a significant issue in order to obtain a ruling, and the ruling will not cover the entire transaction. The good news is that, with respect to a REIT-controlled corporation, meeting the active trade or business requirement will often present a significant issue qualifying for a ruling. But it appears that the structuring costs of changing to a REIT and costs of ongoing compliance associated with maintaining a REIT are steep. In fact, structuring alone for some taxpayers has costs between $50 and $150 million, integration costs between $20 and $50 million, and annual compliance costs between $5 and $20 million. Thus, companies considering such a strategy should take into account the significant costs associated with the process in the cost-benefit analysis and should likely estimate on the high side based on the experience of companies that have gone through the process
Citation source
In: Taxes - the tax magazine. - Chicago. - Vol. 92 (2014),
Bennett, D.J
Geographic coverage
North America
Language note
  • REIT
  • spin-off
  • private ruling
The evolution of REIT spin-offs

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