REITs

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On September 6, the Internal Revenue Service (“IRS”) released Revenue Procedure 2018-47 (the “RIC Rev Proc”), which provides that a repatriation deemed to have been received by a registered investment company (a “RIC”) under Section 965 (enacted as part of the 2017 tax reform act, commonly known as the “Tax Cuts and Jobs Act” or “TCJA”) is treated as a “specified gain.” As a result, the amount of the deemed repatriation need not be distributed by the RIC until 2018 in order for the RIC to avoid the 4 percent excise tax imposed under Section 4982(a).

On September 13, the IRS released Revenue Procedure 2018-48, which provides that “global intangible low-taxed income” (“GILTI”), Subpart F income and “passive foreign investment company” (“PFIC”) inclusions of a real estate investment trust (a “REIT”) are treated as qualifying income for purposes of the 95 percent gross income test, and that certain REIT foreign exchange gains relating to distributions of previously taxed earnings and profits (“PTI”) are not included in gross income for purposes of the 95 percent gross income test.

Read further for additional background and more detail on these developments.

The U.S. Treasury Department and the Internal Revenue Service published on January 18, 2017 final regulations (the “Final Regulations”)[1] reducing from ten years to five years the recognition period for the corporate-level tax imposed on certain property dispositions by a real estate investment trust (“REIT”) or a regulated investment company (“RIC”) under Section 337(d), and otherwise generally adopting the approach set forth in prior temporary and proposed regulations.[2] The need to have a recognition period for corporate-level tax in this circumstance is related to General Utilities repeal[3] as applied for RICs and REITs, and the five-year recognition period established in the Final Regulations was indirectly mandated by the provisions of the PATH Act[4] addressing General Utilities repeal and which we have previously discussed. The Preamble to the Final Regulations states that the intention of the change is to conform the Final Regulations to the PATH Act. Continue reading the discussion for further background and context for the Final Regulations.

The Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) included a number of significant changes to the U.S. federal income tax rules related to real estate investment trusts (“REITs”) and investments by non-U.S. investors in U.S. real estate (commonly referred to as “FIRPTA”). For a detailed overview of…