Real Estate Investment Trusts (Portfolio 742)

Description

Bloomberg Tax Portfolio, Real Estate Investment Trusts, No. 742, discusses the requirements for qualification as a real estate investment trust (REIT) and the tax treatment of its operation. The Portfolio is a revision of 742 T.M., Real Estate Investment Trusts, by Steven F. Mount, Esq., of Squire Sanders (US) LLP, Columbus, Ohio.

There are eight basic organizational requirements an entity must satisfy to qualify as a REIT. It must be organized as a corporation, trust, or association; it must have centralized management by trustees or directors; ownership must be evidenced by transferable shares or certificates; it must be taxable as a domestic corporation but for the REIT provisions; it must not be a financial institution or an insurance company; the entity must be owned by at least 100 persons; five or fewer individuals may not own more than 50% in value of the entity’s outstanding shares; and it must properly elect to be taxed as a REIT.

A REIT is strictly limited in the assets it may own and the sources from which it may earn its income. Thus, at the close of each quarter of the taxable year it must satisfy six interacting asset tests. In addition, a REIT must satisfy two source of income tests annually. A REIT must also comply with certain distribution and record-keeping rules.

If all the requirements of §856 through 860 of the Internal Revenue Code are satisfied, the REIT functions as a conduit; its earnings are passed through to its investors and taxed only at the investor level.

Because many provisions of §851 through 855, concerning regulated investment companies, are similar to the comparable real estate investment company provisions, authorities concerning regulated investment companies are cited throughout this Portfolio.

Table of Contents

I. Introduction
II. Organizational Requirements
III. REIT Qualification
IV. Operation of a REIT
V. Umbrella Partnership Real Estate Investment Trusts
VI. DownREITs
VII. Tax Protection Agreements