REIT Conversions in Context: A Case Study for the Tax Planning Initiate
44 Real Est. L.J. 127 (2015)
Posted: 9 Jan 2015 Last revised: 6 Oct 2015
Date Written: February 16, 2015
A Real Estate Investment Trust (REIT) conversion is the decision by a formerly fully taxable corporation to take advantage of the tax break enjoyed by REITs under sections 856-859 of the Internal Revenue Code. For the purposes of this discussion, the term includes wholesale conversions by C corporations, as well as tax-free spin-offs in which a C corporation splits into an operating company and a newly formed REIT that assumes and leases its real estate assets back to the operating company.
This Article traces the origins of an inevitable, if unintended, tax reduction technique for nontraditional real estate companies — prisons, data centers, casinos, telecommunications companies, and others — and situates it in today’s corporate tax avoidance context. The picture that emerges is one of a balance to be re-struck, fifty-five years after the REIT law’s inception, between holding onto tax revenue and incentivizing investment in new kinds of real estate.
Intended as a complement to scholarship focused on specific aspects of REIT taxation, this Article provides an introduction to the topic and a foundation for understanding the arguments for and against the continued extension of REIT treatment to an increasing number and variety of candidates.
Keywords: Real Estate Investment Trust, REIT, REIT conversion, REIT spin-off, corporate taxation, tax planning
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