The Treasury Department today released new temporary and proposed regulations that will impact spinoffs and REIT conversions and modify the definition of “converted property” with respect to REIT transactions.
The temporary regulations, T.D. 9770, impose corporate level tax on certain transactions in which property of a C corporation becomes the property of a REIT within 10 years of a spinoff. The Treasury Department stated that these rules effect the repeal of the General Utilities doctrine and are aimed at preventing abuse of the PATH Act of 2015—a law that restricts C corporations from spinning off real estate into a REIT tax free. In short, it appears the Treasury Department is looking to add some administrative teeth to Congress’s clamp-down on tax-free REIT spinoffs.
The IRS also proposed rules (REG-126452-15) that would modify the definition of converted property. This revision would treat converted property as any property that is partially or wholly owned by a C corporation that becomes property of a REIT or regulated investment company. The temporary regulations go into effect today. Comments and/or a request for a hearing on both sets of regulations are requested within the next 60 days. We are analyzing the rules and will update you as our analysis progresses, but please feel free to reach out with any questions.