IRS to Closely Evaluate What Classifies as REIT

July 11, 2013

The IRS and Congress are attempting to define what constitutes real estate assets for qualifying as a real estate investment trust (REIT) under the tax code. The IRS has reportedly been informing several REITs that it’s studying the legal standards it uses to qualify REITs, which could ultimately impact tax advantages for existing REITs or those trying to qualify as one. 

“The IRS review appears to be prompted by an increase in the number of firms seeking to take advantage of the significant tax benefits afforded REITs outside the traditional owner-operators of income-producing properties,” CoStar Group reports. 

Analysts expect the IRS working group will take at least six months for the review. 

“At the end of the review, I suspect the IRS will decide not to back-track on its prior positions regarding assets like transmission, cell towers and data storage centers, but it will decline to further expand the definition of real estate for REIT purposes,” says David Burton, a partner in the tax practice at Akin Gump Strauss Hauer & Feld LLP. “Therefore, new asset classes like solar and warehouse storage for physical documents may not receive favorable rulings.“

Source: “What Is Real Estate? The Answer Could Be Costly,” CoStar Group (July 10, 2013)

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