Ups and downs: a REIT dilemma.

Investors, professional property managers, and real property owners can pool their resources in a REIT, each enjoying the benefit of the others' contributions.

A publicly traded real estate investment trust (REIT) offers investors the opportunity to indirectly own professionally managed equity or mortgage interests in real property by purchasing shares or certificates of beneficial interest in the REIT. A REIT can be thought of as a mutual fund for real estate because many investors are pooling their capital in a professionally managed endeavor. Under the Internal Revenue Code of 1986 as amended (the "Code" or "I.R.C."), a REIT is not generally subject to federal income taxes.[1] Public corporations and certain publicly traded partnerships, on the other hand, generally are subject to two tiers of U.S. taxation. A REIT also offers the owners of equity or mortgage interests in real property the means to achieve their goals of liquidity, growth, and development through the capital infusions received by the REIT from the public. For purposes of this discussion, we will assume that the owners are actually partners in existing real property partnerships.

The formation of a REIT can bring together owner, professional property manager, and investor, all of whom enjoy the rewards of the property and services each contributes to the venture. This article focuses on certain of the more important issues which the investors, the property managers, and the existing real estate partnerships and its partners face when entering the public capital markets.

Organizational and Operational Basics

Organizational Basics. I.R.C. [subsections] 856 through 859 lay out an intricate organizational framework for a REIT. In order to qualify as a REIT, an entity must meet eight organizational requirements. The entity 1) must be a corporation, trust, or association; 2) which is not an insurance company or financial institution; 3) which would be taxable as a domestic corporation if it were not a REIT; 4) which elects to be taxed as a REIT; 5) which has centralized management by trustees or directors; 6) in which at least 100 persons; 7) own transferable shares or certificates; and 8) in which less than six individuals do not own more than 50 percent of the value of the equity.[2]

Further, at the end of each quarter of the tax year, the REIT's assets must meet four tests which prove that its assets are in the nature of real estate. Annually, its sources of income are similarly tested: It must meet three source-of-income tests. Finally, detailed distribution (the REIT generally cannot retain its earnings) and recordkeeping rules must be met. A REIT which meets the above tests receives conduit tax treatment (i.e., "flow through" treatment much like a partnership) so that only the shareholder is taxed because the REIT is allowed to deduct the dividends it pays to shareholders.[3]

Operational Basics and the Commercial Real Estate Market. There are several types of REITs, such as the equity REIT, the externally advised REIT, the hybrid REIT (which owns equity and mortgage interests in real property), the mortgage REIT, the self-administered REIT, the self-managed REIT, and the umbrella partnership or UPREIT (and the "DOWNREIT").[4]

Commercial real estate in the United States consists of five major types of property (hotels, offices, apartments, industrial, and retail) and has recently been valued at approximately $4 trillion. REITs own only approximately three percent of this market.[5] Given the preferred tax treatment enjoyed by the REIT and the ease of access into the public market (even the "average" investor can afford to invest), it generally makes sense that the REIT industry has an excellent opportunity to expand its real estate ownership position. The recent dividend yield of equity REITs, at 6.1 percent, is greater than the 30-year Treasury bond yield and almost four times that of the S&P 500.[6]

A REIT generally must remain passive in its investments and its income must come from these passive-investment sources. Thus, the REIT generally owns and operates commercial real estate such as office buildings, shopping centers, apartments, warehouses, and hotels which produces income (and provides much-needed cash flow).

The REIT generally must obtain capital from outside sources in addition to its internally generated earnings because only a small portion of its earnings may be retained. In order to obtain this capital, the REIT may issue shares or certificates of different classes, preferences, and/or participations. Similarly, the REIT may issue debt obligations (secured and unsecured).

Today's REIT investor perceives that he or she will receive distributions of the REIT's cash flow because the Code requires certain distributions; however, the investor must similarly realize that, in order for the REIT to grow (by the acquisition of new property or improvement of existing property), and since the REIT must distribute its funds, the REIT must have the "ability to readily tap the public debt and equity markets at attractive rates."[7]

Even though, with respect to a REIT, the terminology of financial analysis differs slightly when compared to a public non-REIT corporation, the actual financial analysis of such items as performance and growth of the REIT turns on the same basic concepts but with certain modifications and nuances. For example, earnings are generally measured, not by net income, but by such items as "funds from operations" (or FFO, which is essentially earnings before interest expense, taxes, depreciation and amortization expense or "EBITDA" less its interest expense) or "funds available for distribution" (or FAD, also referred to as "cash available for distribution" or CAD because it adjusts FFO for recurring capital expenditures).[8] As another example, the "net asset value" (or NAV) per share places a "current value" on the assets of the REIT and divides that value by the number of outstanding shares. This NAV concept is common to mutual funds in general and, similarly, the valuation process of the net assets normally turns on discounting projected "net operating income" (NOI) streams or on "capitalizing" the NOI,[9] in much the same fashion as an analyst could value any other income-producing property.

Before investing in a REIT, investors should look at several indicators such as the financial strength as evidenced by the REIT's balance sheet and its cash flows and the strength of the REIT's management because these factors generally continue to be two of the most important factors to consider. Most REITs today are internally managed (unlike the REITs of old which were externally managed by an investment adviser much like a mutual fund).[10] Today's "typical REIT ... is a fully integrated real estate company with internal ability to do property management, development, leasing and asset management."[11] The internally managed public REIT generally relies on a board of directors or trustees and on audit, compensation, and executive committees; thus, a diversified and experienced management team is a key component of today's REIT, but independent directors or trustees help to provide the checks and balances necessary to ensure that fiduciary duties are met. In summary, then, management makes the "go forward" decisions with respect to acquisitions and with respect to the development of acquired properties;[12] and management's success on acquisitions can be measured by analyzing the financial results. For example, a comparison of the acquisition price with the NOI of the property indicates whether the acquisition was a success.

The Trap

Avoiding the two tiers of taxation imposed by the Code on "regular" or "C" corporations is an important business planning technique in the United States. The C corporation is taxed on its income with no deduction for its dividends paid to shareholders,[13] and the shareholder is taxed on the dividends received from the corporation.[14] Thus, generally the dividend is taxed to both the corporation and the shareholder. In sharp contrast, partnerships and S corporations are "flow-through" entities which essentially avoid the entity-level tax; the income is subject to tax only at the partner or shareholder's level.[15] Under I.R.C. 87704, certain publicly traded partnerships are treated as C corporations for tax purposes. If the partnership goes public in order to obtain capital, its income will similarly be subject to two tiers of income tax. A publicly traded corporation necessarily flunks the tests to qualify as an S corporation.[16] Thus, even though I.R.C. [sections] 351 generally allows a single real estate partnership to contribute its property to a new corporation ("Newco") without gain recognition in exchange for enough stock to constitute "control" of Newco under I.R.C. [sections] 368(c), if the resulting Newco will be a publicly held corporation, then it will be a C corporation, and its income will be subject to two levels of tax. As noted above, a REIT generally is not subject to federal income tax, while the shareholders will generally be subject to tax on its distributions.

Accordingly, an existing real estate partnership with capital-intensive needs may wish to convert to a REIT because a publicly held REIT is able to attract capital and enjoys flow-through benefits similar to those of partnerships and S corporations under the Code.[17] Recognizing the needs of the economy as early as 1960, the U. S. Congress passed REIT-related legislation.[18] This legislation and that which followed were intended to allow the average-means investor the vehicle with which to invest in real estate projects otherwise unavailable. However, more recent amendments to the Code provide that a partnership which converts to a corporation which then elects REIT status may be a taxable transaction to the transferring partnership and, thus, ultimately to the partners under I.R.C. [sections] 351(e) as a transfer to an "investment company."[19] The typical conversion from partnership to (publicly held) REIT generally will be taxed to the partners, thus resulting in immediate income tax on each partner's share of "built-in gain."[20] "Built-in gain" means the difference between the date-of-transfer fair market value and adjusted basis of the property. This article assumes that the property has appreciated in value over the adjusted basis such that no built-in loss exists on the date of transfer. This article further assumes that the partners of the existing real estate partnership(s) want to avoid taxation with respect to the transfer if at all possible although the desire to defer income recognition does not necessarily follow in every circumstance.

UPREIT: The Answer

An umbrella partnership REIT (UPREIT) can be used in order to satisfy the partners' needs to further defer built-in gain and still attract the investors needed for capital. In an UPREIT, a REIT is formed into which investors pool their money in exchange for REIT shares. Meanwhile, an "umbrella" or "operating" partnership is formed into which the REIT contributes the public's cash in exchange for a general partner's interest in the umbrella partnership. The umbrella partnership also transfers limited partner interests to the existing partners ("limited partners") of the partnerships owning the real property ("existing partnerships") in exchange for the partnership interests in the existing partnerships(s) (or, in the alternative, in exchange for the assets of the existing partnership). It is the author's opinion that the cleaner of the two alternatives of the immediately preceding sentence is to transfer in exchange for partnership interests rather than for partnership property.[21] I.R.C. [sections] 721(a) should apply to the exchange such that no gain will be recognized on the transfers despite the investment company type treatment provided for in I.R.C. [sections] 721(b) because the umbrella partnership does not meet the definition of an investment company.[22] The cash infusion can then be used to further the purposes of the UPREIT and its properties. Often, the purposes furthered are debt paydown which, as discussed below, may result in additional tax consequences.[23]

Income and Asset Tests

The Code and the U. S. Department of the Treasury Income Tax Regulations ("Regulations") provide an intricate set of income and asset tests which must be met in order for an entity to qualify as a REIT.[24] These income and asset tests boil down essentially to requirements that the type and quantity of the income and assets test positive as real property related income and assets. Regulations [sections] 1.856-3(g) provides that a REIT may "look through" the partnership(s) of which it is a partner to the partnerships' income and assets and may apply its proportionate share (based on its capital interest in each partnership) of each item of income or assets to meet the REIT's income and assets tests under the Code.[25] For example, under I.R.C. [sections] 856(c)(4), at the close of each quarter of the REIT's taxable year, the composition of the REIT's assets must meet two tests which generally require that the assets consist in large part of equity or mortgage interests in real property.[26] Thus, the UPREIT "looks through" the umbrella partnership and existing partnership(s) to the underlying assets of each in order to determine that the entity does indeed qualify for favorable treatment as a REIT under I.R.C. [sections] 856.

Distributions/Voting Rights/Conversion Rights

In order for a public corporation to qualify as a REIT, the UPREIT must be operated in compliance with the REIT-distribution requirements of the Code and Regulations.[27] In addition to the distributions to REIT shareholders (i.e., the investors), the limited partners receive distributions on each limited partnership unit. A limited partner's distribution on a limited partnership unit generally equals the dividend paid on each share of the REIT, but despite this "economic equivalence" of a share and a unit, the limited partners have no voting rights in the REIT.[28] The limited partners' interests in the umbrella partnership generally are convertible to shares in the REIT; the conversion will generally be taxable. However, if the conversion rights are not properly structured, the transfer of the convertible units to the limited partner itself could be taxable rather than the later conversion of the rights.[29] By converting the rights, the limited partner can obtain voting shares and/or liquidity because the shares, which are readily tradeable, can then be sold for cash.

Additional Formation Issues

Anti-abuse Regulations. Under the "anti-abuse" Regulations promulgated pursuant to subchapter K of the Code, the IRS has broad powers to disregard the form of a transaction or series of transactions the principal purpose of which is to substantially reduce the present value of the partners' total tax liability in a manner that is inconsistent with the intent of subchapter K of the Code.[30] Clearly UPREIT practitioners must be concerned with these anti-abuse Regulations since UPREITs were specifically created as a means for the limited partners to defer income tax on built-in gain upon contribution of the property to the umbrella partnership instead of to the REIT. Regulations [sections] 1.701-2(d), Example 4, blesses a specific UPREIT structure in this regard because the partnership was bona fide and each partnership transaction was entered into for a substantial business purpose, because the form of each partnership transaction satisfied the principle of substance over form, and because the tax consequences to each partner of partnership operations and of transactions between the partner and partnership accurately reflected the partners' economic agreement and clearly reflected the partner's income. But, as with any example, Example 4 does not answer all of the questions with respect to the application of the anti-abuse Regulations to UPREITs.[31] Therefore, the practitioner must carefully structure the form and substance of the UPREIT with the knowledge and awareness that abuses can be dealt with severely.

Contribution in Formation. In the formation of an UPREIT, when the limited partners contribute their existing partnership interests to the umbrella partnership in exchange for limited partnership interests in the umbrella partnership, I.R.C. [sections] 721(a) generally provides for nonrecognition of gain or loss to the limited partners although liability can trigger I.R.C. [sections] 752 deemed distributions and potential gain.[32] Certain other transactions during the formation of the UPREIT structure may cause an otherwise nontaxable I.R.C. [sections] 721(a) contribution to take on taxable characteristics, as follows.

Distribution of Marketable Security. Recently added I.R.C. [sections] 731(c) works in conjunction with I.R.C. [sections] 731(a) to force gain recognition if the fair market value of a distributed marketable security exceeds the distributee partner's adjusted basis in the partnership interest because I.R.C. [sections] 731(c) provides that the term "money" includes marketable securities. Accordingly, when the existing partnership exchanges its property for umbrella partnership limited partnership interests (i.e., a marketable security), and then distributes the umbrella limited partnership interests (i.e., marketable securities) to the limited partners, unless an exception or limitation applies, the distribution should be a taxable event to the limited partner. Exceptions[33] and limitations[84] generally do apply to such distributions so that the distributions are not taxable; however, the practitioner should beware of I.R.C. [sections] 731(c).

Contribution of Encumbered Property/Pay-down of Debt. Contributions of encumbered property which result in relief from liability for a partner can cause an imposition of tax on the contributing partner under the deemed distribution rules of I.R.C. [subsections] 752(b) and 731.[35] Additionally, the umbrella partnership could use the cash received from the REIT to pay down debt encumbering a property. Generally, the pay-down of debt will similarly result in an I.R.C. [sections] 752(b) deemed distribution of money to the partner although proper planning can substantially alleviate the tax consequences.[36]

Disguised Sales. I.R.C. [sections] 707(a)(2)(B) provides "disguised sale" treatment on various types of partnership transactions. Disguised sale treatment can result in gain to a partner that contributes property to a partnership and as part of the transaction receives a related distribution from the partnership. Further, a contribution to the umbrella partnership of encumbered property by a partner for which contribution the partner receives a partnership interest and cash or debt reduction[37] may be subject to disguised sale treatment.[38] Finally, the conversion rights received by limited partners could result in disguised sale treatment.[39]

Built-in Gain. I.R.C. [sections] 704(c) applies a broad range of controls on built-in gain property contributed to a partnership. I.R.C. [sections] 704(c) generally anchors the built-in gain to the contributing partner and requires that the contributing partner recognize that built-in gain upon the sale of the property. For example, if a partner contributes property with a date-of-contribution fair market value equal to $250,000,000 and with an adjusted basis of $100,000,000, the built-in gain on the date of contribution is $150,000,000. The Code generally allows this built-in gain to go unrecognized until a later time; however, when recognized, it generally must be borne by the contributor so that no shifting of tax consequences is permitted. I.R.C. [sections] 737 similarly anchors the built-in gain when a distribution of built-in gain property is made to the partners. I.R.C. [sections] 704(c) provides that the "tax" depreciation on the built-in gain property be allocated among the partners so that the contributing partner's built-in gain is, over time, eliminated. Even though the older I.R.C. [sections] 704(c) Regulations prescribe an often onerous "ceiling rule" in the allocation of depreciation, more recent Regulations modify the onerous nature of these required allocations.[40] Each party to the transaction must beware of these Code-specific economic consequences and negotiate accordingly. For example, only certain allocation methods are acceptable and an acceptable method for Code purposes may be advantageous to one side and detrimental to the other. The UPREIT will benefit from either the traditional method with curative allocations or the remedial allocation method while the contributing partners will benefit most from the traditional method.[41] These determinations should be made pre-formation.

Publicly Traded Partnership (PTP). I.R.C. [sections] 7704 provides that certain partnerships be treated as a PTP, and thus, taxed as a corporation. Thus, under I.R.C. [sections] 7704, the umbrella partnership could be taxed as a corporation if it does not fit within the PTP exceptions. Devastatingly, PTP status visited on the umbrella partnership can cause the REIT to lose its status as a REIT.[42]

Existing Partnerships Terminate. The existing partnerships will be "terminated" under I.R.C. [sections] 708(b)(1)(B) and, thus, may elect to "step up" the assets pursuant to I.R.C. [sections] 754.[48] The existing partnership(s) should consider making I.R.C. [sections] 754 elections on their final partnership tax returns, Forms 1065.

DOWNREIT: An Alternative

As discussed above, the UPREIT is usually structured as such beginning at the initial planning stages of the REIT formation, with the umbrella partnership formed to effect the plan. The UPREIT has an advantage over an existing simple REIT because the existing UPREIT can acquire properties through the issuance of limited partnership units without the limited partner(s) recognizing gain. In sharp contrast, under I.R.C. [sections] 351, a transaction in which an existing REIT exchanges shares for properties generally will not qualify for nonrecognition of gain to the shareholder if the control requirement of I.R.C. [sections] 351 cannot be met.[44] There is no such control requirement for the umbrella partnership under the Code; therein lies the advantage.

Enter the DOWNREIT, a REIT structure which is similar to the one used in the UPREIT, but which can be effectuated by an existing REIT without many of the acquisitive and other issues inherent either in a REIT or in the conversion of a REIT to an UPREIT.[45] For example, the DOWNREIT does not require a central operating partnership; rather, a new partnership is formed for each acquisitive exchange. Each exchange which enters into DOWNREIT solution does so as a tax-deferred exchange of properties for newly formed limited partnership interests with the REIT as the general partner. The REIT may be a general partner in numerous limited partnerships. Each transaction may be uniquely structured in conjunction with the formation of a new partnership.[46] Thus, a DOWNREIT is centralized at the REIT level instead of at the umbrella partnership level as is the case in an UPREIT. The DOWNREIT has advantages and disadvantages to the UPREIT, but the capital markets are more enamored with the UPREIT because of the ease of analyzing and predicting its financial condition when compared with the DOWNREIT.[47] Necessarily the transaction costs are greater With the DOWNREIT because of the customized nature of the agreements and negotiations.[48] The DOWNREIT offers fewer conflict of interest issues because the limited partners tend to have less control than in the typical UPREIT and, thus, should be of greater value to an investor.[49]

Conclusion

Investors, professional property managers, and real property owners can pool their resources in a REIT, each enjoying the benefit of the others' contributions. Congress provided the vehicle for the accomplishment of each party's goal early on with preferential tax treatment to boot. Even so, when an existing partnership is targeted for acquisition by a REIT, the existing simple REIT is unable to attract the existing partners to the exchange because the partners' gain on the exchange would not be tax deferred. Further, an existing partnership generally cannot simply convert to a publicly held REIT without the exchanging partners recognizing gain immediately. The UPREIT was developed to fill the void. However, existing simple REITs are at a distinct disadvantage when compared to the UPREIT, and thus, the DOWNREIT was developed to allow the existing simple REIT to compete with UPREITs for capital.

[1] I.R.C. of 1986 as amended, Subtitle A, Ch. 1M, Part II. A REIT must meet a strict regime of requirements in order to escape tax. This article only tangentially discusses those requirements which include income, asset, and distribution tests. The REIT must also beware of the securities laws, a topic not covered here.

[2] See Mount, Real Estate Investment Trusts, Tax Mgmt. (BNA) 742, Portfolio Description Sheet, at (iii) (hereinafter, 742 T.M.).

[3] See 742 T.M., supra note 2, Portfolio Description Sheet, at (iii). [4] See P. FASS, M. SHAFF, AND D. ZIEF, REAL ESTATE INVESTMENT TRUSTS HANDBOOK (1999) (Handbook) [sections] 1.0111][a], at 1-9 to 1-10 for a discussion.

[5] See Handbook, supra note 4, at [sections] 1.01, at 1-6.

[6] Handbook, supra note 4, at [sections] 1.02[4][d][iii], at 1-54 to 1-57.

[7] Handbook, supra note 4, at [sections] 1.0214], at 1-29; [sections] 1.02 [4] Id] [ii], at 1-54 (the stock market treats REITs more like income, than growth, stocks).

[8] See Handbook, supra note 4, at [sections] 1.0111][b] and [c], at 1-10 to 1-13 for a discussion.

[9] See Handbook, supra note 4, at [sections] 1.0111][c], at 1-11 to 1-12; [sections] 1.0214][d], at 1-44 to 1-52 for a discussion of the valuation issues.

[10] Handbook, supra note 4, at [sections] 1.0313][a], at 1-22 to 1-27.

[11] Handbook, supra note 4, at [sections] 1.0313][b], at 1-126.

[12] Handbook, supra note 4, at [sections] 1.0218][g], at 1-96 to 1-98.

[13] I.R.C. subtitle A, ch. 1, subch. C.

[14] Exceptions to this general premise exist (e.g., I.R.C. [sections] 243).

[15] I.R.C. subtitle A, ch. 1, subch. K and subch. S.

[16] I.R.C. subtitle A, ch. 1, subch. S.

[17] I.R.C. Subtitle A, Ch. 1 M, Part II.

[18] See 742 T.M., supra note 2, at A-1 (hereinafter, 742 T.M.).

[19] A discussion of I.R.C. [sections] 351(e) is beyond the scope of this article but transfers of interests which result in "diversification" of investment to the transferor are targeted when the transferee is a REIT. See 742 T.M., supra note 2, at A-48. Also beyond the scope of this article is the exception to nonrecognition under I.R.C. [sections] 357(c) (liability in excess of basis).

[20] 742 T.M., supra note 2, at A-48. However, the conversion of a single partnership to a REIT generally may not result in diversification if the public is not involved. See Handbook, supra note 4, at [sections] 5.0211] [b] [ii] [1](a), at 5-12 to 5-13. This article assumes that the property has appreciated in value such that no built-in loss exists.

[21] See supra notes 30 through 32 and accompanying text for discussion; see Treas. Reg. [sections] 1.701-2(d), Ex. 4.

[22] 742 T.M., supra note 2, at A-48; Treas. Reg. [sections] 1.351-1(c)(1) (as amended in 1996); Handbook, supra note 4, at [sections] 6.01[1], at 6-2.

[23] See supra notes 30 through 34 and accompanying text.

[24] See I.R.C. subtitle A, ch. 1M, part II and related Treasury Regulations.

[25] In Priv. Ltr. Rul. 9502037 and Priv. Ltr. Rul. 9452032, the IRS applied the look-through rules to multitiered partnerships. For a discussion of controversy surrounding the impact of Treas. Reg. [sections] 1.856-3(g) on a REIT which owns partnership interests, see Crnkovich, Fisher, and Cullins, Will IRS Threaten Current Tax Treatment of REITs owning Partnership Interests?, J. TAX'N (Jan. 1999) 39 through 45.

[26] Handbook, supra note 4, at [sections] 4.05, at 4-68 to 4-86; 742 T.M., supra note 2, at A-4 to A-27.

[27] A qualifying REIT's deduction for dividends paid is a statutorily prescribed minimum amount under I.R.C. [sections] 857(a)(1). See 742 T.M., supra note 2, at A-27 to A-48.

[28] Handbook, supra note 4, at [sections] 6.01[1], at 6-3.

[29] I.R.C. [sections] 707(a)(2)(B); I.R.C. [sections] 741; see also Handbook, supra note 4, at [sections] 6.0111], at 6-3 (conversion rights should be payable, at the UPREIT's option, in cash or in shares, and "structured as a right of redemption" from the umbrella partnership).

[30] Treas. Reg. [sections] 1.701-2(b) (as amended in 1995).

[31] See Handbook, supra note 4, at [sections] 6.0112], at 6-4 to 6-6, for a discussion of the questions.

[32] I.R.C. [subsections] 752(a), 752(b) and 731(a)(1).

[33] Treas. Reg. [sections] 1.731-2(d)(1) (as amended in 1996); Handbook, supra note 4, at [sections] 6.01[3], at 6-6 to 6-10.

[34] I.R.C. [sections] 731(c)(3)(B); Handbook, supra note 4, at [sections] 6.0113], at 6-8 to 6-10.

[35] 742 T.M., supra note 2, at A-48.

[36] A discussion of this topic is beyond the scope of this article. The reader can refer to 742 T.M., supra note 2, at A-49 through A-50; and to Handbook, supra note 4, at [sections] 6.0114], at 6-10 through 6-19 for a discussion which analyzes, indepth, such issues as the allocation of nonrecourse liabilities, I.R.C. [sections] 754 elections, using guarantees to maintain basis, and at-risk basis under I.R.C. [sections] 465.

[37] See I.R.C. [sections] 752.

[38] Handbook, supra note 4, [sections] 6.0115], at 6-19 to 6-23.

[39] See supra note 28 and accompanying text; 742 T.M., supra note 2, at A-49 through A-50.

[40] Treas. Reg. [sections] 1.704-3 (as amended in 1997).

[41] See generally, Handbook, supra note 4, [sections] 6.0116], at 6-23 to 6-25; 742 T.M., supra note 2, at A-50.

[42] Handbook, supra note 4, [sections] 6.0117], at 6-25 to 6-26.

[43] Id. at [sections] 6.0119], at 6-28.

[44] See I.R.C. [subsections] 351(a), 368(c).

[45] Handbook, supra note 4, [sections] 1.0214] Id, at 1-42 to 1-44; [sections] 6.01110], at 6-29 to 6-30.

[46] Handbook, supra note 4, [sections] 1.0214] [c], at 1-42 to 1-44.

[47] Handbook, supra note 4, [sections] 1.0214] [c], at 1-42 to 1-44.

[48] Handbook, supra note 4, [sections] 6.03, at 6-32.

[49] Handbook, supra note 4, [sections] 1.0214] [c], at 1-43.