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A boost for REITs.

The House Ways and Means Committee's tax bill contains an interesting proposal relative to real estate investment trusts (REITs). Currently, a REIT is disqualified from favorable tax treatment if, at any time during the last six months of the year, more than 50% of its stock (by value) is owned by five or fewer individuals (the so-called 5/ 50 rule). For this purpose, a domestic pension trust is treated as a single individual.

The bill provides an exception for cases where one or more pension trusts own more than 10% of a REIT's stock and the 5/50 rule otherwise would be violated. In that situation the REIT will not be disqualified if treating the trust's REIT stock as if it were held by the trust's beneficiaries consequently would result in the 5/50 rule not being violated.

Moreover, if no single trust owns more than 25% of the stock of a public REIT and the aggregate interest of trusts owning more than 10% of a REIT's stock does not exceed 50%, the REIT will not be subject to the restrictions imposed on earning debt-financed income. This means the dividends remitted by the REIT to the pension trusts will not constitute unrelated business taxable income.

Observation: Passage of this provision of the bill would undoubtedly bolster demand for stock in REITs.
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Title Annotation:real estate investment trusts
Publication:Journal of Accountancy
Date:May 1, 1992
Words:221
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