Taxable REIT Subsidiaries Proposals

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Acqull-tdby rile
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pusher\rng more ( h a 1 35
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IA l let-ul l i l t s
1111.11 I.lj X b i r )If r hliall apply fur purposes
praph ( 0 1 .
p r e c r d ~ n gc r n \ e n c r

KEIT

\ubx~d~.tr)' 1.w

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REIT subsidiqry"
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106-171.
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tk) Rrquirrmcn~that entity not Rc closely held treated
ntel in rrriain cares.
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l
or exerrrhltlg unable diligencr u-ould no! ti.rrr k n r j u n , u l > e l l ~ srhc
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meet I ~ Cr e q u i r e n ) c n ~,if c ~ r b s c c l l u nl a r t 6 ~ .
.;hall hr lrrattd as h l r v i ~ r pmc! ihc ~ r r ~ u i r e ~ nocf ~r luth ~ r r - l i r > n
IaHOr for thlr taxable yrar

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(I)Tax;hblc KEIT subsidiary.
Fol purptl\c.: ot lltrr pun - I 1 ) 11h general. 1-hr l e r n ~- ' I a h ~ h ! c R E I l . \ I ~ \ ~ I . I I ' ~ - '
mcanr. w i l h I-r+pcct to reat ecla!e i l l \ e r I t n c r i t ( ~ u \ t ,a L-orprlr:lrrfw I o l h c ~t l ~ u na r c a l r d d f e 111V~\ltll.'l11
t(u51 1 lf -I A I ~ u c hI r \ l k l d ~ l c t ~ Il;,\ ~ n d ~ l e c r lo>w r l h s t u c k ill 5uch
c u l pi11, + l ~ u r tJIIJ
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wch c<~rpr)r:ltl~nn
ch.111 be t ~ e a t r r o
l c a ~ a ~ a b lRE11
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hilb~ l d l d i ) 01 \uih 11u5l tbri purpoqer ot t h i c p n r l
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hntb ruth trual anrl corptlr;rrlirlr cc>tr\cnt I U 11s ri'v0~311(111
\ t i t h clcl't n ~ n .and d r y l e v u ? c d l t ~ r IJIP~CO!,
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( 1 135 pfrcrnl r~wnershipin ;abruth~rtawthe RElT sulpsidiarj. 1-he tern1 '-tuh;ihlr RLIT w h r l d ~ ~ r y 1" n u l u d r 5
nilh I ~ ~ J K
11)Iany real eslale ~ n v c + l l r i ? l itrkr>l.
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a real ehr.irz ln vs5rmcnr t ~ - k ~wt l~ t hl e < p ~ 10l \ % t l ~ r Jh ~ , n ~ b [KEI-T
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IRS CC FIP

eB

a r m mhaboZ &stribdona m d c after the end ofthe tmrblc yaw for purgoscs of*
prdhd e .
mgddons mder
p v b b m state that " d b i b d o np r o d m
and pmfits of a
im;llb to tho=. . for mphied iavastmetlt mmprmies q p ) y to mn-RElT
r c a ~ c s t a t e ~ ~ . =

~

.

~%xabIe
R4T iubtidhdes
'---

g a u d y could not own more than10 p a d of the total d m of
the pmpoaal, a
desofaai&le~~,in~antotbepreseatlrprMd@~sawncrddptoo~~nors
cham 1O w e n t ofthe out&mhg voting b r i t i c s of a h g l e issuer.
[587] U&r

value test, seGuritics srould g m e d y be d
U to d d c
w ld
sah hubor d&r owned byaREIT (m deffntdhr pllrpases of&
1361(cKSl(BKi) and Gi) if&
REIT (and wry -1e
REIT subsidiary of such REIT) owna no o t k scumhia ofthe isma. In the
[55%]For prrposes ofthe w

~ a f n ~ t h . t o w n s ~ ~ d a ~ , ~ ~ r d e b t w w I d k s c c h r d e d
dddtiorr of

o~iitbe~.~attea~t20perce~tmmprt0f~pr~~inthe
p~ship.Tht~dh~~der+qu~a20par;arl+cdifd&ibto~th8t
ifthe partntimhip m u - iaeome that wmtd be dhq&cd -a
t o tho REIT,t
kRECT plin be
~ U a s ~ r ~ p ~ a f t f r a x b ~ , e o a a t h w g h i t m a y a l s o & t
w
e
dMioeonw &ma& itx 6barbor d& intee&.
U

d t i - ofa w e ism= wmdd appdy in thr
caseofa"bRET'IwbWmy"tW~ctrtaitlt~mnmts,
Toquahfyasatmx&kREIT
&diary, both the REIT d tlw o u b d k y - d o n
must join in an election. In addifion, my
corgomion (0th- h n a REST) of&&
aW
e RElT j~bidiarylowns,
or
wrc:
t b a n 3 5 p ~ ~ o f t h e v o t e o r v a l ~ i a u t a ~ y ~ a s a ~ 1 e ~ .,~ d ~ . ~ ~
(as -8d
in the L P v a t m e Company Act of 1940) of ~ b l REIT
e subsidides &ufd mot txeeed 25
of the tatal vdue of a REITs assets3
[589) An

to the bitations on owners)rip of a

8

I

CI

would be able to m
e k artah h i n e w activities that under
present law a u l d diqualifl the RElT betause, but fir the proposal, tbe taxable BEIT ~~s
&tits and AatiansMp with t
h
e
m d d p r c e c+
incOmc bqwbfyhg m mu Gram
rwl property. Speatisrlty, the subsidissy codd provide s e ~ c t to
e tenants of REIT property (evan if
rmch servioes ware not c o n s i d e d d w s domarily furnished in c o d o n with tha
o f d
property), and could manage or b p ~ a t propah'=
e
m y , wiaout causing amrtceived or
a k m d h d y or indire+ by REIT f a Euch ad-s
to fail to bt tmtted as rents fiom r d
prom.
fS90JA taxable REIT sub-

L59 11 How-,

thc subsilaq carld not directly or k d k u l y operate or manags s lodging or
fac-. Nevertheless, it codd lease a ~ u d i b e dlodging m t y (e.& a h d ) fimn the REIT
(provided no $ambling rwmues wcm h i v e d by the hotel or on its ~rehxises);and t h tents p i d
would b~ ~ c a t e das m r t a h m mil property so f a g bs the lodging h d h y was opePated by an
independmi contraor fpr a fee The subsidiary could bear all errpeaties of o p e r a g The Wty and
receive all the net rmmucs, minus Ihe indepeadeot comractofa fee.

health-

For pwposa of tb rule that w independent cortmchr may opcrate a quali6ed lodging &blity,
an indcpendemt wntrattor will qualxj. so long as, at the time it d c r s mta the management
[59;1.]

I21.E\"*Ytl.*--

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137-8 - C q t p d o n n l J o h Comnrime -4

(Copyright, 1949, Tax -)

'

Page 24 af76

/?

the~loREtTsubsidiary,itia~ y m g a g e d i n t h e t r d e o t ~ e s ~ o f ~ e r a t i n g ~
w o n who is no^ dnted to the REIT or tb *able RElT subsidiary1The
h&im for
RETT may receiw iPcomc h m such arr mdepmdcnt c o m r with aspect to certain peertisting
./ l a s s .

/

[ 1 9 ~ ] b . U l = ~ ~ ~ m Y l d a o ( ~ ~ ~ a . ~ - n ~ h ~ b .
whi&hotdaorh+.lthcarefa&hmoperatnd. A n ~ a p p h t o r i @ t a p m v i d e d t o s a
hdd by the subsidiary
hd-4
CQm
m m ~ l g ac10-,
ifthe

+

a s ~ ~ a r ~ s o t , a n d ~ i ~ f a ~ b o ~ ~ ~ m ~ s r -y o r ~ t a

REIT.
wwld be sutjtct fo the carpaid by a iamble REIT subsidiary to *ha d a d
skippingnrlcaof~163Ci).WrthtWle~d~aydd~drsdu~tinterestin~y
p w that wadd a c d 50 paw ofthe subdidiq'g +sted g m s income.
15941

mat, w otba d d a d a d.tbt
~
d
u RElT
hrmotmts
p a i d t ~ ~ ~ b d e t c r m i n d ~ b e ~ t h e n s t ~ n ' m l ebqu sg) t, an&h(~~

15951 Ifqimormt o
f
-

o f l ~ W w w z l d . b e i t n g o d o n t h e ~ ~ ~na~t ~wa~w~w. I d b c p r P v i d a d f b r
c e r t a i n m t a l ~ ~ w b ~ t h e . a ~ l u n t ~ ~ t d e ~ t b # l s i a ~ ~ t b

d

~ p a r t i m a r e ~ ~ ~ e , ~ ~ ~ ~ c c s h t h o &
~ ~ & a r y a r e ~ c t n t e d , o r ~ s u b ~ & ~' s ~ 0 ~ g ~ f i o m t b a ~ w i a m
*ant ofthe n h i d i a r y ' s direct -st m M s h i n g the h a -

#

[597]Thr:~omofIntantalRermtistocwaducta~~det~hwq~
~ d s i d i u i w a r e h ~ ~ t e a u l e ~ ~ s g g r ~ ~ a m o u n t a f ~ p- w
a -iTdkb y ~ c h .
Commiedoaer shall sub& a regon to the Cwngms d m i the d t s of such d y .

[ 5 9 ~The
] proposal
p w s , 4treat it

exphion of a -1

would p~
a
to mm d q w m t t a hallb cur facility 601- at -1
m,
p e r ' c d'foraclosrae" p
r
o
m
,ifhf d
h -a~
by tbs t-indcm
or
nf the p
r
o
m
.Extendom of the 2 year m o d muld bc grsnted.

Conformity witb rtgulated investment mmpmy rules

[5$9] The RElT distribution requhmcnts would be m&td
to conform lo the rulw for rqghted
invesnnd cnrnpanies. S p d c a l l y , a RErr w d d be rmpmd to distribute only 90 pereta< raihw
than 95 percent, ef its income.

D d h n of independent euntructar

16003 If my b s of stock of the RBIT ur tbe person bang tested as an independent co-r
is
rcghrly trgdad on an ~ a b l i s h e d&ties
m k e l , only pumns who d i r d y or h d k d y o m 5
percent or more of
clam Ofstock shall be counted in detwmiaifig wbthcr the 35 perceot