Understanding IRS guidance on stock distributions by publicly offered REITs and RICs

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April 2020


The recent outbreak of COVID-19 has caused sudden and dramatic changes across the globe with unpredictable short-term and long-term effects on national and global economies. Among the companies that may be affected by these changes are real estate investment trusts (REITs) and regulated investment companies (RICs) and, as a result, cash management strategies may become a primary focus for such companies. One such strategy that REITs and RICs may wish to consider is the management of their dividend and distribution policies, including issuing one or more dividends to their shareholders that are a combination of cash and stock. 

The takeaway

In light of the impact of the current economic situation on liquidity, REITs and RICs may find Rev. Proc. 2017-45 instructive in seeking to meet their distribution requirements while retaining needed cash. Prior to the issuance of the revenue procedure, in order for a REIT or RIC to obtain assurance that a distribution of stock in lieu of cash would be treated as a Section 301 distribution that met the Distribution Requirement, a REIT or RIC would seek a private letter ruling from the IRS. Requesting a private letter ruling for this purpose ultimately was viewed by REITs and RICs as a necessary procedural mechanism.

Rev. Proc. 2017-45 simplifies REIT and RIC compliance with respect to the requirements for the stock distributions that are made to receive a dividends paid deduction because it effectively eliminates the need for REITs and RICs to obtain a private letter ruling to treat the distribution as a Section 301 distribution. Instead, REITs and RICs can rely on this revenue procedure when effecting a distribution if all the requirements noted above are satisfied.

Thus, the revenue procedure serves to reduce the administrative burden on the IRS and provides REITs and RICs guidance or respecting their cash-stock dividends.

Contact us

Adam Feuerstein

Principal, National Real Estate Tax Technical Leader, PwC US

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