James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comKey Contacts
Back
As the U.S. public becomes more aware about corporate taxation issues, the topic of corporate inversions has become highly politicized.
A number of politicians have gone as far as to call multinationals that perform the move “un-patriotic,” ahead of the November midterm elections.
Meanwhile, there are other, less controversial taxation issues that could potentially cause a larger problem. The rules regarding Real Estate Investment Trusts, or REITs, were recently clarified by the IRS.
While a little clarity is usually a good thing, this move opens the corporate tax base to a floodgate of REIT spinoffs, according to Forbes. This is an issue, because shifting assets into a REIT effectively eliminates corporate tax on them. As long as a REIT earns at least 75 percent of its income from rent or sale of real property and distributes 90 percent of its earnings to shareholders, it can usually be considered exempt from the 35 percent U.S. corporate income tax. Shareholders pay tax at the ordinary, considerably lower rate.
In the past, IRS rules on REITs were so unclear that firms needed to get a private letter from the agency ruling on each spinoff, the news source explained. After the recent IRS guidelines were published, a small but growing wave of spinoffs has been occurring. Any company that holds significant real assets, like oil companies, railroads, data centers and telecoms to name a few, can potentially take advantage of this type of tax strategy.
The potential for erosion of the corporate tax base is extremely large. The Federal Reserve Board’s Flow of Funds report shows that $10 trillion of the $35 trillion in assets held by non-financial corporations is in real estate, much of which could potentially be subject to REIT spinoff.
By contrast, the U.S. stands to lose less than $20 billion over the next ten years from corporate inversions, according to a nonpartisan congressional research panel quoted by The Wall Street Journal.
The issue of corporate inversions is a complex and loaded issue. To focus on it to the exclusion of all other potential problems, however, could have far-reaching consequences for the U.S. government.
- Practices: Tax and Trusts & Estates, Corporate Tax Planning
- Locations: Red Bank, NJ, New York City, Little Falls, NJ
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Corporate Consolidation and Antitrust Issues in Mergers
Corporate consolidation involves two or more businesses merging to become a single larger entity. The result is often a stronger and more competitive company that can better navigate today’s competitive marketplace. What Is Corporate Consolidation? Corporate consolidation closely resembles a basic merger transaction. The primary difference is that a consolidation creates an entirely new business […]
Author: Dan Brecher
What is Business Law and Why Is it Important?
Business law plays a critical role in nearly every aspect of running a successful enterprise, from negotiating a commercial lease to drafting employee policies to fulfilling corporate disclosure obligations. Understanding what is business law and your legal obligations can help your business run smoothly and build productive relationships with clients, business partners, regulators, and others. […]
Author: Dan Brecher
Corporate Transactions: Best Practices for Successful Deals
Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]
Author: Dan Brecher
How to Conduct a Fair and Legal Employee Termination in 2025
Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]
Author: Angela A. Turiano
Admin Dissolution for Annual Report: What You Need to Know
While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]
Author: Dan Brecher
What Is Antitrust Litigation Law?
Antitrust laws are designed to ensure that businesses compete fairly. There are three federal antitrust laws that businesses must navigate. These include the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. States also have their own antitrust regimes. These may vary from federal regulations. Understanding antitrust litigation helps businesses navigate these complex […]
Author: Robert E. Levy
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.