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
Crypto Compliance: A Comprehensive Guide
For years, digital assets operated in a legal gray area, a frontier where innovation outpaced the reach of regulators and law enforcement. In this early “Wild West” phase of finance, crypto startups thrived under minimal oversight. That era, however, is coming to an end. The importance of crypto compliance has become paramount as cryptocurrency has […]
Author: Bryce S. Robins
Supreme Court and Title VII: Implications for Reverse Discrimination
Earlier this month, the U.S. Supreme Court issued a decision in Ames v. Ohio Department of Youth Services vitiating the so-called “background circumstances” test required by half of federal circuit courts.1 The background circumstances test required majority group plaintiffs pleading discrimination under Title VII of the Civil Rights Act to meet a heightened pleading standard […]
Author: Matthew F. Mimnaugh
SPACs Are Back, What You Need to Know
Special purpose acquisition companies (better known as SPACs) appear to be making a comeback. SPAC offerings for 2025 have already nearly surpassed last year’s totals, with additional transactions in the pipeline. SPACs last experienced a boom between 2020–2021, with approximately 600 U.S. companies raising a record $163 billion in 2021. Notable companies that went public […]
Author: Dan Brecher
Short Form Merger: Streamlining the Process for Businesses
Merging two companies is a complex legal and business transaction. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process that involves important corporate governance considerations. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process. However, […]
Author: Dan Brecher
Tariff Response Options for Small Businesses Facing Financial Distress
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Author: Brian D. Spector
Common Causes of Partnership Disputes and How to Resolve Them
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
Author: Christopher D. Warren
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.