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
Fort Monmouth Redevelopment and the Transformation of Monmouth County Real Estate
The Fort Monmouth redevelopment has entered its execution phase, and it is repositioning the broader Monmouth County real estate market. When Netflix and the Fort Monmouth Economic Revitalization Authority closed on the 292-acre Mega Parcel in December 2025, the transaction did more than hand over a deed. It marked the moment Fort Monmouth stopped being […]
Author: Donald M. Pepe
Local Zoning and Land Use Rules Every New Jersey Rental Property Owner Should Understand
Owning a residential rental property in New Jersey involves more than finding tenants and collecting rent. Property owners must comply with a combination of state laws, municipal ordinances, building and housing codes, and zoning and land use regulations. These requirements can affect everything from the number of dwelling units permitted at a property to whether […]
Author: Donald M. Pepe
Real Estate Litigation Explained: Top 5 Disputes and How to Avoid Them
The five most common real estate disputes are breach of contract claims, landlord-tenant conflicts, zoning and land use disagreements, construction claims, and boundary disputes. Understanding why each arises, and taking preventive steps early, can help property owners, tenants, developers, and investors avoid costly litigation. Key Takeaways: Real estate transactions are complex endeavors involving numerous parties […]
Author: Paul Grossman
When a Child Turns 18: The Gap in Your Family’s Estate Plan
Once a child turns 18, parents lose the automatic legal authority to make medical and financial decisions on their behalf, even if the child still lives at home or remains on the family’s insurance. Three documents close that gap: a durable power of attorney, a health care proxy or directive, and a HIPAA authorization. For […]
Author: George McGowan
Business Mediation: An Overview and Practical Tips
Business mediation is a confidential, voluntary process in which a neutral third party helps companies negotiate a resolution to a commercial dispute without going to trial. Because working with a mediator is very different from litigating in the courtroom, it is important to understand how commercial mediation works, when it makes sense for your dispute, […]
Author: Paul Grossman
Top 5 Causes Leading to Construction Defect Litigation
The five most common causes of construction defect litigation are design defects, substandard materials, workmanship defects, code violations, and subsurface defects. Because these flaws can compromise a building’s integrity, functionality, or safety, they frequently lead to disputes involving multiple parties and high financial stakes. Key takeaways: What is Construction Defect Litigation? Construction litigation is complex, […]
Author: Paul Grossman
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.