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
New York NDA Requirements for Businesses
Non-disclosure agreements (NDAs) remain a critical tool for protecting sensitive business information. However, New York NDA requirements have evolved, and businesses must ensure these agreements are carefully drafted to remain enforceable. In a competitive market like New York City, NDAs are commonly used to protect proprietary information, client relationships, and strategic plans. At the same […]
Author: Dan Brecher
New Jersey Will Contest Grounds Explained
How Courts Evaluate Testamentary Capacity and Undue Influence Will contests in New Jersey are difficult to win, given the strong presumption that a properly executed will reflects the testator’s intent. However, challenges based on lack of testamentary capacity and undue influence remain common, particularly where there are concerns about mental capacity or the involvement of […]
Author: Marc J. Comer
Legal Issues Before Bringing on Investors
Bringing on outside investors can provide the capital and strategic support a business needs to grow. However, raising capital also introduces important legal, financial, and operational considerations. Before bringing on investors, businesses should address key legal issues to reduce risk, streamline investor due diligence, and position the company for long-term success. Early preparation signals that […]
Author: Dan Brecher
SECURE 2.0 RMD Planning Strategies
How the Updated Law Shapes Retirement and Estate Planning The SECURE 2.0 Act of 2022 materially reshapes the required minimum distribution (RMD) landscape, extending tax deferral opportunities while accelerating distribution requirements for many beneficiaries. For high-net-worth individuals and families, these changes are not merely technical. They require a reassessment of retirement income strategies, beneficiary planning, […]
Author: Marc J. Comer
Buying Commercial Property in New Jersey: Legal Guide for Small Businesses
Small businesses considering buying commercial property in New Jersey must evaluate a range of legal, financial, and operational factors. While ownership can offer long-term value and control, it also introduces significant risks if not properly structured. This guide outlines key considerations to help New Jersey business owners make informed decisions, minimize legal exposure, and successfully […]
Author: Robert L. Baker, Jr.
The SEC’s Latest Guidance on Applying Federal Securities Laws to Tokenized Securities
On January 28, 2026, staff of the U.S. Securities and Exchange Commission’s Divisions of Corporation Finance, Investment Management, and Trading and Markets issued a joint statement clarifying how existing federal securities laws apply to tokenized securities. The SEC’s “Statement on Tokenized Securities” does not establish new law, but it does provide greater clarity on the […]
Author: Dan Brecher
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.