The chairmen and ranking members of the House Ways and Means Committee and the Senate Finance Committee sent a letter regarding the recognition period for real estate investment trust (REIT) and regulated investment company (RIC) conversions in temporary and proposed section 337(d) regulations issued in June 2016.
The bi-partisan letter [PDF 758 KB] (October 18, 2016) asks that the regulations be modified to provide that REITs and RICs would be subject to the same five-year built-in gain recognition period that applies to S corporations.
In the letter, Rep. Brady (R-TX), Rep. Levin (D-MI), Sen. Hatch (R-UT), and Sen. Wyden (D-OR) indicated that long-standing regulations under section 337(d) have referenced the S corporation built-in gain period for conversions to REIT and RIC status. The letter also notes that, when legislation shortened the recognition period for conversions to S corporation status on a temporary basis, the IRS applied the shortened recognition period to REITs and RICs. The letter then states:
"The PATH Act enacted in December 2015 made the built-in gain recognition period for S corporations five years on a permanent basis. Considering the long-standing link between S corporations, REITs, and RICs on this issue for nearly three decades, the Joint Committee on Taxation’s technical explanation of the PATH Act indicates that the permanent five-year recognition period would apply to REITs and REICs with equal force."
The letter concludes that the new regulations are “…inconsistent with congressional intent and longstanding practice that REITS, RICs, and S corporations be subject to the same five-year built-in gain recognition period.”
Read an initial report about the regulations in TaxNewsFlash-United States
For more information, contact a tax professional with KPMG’s Washington National Tax practice:
Stephen Giordano | +1 (202) 533 3535 | firstname.lastname@example.org
David Lee | +1 (202) 533 4071 | email@example.com
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.