Instructions For Form 1120-Reit - 2016 (Page 2 of 19) in pdf

Taxable REIT Subsidiaries

Have been treated as a REIT for all tax

Tax forms and publications. The REIT

years beginning after February 28, 1986,

(TRS)

can download or print all of the forms and

publications it may need at

A REIT may own up to 100% of the stock

Had, at the end of the tax year, no

formspubs.

in one or more taxable REIT subsidiaries

accumulated earnings and profits from

Otherwise, the REIT can go to

(TRS). A TRS must be a corporation

any tax year that it was not a REIT.

orderforms

to place an order

(other than a REIT or a qualified REIT

For this purpose, distributions are

and have forms mailed to it. The REIT

subsidiary) and may provide services to

treated as made from the earliest earnings

should receive its order within 10 business

the REIT's tenants without disqualifying

and profits accumulated in any non-REIT

days.

the rent received by the REIT. See section

tax year. See section 857(d)(3).

856(l) for details, including certain

The organization must adopt a calendar

General Instructions

restrictions on the type of business

tax year unless it first qualified for REIT

activities a TRS may perform. Also, not

status before October 5, 1976.

more than 25% of the fair market value

Purpose of Form

The deduction for dividends paid

(FMV) of a REIT's total assets (20% for tax

(excluding net capital gain dividends, if

Use Form 1120-REIT, U.S. Income Tax

years beginning before July 31, 2008) may

any) must equal or exceed:

Return for Real Estate Investment Trusts,

be securities of one or more TRSs (see

to report the income, gains, losses,

1. 90% of the REIT's taxable income

section 856(c)(4) for details).

deductions, credits, certain penalties, and

(excluding the deduction for dividends

Transactions between a TRS and its

to figure the income tax liability of a REIT.

paid and any net capital gain); plus

associated REIT must be at arm's length.

2. 90% of the excess of the REIT's net

Who Must File

A REIT may be subject to a 100% tax to

income from foreclosure property over the

the extent it improperly allocates income

tax imposed on that income by section

A corporation, trust, or association that

and deductions between the REIT and the

857(b)(4)(A); less

meets certain conditions (discussed

TRS (see section 857(b)(7) for details).

below) must file Form 1120-REIT if it

3. Any excess noncash income as

Additional limitations on transactions

elects to be treated as a REIT for the tax

determined under section 857(e).

between a TRS and its associated REIT

year (or has made that election for a prior

include:

See sections 856 and 857, and the

tax year and the election has not been

Limitations on income from a TRS that

related regulations for details and

terminated or revoked). The election is

may be treated as rents from real property

exceptions.

made by figuring taxable income as a

by the REIT (see section 856(d)(8)).

REIT on Form 1120-REIT.

Termination of Election

Limitations on a TRS's deduction for

interest paid to its associated REIT (see

General Requirements To

The election to be treated as a REIT

section 163(j)).

Qualify as a REIT

remains in effect until terminated, revoked,

To elect to have an eligible corporation

or the REIT has failed to meet the

To qualify as a REIT, an organization:

treated as a TRS, the corporation and the

requirements of the statutory relief

Must be a corporation, trust, or

REIT must jointly file Form 8875, Taxable

provisions. It terminates automatically for

association.

REIT Subsidiary Election.

any tax year in which the corporation,

Must be managed by one or more

trust, or association is not a qualified

Restrictions on tax-free spinoffs from

trustees or directors.

REIT.

REITs. For distributions after December

Must have beneficial ownership (a)

6, 2015, a REIT is generally ineligible to

evidenced by transferable shares, or by

The organization may revoke the

participate in a tax free spinoff as either a

transferable certificates of beneficial

election for any tax year after the 1st tax

distributing or controlled corporation under

interest; and (b) held by 100 or more

year the election is effective by filing a

section 355. This general rule does not

persons. (The REIT does not have to meet

statement with the service center where it

apply if both the distributing corporation

this requirement until its 2nd tax year.)

files its income tax return. The statement

and the controlled corporation are REITs

Would otherwise be taxed as a

must be filed on or before the 90th day

immediately after the distribution. Also, a

domestic corporation.

after the 1st day of the tax year for which

REIT may spin off a TRS if the following

Must be neither a financial institution

the revocation is to be effective. The

apply:

(referred to in section 582(c)(2)), nor a

statement must include the following:

The distributing corporation has been a

subchapter L insurance company.

The name, address, and employer

REIT at all times during the 3-year period

Cannot be closely held, as defined in

identification number of the organization;

ending on the date of distribution;

section 856(h). (The REIT does not have

The tax year for which the election was

The controlled corporation has been a

to meet this requirement until its 2nd tax

made;

TRS of the REIT at all times during such

year.)

A statement that the organization

period; and

(according to section 856(g)(2)) revokes

If a REIT meets the requirement for

The REIT has had control (as defined in

its election under section 856(c)(1) to be a

ascertaining actual ownership (see

section 368(c) applied by taking into

REIT; and

Regulations section 1.857-8 for details),

account stock owned directly and

The signature of an official authorized

and did not know (after exercising

indirectly, including through partnerships,

to sign the income tax return of the

reasonable diligence), or have reason to

by the REIT) of the TRS at all times during

organization.

know, that it was closely held, it will be

such period.

treated as meeting the requirement that it

The organization may not make a new

A controlled corporation is treated as

is not closely held.

election to be taxed as a REIT during the 4

meeting the control requirements if the

years following the 1st year for which the

Other Requirements

stock of the corporation was distributed by

termination or revocation is effective. See

a TRS in a transaction to which section

The gross income and diversification of

section 856(g)(4) for exceptions.

355 applies and the assets of the

investment requirements of section 856(c)

corporation consist solely of the stock or

must be met and the organization must:

assets held by one or more TRSs of the

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Instructions For Form 1120-Reit - 2016 Page 2

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