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Dave Camp Tax Proposal and REIT Conversion


BG2008
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I saw the following in one of the listed risk factors in a SEC filing for a company in the process of converting into a REIT.  Does anyone have thoughts/comments on whether this proposal will be passed? If passed, this will likely end all PropCo/OpCo spinoffs that subsequently convert into REITs. 

 

"On February 26, 2014, House Ways and Means Committee Chairman David Camp released a proposal (the “Camp Proposal”) for comprehensive tax reform. The Camp Proposal includes a number of provisions that, if enacted, would have an adverse effect on corporations seeking to make an election to be taxed as a REIT. These include the following: (1) if the stock of a corporation is distributed in a tax-free spin-off under section 355 of the Code, such corporation will not be eligible to make an election to be taxed as a REIT for the ten-year period following the taxable year in which the spin-off occurs, (2) after the ten-year period, if the corporation elects to be taxed as a REIT, such corporation will be required to recognize certain built-in gains inherent in its property as if all its assets were sold at their fair market value immediately before the close of the taxable year immediately before the corporation became taxed as a REIT, and (3) any dividend made to satisfy the REIT requirement that a REIT must not have any earnings and profits accumulated during non-REIT years by the end of its first tax year as a REIT must be made in cash instead of cash and stock as is permitted under current law. These provisions, if enacted in their current form, apply to any corporation making an election to be taxed as a REIT on or after February 26, 2014 and to any corporation the stock of which is distributed on or after February 26, 2014 in a tax-free spin-off under section 355 of the Code. If enacted in its current form, the Camp Proposal would materially and adversely affect our ability to make an election to be taxed as a REIT. See “— If we do not qualify to be taxed as a REIT, or fail to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders.” It is uncertain whether the Camp Proposal, in its current form as it relates to CareTrust, or any other legislation affecting entities desiring to elect REIT status will be enacted and whether any such legislation will apply to CareTrust."

 

 

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