Due to the punitive tax imposed on a REIT that engages in a prohibited transaction, the safe harbor for avoiding prohibited transaction status is critical to REITs when entering into proposed transactions. Because the determination of whether a taxpayer is acting as a dealer is often murky at best, most REITs rely strictly on the safe harbor rather than wade into the murky waters of “dealer property” determinations. Daniel F. Cullen, in his column in the Journal of Passthrough Entities, explains alternative tests enacted under the Housing and Economic Recovery Act of 2008, which grant more flexibility in disposing of assets during these troubled times.
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This story is from the CCH’s monthly Focus on Tax newsletter, which provides advise and guidance on federal and state tax issues for tax and accounting professionals.
Read this article from CCH’s Journal of Taxation of Financial Products