Tom Gallagher, a member in the firm’s Philadelphia office, was quoted in The Wall Street Journal’s article, “Congress Looks at REIT Tax Exemption.” As Congress looks to close some loopholes and simplify the tax code, ending the REIT tax exemption has become a possibility. Since REITS were established in 1960, they haven’t had to pay corporate taxes on their income as long as at least 90 percent of their taxable income is paid as dividends. While industry analysts don’t believe REITS will lose their tax exemption, changing the tax status of REITs would cause problems for the industry. As Gallagher notes, “It would be a major issue. You’ve got an entire industry … predicated on the idea that you will not have any level of tax imposed on those entities.”
The review of the REIT tax rules comes at a time when more nontraditional real estate companies are converting to REITs. The goal of Congress’s tax reform is to level the playing field for employers, and many real estate industry officials are worried, “Congress will scrutinize REITs more closely if members perceive that companies whose main business isn’t real estate are abusing the exemption.”
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