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Abstract
With interest rates still at record low levels, real estate investment trusts (REITs) in general, and mortgage REITs in particular, are again experiencing a bit of a resurgence. A REIT is an entity that would otherwise be taxable as a corporation. But by virtue of special provisions set out in the Internal Revenue Code, a REIT is entitled to a deduction for dividends paid to its shareholders. Thus, to the extent a REIT distributes all of its taxable income, no corporate- leveI taxes are due and a REIT effectively functions like a pass-through tax entity. REITs in general, and mortgage REITs in particular, are complicated creatures of the Code. Given all of the requirements that must be satisfied on a continuing basis to maintain REIT status, it is clear that mortgage REITs are not the optimal structure for all circumstances. Compliance with these requirements clearly prevents an entity from operating solely with the goal of maximizing profits and given the nature of the REIT gross income and asset tests generally, REIT status may be incompatible for "active" mortgage related companies. However, in circumstances where the REIT requirements are consistent with the proposed or existing operations of the entity desiring REIT status, the tax and other benefits achieved by REIT status are warranted.