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26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of correct tax liability.
(Also: Part 1, 856, 951, 951A, 986, 1291, 1293, 1296)
SECTION 1. PURPOSE
This revenue procedure provides guidance regarding how certain items of income are treated for purposes of determining whether a real estate investment trust (REIT) satisfies the gross income test in 856(c)(2) of the Internal Revenue Code (Code). The types of income addressed are-
* Amounts required to be included in gross income under 951(a)(1) (except by reason of 965), 951A(a), 1291(a), 1293(a)(1), and 1296(a); and
* Amounts required to be taken into account under 986(c) as foreign currency gain with respect to distributions of previously taxed earnings and profits.
SECTION 2. BACKGROUND
.01 To qualify as a REIT, a domestic corporation must, among other things, annually satisfy the gross income requirements of 856(c)(2) and (c)(3). Under 856(c)(2), at least 95 percent of the corporation's gross income must be derived from certain enumerated sources, including dividends, interest, rents from real property, and gain from the sale or other disposition of stock, securities, and real property. Under 856(c)(3), at least 75 percent of the corporation's gross income must be derived from a similar but narrower set of enumerated sources, generally focused on income from real estate assets.
.02 The legislative history underlying the tax treatment of REITs indicates that a central concern behind the gross income restrictions is that a REIT's gross income should largely be composed of passive income. For example, H.R. Rep. No. 862020, at 6 (1960), 1960-2 C.B. 819, at 822-23 states, "One of the principal purposes of your committee in imposing restrictions on types...