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20 October 202329 minute read

REIT Tax News - October 2023

Editor’s note

Welcome to the October edition of REIT Tax News, covering REIT tax news from the third quarter of 2023.

Autumn has arrived, and with it could come a number of changes to the Internal Revenue Code (the Code) and REIT taxation at large.  Congress, the IRS, and the Supreme Court have been hard at work with tax proposals and issues that could reverberate throughout the REIT community.

Two recent proposals from the Senate would likely have a profound impact on international investors if enacted. First, Senate Finance Chairman Ron Wyden has introduced the Ending Tax Breaks for Massive Sovereign Wealth Funds Act, aiming to eliminate the section 892 exemption for certain foreign governments with large sovereign wealth funds, many of which are active investors in US private markets.

If passed, the bill would discourage these sovereign wealth funds from investing in US businesses and real estate markets and may cause investors to accelerate exits out of their current positions. Going forward, such investors could find themselves shifting toward debt investments and away from equity investments – or toward investing outside the US entirely.  For more details, please see our recent client alert

Senator Wyden’s second proposal relates to the Senate Finance Committee’s unanimous approval of a “chairman’s mark” that, if ultimately included in legislation passed by the Senate, would end double taxation for American and Taiwanese tax residents. The new legislation has been proposed in lieu of a US-Taiwan tax treaty, which the US government has historically been unable to establish due to its lack of official diplomatic ties with Taiwan. If enacted, the legislation would effectively mirror the tax benefits that treaties typically grant, including reduced withholding rates and the application of permanent establishment rules.

Under the chairman’s mark, taxation on US source dividends is reduced to 15 percent; however, this reduced rate only applies to dividends from a REIT to the extent that they are qualified REIT dividends (ie, where the dividend is paid with respect to a class of shares that is publicly traded, and where the owner of the dividend holds not more than five percent of any class of shares in the REIT).

If enacted, the legislation would only take full effect if Taiwan were to pass similar legislation ensuring reciprocal benefits under its own tax regime.

In addition, US Representatives Mike Kelly and Brian Higgins introduced H.R. 5275 to restore the percentage of taxable REIT subsidiary (TRS) securities that a REIT may hold back up to 25 percent of a REIT’s assets, increased from the current 20 percent. Since Congress introduced the TRS regime in 1999, the ownership percentage has varied between 20 and 25 percent. Unlike a REIT, a TRS is subject to regular corporate entity level tax and is often used by a REIT for REIT compliance purposes. We believe such a proposal will greatly assist REITs with ongoing compliance, and we will continue to monitor this development.

In other news, Congressman Lloyd Smucker proposed legislation that would permanently extend section 199A of the Code. Section 199A provides for a 20-percent deduction of certain kinds of pass-through income and REIT dividends for individual taxpayers and certain kinds of trusts. The section was added to the Code with the passing of the Tax Cuts and Jobs Act in 2017 as a temporary provision sunsetting at the end of 2025.  The bill has been referred to the House Ways and Means Committee, and no further action has been taken as of the date of this newsletter. Senator Steve Daines has introduced companion legislation in the Senate.

No tax legislation is complete without the IRS’s ability to enforce both the existing rules and any future changes to the Code.  Utilizing funding received from the Inflation Reduction Act, the IRS has announced that it would begin leveraging artificial intelligence systems to “help IRS compliance teams better detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless ‘no-change’ audits.” 

As part of these efforts, the IRS announced that it plans to have opened examinations into 75 of the largest domestic partnerships by the end of September; the IRS stated that, on average, the audited partnerships will each have more than $10 billion in assets.  These partnerships will include hedge funds, real estate investment partnerships, and publicly traded partnerships, among other industries. 

The IRS’s current use of artificial intelligence appears to be limited to the examination of entities treated as partnerships for federal income tax purposes, and as such appears likely to only directly affect REITs to the extent the broader structure includes a tax partnership (eg, structures with a real estate fund or an UPREIT).  In particular, many public REITs have operating partnerships that meet the IRS’s size criteria.

The IRS has additionally released a string of Private Letter Rulings (PLRs) which provide guidance on an assortment of topics affecting REITS. In PLR 202334007, the IRS ruled that payments to a REIT for the underground storage of carbon dioxide are qualifying income as either as gain from the sale or other disposition of interest in real property or as rents from real property.  For more details, please see our recent client alert analyzing the PLR.

In PLRs 202335004 and 202335005, the IRS ruled that director’s and officer’s insurance proceeds received by a REIT would be excluded from the REIT’s income for purposes of the REIT income tests. These insurance proceeds relate to settlements and expenses that the REIT incurred in defending a number of lawsuits related to the REIT’s rental of real property. 

We welcome this clarification from the IRS and hope for continued guidance that items of income a REIT receives in pursuit of customary and qualifying REIT activities, such as forfeited sale deposits and M&A break-up fees, should not cause a risk of REIT disqualification.  Treasury and the IRS will have an opportunity to provide this guidance in implementing regulations as part of the most recent Priority Guidance Plan (available on and discussed in additional detail below).  

Finally, the Supreme Court agreed to hear Moore v. United States, Docket No. 22-800 (Moore).  The amount in controversy is relatively small – approximately $15,000 – but a decision in favor of the taxpayer that also imposes a robust realization requirement for federal income tax purposes could have a significant impact on other parts of the Code, including those relevant to REITs. See the discussion below for more details on Moore.

For those who are less familiar with REIT tax, we have penned a client alert that answers our top frequently asked questions about the changing REIT tax landscape.  The items of discussion range from basic definitions to requirements and tax benefits associated with REITs.

Earlier this year, we were excited to launch our online REIT Tax Resource Center, a centralized homepage where clients can easily access our REIT tax thought leadership and news. The homepage also identifies, organizes, and links to a variety of key REIT tax resources, including IRS tax forms, Treasury regulations, relevant sections of the Code, IRS notices, and legislative history.  To learn more about our REIT Tax Resource Center, please check out our beta website.

We hope that you enjoy this edition of REIT Tax News.

I. Legislative updates

Wyden proposes ending tax breaks for massive sovereign wealth funds.

“Given that sovereign wealth funds are some of the largest investors in real estate located in the United States, the Bill may have a particularly negative effect on United States real estate markets. Sovereign wealth funds have utilized various exemptions to invest in real estate located in the United States in a tax-efficient manner, including section 892 and, when section 892 is unavailable for a particular investment, the exemption provided for sales of domestically controlled REITs. Less than a year ago, the Treasury Department and the IRS issued proposed regulations targeting some of the domestically controlled REIT structures commonly used by sovereign wealth funds (for more information, see our prior alert). By removing the benefits of section 892, the Bill would remove one of the last strategies available to the sovereign wealth funds covered by the Bill to invest in equity positions in United States real estate without becoming fully subject to United States federal income tax.”  (DLA Piper, August 9, 2023)

The full text of the bill is available here.  See also our client alert.

Senate Finance Committee approves new chairman’s mark benefitting Taiwan taxpayers.

“Under the proposal, income from U.S. sources earned or received by qualified residents of Taiwan is entitled to certain benefits. These benefits include reduced tax rates for income otherwise subject to the 30-percent gross-basis tax; with respect to income effectively connected with a U.S. trade or business, taxation of only that income effectively connected with a U.S. permanent establishment; and preferential treatment of wages and related income earned by such qualified residents. The new rules are analogous to provisions typical in bilateral treaties to which the United States is a party and are based on relevant language found in the Model Treaty. The proposal requires general anti-abuse standards similar to those in section 894(c) to deny benefits when payments are made through hybrid entities. The proposed rules are applicable only if reciprocal provisions apply to U.S. persons with respect to income sourced in Taiwan.”  (Joint Committee on Taxation, September 12, 2023)

The summary of current and proposed law prepared by the Joint Committee on Taxation is available here.

Representatives Mike Kelly and Brian Higgins introduced H.R. 5275 to restore TRS percentage back to 25 percent from 20 percent.

“To amend the Internal Revenue Code of 1986 to restore the taxable REIT subsidiary asset test …

(a) In General.—Section 856(c)(4)(B)(ii) of the Internal Revenue Code of 1986 is amended by striking ‘20 percent’ and inserting ‘25 percent’.”

The full text of the bill is available here.

II. Treasury regulations

IRS, Treasury release fourth-quarter update to 2022–2023 Priority Guidance Plan.

In its recent update to the Priority Guidance Plan, the IRS identified “Guidance clarifying the definition of income in §856(c)(3) for purposes of the REIT qualification tests” and “Guidance regarding application of the cure provisions under §851(i) for regulated investment companies (RICs) and §856(c)(7) and (g)(5) for real estate investment trusts (REITs)” as two areas of law in which it plans to prioritize when preparing future guidance items.

Available on   

III. IRS memoranda and private letter rulings

IRS PLR 202334011: Taxable REIT subsidiary provided late election relief.

The IRS ruled that a Taxpayer and Subsidiary satisfied the requirements for granting a reasonable extension of time to jointly elect under section 856(l) to treat Subsidiary as a TRS of Taxpayer where the Taxpayer’s counsel failed to inform the Taxpayer that Form 8875 cannot be electronically signed.  (August 25, 2023)

Available on

IRS PLR 202334007: Carbon dioxide storage payments are qualifying income.

“The PLR ruled that payments to a real estate investment trust (‘REIT’) for the underground storage of carbon dioxide are qualifying income either as gain from the sale or other disposition of interest in real property or as rents from real property.”  (DLA Piper, September 14, 2023)

Available on  See also our client alert.

IRS PLR 202336001: Company granted extension of time to elect REIT treatment.

The IRS ruled that a Taxpayer satisfied the requirements for granting a reasonable extension of time to elect under section 856(c) to be treated as a REIT where Taxpayer’s accounting firm failed to timely file Form 7004 to extend the filing deadline for Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts. (September 8, 2023)

Available on

IRS PLRs 202335004 and 202335005: Proceeds from REIT’s D&O insurance excluded from gross income for purposes of annual REIT testing.

The IRS ruled that a taxpayer’s director’s and officer’s insurance proceeds will be excluded from taxpayer's gross income for purposes of section 856(c)(2) and (3). The IRS found that the proceeds do not relate to the active conduct of a trade or business but instead to the leasing of real estate assets. The agency stated that the consequence of the REIT’s fiduciaries exercising their duty to defend and settle lawsuits stemming from a real estate transaction should not cause the taxpayer to fail to qualify as a REIT. (September 1, 2023)

Available on 

IV. Court updates

Supreme Court agrees to hear Moore v. United States.

Moore addresses the federal government’s ability to tax unrealized gains as income. The specific tax at question relates to the mandatory repatriation tax passed as part of the comprehensive international tax reforms implemented by the Tax Cuts and Jobs Act passed in 2017. Without the mandatory repatriation tax, historic earnings of certain “controlled foreign corporations” would become permanently sheltered from US income taxation. 

The taxpayers argue that the mandatory repatriation tax is unconstitutional because the Sixteenth Amendment requires realization of gains to be taxed as income. With this, taxpayers would have a basis to challenge a number of other tax regimes that impose liability without any clear realization event, including mark-to-market inclusions on inventory for dealers, original issue discount for holders of debt with deferred interest payments, Subpart F inclusions for US shareholders of controlled foreign corporations, various legislative proposals to impose a wealth tax (which would presumably be abandoned), and potentially even allocations of income from partnerships under Subchapter K. 

The taxpayer had previously argued at the Ninth Circuit that the tax was unconstitutional as a retroactive tax under the Due Process Clause of the Fifth Amendment. While this question was not posed to the Supreme Court, the Supreme Court could rule on this basis to provide the taxpayer relief while remaining silent on the realization requirement.  The taxpayer has already filed their brief on the merits; the government had until October 16, 2023 to file its brief on the merits. Oral argument will likely be scheduled thereafter – in spring 2024, most probably – with a decision to follow during the summer months.

While the mandatory repatriation tax under consideration in Moore does not directly impact most REITs, the imposition of a robust realization requirement may have an impact on REITs.

“And then should the Supreme Court agree with the Moore case, there are lots of new taxes that could come out of Congress because technicians would believe, and I think they would be correct, that if Moore is incorrect in fighting the case that we could have a tax on appreciation and maybe even a tax on wealth.”  (TaxNotes, July 20, 2023)

Available on TaxNotes.

V. Other news

Nareit identifies transferability of energy tax credits as a top priority.

“First, Nareit reiterates our recommendations in our Nov. 4, 2022 letter responding to IRS Notice 2022-50 (Notice 2022-50), on issues arising for REITs under recently enacted section 6418, which permits certain tax credits to be transferred from an eligible taxpayer to an unrelated taxpayer. These are priority issues that would directly impact the ability of REITs to make investments in several clean energy projects that would be eligible for the modified or newly enacted tax credits under the Inflation Reduction Act of 20223 (IRA) (such as rooftop solar panels and electric vehicle charging stations).”  (TaxNotes, June 26, 2023)

Available on TaxNotes.

IRS uses artificial intelligence to target large partnerships.

“Capitalizing on Inflation Reduction Act funding and following a top-to-bottom review of enforcement efforts, the Internal Revenue Service announced today the start of a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation's tax laws. The effort, building off work following last August's IRA funding, will center on adding more attention on wealthy, partnerships and other high earners that have seen sharp drops in audit rates for these taxpayer segments during the past decade.” (IRS, September 8) 

Available on


The two prior quarterly editions of REIT Tax News, which covered REIT tax news from the first and second quarters of 2023 (respectively), can be found here (Q1 2023) and here (Q2 2023).


To learn more, please contact any of the following REIT tax attorneys at DLA Piper:

New York


Miami and Raleigh


Shiukay Hung

Jesse A. Criz

Joshua Lingerfelt

Andrew Kreisberg

James Manzione

Allen P. Ashley

Maximilian Viski-Hanka

Emily J. Snyder

Kentaro Murase

Jeffrey P. Zanchelli


Marina Kananova


Aalok Virmani




Gregory R. A. Dahlgren




Katie LaKoma




Matthew Hilowitz




Kevin Murphy




Allan Bowen



Please check out
snapshot of our team.


DLA Piper’s National REIT Tax practice has in-depth knowledge and experience with US-listed public REITs, Singapore-listed public REITs, non-traded public NAV REITs, and private REITs. We advise on the acquisition, disposition, and operation of real estate assets through fund, REIT, and joint venture vehicles. Our attorneys are recognized as industry leaders by Legal 500 and Chambers USA. We regularly publish articles in legal and trade publications and actively participate in real estate and REIT industry organizations.