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14 July 202312 minute read

REIT Tax News - July 2023

Editor’s note

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

In June 2023, the Treasury Department and the IRS issued long-awaited proposed regulations addressing transfers of green energy tax credits under the Inflation Reduction Act (IRA). 

Prior to the IRA, a REIT typically held solar projects through a taxable REIT subsidiary and could not benefit from these credits without paying corporate tax. The transferability feature of the IRA allows a REIT to monetize these credits simply by selling the credits to an unrelated buyer for cash without needing to use a taxable REIT subsidiary. 

In the preamble to the proposed regulations, the Treasury Department and the IRS address several questions that had been posed by REIT stakeholders. In particular, the Treasury Department and the IRS confirmed that they do not believe that a prohibited transaction tax arises from the transfer of the tax credits. In addition, the Treasury Department and the IRS confirmed that the receipt of or the right to receive a tax credit does not result in gross income to the REIT. These helpful clarifications will provide REITs with greater certainty in its green energy investments. For more details, please see our recent client alert.

Earlier, in May 2023, the IRS issued somewhat surprising and unfavorable guidance in AM 2023-003.  In the memorandum, the IRS held that the regularly traded stock exception to the Foreign Investment in Real Property Tax Act (FIRPTA) contained in section 897(c)(3) of the Internal Revenue Code of 1986, as amended (the Code), applies at the partnership level rather than at the individual partner level.  

As a result, certain foreign persons subject to FIRPTA may now prefer to invest in stock directly rather than through a partnership in order to take full advantage of the regularly traded stock exception.  For more details, please see our client alert analyzing this new memorandum. 

That same month, in ES NPA Holding LLC v. Commissioner, T.C. Memo 2023-55 (ES NPA Holding), the Tax Court provided guidance to the open question of whether persons receiving profits interests were required to provide services directly to the issuing partnership (as suggested by Proposed Treasury Regulation 1.721-1(b)(3) (2005)) or indirectly to the issuing partnership (as suggested by PLR 200329001).  

In PLR 200329001, the IRS approved an umbrella partnership REIT profits interest structure in which certain recipients who received partnership interests in the issuing partnership, and who may have been employees of the REIT but not the issuing partnership, were considered to be providing services to or for the benefit of the issuing partnership for purposes of Rev. Proc. 93-27.  In ES NPA Holding, the Tax Court held that a profits interest may be granted in exchange for services that Taxpayer provided indirectly for the benefit of an operating partnership in a tiered partnership structure.  For more details, please see our client alert.

On May 1, 2023, the Supreme Court agreed to hear Loper Bright Enterprises v. Gina Raimondo, Docket No. 22-451 (Loper Bright Enterprises), a case which sets up a challenge to a long-standing precedent set in Chevron USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) that requires courts to defer to a federal agency’s interpretation of a statute it administers when that statute is ambiguous or leaves a gap for the agency to fill, so long as that interpretation is considered reasonable (Chevron deference). 

The Supreme Court’s ruling in Loper Bright Enterprises may impact how federal agencies, such as the Treasury Department and the IRS, conduct rulemakings (including Treasury Regulations), as well as their ability to successfully defend arguably ambiguous rulings. The results of the case may impact the validity of the “look-through rule” for domestically controlled REITs under recently proposed Treasury Regulations.  For more details on Loper Bright Enterprises, please see SCOTUSblog. For more details on the “look-through rule,” please see our client alert.  

In other news, REITs may also be impacted by two recent changes to IRS leadership and government funding.  First, President Joe Biden has nominated Marjorie Rollinson for IRS Chief Counsel, a position that has been vacant since January 2021.  For more details, please see TaxNotes.  

Second, the deal reached in early June to suspend the nation’s borrowing limit until January 2025 includes provisions that would immediately rescind $1.38 billion from the IRS and a “gentleman’s agreement” between President Biden and House Speaker Kevin McCarthy (R-CA) to ultimately repurpose another $20 billion from the $80 billion the IRS received through the IRA.  Such modifications to the recently increased IRS budget may impact the IRS’s ability to audit certain taxpayers.  However, IRS officials have noted to reporters that they expect no disruptions in the short term from the reduced budget due to the IRS’s ability to allocate spending.  For more details, please see this New York Times article.

We are excited to share that we will be launching an 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 Internal Revenue Code, IRS notices, and legislative history.  To learn more about our REIT Tax Resource Center, please check out our beta website

Finally, we are excited to share that our REIT practice, as well as individual members of our team, have been recognized in the 2023 editions of The Legal 500 United States and Chambers USA. A big thank you to all our clients who made this possible.   

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

I. Legislative updates

US lawmakers reintroduce Retail Revitalization Act.  

“Last week, two U.S. lawmakers, Republican Rep. Darin Lahood and Democratic Rep. Brad Schneider, reintroduced the Retail Revitalization Act into the House Ways and Means Committee. The bill was first introduced in Feb. 2021 but faced obstacles in the previous Democrat-led chamber in 2021 and 2022. . .. The bill seeks to increase the share of equity investments that a distressed tenant can receive from a REIT from 10% to 50% and for a non-distressed tenant from 10% to 30%. It also intends to modify the rules concerning restrictions on retail space the REITs can rent to their taxable subsidiaries.” (Inside Real Estate, June 7, 2023)

Available on Inside Real Estate.

SB 968: Maryland captive REIT definition.

On May 9, 2023, Maryland Governor Wes Moore signed into law SB 968, which amends the definition of “captive REIT” for purposes of Maryland’s corporate income tax laws. 

For federal income tax purposes, REITs that distribute at least 90 percent of their income to shareholders are entitled to deduct from their taxable income the amount of such dividends paid during the tax year (the Dividends Paid Deduction) which generally eliminates any federal income tax from being assessed on such income. 

Prior to the enactment of SB 968, Maryland did not conform to the Code regarding the Dividends Paid Deduction as applied to certain captive REITs, including REITs that are owned or controlled by a single entity that are not qualified REITs or “other entities” exempt from the definition of captive REIT. 

SB 968 will enable such captive REITs to benefit from the Dividends Paid Deduction with respect to their Maryland income tax liabilities starting in tax year 2023. 

Available on Maryland General Assembly.

II. Treasury regulations

ABA Section of Taxation meeting: IRS weighing relief from REIT domestic control rules.

“The IRS is considering transitional relief from a five-year lookback period in deciding how domestic control is determined for foreign investors in real estate investment trusts, although it has not made a firm commitment.”  (TaxNotes, May 15, 2023)

Available on TaxNotes.

A more thorough discussion regarding the REIT domestic control rules can be found in our client alert.  

IRS releases proposed regulations on transferring certain renewable energy credits.

“REITs are increasingly adopting ESG goals that include the use of solar. We anticipate that the new Treasury Department and IRS guidance should further encourage REITs to invest in these projects and encourage the development of a robust tax credit market and related insurance market.” (DLA Piper, July 6, 2023)

Available on See also our client alert.

III. IRS memoranda and private letter rulings

IRS memorandum: FIRPTA analysis of stock held through partnerships.  

“The IRS recently issued a memorandum (AM 2023-003) stating that the regularly traded stock exception to the Foreign Investment in Real Property Tax Act (FIRPTA) contained in section 897(c)(3) of the [Code] applies at the partnership level rather than at the individual partner level.”  (DLA Piper, June 1, 2023) 

Available on See also our client alert.  

IRS PLR 202314010: extension granted to file taxable REIT subsidiary election.

The IRS concluded that a REIT and its subsidiary satisfied the requirements to be granted a reasonable extension of time to elect to treat the subsidiary as a taxable REIT subsidiary under section 856(l) of the Code where the failure to file the election was due to a miscommunication among taxpayer, taxpayer’s accounting firm, and taxpayer’s law firm.  (April 7, 2023) 

Available on

IRS PLRs 202317017 and 202317018: certain retirement homes are not healthcare facilities for REIT purposes. 

The IRS released two materially identical private letter rulings (PLRs) – PLR 202317017 and PLR 202317018 – on the interpretation of "congregate care facilities," a term that is not defined in the Code or the Treasury Regulations.  

The IRS held that the independent retirement living facilities in the PLRs focused on residents’ convenience and social lives and thus are not congregate care facilities.  The facilities in the PLRs do not provide any healthcare-related services and are not licensed as healthcare facilities. 

As a result, a taxable REIT subsidiary would not jeopardize its tax status by operating and managing such facilities.  These PLRs continue a series of recent rulings in which the IRS has taken a holistic approach in determining whether such facilities are treated as congregate care facilities.  

The IRS’s analyses, both here and in prior PLRs, have focused on whether the services provided by the facilities are provided for the “health and wellbeing” of residents or whether they are instead provided for the “convenience and social purposes” of residents.  (April 28, 2023)

Available on (PLR 202317017 and PLR 202317018). 

IV. Tax Court

Profits interests in multi-tier structure respected by Tax Court.  

“Although the Tax Court’s holding with respect to valuation of profits interest is informative for taxpayers, far more interesting is the expansive reading of the category of persons to whom services may be rendered in order to qualify as a profits interest.” (DLA Piper, June 28, 2023)

Available on TaxNotes. See also our client alert.

V. Other news

IRS releases Inflation Reduction Act strategic operating plan. 

“The IRS’s strategic operating plan for Inflation Reduction Act (P.L. 117-169) funding is designed to improve taxpayer services, quickly resolve taxpayer issues, focus expanded enforcement on taxpayers with complex filings and high-dollar noncompliance, boost efficiency, and improve the agency’s workforce.” (Internal Revenue Service, April 6, 2023)

“Taxpayers in foreign jurisdictions often struggle to meet even basic taxpayer obligations for a litany of reasons, and Initiative 1.10 of the plan, released April 6, briefly describes a project that would at least make it easier for such taxpayers to make tax payments and receive refunds while living abroad.”  (TaxNotes, April 10, 2023)

Available on TaxNotes.

The Legal 500 United States: Real Estate Investment Trusts (REITs).

DLA Piper’s REIT practice was ranked in The Legal 500 United States’ “Real Estate Investment Trusts (REITs)” category for 2023. The guide additionally recognized Partners Shiukay Hung and Robert Bergdolt as "Leading Lawyers.”

Available on The Legal 500 United States.

Chambers USA: Nationwide REITs: Tax.

DLA Piper’s REIT practice was ranked in Chambers USA’s “Nationwide REITS: Tax” category for 2023. The publication also recognized Partner Shiukay Hung in the “Nationwide REITs: Tax” category, as well as Partners Robert Bergdolt and Kerry Johnson in the “Nationwide REITs” category.

Available on Chambers USA.


The inaugural quarterly edition of REIT Tax News, which covered REIT tax news from the first quarter of 2023, can be found here


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

Jesse A. Criz, Allen P. Ashley, Shiukay Hung, Jeffrey P. Zanchelli, Aalok Virmani, Emily J. Snyder, Gregory R. A. Dahlgren, Katie LaKoma, James Manzione, Joshua Lingerfelt, Maximilian Viski-Hanka, Kentaro Murase, Matthew HilowitzMarina Kananova, Kevin Murphy, and Allan Bowen.

Please check out this 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 and regularly publish articles in legal and trade publications and actively participate in real estate and REIT industry organizations.