Tax News

CCH (cch.taxgroup.com) reports:

 
The IRS has issued temporary guidance that covers stock distributions by publicly traded real estate investment trusts (REITs) and regulated investment companies (RICs). The new guidance expands upon previously issued guidance in Rev. Proc. 2009-15, I.R.B. 2009-4, 356.

  As under the prior guidance, if a RIC or REIT makes a qualifying distribution, the IRS will treat the distribution of stock as a dividend. The amount of such stock distribution will be treated as equal to the amount of money that could have been received instead of stock.

  The new guidance further provides that, if a RIC or REIT makes a qualifying distribution and some shareholders receive a combination of stock and money that differs from the combination received by other shareholders and if the fair market value of the stock on the date of distribution differs from the amount of money that could have been received instead, those differences do not cause the distribution to be treated as a preferential dividend.

  A qualifying distribution must meet all of the following requirements:

  (1) the distribution is made by the corporation to its shareholders with respect to its stock;

  (2) stock of the corporation is publicly traded on an established securities market in the United States;

  (3) the distribution is declared on or before December 31, 2012, with respect to a tax year ending on or before December 31, 2011 (subject to special timing rules for certain distributions, including distributions made after the close of the tax year);

  (4) pursuant to such declaration, each shareholder may elect to receive the shareholder's entire entitlement under the declaration in either money or stock of the distributing corporation of equivalent value, subject to a limitation on the amount of money to be distributed in the aggregate to all shareholders with the value of the distributed shares determined under the formula in item (5), below;

  (5) the calculation of the number of shares to be received by any shareholder will be determined over a period of two weeks ending as close as practicable to the payment date based upon a formula utilizing market prices that is designed to equate in value the number of shares to be received with the amount of money that could be received instead; and

  (6) with respect to any shareholder participating in a dividend reinvestment plan (DRIP), the DRIP applies only to the extent that, in the absence of the DRIP, the shareholder would have received the distribution in money under item (4), above.

  The new temporary guidance is effective with respect to distributions declared on of after January 1, 2008. Rev. Proc. 2009-15, I.R.B. 2009-4, 356, is amplified and superseded.

Rev. Proc. 2010-12, 2010FED ¶46,217

Other References:

 
Code Sec. 305

  CCH Reference - 2009FED ¶15,402.1385

 
Code Sec. 852

  CCH Reference - 2009FED ¶26,433.26

 
Code Sec. 857

  CCH Reference - 2009FED ¶26,533.025

  Tax Research Consultant

  CCH Reference - TRC RIC: 3,202
CCH Reference -
TRC RIC: 6,150