Tax Report 2018-8 Rev Proc. 2018-48
2.00 – Income Tests (75% & 95%)
2.08a – Gross Income - Defined
2.10 – Income Tests - Dividends
Yesterday, the IRS released Rev. Proc. 2018-48 , favorable precedential guidance holding that, pursuant to Section 856(c)(5)(J)(ii), any amounts required to be included in a REIT’s gross income as Subpart F income (under Section 951(a)(1)), global intangible low-taxed income or “GILTI” (under Section 951A(a)); or passive foreign investment company-related income (under Sections 1291(a), 1293(a)(1), or 1296(a)) are treated as qualifying 95% income for purposes of Section 856(c)(2). Additionally, any amounts required to be taken into account by a REIT under Section 986(c) as foreign currency gain with respect to distributions of previously taxed earnings and profits (as described in Sections 959 or 1293(c)) continue to be excludible from gross income for purposes of Section 856(c)(2).
Rev. Proc. 2018-48 is effective for taxable years beginning after Sept. 13, 2018. However, REITs may choose to apply the revenue procedure to any prior taxable year(s). As a result, taxpayers will no longer need to seek private letter rulings regarding the effect on the REIT gross income tests of subpart F and similar income inclusions. Nareit has repeatedly advocated for the IRS to issue similar guidance since Section 856(c)(5)(J)’s 2008 enactment, beginning with its May 28, 2009 letter and most recently in its June 14, 2018 letter .