New Partnership Audit Rules Complex for REITs, Lawyer Says

Jennifer Weiss, a partner at Greenberg Traurig, joined REIT.com for a video interview at REITWise 2016: NAREIT’s Law, Accounting and Finance Conference at the Marriott Marquis in Washington, D.C.

Weiss commented on some of the most complex tax issue faced by REITs. She noted that in the public sector, there is concern and uncertainty regarding the prohibited transaction safe harbor rules. The rules, under which a REIT can face a 100 percent tax on net income from the sale of a property unless it qualifies under the safe harbor provision, were included in the Protecting Americans from Tax Hikes (PATH) Act of 2015.

The big tax issue facing private REITs remains that of preferential dividends, which has been an issue for many years, according to Weiss. “It’s a footfall waiting to be stepped into,” she said.

Weiss also discussed the most important issues that companies must address with potential joint venture partners. Because REITs aren’t typically the ones that are managing the joint venture, Weiss observed, they need to negotiate upfront access to information.

“You need to get fairly detailed in the negotiation because if you don’t do it upfront, it’s just much harder to get it later on,” she said.

The other issue that’s likely to attract attention involves the recent partnership audit rules included in the Bipartisan Budget Act of 2015, according to Weiss. She noted that the rules are very complex and require many detailed provisions. In addition, there are some “glitches” with respect to REITs that are awaiting guidance, she said.

Meanwhile, new provisions in the Foreign Investment in Real Property Tax Act (FIRPTA) rules will have a relatively significant impact, making REITs much more attractive investments for cross-border capital sources, Weiss said.