February 14, 2011

REITs in Obama Administration's FY 2012 Budget

      Proposes to Repeal "Preferential Dividend" Rule for Publicly Traded REITs as Supported by NAREIT
      Moves to Extend Energy Tax Credits to REITs

Today, the Obama Administration released its Fiscal Year 2012 budget proposal. NAREIT is pleased to note that the Budget includes two specific items tied to REITs, both of which relate to current NAREIT legislative and regulatory initiatives.

First, the Budget proposes to repeal the preferential dividend rule for publicly traded REITs and to grant authority for the Treasury Department "to provide for cures of inadvertent violations of the preferential dividend rule" for non-listed REITs. (See page 206 of Analytical Perspectives, Budget of the United States Government, Fiscal Year 2012.) The preferential dividend rule has the potential of causing loss of the dividends paid deduction for a REIT's inadvertent error in distributing dividends and in some cases even loss of REIT status.

This Budget proposal is presumably a response to our past discussions with Treasury officials and to the October 28, 2010 letter sent by NAREIT to the Treasury Department. NAREIT's October 28 letter requested a repeal of the rule for all REITs required to register their securities with the Securities and Exchange Commission ("publicly offered" REITs), consistent with a similar rule for regulated investment companies enacted in 2010.

Second, the Budget proposes to "replace the existing deduction for energy efficient commercial building property expenditures with a tax credit and also allow taxpayers to take an alternative credit for placing in service" more energy efficient properties. (See page 200 of Analytical Perspectives.) The Treasury Department's General Explanations of the Administration's Fiscal Year 2012 Revenue Proposals (the Green Book) describes the proposal in further detail on page 18 and states that "special rules would be provided that would allow the credit to benefit a REIT or its shareholders." This description provides additional information regarding President Obama's "Better Buildings Initiative" released February 3rd. See our website for more detail regarding NAREIT's efforts to modify certain energy tax incentives to encourage REITs to invest more in energy efficiency and renewable energy.

NAREIT is pleased and encouraged that the Budget includes these proposals, and plans to work with the Administration and Congress as they may discuss and develop these proposals further over the coming months.


For further information please contact Dara Bernstein at dbernstein@nareit.com.

Register for REITWise 2011

REITWise 2011: NAREIT's Law, Accounting & Finance Conference® will be held March 23-25 at the San Francisco Marriott Marquis. REITWise brings together REIT executives and leading service providers that support their legal, financial and accounting needs. This year's meeting has 25 percent more CPE credits than last year's REITWise. Registration and updated information now available at the REITWise 2011 home page.

(Contact: Beth Aiken at baiken@nareit.com)

NAREIT® does not intend this publication to be a solicitation related to any particular company, nor does it intend to provide investment, legal or tax advice. Investors should consult with their own investment, legal or tax advisers regarding the appropriateness of investing in any of the securities or investment strategies discussed in this publication. Nothing herein should be construed to be an endorsement by NAREIT of any specific company or products or as an offer to sell or a solicitation to buy any security or other financial instrument or to participate in any trading strategy. NAREIT expressly disclaims any liability for the accuracy, timeliness or completeness of data in this publication. Unless otherwise indicated, all data are derived from, and apply only to, publicly traded securities. All values are unaudited and subject to revision. Any investment returns or performance data (past, hypothetical, or otherwise) are not necessarily indicative of future returns or performance. © Copyright 2011 National Association of Real Estate Investment Trusts®. NAREIT® is the exclusive registered trademark of the National Association of Real Estate Investment Trusts.
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