House GOP Bill Includes REIT-Spinoff Ban
Proposal part of larger plan to revive and extend dozens of expired tax breaks through 2016
WASHINGTON––House Republicans have proposed banning a popular technique that lets companies spin off their property holdings into tax-advantaged real-estate investment trusts.
A bill released late Monday night by the chairman of the House Ways and Means Committee would ban the technique, effective immediately. The proposal is part of a larger plan that would revive and extend dozens of expired tax breaks through 2016, and its fate will be decided in the frenzied final few days before Congress adjourns. Its inclusion in what lawmakers have described as the fallback plan signals at least some consensus on the REIT issue.
REIT spinoffs, often urged by activist investors, have become popular in recent years among retailers, restaurant chains and casino companies. Darden Restaurants Inc., the owner of Olive Garden restaurants, completed one last month. Macy’s Inc. and McDonald’s Corp. have resisted investors’ calls to follow along.
The Internal Revenue Service has raised warnings about some spinoffs and said in September that it was considering new rules. The bill from Rep. Kevin Brady (R., Texas), the Ways and Means chairman, would prevent the technique and prevent spun-off companies from converting into REITs for 10 years. It also contains several other changes to the REIT rules.
Robert Willens, a New York-based tax adviser, said in an email Tuesday that he understood the concerns about whether REIT spinoffs truly separate the real estate from the rest of the business, because they are so interrelated.
“I think it’s dangerous, and totally unwarranted, to deny tax-free status to a spinoff based purely on the ‘identity’ of the parties to the spinoff,” Mr. Willens said of the proposal in Mr. Brady’s bill. “I’m not a fan of this proposal and would hope that ‘cooler heads’ prevail here and the proposal never gets enacted.”