REIT Capital Gain Dividend Treatment

§ 857. Taxation of real estate investment trusts and their beneficiaries(a) Requirements applicable to real estate investment trustsThe provisions of this part (other than subsection (d) of this section and subsection (g) of section 856) shall not apply to a real estate investment trust for a taxable year unless—(1) the deduction for dividends paid during the taxable year (as defined in section 561, but determined without regard to capital gains dividends) equals or exceeds—(A) the sum of—(i) 90 percent of the real estate investment trust taxable income for the taxable year (determined without regard to the deduction for dividends paid (as defined in section 561) and by excluding any net capital gain); and (ii) 90 percent of the excess of the net income from foreclosure property over the tax imposed on such income by subsection (b)(4)(A); minus (B) any excess noncash income (as determined under subsection (e)); and (2) either—(A) the provisions of this part apply to the real estate investment trust for all taxable years beginning after February 28, 1986, or (B) as of the close of the taxable year, the real estate investment trust has no earnings and profits accumulated in any non-REIT year. For purposes of the preceding sentence, the term “non-REIT year” means any taxable year to which the provisions of this part did not apply with respect to the entity. The Secretary may waive the requirements of paragraph (1) for any taxable year if the real estate investment trust establishes to the satisfaction of the Secretary that it was unable to meet such requirements by reason of distributions previously made to meet the requirements of section 4981. (b) Method of taxation of real estate investment trusts and holders of shares or certificates of beneficial interest(1) Imposition of tax on real estate investment trustsThere is hereby imposed for each taxable year on the real estate investment trust taxable income of every real estate investment trust a tax computed as provided in section 11, as though the real estate investment trust taxable income were the taxable income referred to in section 11. (2) Real estate investment trust taxable incomeFor purposes of this part, the term “real estate investment trust taxable income” means the taxable income of the real estate investment trust, adjusted as follows:(A) The deductions for corporations provided in part VIII (except section 248) of subchapter B (section 241 and following, relating to the deduction for dividends received, etc.) shall not be allowed. (B) The deduction for dividends paid (as defined in section 561) shall be allowed, but shall be computed without regard to that portion of such deduction which is attributable to the amount excluded under subparagraph (D). (C) The taxable income shall be computed without regard to section 443(b) (relating to computation of tax on change of annual accounting period).