To qualify as a REIT (Real Estate Investment Trusts), an organization:
- Must be a corporation, trust, or association.
- Must be managed by one or more trustees or directors.
- Must have beneficial ownership (a) evidenced by transferable shares, or by transferable certificates of beneficial interest; and (b) held by 100 or more persons. (The REIT does not have to meet this requirement until its 2nd tax year.)
- Would otherwise be taxed as a domestic corporation.
- Must be neither a financial institution (referred to in section 582(c)(2)), nor a subchapter L insurance company.
- Cannot be closely held, as defined in section 856(h). (The REIT does not have to meet this requirement until its 2nd tax year.)
REITs benefit from a favorable tax regime that exempts it from Federal income tax subject to certain distribution requirements. REITs can designate a portion of their distributions that are gains from the disposition of U.S. real property.
Causing a portion of the sale to be taxed at favorable rates to U.S. shareholders. Code: § 856