Changes To Note
- Additional guidance has been issued for REITs regarding adopting or changing an accounting method and section 481(a) adjustments. See Accounting Methods on page 5 and Change in accounting method on page 5 for details.
- The requirements for the built-in gains tax have changed for certain REIT elections and property transfers from a C corporation that occur after January 1, 2002, under Temporary Regulations section 1.337(d)-7T. See Built-in gains tax on page 13 for details.
Photographs of Missing Children
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
Unresolved Tax Issues
If the REIT has attempted to deal with an IRS problem unsuccessfully, it should contact the Taxpayer Advocate. The Taxpayer Advocate independently represents the REIT's interests and concerns within the IRS by protecting its rights and resolving problems that have not been fixed through normal channels.
While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that the REIT's case is given a complete and impartial review.
The REIT's assigned personal advocate will listen to its point of view and will work with the REIT to address its concerns. The REIT can expect the advocate to provide:
- A fresh look at a new or on-going problem.
- Timely acknowledgement.
- The name and phone number of the individual assigned to its case.
- Updates on progress.
- Timeframes for action.
- Speedy resolution.
- Courteous service.
When contacting the Taxpayer Advocate, the REIT should provide the following information:
- The REIT's name, address, and employer identification number (EIN).
- The name and telephone number of an authorized contact person and the hours he or she can be reached.
- The type of tax return and year(s) involved.
- A detailed description of the problem.
- Previous attempts to solve the problem and the office that had been contacted.
- A description of the hardship the REIT is facing (if applicable).
The REIT may contact a Taxpayer Advocate by calling 1-877-777-4778 (toll free). Persons who have access to TTY/TDD equipment may call 1-800-829-4059 and ask for Taxpayer Advocate assistance. If the REIT prefers, it may call, write, or fax the Taxpayer Advocate office in its area. See Pub. 1546, The Taxpayer Advocate Service of the IRS, for a list of addresses and fax numbers.
How To Get Forms and Publications
Personal computer
You can access the IRS Web Site 24 hours a day, 7 days a week, at www.irs.gov to:
- Order IRS products on-line.
- Download forms, instructions, and publications.
- See answers to frequently asked questions.
- Search publications on-line by topic or keyword.
- Send us comments or request help by e-mail.
- Sign up to receive local and national tax news by e-mail.
You can also reach us using file transfer protocol at ftp.irs.gov.
CD-ROM
Order Pub. 1796, Federal Tax Products on CD-ROM, and get:
- Current year forms, instructions, and publications.
- Prior year forms, instructions, and publications.
- Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
- The Internal Revenue Bulletin.
Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $22 (no handling fee), or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD-ROM for $22 (plus a $5 handling fee).
By Phone and in Person
You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office.
How To Access the Internal Revenue Bulletin (I.R.B.)
You can access the I.R.B. on the Internet at www.irs.gov (post-1995 Bulletins only). Under contents, select Businesses. Under topics, select More Topics. Then select Internal Revenue Bulletins.
General Instructions
Purpose of Form
Use Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a REIT.
Who Must File
A corporation, trust, or association that meets certain conditions (discussed below) must file Form 1120-REIT if it elects to be treated as a REIT for the tax year (or has made that election for a prior tax year and the election has not been terminated or revoked). The election is made by figuring taxable income as a REIT on Form 1120-REIT.
General Requirements To Qualify as a REIT
To qualify as a REIT, 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).
Important: If a REIT meets the requirement for ascertaining actual ownership (see Regulations section 1.857-8 for details), and did not know (after exercising reasonable diligence), or have reason to know, that it was closely held, it will be treated as meeting the requirement that it is not closely held.
Other requirements
See sections 856, 857, and the related regulations for details and exceptions.
Termination of Election
The election to be treated as a REIT remains in effect until terminated or revoked. It terminates automatically for any tax year in which the corporation, trust, or association is not a qualified REIT.
The organization may revoke the election for any tax year after the 1st tax year the election is effective by filing a statement with the service center where it files its income tax return. The statement must be filed on or before the 90th day after the 1st day of the tax year for which the revocation is to be effective. The statement must include the following:
- The name, address, and employer identification number of the organization;
- The tax year for which the election was made;
- A statement that the organization (according to section 856(g)(2)) revokes its election under section 856(c)(1) to be a REIT; and
- The signature of an official authorized to sign the income tax return of the organization.
The organization may not make a new election to be taxed as a REIT during the 4 years following the 1st year for which the termination or revocation is effective. See section 856(g)(4) for exceptions.
Taxable REIT Subsidiaries
A REIT may own up to 100% of the stock in one or more taxable REIT subsidiaries (TRS). A TRS must be a corporation (other than a REIT) and may provide services to the REIT's tenants without disqualifying the rent received by the REIT. See section 856(l) for details, including certain restrictions on the type of business activities a TRS may perform. Also, not more than 20% of the fair market value of a REIT's total assets may be securities of one or more TRS (see section 856(c)(4) for details). Transactions between a TRS and its associated REIT must be at arm's length. A REIT may be subject to a 100% excise tax to the extent it improperly allocates income and deductions between the REIT and the TRS (see section 857(b)(7) for details). Additional limitations on transactions between a TRS and its associated REIT include:
- Limitations on income from a TRS that may be treated as rents from real property by the REIT (see section 856(d)(8)).
- Limitations on a TRS's deduction for interest paid to its associated REIT (see section 163(j)).
To elect to have an eligible corporation treated as a TRS, the corporation and the REIT must jointly file Form 8875, Taxable REIT Subsidiary Election.
When To File
Generally, a REIT must file its income tax return by the 15th day of the 3rd month after the end of the tax year. A new REIT filing a short period return must generally file by the 15th day of the 3rd month after the short period ends. A REIT that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved.
If the due date falls on a Saturday, Sunday, or legal holiday, the REIT may file on the next business day.
Private delivery services. REITs can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. The most recent list of designated private delivery services was published by the IRS in September 2002. The list includes only the following:
- Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
- DHL Worldwide Express (DHL): Same Day Service, DHL USA Overnight.
- Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.
- United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.
The private delivery service can tell you how to get written proof of the mailing date.
Extension. File Form 7004, Application for Automatic Extension of Time To File Corporation Income Tax Return, to request a 6-month extension of time to file.
Who Must Sign
The return must be signed and dated by the president, vice president, treasurer, assistant treasurer, chief accounting officer, or any other corporate officer (such as tax officer) authorized to sign. Receivers, trustees, or assignees must also sign and date any return filed on behalf of a REIT.
If an employee of the REIT completes Form 1120-REIT, the paid preparer's space should remain blank. In addition, anyone who prepares Form 1120-REIT but does not charge the REIT should not complete that section. Generally, anyone who is paid to prepare the return must sign it and fill in the Paid Preparer's Use Only area.
The paid preparer must complete the required preparer information; sign the return, by hand, in the space provided for the preparer's signature (signature stamps and labels are not acceptable); and give a copy of the return to the taxpayer.
Where To File
File the REIT's return at the applicable IRS address listed below.
| If the REIT's principal business, office, or agency is located in:
|
And the total assets at the end of the tax year (Form 1120-REIT, page 1, item E) are:
|
Use the following Internal Revenue Service Center address:
|
| Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, Wisconsin
|
- Less than $10 million
- $10 million or more
|
- Cincinnati, OH 45999-0012
- Ogden, UT 84201-0012
|
| Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, Wyoming
|
|
|
| A foreign country or U.S. possession
|
|
- Philadelphia, PA 19255-0012
|
A group of corporations with members located in more than one service center area will often keep all the books and records at the principal office of the managing corporation. In this case, the tax returns of the corporations may be filed with the service center for the area in which the principal office of the managing corporation is located.
Paid Preparer Authorization
If the REIT wants to allow the IRS to discuss its 2002 tax return with the paid preparer who signed it, check the Yes box in the signature area of the return. This authorization applies only to the individual whose signature appears in the Paid Preparer's Use Only section of the return. It does not apply to the firm, if any, shown in that section.
If the Yes box is checked, the REIT is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The REIT is also authorizing the paid preparer to:
- Give the IRS any information that is missing from the return,
- Call the IRS for information about the processing of the REIT's return or the status of any related refund or payment(s), and
- Respond to certain IRS notices that the REIT has shared with the preparer about math errors, offsets, and return preparation. The notices will not be sent to the preparer.
The REIT is not authorizing the paid preparer to receive any refund check, bind the REIT to anything (including any additional tax liability), or otherwise represent the REIT before the IRS. If the REIT wants to expand the paid preparer's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.
The authorization cannot be revoked. However, the authorization will automatically end no later than the due date (without regard to extensions) for filing the REIT's 2003 tax return.
Other Forms, Returns, Schedules, and Statements That May Be Required
The REIT may have to file some of the following forms. See the applicable forms for more information.
Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements. Use these forms to report wages, tips, and other compensation, and withheld income, social security, and Medicare taxes for employees.
Form W-2G, Certain Gambling Winnings. Report gambling winnings from horse racing, dog racing, jai alai, lotteries, keno, bingo, slot machines, sweepstakes, wagering pools, etc.
Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, is filed to report certain transfers to foreign corporations under section 6038B.
Form 940 or Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, is filed to report annual Federal unemployment (FUTA) tax if the REIT either (a) paid wages of $1,500 or more in any calendar quarter in 2001 or 2002 or (b) had one or more employee who worked for the REIT for at least some part of a day in any 20 or more different weeks in 2001 or 20 or more different weeks in 2002.
Form 941, Employer's Quarterly Federal Tax Return, or Form 943, Employer's Annual Tax Return for Agricultural Employees, is filed to report income tax withheld and employer and employee social security and Medicare taxes. (Also, see Trust fund recovery penalty on page 6.)
Form 945, Annual Return of Withheld Federal Income Tax. File Form 945 to report income tax withheld from nonpayroll distributions or payments, such as the following income:
- Pensions, annuities, IRAs, military retirement, gambling winnings and
- Indian gaming profits and backup withholding.
See Trust fund recovery penalty on page 6.
Form 966, Corporate Dissolution or Liquidation, is used to report the adoption of a resolution or plan to dissolve the corporation or liquidate any of its stock.
Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, and Form 1042-T, Annual Summary and Transmittal of Forms 1042-S. Use these forms to report and send withheld tax on payments or distributions made to nonresident alien individuals, foreign partnerships, or foreign corporations to the extent these payments constitute gross income from sources within the United States (see sections 861 through 865).
Also, see sections 1441 and 1442, and Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Use Form 1096 to transmit Forms 1099, 1098, 5498, and W-2G to the Internal Revenue Service.
Form 1098, Mortgage Interest Statement. Report the receipt from any individual of $600 or more of mortgage interest (including points) in the course of the REIT's trade or business and reimbursements of overpaid interest.
Form 1099-A. Report acquisitions and abandonments of secured property.
Form 1099-B. Report proceeds from broker and barter exchange transactions.
Form 1099-C. Report cancellation of a debt.
Form 1099-DIV. Report certain dividends and distributions.
Form 1099-INT. Report interest income.
Form 1099-LTC. Report certain payments made under a long-term care insurance contract and certain accelerated death benefits.
Form 1099-MISC. Report miscellaneous income (e.g., payments to certain fishing boat crew members; payments to providers of health and medical services; gross proceeds paid to attorneys; rent and royalty payments; nonemployee compensation, etc.)
Note: Every REIT must file Form 1099-MISC if, in the course of its trade or business, it makes payments of rents, commissions, or other fixed or determinable income (see section 6041) totaling $600 or more to any one person during the calendar year.
Form 1099-MSA. Report distributions from an Archer MSA or Medicare+Choice MSA.
Form 1099-OID. Report original issue discount.
Form 1099-PATR. Report distributions from cooperatives to their patrons.
Form 1099-R. Report distributions from pensions, annuities, retirement or profit-sharing plans, individual retirement arrangements (IRAs) (including SEPs, SIMPLEs, Roth IRAs, Coverdell ESAs, Roth conversions and IRA recharacterizations), or insurance contracts.
Form 1099-S. Report gross proceeds from the sale or exchange of real estate transactions.
Also use these returns to report amounts received as a nominee for another person.
Form 2438, Undistributed Capital Gains Tax Return, must be filed by the REIT if it designates undistributed net long-term capital gains under section 857(b)(3)(D).
Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, must be completed and a copy given to each shareholder for whom the REIT paid tax on undistributed net long-term capital gains under section 857(b)(3)(D).
Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, is required if the REIT received a distribution from a foreign trust; or, if the REIT was a grantor of, transferor of, or transferor to, a foreign trust that existed during the tax year. See Question 5 of Schedule N (Form 1120).
Form 5452, Corporate Report of Nondividend Distributions, is used to report nondividend distributions.
Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, is required if the REIT controls a foreign corporation; acquires, disposes of, or owns 10% or more in value or vote of the outstanding stock of a foreign corporation; or had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of the foreign corporation. See Question 4 of Schedule N (Form 1120).
Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. This form is filed if the REIT is 25% or more foreign owned. See the instructions for Question 5 on page 14.
Form 5498, IRA and Coverdell ESA Contribution Information. Report contributions (including rollover contributions) to any IRA, including a SEP, SIMPLE, Roth IRA, Coverdell ESA, and to report Roth conversions, IRA recharacterizations, and the fair market value of the account.
Form 5498-MSA, Archer MSA or Medicare+Choice MSA Information. Report contributions to an Archer MSA and the fair market value of an Archer MSA or Medicare+Choice MSA.
For more information, see the Instructions for Forms 1099, 1098, 5498, and W-2G.
Form 5713, International Boycott Report, must be filed if the REIT had operations in, or related to, certain boycotting countries.
Form 8275, Disclosure Statement, and Form 8275-R, Regulation Disclosure Statement, are used to disclose items or positions taken on a tax return that are not otherwise adequately disclosed on a tax return or that are contrary to Treasury regulations (to avoid parts of the accuracy-related penalty or certain preparer penalties).
Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. Report the issuance of public offerings of debt instruments (obligations).
Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of related transactions.
Form 8612, Return of Excise Tax on Undistributed Income of Real Estate Investment Trusts, is filed if the REIT is liable for the 4% excise tax on undistributed income imposed under section 4981.
Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. Use this form to make certain elections by shareholders in a passive foreign investment company and to figure certain deferred taxes.
Form 8810, Corporate Passive Activity Loss and Credit Limitations, is filed to figure the passive activity loss and credit allowed under section 469 for closely held corporations.
Form 8842, Election To Use Different Annualization Periods for Corporate Estimated Tax, is filed to elect one of the annualization periods in section 6655(e)(2)(C) to figure estimated tax payments under the annualized income installment method.
Form 8865, Return of U.S. Persons With Respect To Certain Foreign Partnerships. A REIT may have to file Form 8865 if it:
- Controlled a foreign partnership (i.e., owned more than a 50% direct or indirect interest in the partnership).
- Owned at least a 10% direct or indirect interest in a foreign partnership while U.S. persons controlled that partnership.
- Had an acquisition, disposition, or change in proportional interest in a foreign partnership that:
- Increased its direct interest to at least 10% or reduced its direct interest of at least 10% to less than 10%.
- Changed its direct interest by at least a 10% interest.
- Contributed property to a foreign partnership in exchange for a partnership interest if:
- Immediately after the contribution, the REIT owned, directly or indirectly, at least a 10% interest in the foreign partnership; or
- The fair market value of the property the REIT contributed to the foreign partnership in exchange for a partnership interest, when added to other contributions of property made to the foreign partnership during the preceding 12-month period, exceeds $100,000.
Also, the REIT may have to file Form 8865 to report certain dispositions by a foreign partnership of property it previously contributed to that foreign partnership if it was a partner at the time of the disposition. For more details, including penalties for failing to file Form 8865, see Form 8865 and its separate instructions.
Form 8875, Taxable REIT Subsidiary Election, is filed jointly by a corporation and a REIT to have the corporation treated as a taxable REIT subsidiary.
Form 8886, Reportable Transaction Disclosure Statement, is required if the REIT enters into a reportable transaction after December 31, 2002. The following are reportable transactions.
- Any transaction the same as or substantially similar to tax avoidance transactions identified by the IRS.
- Any transaction offered under conditions of confidentiality.
- Any transaction for which the REIT has contractual protection against disallowance of the tax benefits.
- Any transaction resulting in a loss of at least $10 million in any single year or $20 million in any combination of years.
- Any transaction resulting in a book-tax difference of more than $10 million on a gross basis.
- Any transaction resulting in a tax credit of more than $250,000, if the REIT held the asset generating the credit for less than 45 days.
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