IRS Approves REIT Election After Section 355 Spinoff

In a private letter ruling, the IRS approved the tax-free spinoff under Section 355 of real estate assets into a newly formed real estate investment trust (REIT).

In PLR 201337007, “Distributing,” the common parent of a consolidated group, internally restructured to move certain historic real estate assets, as well as all the outstanding stock of certain operating subsidiaries, into a newly created subsidiary corporation, “Controlled.” 

Distributing also redeemed a portion of the ownership interest held by certain shareholders to ensure no shareholder owned more than a 10% interest in Distributing. Distributing made a pro rata distribution of all the outstanding stock of Controlled to Distributing’s shareholders. After the distribution, Controlled declared and paid a dividend to purge Controlled of any earnings and profits.