Several recent corporate spin-offs in the United States have
involved real estate investment trusts (REITs). Provided
several requirements are satisfied, including qualification of the
"spun-off" entity as a REIT and the spin transaction as a
tax-free spin-off, REIT spin-offs can result in significant value
to shareholders. In these transactions, a corporation
distributes a subsidiary corporation holding real estate to the
distributing corporation's shareholders in a tax-free
spin-off. Not only is the spin-off tax-free, but the
distributed company elects REIT status and thus enjoys potentially
substantial tax savings going forward. The Internal Revenue
Service (IRS) recently has issued a number of favorable private
letter rulings (PLRs) for such transactions. REIT spin-offs
should be of potential interest to any U.S. corporation owning
significant real estate.
