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June 7, 2012
U.S. REIT Act is Introduced in the House of Representatives
On May 15, Reps. Pat Tiberi (R-OH) and Richard Neal (D-MA), the Chairman and Ranking Member of the Subcommittee on Select Revenue Measures of the House Ways and Means Committee, introduced H.R. 5746, the Update and Streamline REIT Act (U.S. REIT Act).
Among other things, the U.S. REIT Act would: provide REITs more flexibility in disposing of their assets; repeal the preferential dividend rule for "publicly offered" REITs; refine and modernize several of the REIT income and asset tests; codify and expand IRS guidance regarding timber and the REIT tests; help REITs that own mortgages attract worldwide investment; and modify a technical provision relating to a REIT's "earnings and profits" to prevent duplicative taxation of REIT shareholders.
NAREIT and the sponsors of the bill worked closely with the nonpartisan Joint Committee on Taxation, as well as the bipartisan professional staff of both the House Ways and Means Committee and the Senate Finance Committee, to fully vet the provisions of the bill, and to limit the bills impact on the federal budget.
To date, Reps. Tiberi and Neal have been joined by 15 of their colleagues from the Ways and Means Committee as co-sponsors of the U.S. REIT Act, including 8 Republicans and 7 Democrats. NAREIT continues to work with the sponsors of the U.S. REIT Act to build additional bipartisan support for the legislation and to seek its passage.
Sales Tax Fairness Supporters Continue to Press for Congressional Action
Proposals allowing states to collect sales and use taxes on remote sales, including internet commerce, continue to attract additional bipartisan support in Congress. Specifically, H.R. 3179, the Marketplace Equity Act (MEA), introduced in the House of Representatives by Reps. Steve Womack (R-AR), Peter Welch (D-VT) and Jackie Speier (D-CA) last fall, now has a total of 44 co-sponsors. The industry-wide coalition supporting the bill, which includes NAREIT and the International Council of Shopping Centers, is seeking to double the list of co-sponsors in the next two months.
The House Judiciary Committee, which held a hearing on this issue last November, is expected to hold another hearing in July, and possibly report the bill to the full House of Representatives later in the year. It remains to be seen whether the proposal can move through the legislative process that quickly in an election year.
However, it should be noted that Overstock.com, an online retailer which has long opposed efforts like the MEA, has recently indicated a willingness to work with the coalition to find common ground on the proposed legislation. If Overstock.com were to join Amazon in supporting this legislation, it would be a positive step forward that may lead to additional support for the bill from the online retail community.
NAREIT, RER & Real Estate Executives Continue to Urge Repeal of 2007 FIRPTA Rule
In April, NAREIT President & CEO Steve Wechsler joined representatives from The Real Estate Roundtable, and several REIT CEOs in a meeting with U.S. Treasury Secretary Timothy Geithner and Deputy Secretary Neal Wolin, during which the attendees called for the immediate repeal of IRS Notice 2007-55, which dramatically expanded the reach of the Foreign Investment in Real Property Tax Act (FIRPTA).
By repealing this IRS Notice, the Treasury Department could eliminate an unnecessary obstacle to the insourcing of foreign capital into the U.S. commercial real estate sector at a time when additional equity capital is needed to enable the refinancing of commercial mortgages in the face of reduced property values and stricter underwriting requirements.
Even as NAREIT and its partners continue to urge the administrative repeal of the 2007 IRS Notice on FIRPTA, we continue to work to build bipartisan support for more comprehensive FIRPTA Reform proposals that have been introduced in the House and the Senate.
NAREIT Urges IRS to Give Priority to REIT-Related Actions
On May 1, NAREIT submitted its recommendations to the IRS for its consideration as it prepares the 2012-13 Guidance Priority List. Specifically, NAREIT requested that the IRS include five items on the business plan. In order of priority, they are: reversing the 2007 IRS notice regarding REIT liquidating distributions and FIRPTA; treating money market accounts as cash items for purposes of the REIT rules; clarifying certain rules to allow REITs to workout distressed debt; finalizing recently issued regulations regarding "built in gains" acquired from tax exempt corporations or in like kind exchanges; and liberalizing election and revocation procedures for taxable REIT subsidiaries.
Senior NAREIT Staff Continues to Educate SEC Commissioners, Treasury Department, about REITs
Over the past several months, NAREIT President & CEO Steve Wechsler and other senior NAREIT Staff have met with four of the five Commissioners of the Securities and Exchange Commission (SEC). The purpose of these meetings was to educate the Commissioners (Troy Paredes, Daniel Gallagher, Luis Aguilar and Elisse Walter) generally about developments in the REIT industry and to update them on NAREIT activities related to a variety of topics, including accounting issues, the pending Dodd-Frank Risk Retention rules, and the SEC Concept Release related to mortgage investment and the Investment Company Act of 1940.
Additionally, on May 17, Wechsler and senior NAREIT staff met with senior officials from the Treasury Department to discuss a host of REIT-related capital markets issues. Chief among the topics covered was reforming the housing finance market and the role that REITs could play in this effort.
Coalition Organizes Fly in to Urge Congress to Enact Clear Exemption for Derivatives End-Users
On May 22, CFTC Chairman Gary Gensler and SEC Chairman Mary Schapiro appeared before the Senate Banking Committee to update the Committee on their respective agencies progress in implementing the derivatives reform title of the Dodd-Frank Act. Much of the hearing focused on J.P. Morgans recent derivatives losses and the question of whether or not the Volcker Rule would have prevented this situation. However, of interest to end-users of non-cleared swaps is Genslers statement that, The CFTCs proposed margin rule excludes non-financial end-users from margin requirements for uncleared swaps. Ive been advocating with global regulators that we all adopt a consistent approach.
NAREIT and its partners in Coalition for Derivatives End-Users support the development of a consistent global treatment of non-financial end-users in line with the CFTCs proposed treatment of non-financial end-users. However, the margin requirements proposed by U.S. banking regulators would effectively preclude this treatment, as banks would be forced to impose margin requirements on their non-financial derivatives counterparties. NAREIT and other real estate trade organizations have met with the banking regulators to educate them on the particular challenges this rule would pose to real estate companies.
NAREIT and the Coalition for Derivative End-Users have long argued that the banking regulators approach to the margin rules is inconsistent with the clear legislative intent of the authors of the Dodd-Frank Act. The House of Representatives has taken a step to reaffirm legislative intent on this issue by passing H.R. 2682, a bill that would exempt non-financial end-users from margin requirements, by a vote of 370-24.
The Senate has yet to act on this proposal. In an attempt to build upon the positive result in the House, the Coalition for Derivatives End-Users is organizing a fly-in on Tuesday, June 19, for a day of coordinated advocacy. If you or someone from your company would like to join this event, please contact Kirk Freeman, Vice President of Government Relations, at kfreeman@nareit.com.
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