IRS Temporarily Reduces the Cash Limitation Percentage Applicable to Certain Part Stock, Part Cash Distributions by Publicly Offered REITs and Publicly Offered RICs
On May 4, 2020, the Internal Revenue Service (the “IRS”) released Rev. Proc. 2020-19, which provides temporary guidance on the minimum amount of cash that publicly offered real estate investment trusts (“REITs”) and publicly offered regulated investment companies (“RICs”) must be prepared to distribute to their shareholders in order for certain elective part stock, part cash distributions to qualify for the dividends-paid deduction. Specifically, the new guidance temporarily modifies the safe harbor previously provided under Rev. Proc. 2017-45 by reducing the “Cash Limitation Percentage” from 20 percent to 10 percent in order to alleviate current liquidity constraints on such REITs and RICs caused by the economic impact of the coronavirus. This means that in order for certain distributions paid in REIT or RIC stock to qualify as dividends for purposes of the dividends-paid deduction available to REITs and RICs, at least 10 percent of those distributions must be potentially payable in cash, at the election of the shareholders.