IRS Warns of Hotel, Medical REITs Pushing Tax Status Boundaries

The IRS reaffirmed that it will remove the special tax status for certain hotels and medical facilities that are pushing the boundaries of tax law, in a letter to Senate Finance Committee Chair Ron Wyden (D-Ore.).

Real estate investment trusts, or REITs, are corporations that invest passively in property and don’t pay corporate tax if they meet certain requirements. REITs typically aren’t allowed to be directly involved in the operations of the day-to-day business.

When determining if a REIT satisfies income test requirements, related-party rents can’t be included for qualified lodging facilities such as hotels and healthcare facilities. Leasing ...