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What a REIT Ruling Can Tell Us About Loan Origination

Weil Tax, Benefits, and Executive Compensation partner Kimberly S. Blanchard authored an article regarding the IRS’s recent private letter ruling (PLR 201234006) regarding the treatment of “excess service spreads” (ESS) purchased by a real estate investment trust (REIT). In this letter ruling, the IRS found that ESS purchased by a REIT from a loan originator were interests in mortgages on real property for purposes of §856(c)(5)(B) and that income received by the REIT from such ESS are treated as interest on mortgages for purposes of §856(c)(3)(B). Ms. Blanchard explains the significance of this letter ruling to international tax practitioners in defining the activity of loan origination.

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