IRS Again Temporarily Reduces Cash Requirement for Elective Cash-or-Stock Distributions by Public REITs and RICs

December 2021


Julie RobinsTax Managing Director, Partnership Taxation

On November 30, 2021, the IRS issued Rev. Proc. 2021-53, which temporarily reduces from 20% to 10% the minimum amount of cash required of a publicly offered real estate investment trust (REIT) or publicly offered regulated investment company (RIC) to satisfy its distribution requirements in an elective cash-or-stock distribution. The reduction in the cash distribution requirement is effective solely with respect to distributions declared on or after November 1, 2021, and on or before June 30, 2022. A previous revenue procedure (Rev. Proc. 2020-19) also temporarily reduced the cash distribution requirement to 10%, but only for distributions declared on or after April 1, 2020, and on or before December 31, 2020.


A REIT must distribute at least 90% of its taxable income as dividends to shareholders to maintain REIT status. A stock distribution generally does not qualify as a dividend under Internal Revenue Code Section 301 for this purpose. However, Section 305(b) and Reg. Section 1.305-1(b)(2) provide an exception for certain stock distributions if each individual shareholder can elect to receive either cash or stock. If the exception applies, then the distribution of stock may qualify as a dividend under Section 301 and, thus, count toward the REIT’s 90% distribution requirement.
Rev. Proc. 2017-45 provides guidance regarding certain elective cash-or-stock distributions by REITs and RICs. If a publicly offered REIT or publicly offered RIC (as defined by the Rev. Proc.) distributes stock in a transaction meeting certain requirements, the IRS will treat the distribution of stock as a distribution of property to which Section 301 applies by reason of Section 305(b) and, thus, the stock distribution may be treated as a dividend to the extent of the REIT’s earnings and profits. Among other requirements, Rev. Proc. 2017-45 provides that shareholders must be able to elect to receive cash or stock and that the amount of cash distributed cannot be less than 20% of the aggregate declared distribution. Rev. Proc. 2017-45 contains detailed rules, definitions and requirements that must be met to comply with the guidance and is generally effective for distributions declared on or after August 11, 2017.

Rev. Proc. 2021-53

In recognition of the need for enhanced liquidity during the economic disruption caused by the COVID-19 pandemic, Rev. Proc. 2021-53 (like Rev. Proc. 2020-19) reduces the minimum cash distribution requirement under Rev. Proc. 2017-45 from 20% to 10%. As a result, publicly offered REITs and RICs that want to retain cash during this period can now issue distributions through a cash-or-stock election that limits the cash outlay to 10% rather than the 20% otherwise required under Rev. Proc. 2017-45.  

BDO Observation

Neither Rev. Proc. 2021-53 nor Rev. Proc. 2017-45 applies to private REITs. Therefore, a private REIT that wants certainty as to the tax treatment of a distribution through a cash-or-stock election still must request a private letter ruling.