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40 Tex. L. Rev. 886 (1961-1962)
Real Estate Investment Trust

handle is hein.journals/tlr40 and id is 912 raw text is: The Real Estate Investment Trust
JOHN C. DAWSON, JR.
I. INTRODUCTION
On September 14, 1960, Congress approved the addition of Sections
856-58 to Subchapter M of the Internal Revenue Code,1 thereby per-
mitting a real estate investment trust (hereinafter referred to as BELT)
the right to exclude its distributed earnings from the corporate income
tax. Thus investors in such organizations are taxed as if they had in-
vested directly in real estate, real estate equities, and mortgages. In this
way the small investor is able to secure the advantages of diversified
investment, expert investment counsel, and the means of collectively
financing projects2 which normally would only be available to those
with larger resources.
This comment, after a brief sketch of the legislative reasons for giv-
ing the RET this special tax treatment, will outline the requirements
of the code provisions and point out some of the problems that have
arisen under state laws and securities regulation. It should be noted that
this is a new area and consequently many of the rules and regulations
referred to herein are subject to change.
II. WHY SPECIAL TAX TREATMENT FOR THE REIT?
Since 1936 the conduit type of tax advantage has been available to
the small investor in the securities field through the use of the regulated
investment company or mutual fund, but not in the field of real estate.'
Proponents for allowing the REIT special tax treatment argued that the
mutual fund and the REIT were similar in that both were engaged in a
passive type of investment, that is, strictly providing capital without
taking any active part in the management of the business invested in.
Thus it was only equitable that each receive the same tax treatment.5
Critics of the legislation, however, felt that there was a distinct difference
1 INT. REV. CODE OF 1954, SS 856-58.
2 H.R. REP. No. 2020, 89th Cong., 2d Sess. (1959). Reported in 4 CCH 1961 STAND.
FED. TAx RE,. at 44212, 1 4099A (1961) and in 1960-2 Cum. BuLL. 819.
3 Beginning with the Revenue Act of 1936, ch. 690, S 48(e), 49 Stat. 1648; Revenue
Act of 1937, ch. 815, § 602, 50 Stat. 813, Revenue Act of 1938, ch. 289, §§ 361, 362, 52
Stat. 447. Codified in Int. Rev. Code of 1939, § 361, 362, as amended, ch. 619, 56 Stat
802 (1942) (now INT. REv. CODE OF 1954, §§ 851--55).
4 INT. REv. CODE oF 1954, §§ 851-55.
53 TAX REVISION COAPENDIUM, Submitted to the Committee on Ways and Means,
89th Cong., 2d Sess., COMPENDIUM OF PAPERS ON BROADENING THE TAX BASE 1697,
1700 (Comm. Print 1959).

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