Contribution Agreement Reit

Where a transfer of ownership to a partnership and one or more transfers of funds or other consideration (including the assumption or submission of liability) by the partnership to that partner are treated as a disguised sale, the transaction is treated in whole or in part as a taxable sale of real estate. to the partnership by the partner, instead of a contribution under Article 721 of the Code and a breakdown of the partnership. In accordance with Section 721 and subject to the following discussions, contributors do not make any profit from the contribution of real estate into the corporate partnership. However, contributors have the right to convert their units into REIT shares, at which point an integrated profit can be realized. After its creation, the corporate partnership would be able to permanently acquire other real estate without recognizing the owner, by paying the property for units in the operating partnership. Another exception in any applicable veiled sales rules allows the contributor to be reimbursed for expenses related to models, i.e. certain expenses related to the immovable property incurred during the two-year period preceding the contribution (16). Section 357(c) provides that profit is recognised in an otherwise tax-exempt exchange when assets are transferred to a company subject to liabilities which, when aggregated with other liabilities borne by the company, exceed the aggregate base of the transferred assets. This provision applies to the restructurings referred to in subsections 351 and 368 (a) (1) (D) (18). However, Section 357(c) does not apply to reorganizations referred to in Section 368(a)(1)(A). As a result, a merger can be carried out without any deduction from income. A trap in many transaction agreements can be hidden in the “Closing Adjustments” section. Often, provisions that reduce the number of units that the contributor must receive due to certain liabilities that the operational partnership will assume highlight the liabilities that need to be audited to determine whether they are qualified liabilities in accordance with the disguised sales rules.

Similarly, the payment of the contributor`s costs by the operational partnership related to the transaction may lead to a partially disguised sale. This problem frequently arises for brokerage fees, transfer taxes and prepayment indemnities. . . .