Mr Cooper Group Inc (COOP)

[boarddork]

REITS can legally delay notification up to January 31st without penalty. Sort of a grace period if needed. Its not common.

They can can even postpone up to June, however, the financial and tangible costs associated make it extremely unlikely this will be go beyond January 31, 2021. Otherwise the REITS have to pay taxes,, and other penalties etc.if they go beyond Jan 31.




boarddork Tuesday, 12/29/20 06:10:35 PM
Re: None 0
Post # of 645612
Q4 2020 hasn't ended yet, but after all these years where retail is hated so much, I had to poke around a bit with regards to REIT distributions. I am not an expert, and maybe AZ can correct me as to whether the WMI Capital Trusts are REITS by this definition, as it may not be entirely applicable. But I did find it interesting amongst a cacophony of new IDs pushing hard against a 2020 year end distribution. I agree with AZ's research and I know he has adequately stated what should happen regarding the 90% Rule under the spotlight of Q4 ending.

I found a Tax Director, who lists some rare instances where a REIT Trustee 'could' postpone disbursements, but not with consequences, or ignoring the mandatory requirement to declare a dividend before Dec 31 - even if money comes later. I believe AZ has already mentioned this to some degree.

What is bothersome in reading this is numbers 1-3. As legacy retail is hated, some sadist might like #1 to delay paying retail another month - or this same sadist might like #2 by filing taxes late and tax extensions to postpone paying till June (although #2 costs the REIT excise taxes). The only thing about #3 that is bothersome is if by "consent of the shareholders"......it might mean that legacy WMI being the only shareholder, could it direct the REIT to not distribute the dividend income and leave it in the REIT while sticking us with the taxes?

Here are the highlights:

"What if Your REIT Doesn’t Meet Its Distribution Requirement?

JUNE 17, 2020

By David Nigliazzo


But what happens if the REIT fails to meet the distribution requirement? Are there any remedies?

Dividends must be pro rata and without “preference” within a single class of stock. There are three provisions that will remedy the situation when a REIT fails to meet its distribution test:


1) Declare the Dividend in the Current Tax Year and Pay in January of the Subsequent Year

If a REIT declares a dividend in Q4 of a taxable year (October, November, December) to shareholders of record in such quarter, but does not pay the dividend until January of the following year, the distribution is deemed to have been paid on the last day of the taxable year (i.e., December 31.) The REIT will include the distribution in the current taxable year; however, the shareholder will need to also include the dividend in their taxable income for the current tax year. These dividends are deemed paid on the last day of the taxable year. The REIT must have earnings and profits in the tax year in order to classify these distributions as dividends.


2) Declare and Pay the Dividend in the Subsequent Year Exposes REIT to excise taxes

If a REIT does not declare the dividend in the prior tax year, there is still a remedy. The REIT can deduct dividends in the prior tax year if the dividend is declared prior to the due date of the REIT’s tax return, including extension, and the dividend is paid in the 12-month period following the close of the REIT tax year. Once the dividend is declared with regard to the prior tax year, it must be paid no later than the next regularly scheduled dividend.

For example, assume that a REIT typically makes distributions on June 30 and December 31 each year. On May 15 of the current year—the year subsequent to the tax year—the REIT declares a dividend related to the prior tax year to solve its distribution requirement. The dividend related to the prior tax year must be distributed no later than June 30. The distribution must be from the earnings and profits of the prior tax year. Under this scenario, the REIT will deduct the dividend in the prior tax year; however, the shareholder will be taxed on the REIT in the year in which it was paid. This option may cause the REIT to be subject to the excise tax for the prior tax year.


3) Declare a Consent Dividend Requires shareholder WMI (and others?) consent prior (maybe someone research the IRS form 972, 973)

A “consent dividend” is a constructive distribution from the REITs earnings and profits. From a shareholder’s perspective, it is treated as a taxable dividend on the federal income tax return in the current year. It is considered as if the shareholder immediately reinvested the dividend back into the REIT, increasing the paid-in capital of the REIT and increasing the shareholders basis in the REIT stock. This will allow the REIT to keep the cash in the REIT and increase the shareholders’ investment in the REIT. All shareholders must consent to the dividend by completing and signing Form 972, and the REIT will complete Form 973. Both forms must be submitted with the REIT’s tax return and by the REIT’s tax filing due date, including extensions. If a shareholder does not consent and is not distributed cash, then there is a preferential dividend with regard to the class of stock having the consent dividend, and no amounts with regard to that stock are eligible for the dividends paid deduction.



4) None of the Above REIT status would be canceled - I doubt they'd risk this

If a REIT fails to meet the distribution requirement and does not elect one of the three aforementioned solutions, it will fail to be a REIT and will be taxed as a C corporation. Some practitioners believe if an entity continues to pass all other REIT requirements, the REIT will be taxed as a REIT in the subsequent tax year. Others view that the five-year prohibition on re-election applies, and the REIT will be taxed as a C corporation for the five-year period. Given the uncertainty of the application of this rule, it is critical for a REIT to meet its dividend distribution requirement.


5) SALT Issues a REITs primary objective is to avoid taxes, I doubt it comes to this.

A REIT should also be aware of potential state and local tax issues. While some jurisdictions comply with federal law for REITs, some do not, specifically regarding consent dividends. This could cause the REIT to have an income tax liability in state and local jurisdictions, even if there is no federal taxable income. State adjustments can also cause a REIT to have state income and, therefore, state income tax liability. Furthermore, some states have a franchise, excise, or net worth tax to which the REIT will be subject.

A best practice is to monitor the REIT’s estimated taxable income and distributions paid throughout the year in order to comply with REIT distribution requirements and avoid a potential shortfall. An essential part of REIT compliance is ensuring the REIT meets distribution requirements. If there is a deficiency in the REIT’s distributions at year-end, contact your tax advisor to discuss and assess your best options to ensure the REIT’s compliance with the distribution requirement.


https://www.eisneramper.com/reit-distribution-requirement-0620/