Simon Johnson

Document Type



Efforts at reform have not spared the REIT arrangement, but have focused on objectives unrelated to its model of tax integration, despite its significant flaws. Owing to the interaction of several provisions, the model largely precludes capitalization through retained earnings. This increases the cost of REIT capital and limits its capacity to realize the neutrality and private real estate capital formation objectives Congress pursued in creating the arrangement. Accordingly, it is important to consider how to durably improve the REIT tax integration model. Ultimately, the article concludes that the shareholder allocation model, a complete integration model conceptually similar to the current treatment of REITs' retained net long-term capital gain income, would represent an improved tax method. By adopting this more sophisticated model for all types of REIT income, Congress would permit a firm's individual circumstances instead of tax law to determine its capitalization, improving the realization of the arrangement's legislative aims while furthering desirable tax policy principles and revenue objectives. The model's durable perfect equity, substantially complete neutrality, and simplified administrative burden will not disturb the numerous structural limits unrelated to its method of tax integration, or the reliance of existing REIT transaction counterparties.

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