09/04/2024 | Press release | Distributed by Public on 09/04/2024 11:37
REITs extracting wealth in health care, hotel industries; subsidized by taxpayers
IRS warns that a REIT breaking tax rules by actively managing lodging facilities "will lose its tax status"
Washington, D.C. - U.S. Senator Elizabeth Warren (D-Mass.) urged IRS Commissioner Danny Werfel to increase agency scrutiny to determine whether Real Estate Investment Trusts (REITs) may be violating tax law.
Under the current tax code, REITs can take advantage of lucrative tax breaks at the expense of taxpayers as long as they meet certain passive investment criteria. But earlier this week, the IRS warned against hotel and health care REITs pushing the boundaries of tax law and threatened that such violations would result in loss of their special tax status. In a new letter, Senator Warren applauded the new IRS clarification while urging the agency to increase its scrutiny of private companies' potential abuse of REIT tax breaks.
"Under the tax code, REITs can take advantage of lucrative tax breaks - including avoiding the 21 percent corporate income tax and qualifying for the 20 percent pass-through deduction for investors. REITs are supposed to be passive investment opportunities for smaller-scale investors …(but) REITs in the health care and hotel industries may be violating these tax rules," wrote Senator Warren.
Senator Warren underscores the pattern of REITs in the health care and hotel industries that may have been violating relevant tax rules - from a REIT purchasing hospital properties which later drove Steward Health Care into bankruptcy, to taxable REIT subsidiaries negotiating agreements with hotel operators to influence labor terms.
"In Massachusetts, Medical Properties Trust (MPT) - a REIT that bought hospital properties from Steward Health Care (Steward) in 2016, saddling the hospitals with expensive lease agreements that ultimately drove Steward into bankruptcy - has a complex investment history with Steward that raises questions about whether it has met IRS requirements regarding the limitations on a REIT's ownership of a tenant or an operator. Meanwhile, taxable REIT subsidiaries (TRSs) have negotiated agreements with hotel operators that give the TRS the right to exert significant control over labor terms, including vetoing collective bargaining agreements negotiated with hotel workers and participating in negotiations with hotel employee labor unions," wrote Senator Warren.
"As the IRS continues to identify massive corporations and businesses that may be violating tax law, I urge you to increase enforcement scrutiny of REITs, especially large health and hospitality REITs that may be illegally claiming significant tax breaks while meddling in the operations of their tenants. Decades-long underfunding of the IRS may have let bad actors feel safe to claim large REIT tax breaks while violating REIT rules, but such tax cheating should not be allowed to continue," Senator Warren concluded.
Throughout her career, Senator Warren has advocated for strong enforcement against wealthy tax cheats:
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