Partner Addresses UPREITs and Book-Tax Disparity Issues

Chicago Partner Daniel Cullen, a frequent author and speaker on complex tax issues, continues his series of columns focused on federal income tax issues connected with the contribution of real property to an UPREIT in the September-October edition of the Journal of Passthrough Entities.

An UPREIT, or an "umbrella-partnership real estate investment trust," is a traditional real estate investment trust (REIT) coupled with a limited partnership. An UPREIT transaction allows a real estate owner to contribute real property to the partnership on a tax deferred basis in exchange for operating partnership units that are exchangeable into REIT corporate shares.

"With this in mind, however, the parties focus primarily on the economics of the deal, rather than the tax basis ramifications – the primary importance to the parties is the fair market value of the contributed property and the operating partnership units received in connection with the contribution," Cullen writes. "The disjuncture that exists between book and economic value gives rise to a number of critical tax planning issues that should be addressed while negotiating the terms of the UPREIT transactions."

Leader of Bryan Cave’s Tax Advice & Controversy Practice, Cullen focuses his work in tax advice and corporate finance, including real estate capital markets transactions, structured finance and joint ventures and partnerships. Additionally, he is an adjunct professor of tax law at the DePaul University College of Law.

Click on the attachment below to read his full article, reprinted with permission from the Journal of Passthrough Entities.

UPREITs (Part II) - Addressing Book-Tax Disparities