THE MOVEMENT OF REAL ESTATE TO THE FEW AT THE TOP IS IN FULL SWING AND MARYLAND IS FRONT AND CENTER IN THIS MASSIVE FRAUD. IT IS WHY THERE IS NO TALK IN MARYLAND JUSTICE CIRCLES ABOUT THIS MASSIVE FRAUD THAT TARGETED THE WORKING CLASS AND POOR. MARYLAND IS STILL THE HIGHEST IN FORECLOSURES AS THE MIDDLE-CLASS ARE NEXT IN LOSING THEIR HOMES FROM THE DAMAGES OF THIS FRAUD!
THE SUBPRIME LOAN FRAUD CONTINUES!!!!!!
We are seeing every level of government working to protect corporate profits and shield corporate fraud and tax evasion as laws are passed making civil rights and liberties threatened. This is happening in Baltimore City Hall, the Maryland Assembly, and US Congress. I saw an article that stated democrats in Congress were behind this massive WalMart protest and yet------a supermajority of democrats could not find it in them to raise the minimum wage to $15 an hour or protect worker and retirement benefits. So, as civil liberties and public justice are suspended.......corporate fraud is in full swing!
THIS IS O'MALLEY'S MARYLAND----
I keep stating the obvious, but we must make it a mantra coming from all sectors of US society-----WE SIMPLY NEED TO RECOVER MASSIVE CORPORATE FRAUD IN THE TENS OF TRILLIONS TO REVERSE WEALTH INEQUITY! SIMPLY REINSTATING RULE OF LAW WILL DO IT!
This is why I highlight all the avenues of corporate fraud that exist in Maryland and Baltimore. Below you see that while Maryland passes laws against protesting......the corporations being protested are wanted for all kinds of fraud. WalMart represents wage theft, tax evasion, and the social costs of poverty wages is huge.
As you see REIT is a property tax law that adds to the 'you can bet on anything on Wall Street' casino atmosphere. With all things Wall Street fraud is infused so, as cities and states lose property tax revenue by handing yet another corporate cost over to shareholders......we know that the major shareholders are not paying the taxes required from REIT. Then you have the bizarre renting your business to yourself scheme showing there is no oversight for open infringement.
We simply need to enforce law..... and all that requires is a Rule of Law GOVERNOR AND MAYOR. Fraud recovery pays for itself so if an attorneys office is captured.....an executive can do the deed!
With REIT fraud you not only have shareholders failing to pay for profits from this policy, you have corporations like WalMart getting tax breaks on taxes they don't pay......selling themselves as 'renters'. Or the ultimate fraud in using REIT on subprime mortgage loan fraud recycled en masse from the FED as bundled mortgage buy-backs.
VISIGOTH ALERT!!!!!!!
Did you know that Maryland is tops with the REIT law that allows corporations like WalMart to 'rent to themselves'? WalMart not only steals from its employees but your Maryland neo-liberals allow them to steal from public coffers. So, while the Maryland Assembly claims poverty and cuts education and public services, it hands out so much in corporate subsidy as to make taxes profits!
WE ARE GOING TO HAVE TO MAKE SURE WALMART PAYS ITS RAIN TAX!!!!
Please look at the last article to see how Maryland is tied in to this FED mortgage bond buy-back scheme that simply takes these subprime loans off of banks' accounts and moves them to a newly created business that markets them as REIT investments!
Remember, the FED is spending trillions of dollars on this buy-back and this Maryland corporation is loading itself with this discounted real estate. It was the Washington suburbs that was home of MERS-----the mortgage title laundering machine for the massive mortgage fraud.
Wal-Mart’s State Tax Evasion Ploy: Paying Rent to Itself
By Jesse Drucker
First published by The Wall St. Journal, February 1, 2007
As the world’s biggest retailer, Wal-Mart Stores Inc. pays billions of dollars a year in rent for its stores. Luckily for Wal-Mart, in about 25 states it has been paying most of that rent to itself — and then deducting that amount from its state taxes.
The strategy is complex, but the bottom line is simple: It has saved Wal-Mart from paying several hundred million dollars in taxes, according to court records and a person familiar with the matter. And Wal-Mart is far from alone.
IT’S A DEAL
The arrangement takes advantage of a tax loophole that the federal government plugged decades ago, but which many states have been slower to catch. Here’s how it works: One Wal-Mart subsidiary pays the rent to a real-estate investment trust, or REIT, which is entitled to a tax break if it pays its profits out in dividends. The REIT is 99%-owned by another Wal-Mart subsidiary, which receives the REIT’s dividends tax-free. And Wal-Mart gets to deduct the rent from state taxes as a business expense, even though the money has stayed within the company.
Partly thanks to sophisticated financial strategies like these, states’ tax collections from companies have been plummeting. On average, Wal-Mart has paid only about half of the statutory state tax rates for the past decade, according to Standard & Poor’s Compustat, which collects data from SEC filings. The so-called “captive REIT” strategy alone cut Wal-Mart’s state taxes by about 20% over one four-year period. Now several state regulators are trying to crack down on the strategy, used largely by retailers and banks, and some other states have changed their laws to try to end the practice. Yesterday, New York Gov. Eliot Spitzer included elimination of the loophole as part of his proposed budget, a fix he said would bring the state $83 million a year.
North Carolina tax authorities are challenging Wal-Mart, saying its REIT strategy was intended to “distort [the company's] true net income,” according to its filings in the case in Superior Court in Raleigh, N.C. The state calls captive REITs a “high priority corporate tax sheltering issue” and in 2005 ordered Wal-Mart to pay $33 million for back taxes, interest and penalties stemming from the REIT. The company paid it and last year sued the state for a refund.
The structure Wal-Mart is using features some unusual elements. Because REITs must have at least 100 shareholders to gain tax benefits, roughly 100 Wal-Mart executives were enlisted to own a combined total of around 1% of the REIT’s shares, without any voting rights. H. Lee Scott Jr., now Wal-Mart’s CEO, was listed as the REIT’s “managing trustee” from 1996 to 2004.
A single Wal-Mart real-estate official, Tony Fuller, represented the company both as tenant and landlord in its lease with itself. Ernst & Young LLP, the accounting firm that sold the strategy to Wal-Mart, also is the company’s outside auditor. In its internal sales training materials, the accounting firm explicitly labeled the strategy as a method to reduce taxes — a red flag to tax authorities, who often demand that tax shelters have other business purposes.
Wal-Mart attorneys say in court filings that the strategy is perfectly legal and that North Carolina is exceeding its authority. A spokesman for the Bentonville, Ark., company, John Simley, said Wal-Mart “is comfortable with its current structure and is in compliance with federal and state tax laws.” He added that the REIT structure was adopted to “more effectively and efficiently manage the company’s real-estate portfolio, including the impact on the company’s overall state tax planning.”
Regulators in at least a half-dozen states are going after companies that have trimmed their taxes through similar arrangements, including Regions Financial Corp.’s AmSouth Bancorp. unit; AutoZone Inc. of Memphis, Tenn.; and two units of Bank of America Corp. In a Massachusetts case against Bank of America unit Fleet Funding Inc., authorities call Fleet’s REIT arrangement a “sham” in court filings. They note that Fleet increased the salaries of the roughly 100 employees whom it made REIT shareholders to compensate them for personal income taxes stemming from ownership. The Multistate Tax Commission, an association of state revenue authorities, says it has started examining the use of captive REITs to avoid taxes, alerting states to the issue and proposing legislative fixes to close the loophole.
States collected more than $44 billion last year in corporate income taxes, out of $607 billion in total state tax receipts, according to the Nelson A. Rockefeller Institute of Government, a nonpartisan think tank associated with the State University of New York. But the average effective corporate state and local tax rate has dropped from 6.7% during the 1980s to about 5% during the first half of this decade, according to a recent report by the Congressional Research Service. This is in part because of the proliferation of state and local tax breaks, as well as tax shelters, according to several academic and government studies.
Some corporate state tax planners say arrangements like these are merely smart business, and that the loopholes exploited by companies should be fixed by state legislatures rather than litigated by state lawyers. Critics of the shelters complain they let companies use public services provided by local governments — such as police and fire protection or new highways — without having to shoulder their fair share of the costs. Meanwhile, the portion of state taxes borne by individuals is steadily rising.
Congress created REITs in 1960 as a way to allow smaller investors to put money in a wide portfolio of commercial real estate, spreading their risk. Congress also gave them a tax benefit: REITs aren’t subject to corporate income tax on the profits they pay to shareholders as long as they pay out at least 90% of the profits. The shareholders still usually get federally taxed on the dividends, which still count as income for them.
After a boom in REITs in the early 1990s, big accounting firms including Ernst & Young and KPMG LLP figured out that on the state level, they could pair the tax break on REIT dividends with a separate tax rule that allows companies to receive dividends tax-free from their subsidiaries. With the REIT as a subsidiary itself, two rules aimed at avoiding double taxation could be combined to effectively avoid any taxation at all.
The strategy worked especially well if the REIT was owned by a company incorporated, and claiming to do all its business, in a state such as Delaware or Nevada that often wouldn’t tax the corporate income anyway. That created an extra hurdle for other states to challenge the practice if they caught onto it.
Ernst & Young early on targeted the banking industry as a possible beneficiary of the captive REIT strategy. Like retailers, banks have branches in many states and often are liable for lots of state-level corporate tax. Ernst & Young targeted at least 30 banks, some of them its audit clients. The SEC generally permits that dual role as long as the firm’s fee isn’t contingent on the tax savings.
According to documents from a 1995 internal Ernst & Young sales training meeting reviewed by The Wall Street Journal, the accounting firm suggested banks put some of their income-producing assets, such as a portfolio of mortgages, into a REIT subsidiary, then use the double-tax break to “shelter” the income from state taxes. The REIT would issue a tiny number of non-voting shares to bank “officers and directors” to meet the 100-shareholder rule that REIT law requires.
U.S. banks “pay millions of dollars each year in state and local taxes,” read the Ernst & Young presentation to its sales force. “The FSI State Tax Financial Product we have developed can significantly reduce or eliminate this heavy tax obligation…” One section of the Ernst & Young sales package featured hypothetical questions from clients about the REIT shelter, and the proposed answers. To pass legal muster, many corporate tax shelters purport to have additional business purposes behind merely saving taxes. Ernst & Young, however, was blunt about the reason for its proposed strategy:
“Q: What’s the business purpose?
“A: Reduction in state and local taxes.
“Q: What if the press gets wind of this and portrays us as a ‘tax cheat’?
“A: That’s a possibility….If you are concerned about possible negative publicity, you can counter it by reinvesting the savings in the community.”
An Ernst & Young spokesman declined to comment on its REIT work, saying the firm was “prohibited from commenting on client matters.” The spokesman said he could not verify the authenticity of the internal sales training documents based on quotes provided by the Journal. However, he said the “limited language communicated in the internal memo does not reflect the quality and nature of the advice we provide to our clients.”
State authorities have had mixed records so far in pursuing back taxes and penalties in captive-REIT cases. AutoZone, the big auto-parts chain, won the right to deduct the dividends from its taxes in Kentucky but lost a preliminary round in Louisiana . The Hawaii Department of Taxation won a case involving a REIT used by Central Pacific Financial Corp., a bank holding company. AmSouth is in litigation with Alabama over tax benefits from its REIT.
Fleet Funding’s REIT, on which the company was advised by KPMG, has led Massachusetts to seek more than $42 million in back taxes, interest and penalties. BankBoston Corp. is in similar litigation with Massachusetts . Both banks have been acquired by Bank of America, which declined to comment on the litigation.
Fleet’s attorneys have said in court papers that its REITs were legitimate, and the fact that they were partly motivated by tax considerations does not legally undermine their valid business purpose — to raise capital, they say. A KPMG spokeswoman declined to comment on the Fleet case, but said it had stopped any involvement with “prepackaged tax products” before a 2005 agreement it made with the U.S. Justice Department over improper tax strategies that also led to the indictment of 17 former KPMG officials.
It’s unknown how many disputes have been raised over the strategy used by Wal-Mart and others, because such tax disputes are generally not disclosed unless lawsuits are publicly filed or the company reveals them in SEC filings.
Wal-Mart adopted its captive-REIT structure just as it was unwinding a previous strategy to reduce taxes that states had begun to challenge. For the first half of the 1990s, the retailer used a so-called intangible holdings company structure also used by many other corporations. Wal-Mart transferred its trademarks to a subsidiary called WMR Inc. in Delaware, which does not tax many forms of corporate income. Then it paid the subsidiary for the use of the brands. That allowed Wal-Mart to deduct those payments from its local income taxes in some states, while WMR’s income wasn’t taxed by Delaware.
Several states won challenges to the strategy, used by various retailers. Wal-Mart settled a dispute over its use of WMR in Louisiana — the details of the settlement are sealed — and lost on the main points of a case in New Mexico. Wal-Mart merged with WMR in February of 1997 and its use as a state tax avoidance vehicle was apparently discontinued, according to New Mexico court records.
In the meantime, Wal-Mart set up a new vehicle to control its state tax bill: captive REITs. In the summer and fall of 1996, Delaware corporate records show, Wal-Mart created a new hierarchy of subsidiaries: a REIT called the Wal-Mart Real Estate Business Trust; a Delaware-based parent company for the REIT, called the Wal-Mart Property Co.; and Wal-Mart Stores East Inc., parent of the Delaware firm. Wal-Mart Property owned 99% of the REIT’s shares, and 100% of the voting shares, according to Wal-Mart court filings in North Carolina and West Virginia. The company also set up a similar arrangement for its Sam’s Club stores.
To meet the 100-shareholder threshold required for REITs, Wal-Mart distributed a minimal amount of nonvoting stock, to approximately 114 Wal-Mart employees, according to a person familiar with the arrangement. The dividend payouts were nominal. The structure involved Wal-Mart’s top executive tier. The shareholders were generally executive vice presidents and above. David Glass, then Wal-Mart’s president and CEO, was listed as president of Wal-Mart Stores East on the lease agreement, and Paul Carter, then a Wal-Mart executive vice president, was listed as the president of the REIT.
Wal-Mart began transferring to the REIT ownership of the properties — the land and buildings — for hundreds of its stores in 27 states, real-estate records show. Then Wal-Mart Stores East signed a 10-year lease agreement with its REIT that took effect on Jan. 31, 1997, agreeing to pay a fixed percentage of the stores’”gross sales” as rent, according to a copy of the arrangement filed in the North Carolina case. Mr. Fuller, the Wal-Mart real-estate official, is listed as the contact for both the tenant and the landlord. The original lease was due to be renewed this week.
Wal-Mart could deduct from its state-taxable income the rent paid by Wal-Mart Stores East to the REIT. The REIT paid the majority of its rental earnings to its 99% owner, Wal-Mart Property Co., in the form of dividends. That company’s base in Delaware gave it another way to avoid liability for state taxes, since some states do require that dividends a REIT pays to its corporate owner be taxed, as the federal government does.
The Delaware subsidiary then paid the money back to Wal-Mart Stores East, the same subsidiary that made the payments to the REIT to begin with. Those payments to Wal-Mart Stores East weren’t taxed either, because dividends paid to a corporation by a subsidiary normally aren’t counted as taxable income for the parent company.
The result of the circuitous transaction: Wal-Mart could effectively turn rental payments to itself into state level tax-deductions in most of the states where the payments have been made. Under typical circumstances, rent paid to a third-party landlord also would reduce taxable income. But that would ordinarily be cash out the door, like most other tax-deductible expenses. Here, the majority of the tax-deductible rental payments came straight back to Wal-Mart.
The national tax savings have been significant. Over a four-year period, from 1998 to 2001, Wal-Mart and Sam’s Club paid company-controlled REITs a total of $7.27 billion that eventually came back to Wal-Mart in states across the country, according to a North Carolina Department of Revenue auditor’s report filed in court by Wal-Mart. Based on an average state corporate income tax rate of 6.5%, three accounting experts consulted by The Wall Street Journal estimated the REIT payments led to a state tax savings for Wal-Mart of roughly $350 million over just those four years. SEC filings show the company paid $1.18 billion in state taxes during that period. The loss of federal deductions that bigger state tax payments would have triggered brought the company’s effective tax savings overall down to about $230 million. Wal-Mart declined to comment on the figures.
It is not clear how much Wal-Mart has paid to its own REITs in the most recent five years. The yearly rental payments — on which the tax savings are based — are pegged to the “gross sales” of the stores, according to the lease agreement.
Underscoring that the rental payments were cashless Wal-Mart accounting moves, an affidavit filed in North Carolina by the company’s former controller, James A. Walker Jr., states that the payments were made by simply debiting the account of one subsidiary and then crediting the account of the other. “Wal-Mart Stores, Inc. served, in effect, as a bank for” both sides, the affidavit stated.
In 2005, after an audit, the North Carolina Department of Revenue issued a notice to Wal-Mart challenging the REIT structure. The state is site of about 140 of the company’s roughly 3,900 U.S. stores, including Sam’s Clubs. Wal-Mart paid the $33 million the state sought, and in March 2006 sued for a refund.
The company argues that the state does not have the authority to essentially combine the results of the subsidiary that did business in North Carolina with those of the Delaware-based unit and the REIT. The Delaware-based subsidiary, the company says, did no business in North Carolina and therefore was not taxable there. The company says in court filings that the REIT was qualified under federal law, that all the deductions were properly taken and that its North Carolina tax returns reflect its “true income.”
__________________________________________________
REITs: Real estate investment scams may involve new development projects or buying, or beleaguered properties. Non-traded real estate investment trusts that are owned by banks or waiting for foreclosure or short-sale can be problematic for customers, as can investment funds purportedly tied to interest in real property that has no equity and is very leveraged.
______________________________________
As you see here, the Gary Kain was manager for Freddie and Fannie during the time of the movement of subprime loans into the hands of government insured agencies....$.800 billion in subprime loans were dumped on these government/taxpayer agencies during this man's term as Obama has refused to protect taxpayers from this massive fraudulent dump by demanding these loans just be written off. So, the man who knowingly imploded Freddie and Fannie now works with a corporation getting the bulk of mortgage buy-backs from the FED at discounted prices and 0% mortgage interest rates and using REIT to make record profits. These are foreclosed homes landing with an investment firm in bulk numbers and they are avoiding paying property taxes with REIT. The same person creating the fraud is now heading a second round of profit-making from the fraud and it is based in Maryland.
MERS WAS MARYLAND BASED AND NOW THIS AMERICAN CAPITAL IS THE FRONT FOR MOVING MILLIONS OF HOMES OFF THE BANKS' BOOKS BY THE FED AND INTO THE HANDS OF CONNECTED INVESTORS.
SEE WHY OBAMA WENT TO MARYLAND POLS IN FILLING FEDERAL POSTS? WE ARE FRAUD UNLIMITED!!!
We simply need to reinstate Rule of Law and we can reverse all this fraud and return wealth to the people!
Maryland and New York are key to this fraud because both states are the locations of the bulk of the fraud.
Bloomberg News MAR 28, 2013 10:18am ET
REITs Trigger Fed Warning as Gary Kain Tops $100 Billion
Gary Kain spent 20 years at Freddie Mac managing as much as $800 billion of bonds before the U.S. took over the company. Since 2009, he’s used his knowledge of the home-loan market to help turn American Capital Agency Corp. into the fastest growing mortgage debt investor.
American Capital’s assets grew to $100.5 billion at the end of last year from less than $5 billion three years earlier, making the Bethesda, Md.-based real estate investment trust the largest after Annaly Capital Management Inc., in an industry that’s drawing attention from investors and the Federal Reserve for its double-digit yields and rapid expansion.
REITs bought more than $100 billion of government-backed mortgage securities in 2012, the most since at least the credit crisis, and will purchase another $60 billion in 2013, JPMorgan Chase & Co. estimated this month. Fed Gov. Jeremy Stein pointed to the expansion of mortgage REITs, which have amassed almost $400 billion of the debt, during a speech last month on risky behavior in credit markets influenced by the central bank holding borrowing costs near zero for a fifth year and investors searching for high-yielding assets.
“Agency mortgage REITs deserve attention in particular because they have exploded in size,” said John Gilbert, chief investment officer at General Re-New England Asset Management, a unit of Warren Buffett’s Berkshire Hathaway Inc. that oversees $64 billion. “We’ve been dealing with the unintended consequences of monetary policy for a long time. We have to be on the lookout for the downside.”
American Capital, along with growing the fastest, has also been one of the most successful of the mortgage REITs. Since Kain, 48, was named chief investment officer, it’s returned 258%, including reinvested dividends, almost double the returns of a 34-company index.
The firm was started by private-equity financier Malon Wilkus and went public in February 2008, just as the Fed was responding to the biggest financial crisis since the 1930s.
Wilkus, chief executive officer of investment firm American Capital Ltd., hired Kain to help “navigate the evolving mortgage landscape,” he said in a statement at the time. The original management team had left in January 2009, about four months after the government seized Fannie Mae and Freddie Mac, when loan losses pushed the two firms to the brink of bankruptcy.
Kain, now president of the REIT, joined the firm when it held a little more than $2 billion and the Fed was preparing to start buying government bonds to resuscitate the housing market.
He took advantage of the central bank’s buying and used cheap borrowing costs to increase leverage for the REIT’s purchases of government-backed mortgage securities. The bets paid off, with the company returning 53 percent in 2009 including reinvested dividends.
Kain oversaw an average of about $700 billion during his last few years with the company, primarily government-backed mortgages. Since these bonds don’t take credit risks, his main responsibility was hedging for changes in interest rates. The portfolio also included non-agency mortgage-backed securities, including the subprime debt that helped fuel the housing boom and contributed to the company’s losses that led to the government rescue.
“A major emphasis of the subprime AAA portfolio was around hitting affordable housing goals so it was not as pure of an investment mindset,” Kain said.
When the government seized the company and sought to shrink the portfolio and the company’s imprint on housing finance, Kain said he “knew life at Freddie Mac was going to be very different” and started considering other options.
“His background was a perfect fit for American Capital,” said Jason Arnold, an analyst at RBC Capital Markets in San Francisco. “There’s been a lot of problems at Fannie and Freddie so it’s not surprising that someone would want to go out and do something else rather than be under the umbrella of the U.S. government.”
REITs have been among the biggest winners from government policies to resuscitate housing and stimulate the economy. The Fed has made it easier and cheaper for the companies to borrow through the so-called repo market. The central bank’s buying has also pushed up the value of mortgage bonds that REITs invest in.
Dividend yields that average about 12% have also lured investors seeking alternatives to corporate and government debt paying shrinking coupons. American Capital is yielding more than 15%.
Kain has applied knowledge from his experience at Freddie Mac to buy mortgage bonds that have a lower risk of refinancing, helping the firm return 17% this year. Since the debt typically trades above 100 cents on the dollar, homeowners taking out new loans when interest rates fall can erase the value of the securities.
The resurgence of REITs has attracted the attention of Fed officials and regulators, including the Securities and Exchange Commission, which has said it’s examining whether the companies should be allowed to continue borrowing without restrictions.
The concerns are overstated as REITs are limited by the quality of assets or lender confidence in how they manage their businesses, according to Kain.
“Fannie Mae and Freddie Mac were not regulated by the markets,” Kain said. “That was a key complaint which turned out to be very fair. There weren’t any market forces that were controlling the government sponsored enterprises. They could borrow money irrespective of their risk posture because of the implied guarantee” of the government, he said.
Kain’s team at American Capital, which includes longtime Freddie Mac colleagues Peter Federico and Christopher Kuehl, managed more in assets as of Dec. 31 than regional banks such as Keycorp and M&T Bank Corp. Kain is also chief investment officer of American Capital Mortgage Investment Corp., a separate REIT with $7.7 billion in assets that buys securities not backed by the government. The two companies have a staff of about 50 people, according to Wilkus.
______________________________________________
As with the s corporation, REIT is designed to allow corporations to shed tax responsibility ------
s corporations shed tax responsibility on profits and REIT sheds tax responsibility on property taxes. REIT not only is used to avoid tax payment, it is used to get tax breaks under the guise of rental property. In Baltimore/Maryland, billions of dollars have been lost to REIT in a few decades.
What can we do if there is a law allowing this you say????!!!!
What happens with REIT just as with s corporations is that the shareholders get the money saved from these laws and
THEY ARE REQUIRED TO PAY THE TAXES. WELL, AS WITH ALL THAT IS FRAUD AND CORRUPTION----MOST SHAREHOLDERS DO NOT. ALSO, AS THE ARTICLE ABOVE SHOWS ABUSES OF THIS REIT LAW ARE SO PERVASIVE THAT BRINGING BACK THE REVENUE LOST JUST FROM REIT WOULD BE IN THE BILLIONS OF DOLLARS FOR MARYLAND!
United States History From 2008 to 2011, REITs faced challenges from both a slowing United States economy and the late-2000s financial crisis, which depressed share values by 40 to 70 percent in some cases.[3]
Legislation Under U.S. Federal income tax law, a REIT /ˈriːt/ is "any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages" under Internal Revenue Code section 856.[1] The rules for federal income taxation of REITs are found primarily in Part II (sections 856 through 859) of Subchapter M of Chapter 1 of the Internal Revenue Code. Because a REIT is entitled to deduct dividends paid to its owners (commonly referred to as shareholders), a REIT may avoid incurring all or part of its liabilities for U.S. federal income tax. To qualify as a REIT, an organization makes an "election" to do so by filing a Form 1120-REIT with the Internal Revenue Service, and by meeting certain other requirements. The purpose of this designation is to reduce or eliminate corporate tax, thus avoiding double taxation of owner income. In return, REITs are required to distribute at least 90% of their taxable income into the hands of investors. A REIT is a company that owns, and in most cases, operates income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. Some REITs also engage in financing real estate. The REIT structure was designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.[2]
Structure See also: List of public REITs in the United States In the United States, a REIT is a company that owns, and in most cases operates, income-producing real estate. Some REITs finance real estate. To be a REIT, a company must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.[44]
To qualify as a REIT under U.S. tax rules, a company must:
____________________________________________
In Maryland and Baltimore our pols love making government offices rented from private owners. That is yet another way to send public money to private hands that no one would think to be in the public interest.
LOOK!!!!!!! THERE'S A REIT FOR THAT!!!
CWH also owns 21.1% of the common shares of Government Properties Income Trust (GOV), a former subsidiary which owns properties that are majority leased to government tenants.
O'Malley and Rawlings-Blake has tied Maryland citizens to so many government office rentals that our public sector is just as much the renter society as the rest of us. Make no mistake, these 1% do not want the public owning any real estate!
Think how much tax revenue is lost from this private building with the government as tenant and REIT!
Government Properties REIT: Do You Want To Be The U.S.'s Landlord?
Oct 13 2012, 07:22 | about: GOV, includes: CWH
Combing through REITWatch 08-2012, my eye was caught by Government Properties Income Trust (GOV), a fairly recent property REIT with seemingly interesting financials, as shown in the table below:
(click to enlarge)
A property REIT's Price to FFO (funds from operations) ratio is the proper equivalent of P/E for this type of company.
The usual Price to Earnings ratio is not really applicable to REITs because:
An intuitive way to look at it is to consider that FFOs are the collected rents, net of all charges whether from operations or financing. Basically, it's what is left in your pocket as a landlord/shareholder.
When a REIT shows a low Price to FFO, one would expect that to be a good sign (like a low P/E), but could also potentially indicate some difficulties in running operations, or too much debt, or some other significant negative. Looking at what seems like a no-brainer, our job as rational investors is to check that there are no red flags hidden somewhere.
The Obama REIT: A Secure 7% Yield
Jan 14 2013, 15:24 | about: GOV Seeking Alpha
Once again I'll come back to a high yield security for income seekers. Of course one of the risks in buying yield these days is related to the threat of higher bond yields that could negatively affect income stocks. What if there were a security that paid relatively secure dividends and benefited from all of the federal government expenditures that are expected to come with another four years of an Obama administration? Clearly I wouldn't be writing this article unless such a security did exist.
Government Properties Income Trust (GOV) is a REIT that owns $1.7 billion of office properties in 31 states (and DC) with 10 million square feet of rentable space. The majority of its space is rented to various governmental entities. Of its 82 properties, 60 are primarily leased to the federal government, 18 are primarily leased to state governments and one is leased to the United Nations. Whatever you may believe about our government finances, it is incomprehensible that governmental entities will simply go out of business (as could happen with a private enterprise), making these leases of a much higher quality. In fact, only about 7% of total revenue comes from private firms. GOV is well diversified geographically and despite receiving so much of its revenue from the federal government, just 10% of revenue comes from DC.
______________________________________________
Below you see the next phase of the massive mortgage fraud. Remember, we have yet to have justice from the massive subprime mortgage fraud and the damages it did to the economy with the collapse of 2008. Trillions of dollars lost from the fraud and tens of trillions of dollars in damages to individuals and government coffers yet to come back! People who lost their homes in the actual fraud and those families losing their homes from the unemployment caused by the fraud all will be getting homes back as soon as Rule of Law is reinstated.
Neo-liberals had planned the movement of real estate ownership from the middle/lower class to a few at the top with this massive fraud. Remember, this subprime mortgage scam started in the Clinton Administration as Robert Rubin and CitiBank started this financial scheme. So, targeted fraud on the lower-class and the long economic downturn from the tens of trillions of dollars sucked from the US economy from fraud are the culprits of lost home ownership. Now the Obama Administration has suspended Rule of Law and refuses to reverse the fraud and loss of homes.
In cities like Baltimore the movement of real estate is so crony and corrupt that you feel as though you were in Kabal, Afghanistan watching Visigoths looting the landscape. City real estate agents have been sidelined as the city buys property and hands it to developers of choice. Subprime mortgage fraud settlements so far simply help make people renters and fail to return those defrauded to home ownership. As this article shows the intent is to make most US citizens prey for these investment firms that created the fraud and now have been handed all the foreclosed homes.
SIMPLE REINSTATEMENT OF RULE OF LAW WILL BRING THESE HOMES BACK TO THOSE DEFRAUDED. THE WEALTH PEOPLE LOST AS THE RESULT OF THE FRAUD WILL COME BACK AND PEOPLE CAN RETURN TO OWNING HOMES!
Skeptics Criticize Single-Family REITs
Published on: Tuesday, August 28, 2012 Written by: Rosa Eckstein Schechter inShare
Single-family real estate investment trusts (REITs) are springing up in response to the rise in availability of distressed properties. The new funds focus on buying up blocks of foreclosed single-family homes to rehab and then use for rentals and sales are increasing. Critics argue it will reshape society by turning the majority of Americans into tenants and that there will be no regulations preventing abuse of the new system, which may include passing off maintenance and other responsibilities to the new tenants. It’s further believed that many purchasers have no rental management experience and are not concerned with getting any before they start renting. For more on this continue reading the following article from JDSupra.
As more and more investment chatter centers around the possibility of investing in the huge volume of single family homes that have, or will be, foreclosed upon in the United States, many are seeing an opportunity in Single Family REITs. (Read our earlier posts about this blossoming investment vehicle here.)
However, there are those that are very concerned about what Rental REITs (both apartments and SFDs) will mean in the long run to the American economy - and the U.S. Citizen. Here are some of their concerns and criticisms (with a hat tip to Yves Smith at Naked Capitalism for collecting most of these in his column and its commentary):
1. The expected popularity of this investment vehicle, together with the decline in homeownership in this country, may mean that many Americans will be tenants to private equity landlords: it will change the very essence of our society. These private equity landlords won't be like beloved Stanley Roper in the old Three's Company TV Series - nearby, quick to respond to complaints, always involved in maintainance. Nope. The worry is that Private Equity Landlords will be anonymous, unapproachable and possibly mysterious owners of properties without any regard for their tenants' concerns or the property's needs.
2. This is a new concept, and even if Rental REITs have some interest in being good landlords, they've got no pattern to follow, no example in the past to use in figuring out how to be the Corporate Stanley Roper.
3. Gretchen Morgenson of the New York Times points to skullduggery happening in New York City with apartment REITs: including suspicions of sending fake notices and fraudulent notices of non-payment (when payments have been made) to replace low paying tenants.
4. Some are predicting that these new Private Equity Landlords are going to transfer the responsibility of maintaining the property to the tenant as part of the lease terms.
5. If the Rental REITs fails to meet its own obligations, like Tishman Speyer did a couple of years ago on a NY apartment REIT, a large number of tenants are suddenly in limbo - and may not even be aware that their Private Equity Landlord has defaulted on its own agreements.
As more discussion occurs on this new investment vehicle, especially its latest version - the Single Family REIT, these and other worries will be a part of the conversation. And they should be. However, here's the big elephant in the room: there are unprecedented numbers of homes sitting on bank balance sheets right now because of all the foreclosures that have happened in this country. We know the impact of this very well here in Florida.
Something needs to be done to move forward, and we have no pattern here for how to fix this mess. It's something new.
So, new answers are being developed like Single Family REITs, not in a sinister way to thwart the American Dream, but in an optimistic way to get the economy moving again. Those homes have to get off the bank's shoulders so banks can get back to the industry of finance and not housing.
______________________________________________
Keep in mind that while Federal coffers are going dry from lack of revenue coming from corporations and massive corporate fraud.....and public services and assets are being used to pay for it......the stock market is making huge money from the ability of corporations not to pay property taxes!
Can you imagine how many people would invest in these stocks if shareholders actually paid the taxes required?
SIMPLY AUDITING SHAREHOLDER TAX PAYMENTS WILL BRING TRILLIONS OF DOLLARS BACK TO GOVERNMENT COFFERS AND END THIS RALLY AT THE EXPENSE OF THE PUBLIC!
REITs Set Record, Raise $51.3 Billion in 2011 January 20, 2012
The total returns of listed U.S. equity real estate investment trusts were approximately four times those of the broader stock market in 2011, according to the National Association of Real Estate Investment Trusts. REITs are securities that sell like stocks and invest in real estate directly through properties or mortgages.
NAREIT said the total return of the FTSE (Financial Times Stock Exchange) NAREIT All Equity REITs Index was up 8.28 percent for the year, and the FTSE NAREIT All REITs Index, which includes both equity and mortgage REITs, was up 7.28 percent, compared with a 2.11 percent gain for the S&P 500.
The more than 8 percent gain for equity REITs in 2011 came on top of a 27.95 percent gain in 2010 and a 27.99 percent increase in 2009—years in which the S&P 500 gained 15.06 percent and 26.46 percent, respectively. Equity REITs outperformed the S&P 500 for the past 1-, 3-, 10-, 15-, 20-, 25-, 30-, and 35-year periods, according to NAREIT.
Dividends Boost Performance
Much of REITs’ performance advantage has come from the stocks’ dividend payouts, since almost all of a REIT’s taxable income is paid to shareholders as dividends. The FTSE NAREIT All Equity REITs Index’s 8.28 percent total return in 2011 included a share price return of 4.32 percent, and the FTSE NAREIT All REITs Index’s 7.28 percent total return included a share-price return of 2.37 percent.
The dividend yield of the FTSE NAREIT All Equity REITs Index at December 30, 2011, was 3.82 percent, and the dividend yield of the FTSE NAREIT All REITs Index was 4.83 percent, compared to 2.22 percent for the S&P 500.
“The strong, continuing income stream from REITs is an important component of the appeal of REIT shares for investors,” said NAREIT President and CEO Steven A. Wechsler. “REIT dividends boost an investment portfolio’s performance in good times and help insulate it from downside shocks in turbulent market conditions,” he said.
REITs Set Capital Record
REITs raised a record amount of capital in the public markets in 2011, including a record amount of equity.
REITs raised $51.3 billion in public equity and debt in 2011, more than the $49 billion raised in the previous record year of 2006. Additionally, in spite of 2011’s volatile stock market, $37.5 billion of the capital raised in the year was in public equity, compared with $22 billion in 2006 and $32.7 billion in 1997, the prior record year for REIT equity offerings.
THE SUBPRIME LOAN FRAUD CONTINUES!!!!!!
We are seeing every level of government working to protect corporate profits and shield corporate fraud and tax evasion as laws are passed making civil rights and liberties threatened. This is happening in Baltimore City Hall, the Maryland Assembly, and US Congress. I saw an article that stated democrats in Congress were behind this massive WalMart protest and yet------a supermajority of democrats could not find it in them to raise the minimum wage to $15 an hour or protect worker and retirement benefits. So, as civil liberties and public justice are suspended.......corporate fraud is in full swing!
THIS IS O'MALLEY'S MARYLAND----
I keep stating the obvious, but we must make it a mantra coming from all sectors of US society-----WE SIMPLY NEED TO RECOVER MASSIVE CORPORATE FRAUD IN THE TENS OF TRILLIONS TO REVERSE WEALTH INEQUITY! SIMPLY REINSTATING RULE OF LAW WILL DO IT!
This is why I highlight all the avenues of corporate fraud that exist in Maryland and Baltimore. Below you see that while Maryland passes laws against protesting......the corporations being protested are wanted for all kinds of fraud. WalMart represents wage theft, tax evasion, and the social costs of poverty wages is huge.
As you see REIT is a property tax law that adds to the 'you can bet on anything on Wall Street' casino atmosphere. With all things Wall Street fraud is infused so, as cities and states lose property tax revenue by handing yet another corporate cost over to shareholders......we know that the major shareholders are not paying the taxes required from REIT. Then you have the bizarre renting your business to yourself scheme showing there is no oversight for open infringement.
We simply need to enforce law..... and all that requires is a Rule of Law GOVERNOR AND MAYOR. Fraud recovery pays for itself so if an attorneys office is captured.....an executive can do the deed!
With REIT fraud you not only have shareholders failing to pay for profits from this policy, you have corporations like WalMart getting tax breaks on taxes they don't pay......selling themselves as 'renters'. Or the ultimate fraud in using REIT on subprime mortgage loan fraud recycled en masse from the FED as bundled mortgage buy-backs.
VISIGOTH ALERT!!!!!!!
Did you know that Maryland is tops with the REIT law that allows corporations like WalMart to 'rent to themselves'? WalMart not only steals from its employees but your Maryland neo-liberals allow them to steal from public coffers. So, while the Maryland Assembly claims poverty and cuts education and public services, it hands out so much in corporate subsidy as to make taxes profits!
WE ARE GOING TO HAVE TO MAKE SURE WALMART PAYS ITS RAIN TAX!!!!
Please look at the last article to see how Maryland is tied in to this FED mortgage bond buy-back scheme that simply takes these subprime loans off of banks' accounts and moves them to a newly created business that markets them as REIT investments!
Remember, the FED is spending trillions of dollars on this buy-back and this Maryland corporation is loading itself with this discounted real estate. It was the Washington suburbs that was home of MERS-----the mortgage title laundering machine for the massive mortgage fraud.
Wal-Mart’s State Tax Evasion Ploy: Paying Rent to Itself
By Jesse Drucker
First published by The Wall St. Journal, February 1, 2007
As the world’s biggest retailer, Wal-Mart Stores Inc. pays billions of dollars a year in rent for its stores. Luckily for Wal-Mart, in about 25 states it has been paying most of that rent to itself — and then deducting that amount from its state taxes.
The strategy is complex, but the bottom line is simple: It has saved Wal-Mart from paying several hundred million dollars in taxes, according to court records and a person familiar with the matter. And Wal-Mart is far from alone.
IT’S A DEAL
The arrangement takes advantage of a tax loophole that the federal government plugged decades ago, but which many states have been slower to catch. Here’s how it works: One Wal-Mart subsidiary pays the rent to a real-estate investment trust, or REIT, which is entitled to a tax break if it pays its profits out in dividends. The REIT is 99%-owned by another Wal-Mart subsidiary, which receives the REIT’s dividends tax-free. And Wal-Mart gets to deduct the rent from state taxes as a business expense, even though the money has stayed within the company.
Partly thanks to sophisticated financial strategies like these, states’ tax collections from companies have been plummeting. On average, Wal-Mart has paid only about half of the statutory state tax rates for the past decade, according to Standard & Poor’s Compustat, which collects data from SEC filings. The so-called “captive REIT” strategy alone cut Wal-Mart’s state taxes by about 20% over one four-year period. Now several state regulators are trying to crack down on the strategy, used largely by retailers and banks, and some other states have changed their laws to try to end the practice. Yesterday, New York Gov. Eliot Spitzer included elimination of the loophole as part of his proposed budget, a fix he said would bring the state $83 million a year.
North Carolina tax authorities are challenging Wal-Mart, saying its REIT strategy was intended to “distort [the company's] true net income,” according to its filings in the case in Superior Court in Raleigh, N.C. The state calls captive REITs a “high priority corporate tax sheltering issue” and in 2005 ordered Wal-Mart to pay $33 million for back taxes, interest and penalties stemming from the REIT. The company paid it and last year sued the state for a refund.
The structure Wal-Mart is using features some unusual elements. Because REITs must have at least 100 shareholders to gain tax benefits, roughly 100 Wal-Mart executives were enlisted to own a combined total of around 1% of the REIT’s shares, without any voting rights. H. Lee Scott Jr., now Wal-Mart’s CEO, was listed as the REIT’s “managing trustee” from 1996 to 2004.
A single Wal-Mart real-estate official, Tony Fuller, represented the company both as tenant and landlord in its lease with itself. Ernst & Young LLP, the accounting firm that sold the strategy to Wal-Mart, also is the company’s outside auditor. In its internal sales training materials, the accounting firm explicitly labeled the strategy as a method to reduce taxes — a red flag to tax authorities, who often demand that tax shelters have other business purposes.
Wal-Mart attorneys say in court filings that the strategy is perfectly legal and that North Carolina is exceeding its authority. A spokesman for the Bentonville, Ark., company, John Simley, said Wal-Mart “is comfortable with its current structure and is in compliance with federal and state tax laws.” He added that the REIT structure was adopted to “more effectively and efficiently manage the company’s real-estate portfolio, including the impact on the company’s overall state tax planning.”
Regulators in at least a half-dozen states are going after companies that have trimmed their taxes through similar arrangements, including Regions Financial Corp.’s AmSouth Bancorp. unit; AutoZone Inc. of Memphis, Tenn.; and two units of Bank of America Corp. In a Massachusetts case against Bank of America unit Fleet Funding Inc., authorities call Fleet’s REIT arrangement a “sham” in court filings. They note that Fleet increased the salaries of the roughly 100 employees whom it made REIT shareholders to compensate them for personal income taxes stemming from ownership. The Multistate Tax Commission, an association of state revenue authorities, says it has started examining the use of captive REITs to avoid taxes, alerting states to the issue and proposing legislative fixes to close the loophole.
States collected more than $44 billion last year in corporate income taxes, out of $607 billion in total state tax receipts, according to the Nelson A. Rockefeller Institute of Government, a nonpartisan think tank associated with the State University of New York. But the average effective corporate state and local tax rate has dropped from 6.7% during the 1980s to about 5% during the first half of this decade, according to a recent report by the Congressional Research Service. This is in part because of the proliferation of state and local tax breaks, as well as tax shelters, according to several academic and government studies.
Some corporate state tax planners say arrangements like these are merely smart business, and that the loopholes exploited by companies should be fixed by state legislatures rather than litigated by state lawyers. Critics of the shelters complain they let companies use public services provided by local governments — such as police and fire protection or new highways — without having to shoulder their fair share of the costs. Meanwhile, the portion of state taxes borne by individuals is steadily rising.
Congress created REITs in 1960 as a way to allow smaller investors to put money in a wide portfolio of commercial real estate, spreading their risk. Congress also gave them a tax benefit: REITs aren’t subject to corporate income tax on the profits they pay to shareholders as long as they pay out at least 90% of the profits. The shareholders still usually get federally taxed on the dividends, which still count as income for them.
After a boom in REITs in the early 1990s, big accounting firms including Ernst & Young and KPMG LLP figured out that on the state level, they could pair the tax break on REIT dividends with a separate tax rule that allows companies to receive dividends tax-free from their subsidiaries. With the REIT as a subsidiary itself, two rules aimed at avoiding double taxation could be combined to effectively avoid any taxation at all.
The strategy worked especially well if the REIT was owned by a company incorporated, and claiming to do all its business, in a state such as Delaware or Nevada that often wouldn’t tax the corporate income anyway. That created an extra hurdle for other states to challenge the practice if they caught onto it.
Ernst & Young early on targeted the banking industry as a possible beneficiary of the captive REIT strategy. Like retailers, banks have branches in many states and often are liable for lots of state-level corporate tax. Ernst & Young targeted at least 30 banks, some of them its audit clients. The SEC generally permits that dual role as long as the firm’s fee isn’t contingent on the tax savings.
According to documents from a 1995 internal Ernst & Young sales training meeting reviewed by The Wall Street Journal, the accounting firm suggested banks put some of their income-producing assets, such as a portfolio of mortgages, into a REIT subsidiary, then use the double-tax break to “shelter” the income from state taxes. The REIT would issue a tiny number of non-voting shares to bank “officers and directors” to meet the 100-shareholder rule that REIT law requires.
U.S. banks “pay millions of dollars each year in state and local taxes,” read the Ernst & Young presentation to its sales force. “The FSI State Tax Financial Product we have developed can significantly reduce or eliminate this heavy tax obligation…” One section of the Ernst & Young sales package featured hypothetical questions from clients about the REIT shelter, and the proposed answers. To pass legal muster, many corporate tax shelters purport to have additional business purposes behind merely saving taxes. Ernst & Young, however, was blunt about the reason for its proposed strategy:
“Q: What’s the business purpose?
“A: Reduction in state and local taxes.
“Q: What if the press gets wind of this and portrays us as a ‘tax cheat’?
“A: That’s a possibility….If you are concerned about possible negative publicity, you can counter it by reinvesting the savings in the community.”
An Ernst & Young spokesman declined to comment on its REIT work, saying the firm was “prohibited from commenting on client matters.” The spokesman said he could not verify the authenticity of the internal sales training documents based on quotes provided by the Journal. However, he said the “limited language communicated in the internal memo does not reflect the quality and nature of the advice we provide to our clients.”
State authorities have had mixed records so far in pursuing back taxes and penalties in captive-REIT cases. AutoZone, the big auto-parts chain, won the right to deduct the dividends from its taxes in Kentucky but lost a preliminary round in Louisiana . The Hawaii Department of Taxation won a case involving a REIT used by Central Pacific Financial Corp., a bank holding company. AmSouth is in litigation with Alabama over tax benefits from its REIT.
Fleet Funding’s REIT, on which the company was advised by KPMG, has led Massachusetts to seek more than $42 million in back taxes, interest and penalties. BankBoston Corp. is in similar litigation with Massachusetts . Both banks have been acquired by Bank of America, which declined to comment on the litigation.
Fleet’s attorneys have said in court papers that its REITs were legitimate, and the fact that they were partly motivated by tax considerations does not legally undermine their valid business purpose — to raise capital, they say. A KPMG spokeswoman declined to comment on the Fleet case, but said it had stopped any involvement with “prepackaged tax products” before a 2005 agreement it made with the U.S. Justice Department over improper tax strategies that also led to the indictment of 17 former KPMG officials.
It’s unknown how many disputes have been raised over the strategy used by Wal-Mart and others, because such tax disputes are generally not disclosed unless lawsuits are publicly filed or the company reveals them in SEC filings.
Wal-Mart adopted its captive-REIT structure just as it was unwinding a previous strategy to reduce taxes that states had begun to challenge. For the first half of the 1990s, the retailer used a so-called intangible holdings company structure also used by many other corporations. Wal-Mart transferred its trademarks to a subsidiary called WMR Inc. in Delaware, which does not tax many forms of corporate income. Then it paid the subsidiary for the use of the brands. That allowed Wal-Mart to deduct those payments from its local income taxes in some states, while WMR’s income wasn’t taxed by Delaware.
Several states won challenges to the strategy, used by various retailers. Wal-Mart settled a dispute over its use of WMR in Louisiana — the details of the settlement are sealed — and lost on the main points of a case in New Mexico. Wal-Mart merged with WMR in February of 1997 and its use as a state tax avoidance vehicle was apparently discontinued, according to New Mexico court records.
In the meantime, Wal-Mart set up a new vehicle to control its state tax bill: captive REITs. In the summer and fall of 1996, Delaware corporate records show, Wal-Mart created a new hierarchy of subsidiaries: a REIT called the Wal-Mart Real Estate Business Trust; a Delaware-based parent company for the REIT, called the Wal-Mart Property Co.; and Wal-Mart Stores East Inc., parent of the Delaware firm. Wal-Mart Property owned 99% of the REIT’s shares, and 100% of the voting shares, according to Wal-Mart court filings in North Carolina and West Virginia. The company also set up a similar arrangement for its Sam’s Club stores.
To meet the 100-shareholder threshold required for REITs, Wal-Mart distributed a minimal amount of nonvoting stock, to approximately 114 Wal-Mart employees, according to a person familiar with the arrangement. The dividend payouts were nominal. The structure involved Wal-Mart’s top executive tier. The shareholders were generally executive vice presidents and above. David Glass, then Wal-Mart’s president and CEO, was listed as president of Wal-Mart Stores East on the lease agreement, and Paul Carter, then a Wal-Mart executive vice president, was listed as the president of the REIT.
Wal-Mart began transferring to the REIT ownership of the properties — the land and buildings — for hundreds of its stores in 27 states, real-estate records show. Then Wal-Mart Stores East signed a 10-year lease agreement with its REIT that took effect on Jan. 31, 1997, agreeing to pay a fixed percentage of the stores’”gross sales” as rent, according to a copy of the arrangement filed in the North Carolina case. Mr. Fuller, the Wal-Mart real-estate official, is listed as the contact for both the tenant and the landlord. The original lease was due to be renewed this week.
Wal-Mart could deduct from its state-taxable income the rent paid by Wal-Mart Stores East to the REIT. The REIT paid the majority of its rental earnings to its 99% owner, Wal-Mart Property Co., in the form of dividends. That company’s base in Delaware gave it another way to avoid liability for state taxes, since some states do require that dividends a REIT pays to its corporate owner be taxed, as the federal government does.
The Delaware subsidiary then paid the money back to Wal-Mart Stores East, the same subsidiary that made the payments to the REIT to begin with. Those payments to Wal-Mart Stores East weren’t taxed either, because dividends paid to a corporation by a subsidiary normally aren’t counted as taxable income for the parent company.
The result of the circuitous transaction: Wal-Mart could effectively turn rental payments to itself into state level tax-deductions in most of the states where the payments have been made. Under typical circumstances, rent paid to a third-party landlord also would reduce taxable income. But that would ordinarily be cash out the door, like most other tax-deductible expenses. Here, the majority of the tax-deductible rental payments came straight back to Wal-Mart.
The national tax savings have been significant. Over a four-year period, from 1998 to 2001, Wal-Mart and Sam’s Club paid company-controlled REITs a total of $7.27 billion that eventually came back to Wal-Mart in states across the country, according to a North Carolina Department of Revenue auditor’s report filed in court by Wal-Mart. Based on an average state corporate income tax rate of 6.5%, three accounting experts consulted by The Wall Street Journal estimated the REIT payments led to a state tax savings for Wal-Mart of roughly $350 million over just those four years. SEC filings show the company paid $1.18 billion in state taxes during that period. The loss of federal deductions that bigger state tax payments would have triggered brought the company’s effective tax savings overall down to about $230 million. Wal-Mart declined to comment on the figures.
It is not clear how much Wal-Mart has paid to its own REITs in the most recent five years. The yearly rental payments — on which the tax savings are based — are pegged to the “gross sales” of the stores, according to the lease agreement.
Underscoring that the rental payments were cashless Wal-Mart accounting moves, an affidavit filed in North Carolina by the company’s former controller, James A. Walker Jr., states that the payments were made by simply debiting the account of one subsidiary and then crediting the account of the other. “Wal-Mart Stores, Inc. served, in effect, as a bank for” both sides, the affidavit stated.
In 2005, after an audit, the North Carolina Department of Revenue issued a notice to Wal-Mart challenging the REIT structure. The state is site of about 140 of the company’s roughly 3,900 U.S. stores, including Sam’s Clubs. Wal-Mart paid the $33 million the state sought, and in March 2006 sued for a refund.
The company argues that the state does not have the authority to essentially combine the results of the subsidiary that did business in North Carolina with those of the Delaware-based unit and the REIT. The Delaware-based subsidiary, the company says, did no business in North Carolina and therefore was not taxable there. The company says in court filings that the REIT was qualified under federal law, that all the deductions were properly taken and that its North Carolina tax returns reflect its “true income.”
__________________________________________________
REITs: Real estate investment scams may involve new development projects or buying, or beleaguered properties. Non-traded real estate investment trusts that are owned by banks or waiting for foreclosure or short-sale can be problematic for customers, as can investment funds purportedly tied to interest in real property that has no equity and is very leveraged.
______________________________________
As you see here, the Gary Kain was manager for Freddie and Fannie during the time of the movement of subprime loans into the hands of government insured agencies....$.800 billion in subprime loans were dumped on these government/taxpayer agencies during this man's term as Obama has refused to protect taxpayers from this massive fraudulent dump by demanding these loans just be written off. So, the man who knowingly imploded Freddie and Fannie now works with a corporation getting the bulk of mortgage buy-backs from the FED at discounted prices and 0% mortgage interest rates and using REIT to make record profits. These are foreclosed homes landing with an investment firm in bulk numbers and they are avoiding paying property taxes with REIT. The same person creating the fraud is now heading a second round of profit-making from the fraud and it is based in Maryland.
MERS WAS MARYLAND BASED AND NOW THIS AMERICAN CAPITAL IS THE FRONT FOR MOVING MILLIONS OF HOMES OFF THE BANKS' BOOKS BY THE FED AND INTO THE HANDS OF CONNECTED INVESTORS.
SEE WHY OBAMA WENT TO MARYLAND POLS IN FILLING FEDERAL POSTS? WE ARE FRAUD UNLIMITED!!!
We simply need to reinstate Rule of Law and we can reverse all this fraud and return wealth to the people!
Maryland and New York are key to this fraud because both states are the locations of the bulk of the fraud.
Bloomberg News MAR 28, 2013 10:18am ET
REITs Trigger Fed Warning as Gary Kain Tops $100 Billion
Gary Kain spent 20 years at Freddie Mac managing as much as $800 billion of bonds before the U.S. took over the company. Since 2009, he’s used his knowledge of the home-loan market to help turn American Capital Agency Corp. into the fastest growing mortgage debt investor.
American Capital’s assets grew to $100.5 billion at the end of last year from less than $5 billion three years earlier, making the Bethesda, Md.-based real estate investment trust the largest after Annaly Capital Management Inc., in an industry that’s drawing attention from investors and the Federal Reserve for its double-digit yields and rapid expansion.
REITs bought more than $100 billion of government-backed mortgage securities in 2012, the most since at least the credit crisis, and will purchase another $60 billion in 2013, JPMorgan Chase & Co. estimated this month. Fed Gov. Jeremy Stein pointed to the expansion of mortgage REITs, which have amassed almost $400 billion of the debt, during a speech last month on risky behavior in credit markets influenced by the central bank holding borrowing costs near zero for a fifth year and investors searching for high-yielding assets.
“Agency mortgage REITs deserve attention in particular because they have exploded in size,” said John Gilbert, chief investment officer at General Re-New England Asset Management, a unit of Warren Buffett’s Berkshire Hathaway Inc. that oversees $64 billion. “We’ve been dealing with the unintended consequences of monetary policy for a long time. We have to be on the lookout for the downside.”
American Capital, along with growing the fastest, has also been one of the most successful of the mortgage REITs. Since Kain, 48, was named chief investment officer, it’s returned 258%, including reinvested dividends, almost double the returns of a 34-company index.
The firm was started by private-equity financier Malon Wilkus and went public in February 2008, just as the Fed was responding to the biggest financial crisis since the 1930s.
Wilkus, chief executive officer of investment firm American Capital Ltd., hired Kain to help “navigate the evolving mortgage landscape,” he said in a statement at the time. The original management team had left in January 2009, about four months after the government seized Fannie Mae and Freddie Mac, when loan losses pushed the two firms to the brink of bankruptcy.
Kain, now president of the REIT, joined the firm when it held a little more than $2 billion and the Fed was preparing to start buying government bonds to resuscitate the housing market.
He took advantage of the central bank’s buying and used cheap borrowing costs to increase leverage for the REIT’s purchases of government-backed mortgage securities. The bets paid off, with the company returning 53 percent in 2009 including reinvested dividends.
Kain oversaw an average of about $700 billion during his last few years with the company, primarily government-backed mortgages. Since these bonds don’t take credit risks, his main responsibility was hedging for changes in interest rates. The portfolio also included non-agency mortgage-backed securities, including the subprime debt that helped fuel the housing boom and contributed to the company’s losses that led to the government rescue.
“A major emphasis of the subprime AAA portfolio was around hitting affordable housing goals so it was not as pure of an investment mindset,” Kain said.
When the government seized the company and sought to shrink the portfolio and the company’s imprint on housing finance, Kain said he “knew life at Freddie Mac was going to be very different” and started considering other options.
“His background was a perfect fit for American Capital,” said Jason Arnold, an analyst at RBC Capital Markets in San Francisco. “There’s been a lot of problems at Fannie and Freddie so it’s not surprising that someone would want to go out and do something else rather than be under the umbrella of the U.S. government.”
REITs have been among the biggest winners from government policies to resuscitate housing and stimulate the economy. The Fed has made it easier and cheaper for the companies to borrow through the so-called repo market. The central bank’s buying has also pushed up the value of mortgage bonds that REITs invest in.
Dividend yields that average about 12% have also lured investors seeking alternatives to corporate and government debt paying shrinking coupons. American Capital is yielding more than 15%.
Kain has applied knowledge from his experience at Freddie Mac to buy mortgage bonds that have a lower risk of refinancing, helping the firm return 17% this year. Since the debt typically trades above 100 cents on the dollar, homeowners taking out new loans when interest rates fall can erase the value of the securities.
The resurgence of REITs has attracted the attention of Fed officials and regulators, including the Securities and Exchange Commission, which has said it’s examining whether the companies should be allowed to continue borrowing without restrictions.
The concerns are overstated as REITs are limited by the quality of assets or lender confidence in how they manage their businesses, according to Kain.
“Fannie Mae and Freddie Mac were not regulated by the markets,” Kain said. “That was a key complaint which turned out to be very fair. There weren’t any market forces that were controlling the government sponsored enterprises. They could borrow money irrespective of their risk posture because of the implied guarantee” of the government, he said.
Kain’s team at American Capital, which includes longtime Freddie Mac colleagues Peter Federico and Christopher Kuehl, managed more in assets as of Dec. 31 than regional banks such as Keycorp and M&T Bank Corp. Kain is also chief investment officer of American Capital Mortgage Investment Corp., a separate REIT with $7.7 billion in assets that buys securities not backed by the government. The two companies have a staff of about 50 people, according to Wilkus.
______________________________________________
As with the s corporation, REIT is designed to allow corporations to shed tax responsibility ------
s corporations shed tax responsibility on profits and REIT sheds tax responsibility on property taxes. REIT not only is used to avoid tax payment, it is used to get tax breaks under the guise of rental property. In Baltimore/Maryland, billions of dollars have been lost to REIT in a few decades.
What can we do if there is a law allowing this you say????!!!!
What happens with REIT just as with s corporations is that the shareholders get the money saved from these laws and
THEY ARE REQUIRED TO PAY THE TAXES. WELL, AS WITH ALL THAT IS FRAUD AND CORRUPTION----MOST SHAREHOLDERS DO NOT. ALSO, AS THE ARTICLE ABOVE SHOWS ABUSES OF THIS REIT LAW ARE SO PERVASIVE THAT BRINGING BACK THE REVENUE LOST JUST FROM REIT WOULD BE IN THE BILLIONS OF DOLLARS FOR MARYLAND!
United States History From 2008 to 2011, REITs faced challenges from both a slowing United States economy and the late-2000s financial crisis, which depressed share values by 40 to 70 percent in some cases.[3]
Legislation Under U.S. Federal income tax law, a REIT /ˈriːt/ is "any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages" under Internal Revenue Code section 856.[1] The rules for federal income taxation of REITs are found primarily in Part II (sections 856 through 859) of Subchapter M of Chapter 1 of the Internal Revenue Code. Because a REIT is entitled to deduct dividends paid to its owners (commonly referred to as shareholders), a REIT may avoid incurring all or part of its liabilities for U.S. federal income tax. To qualify as a REIT, an organization makes an "election" to do so by filing a Form 1120-REIT with the Internal Revenue Service, and by meeting certain other requirements. The purpose of this designation is to reduce or eliminate corporate tax, thus avoiding double taxation of owner income. In return, REITs are required to distribute at least 90% of their taxable income into the hands of investors. A REIT is a company that owns, and in most cases, operates income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. Some REITs also engage in financing real estate. The REIT structure was designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.[2]
Structure See also: List of public REITs in the United States In the United States, a REIT is a company that owns, and in most cases operates, income-producing real estate. Some REITs finance real estate. To be a REIT, a company must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.[44]
To qualify as a REIT under U.S. tax rules, a company must:
- Be structured as a corporation, trust, or association[45]
- Be managed by a board of directors or trustees[46]
- Have transferable shares or transferable certificates of interest[47]
- Otherwise be taxable as a domestic corporation[48]
- Not be a financial institution or an insurance company[49]
- Be jointly owned by 100 persons or more[50]
- Have 95 percent of its income derived from dividends, interest, and property income[51]
- Pay dividends of at least 90% of the REIT's taxable income
- Have no more than 50% of the shares held by five or fewer individuals during the last half of each taxable year (5/50 rule)
- Have at least 75% of its total assets invested in real estate
- Derive at least 75% of its gross income from rents or mortgage interest
- Have no more than 25% of its assets invested in taxable REIT subsidiaries.
____________________________________________
In Maryland and Baltimore our pols love making government offices rented from private owners. That is yet another way to send public money to private hands that no one would think to be in the public interest.
LOOK!!!!!!! THERE'S A REIT FOR THAT!!!
CWH also owns 21.1% of the common shares of Government Properties Income Trust (GOV), a former subsidiary which owns properties that are majority leased to government tenants.
O'Malley and Rawlings-Blake has tied Maryland citizens to so many government office rentals that our public sector is just as much the renter society as the rest of us. Make no mistake, these 1% do not want the public owning any real estate!
Think how much tax revenue is lost from this private building with the government as tenant and REIT!
Government Properties REIT: Do You Want To Be The U.S.'s Landlord?
Oct 13 2012, 07:22 | about: GOV, includes: CWH
Combing through REITWatch 08-2012, my eye was caught by Government Properties Income Trust (GOV), a fairly recent property REIT with seemingly interesting financials, as shown in the table below:
(click to enlarge)
A property REIT's Price to FFO (funds from operations) ratio is the proper equivalent of P/E for this type of company.
The usual Price to Earnings ratio is not really applicable to REITs because:
- Net earnings are "artificially" lowered by significant depreciation and amortization linked to the sizable real estate assets owned by the REIT.
- Net earnings are increased by nonrecurring gains on sales from properties. In the case of an actively managed REIT (frequently buying and selling real estate), net earnings will be considerably affected.
An intuitive way to look at it is to consider that FFOs are the collected rents, net of all charges whether from operations or financing. Basically, it's what is left in your pocket as a landlord/shareholder.
When a REIT shows a low Price to FFO, one would expect that to be a good sign (like a low P/E), but could also potentially indicate some difficulties in running operations, or too much debt, or some other significant negative. Looking at what seems like a no-brainer, our job as rational investors is to check that there are no red flags hidden somewhere.
The Obama REIT: A Secure 7% Yield
Jan 14 2013, 15:24 | about: GOV Seeking Alpha
Once again I'll come back to a high yield security for income seekers. Of course one of the risks in buying yield these days is related to the threat of higher bond yields that could negatively affect income stocks. What if there were a security that paid relatively secure dividends and benefited from all of the federal government expenditures that are expected to come with another four years of an Obama administration? Clearly I wouldn't be writing this article unless such a security did exist.
Government Properties Income Trust (GOV) is a REIT that owns $1.7 billion of office properties in 31 states (and DC) with 10 million square feet of rentable space. The majority of its space is rented to various governmental entities. Of its 82 properties, 60 are primarily leased to the federal government, 18 are primarily leased to state governments and one is leased to the United Nations. Whatever you may believe about our government finances, it is incomprehensible that governmental entities will simply go out of business (as could happen with a private enterprise), making these leases of a much higher quality. In fact, only about 7% of total revenue comes from private firms. GOV is well diversified geographically and despite receiving so much of its revenue from the federal government, just 10% of revenue comes from DC.
______________________________________________
Below you see the next phase of the massive mortgage fraud. Remember, we have yet to have justice from the massive subprime mortgage fraud and the damages it did to the economy with the collapse of 2008. Trillions of dollars lost from the fraud and tens of trillions of dollars in damages to individuals and government coffers yet to come back! People who lost their homes in the actual fraud and those families losing their homes from the unemployment caused by the fraud all will be getting homes back as soon as Rule of Law is reinstated.
Neo-liberals had planned the movement of real estate ownership from the middle/lower class to a few at the top with this massive fraud. Remember, this subprime mortgage scam started in the Clinton Administration as Robert Rubin and CitiBank started this financial scheme. So, targeted fraud on the lower-class and the long economic downturn from the tens of trillions of dollars sucked from the US economy from fraud are the culprits of lost home ownership. Now the Obama Administration has suspended Rule of Law and refuses to reverse the fraud and loss of homes.
In cities like Baltimore the movement of real estate is so crony and corrupt that you feel as though you were in Kabal, Afghanistan watching Visigoths looting the landscape. City real estate agents have been sidelined as the city buys property and hands it to developers of choice. Subprime mortgage fraud settlements so far simply help make people renters and fail to return those defrauded to home ownership. As this article shows the intent is to make most US citizens prey for these investment firms that created the fraud and now have been handed all the foreclosed homes.
SIMPLE REINSTATEMENT OF RULE OF LAW WILL BRING THESE HOMES BACK TO THOSE DEFRAUDED. THE WEALTH PEOPLE LOST AS THE RESULT OF THE FRAUD WILL COME BACK AND PEOPLE CAN RETURN TO OWNING HOMES!
Skeptics Criticize Single-Family REITs
Published on: Tuesday, August 28, 2012 Written by: Rosa Eckstein Schechter inShare
Single-family real estate investment trusts (REITs) are springing up in response to the rise in availability of distressed properties. The new funds focus on buying up blocks of foreclosed single-family homes to rehab and then use for rentals and sales are increasing. Critics argue it will reshape society by turning the majority of Americans into tenants and that there will be no regulations preventing abuse of the new system, which may include passing off maintenance and other responsibilities to the new tenants. It’s further believed that many purchasers have no rental management experience and are not concerned with getting any before they start renting. For more on this continue reading the following article from JDSupra.
As more and more investment chatter centers around the possibility of investing in the huge volume of single family homes that have, or will be, foreclosed upon in the United States, many are seeing an opportunity in Single Family REITs. (Read our earlier posts about this blossoming investment vehicle here.)
However, there are those that are very concerned about what Rental REITs (both apartments and SFDs) will mean in the long run to the American economy - and the U.S. Citizen. Here are some of their concerns and criticisms (with a hat tip to Yves Smith at Naked Capitalism for collecting most of these in his column and its commentary):
1. The expected popularity of this investment vehicle, together with the decline in homeownership in this country, may mean that many Americans will be tenants to private equity landlords: it will change the very essence of our society. These private equity landlords won't be like beloved Stanley Roper in the old Three's Company TV Series - nearby, quick to respond to complaints, always involved in maintainance. Nope. The worry is that Private Equity Landlords will be anonymous, unapproachable and possibly mysterious owners of properties without any regard for their tenants' concerns or the property's needs.
2. This is a new concept, and even if Rental REITs have some interest in being good landlords, they've got no pattern to follow, no example in the past to use in figuring out how to be the Corporate Stanley Roper.
3. Gretchen Morgenson of the New York Times points to skullduggery happening in New York City with apartment REITs: including suspicions of sending fake notices and fraudulent notices of non-payment (when payments have been made) to replace low paying tenants.
4. Some are predicting that these new Private Equity Landlords are going to transfer the responsibility of maintaining the property to the tenant as part of the lease terms.
5. If the Rental REITs fails to meet its own obligations, like Tishman Speyer did a couple of years ago on a NY apartment REIT, a large number of tenants are suddenly in limbo - and may not even be aware that their Private Equity Landlord has defaulted on its own agreements.
As more discussion occurs on this new investment vehicle, especially its latest version - the Single Family REIT, these and other worries will be a part of the conversation. And they should be. However, here's the big elephant in the room: there are unprecedented numbers of homes sitting on bank balance sheets right now because of all the foreclosures that have happened in this country. We know the impact of this very well here in Florida.
Something needs to be done to move forward, and we have no pattern here for how to fix this mess. It's something new.
So, new answers are being developed like Single Family REITs, not in a sinister way to thwart the American Dream, but in an optimistic way to get the economy moving again. Those homes have to get off the bank's shoulders so banks can get back to the industry of finance and not housing.
______________________________________________
Keep in mind that while Federal coffers are going dry from lack of revenue coming from corporations and massive corporate fraud.....and public services and assets are being used to pay for it......the stock market is making huge money from the ability of corporations not to pay property taxes!
Can you imagine how many people would invest in these stocks if shareholders actually paid the taxes required?
SIMPLY AUDITING SHAREHOLDER TAX PAYMENTS WILL BRING TRILLIONS OF DOLLARS BACK TO GOVERNMENT COFFERS AND END THIS RALLY AT THE EXPENSE OF THE PUBLIC!
REITs Set Record, Raise $51.3 Billion in 2011 January 20, 2012
The total returns of listed U.S. equity real estate investment trusts were approximately four times those of the broader stock market in 2011, according to the National Association of Real Estate Investment Trusts. REITs are securities that sell like stocks and invest in real estate directly through properties or mortgages.
NAREIT said the total return of the FTSE (Financial Times Stock Exchange) NAREIT All Equity REITs Index was up 8.28 percent for the year, and the FTSE NAREIT All REITs Index, which includes both equity and mortgage REITs, was up 7.28 percent, compared with a 2.11 percent gain for the S&P 500.
The more than 8 percent gain for equity REITs in 2011 came on top of a 27.95 percent gain in 2010 and a 27.99 percent increase in 2009—years in which the S&P 500 gained 15.06 percent and 26.46 percent, respectively. Equity REITs outperformed the S&P 500 for the past 1-, 3-, 10-, 15-, 20-, 25-, 30-, and 35-year periods, according to NAREIT.
Dividends Boost Performance
Much of REITs’ performance advantage has come from the stocks’ dividend payouts, since almost all of a REIT’s taxable income is paid to shareholders as dividends. The FTSE NAREIT All Equity REITs Index’s 8.28 percent total return in 2011 included a share price return of 4.32 percent, and the FTSE NAREIT All REITs Index’s 7.28 percent total return included a share-price return of 2.37 percent.
The dividend yield of the FTSE NAREIT All Equity REITs Index at December 30, 2011, was 3.82 percent, and the dividend yield of the FTSE NAREIT All REITs Index was 4.83 percent, compared to 2.22 percent for the S&P 500.
“The strong, continuing income stream from REITs is an important component of the appeal of REIT shares for investors,” said NAREIT President and CEO Steven A. Wechsler. “REIT dividends boost an investment portfolio’s performance in good times and help insulate it from downside shocks in turbulent market conditions,” he said.
REITs Set Capital Record
REITs raised a record amount of capital in the public markets in 2011, including a record amount of equity.
REITs raised $51.3 billion in public equity and debt in 2011, more than the $49 billion raised in the previous record year of 2006. Additionally, in spite of 2011’s volatile stock market, $37.5 billion of the capital raised in the year was in public equity, compared with $22 billion in 2006 and $32.7 billion in 1997, the prior record year for REIT equity offerings.
RSS Feed
