This press release provides a detailed summary of the U.S. federal income tax considerations regarding the qualification and taxation as a Real Estate Investment Trust (REIT) by Redwood Trust, Inc. The company has elected to be taxed as a REIT since its taxable year ended December 31, 1994, and has been organized and operated in a manner to qualify for this status. However, the qualification and taxation as a REIT depend on various tests imposed under the Code, including operating results, asset composition, distribution levels, and diversity of stock ownership.
If qualified as a REIT, the company generally will not be required to pay U.S. federal corporate income taxes on its REIT taxable income that is distributed to its stockholders, substantially eliminating double taxation. However, there are specific circumstances under which the company would be required to pay U.S. federal income tax, such as on undistributed REIT taxable income, net income from prohibited transactions, and net income from foreclosure property held primarily for sale to customers in the ordinary course of business.
Additionally, the company may be subject to a 4% excise tax if it fails to distribute a certain percentage of its ordinary income, capital gain net income, and any undistributed taxable income from prior periods, as well as various other taxes and penalties for non-compliance with REIT qualification requirements.
The Code sets forth specific requirements for qualification as a REIT, including the number of beneficial owners, ownership concentration limits, and tests regarding the nature of income, assets, and distribution amounts.
The press release also details that the company's subsidiaries that are C corporations and not qualified REIT subsidiaries are generally required to pay regular U.S. federal corporate income tax on their earnings, and that the company and its subsidiaries may be subject to a variety of other taxes, including payroll taxes and state and local income, property, and other taxes on their assets and operations.
The release emphasizes the complexity and technical nature of the U.S. federal income tax considerations related to REIT qualification and taxation, and highlights the potential impact of future legislative, administrative, or judicial actions on the company's ability to qualify as a REIT, as well as the tax consequences of its qualification and operations. Today the company's shares have moved 4.6% to a price of $6.14. Check out the company's full 8-K submission here.
