ARMOUR Residential REIT Elects REIT Status

By Hao Liu • Saturday, July 25 13:03 • Permanent Link

The company said it elected to be taxed as a real estate investment trust beginning with its short taxable year ended Dec. 31, 2009, and said it believes it has operated in a manner that qualifies it as a REIT since then.

Under that structure, it generally would not owe U.S. federal income tax on taxable income it distributes to stockholders, but it would still face tax in several situations. Those include:

income it does not distribute in the year earned or within the required period after year-end
net income from foreclosure property held primarily for sale
a 100% tax on net income from sales of property held primarily for sale in the ordinary course of business
a 100% tax if it fails the 75% or 95% gross income tests but still remains a REIT
a tax of the greater of $50,000 or corporate tax on income from non-qualifying assets if it misses asset tests by more than a de minimis amount
a $50,000 penalty for other REIT qualification failures due to reasonable cause
a 4% excise tax if it fails to distribute at least 85% of REIT ordinary income, 95% of REIT capital gain net income and any undistributed taxable income from prior periods
a 100% excise tax on non-arm’s-length transactions with taxable REIT subsidiaries
corporate-level tax on certain excess inclusion income tied to disqualified organizations
corporate tax on gain from assets acquired from C corporations and sold within five years

The release also laid out the ownership tests needed to keep REIT status. It said the company must have at least 100 beneficial owners and that no more than 50% of the value of outstanding shares can be owned by five or fewer individuals during the last half of any taxable year.

It said the company believes it has always had sufficient ownership diversity to satisfy those rules and that its charter restricts ownership and transfer of stock to help maintain compliance. Following these announcements, the company's shares moved 0.87%, and are now trading at a price of $16.27. For the full picture, make sure to review Armour Residential REIT's 8-K report.

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