REIT Tax Provisions Revision Act of 1986

REIT Tax Provisions Revision Act of 1986 - Amends the Internal Revenue Code to modify the qualification requirements for a real estate investment trust (REIT) to require that the corporation, trust, or association not be closely held. Waives the partnership attribution rules for making the determination of whether the REIT is closely held. Provides that the requirements that the REIT must have the beneficial ownership of it held by 100 or more persons and that it must not be closely held shall not apply to the first taxable year for which the election for REIT treatment is made.

Requires that the REIT has no earnings and profits accumulated in any non-REIT year.

Permits an entity which has not been engaged in any active trade or business to change its accounting period to a calendar year without the approval of the Secretary of the Treasury if such change is in connection with the election of REIT status.

Provides that a corporation which is a qualified REIT subsidiary shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the real estate investment trust.

Provides that if a REIT receives new equity capital, then income derived from stock or debt instruments (i.e., interest, dividends, or gain from the sale of such stock or debt instruments) that is attributable to the temporary investment of the new equity capital is treated, for a one-year period beginning on the date that the REIT receives such capital, as qualifying income for purposes of the REIT. Treats stock or debt instruments purchased with such capital as "real estate assets" for purpose of the REIT assets tests. Defines "new equity capital" as any amount received by the REIT in exchange for stock of the REIT (other than pursuant to a dividend reinvestment plan).

Provides that amounts received by a REIT in connection with the rental of property do not fail to qualify as rents from real property merely because the REIT performs certain services and does not use an independent contractor for the provision of such services. Provides that such services that may be provided without violating the "independent contractor tests" are those services which would not result in the receipt of unrelated business income by an organization subject to tax on such income.

Treats rent or interest that is based on the net income of a tenant or debtor as rent from real property or as interest, respectively, if: (1) the rent (or interest) must be received from a tenant (or debtor) that receives substantially all of its income from the leased property (or the property that secures the loan) from the subleasing (or leasing) of substantially all of such property; and (2) the rent received by the tenant (or debtor) consists entirely of amounts that would be treated as rent from real property (or interest) if received directly by the REIT.

Requires that the minimum amount that the REIT is required to distribute (i.e., the minimum dividends paid deduction) be reduced by a portion of certain amounts that the REIT is required to include in income in advance of receiving cash. Reduces the minimum amount required to be distributed by: (1) amounts that the REIT is required to include in income with respect to certain rental agreements involving deferred rents; (2) amounts of the original issue discount that a REIT is required to accrue with respect to certain loans; and (3) any income arising from the disposition of a real estate asset, but only in certain circumstances.

Requires that the amount of the REIT's current (but not accumulated) earnings and profits for a taxable year not be less than the REIT taxable income (determined without regard to the dividends paid deduction) for the taxable year.

Provides that, for purposes of determining the maximum amount of capital gains dividends that a REIT may pay for a taxable year, the REIT would not offset its net capital gain with the amount of any net operating loss, whether current or carried over from a previous taxable year. Provides that, to the extent that the REIT then elects to pay capital gains dividends in excess of its net income, the REIT would increase the amount of its net operating loss carryover by such amount.

Permits the REIT to mail the required capital gain notices to shareholders with the REIT's annual report rather than within 30 days of the end of the taxable year.

Modifies the safe harbor rules under which sales by the REIT meeting the conditions of the safe harbor provisions are not treated as prohibited transactions.

Provides that in determining the amount of net income derived from prohibited transactions, losses from prohibited transactions (and deductions attributable to prohibited transactions in which a loss was incurred) may not be taken into account. Provides that the amount of any net loss from prohibited transactions may be taken into account in computing the REIT's taxable income.