1. Indicate below whether each activity would be nontaxable or taxable (subject

Question

1. Indicate below whether each activity would be nontaxable or taxable (subject to UBTI) for a tax exempt investor: "U" = subject to UBTI "N" = nontaxable

_____ Single family home real estate development and sale

_____ Operating income from a nursing home

_____ Condominium sales in the ordinary course of a business

_____ Capital gain distributions from a REIT

_____ Interest income on a loan from a wholly owned US corporation

_____ Dividends from a corporation where the investment was made with borrowed money

_____ Daily parking fees for customers who may or may not be tenants

_____ Ordinary dividends from a REIT

2. List 5 requirements to qualify as a REIT:

1 ________________________________

2 ________________________________

3 _________________________________

4 _________________________________

5 _________________________________

Explanation / Answer

1. Single family home real estate development and sale - UBTI

2. Operating income from a nursing home - "Non Taxable"

3. Condominium sales in the ordinary course of a business -"Non taxable"

4. Capital gain distributions from a REIT - "Taxable in the hands of receiver"

5. Interest income on a loan from a wholly owned US corporation - "Non Taxable"

6. Dividends from a corporation where the investment was made with borrowed money -"Nontaxable" but there will be no tax exemption for the interest paid on the loan

7. Daily parking fees for customers who may or may not be tenants - "UBTI"

8. Ordinary dividends from a REIT -"Non Taxable"

B. 5 requirements to qualify as a REIT:

i.The company must Invest at least 75% of its total assets in real estate assets and cash

ii. The company must derive at least 75% of its gross income from real estate related sources, including rents from real property and interest on mortgages financing real property;

iii. The company must distribute at least 90% of its taxable income to shareholders annually in the form of dividends.

iv. The company must have centralized management.(i.e controlled by Board of Directors/trustees)

v. The shares must be transferable.

vi. The company must not be closely held( i.e it should have a minimum of 100 shareholders after its first year as a REIT, not a compulsion for its first year)

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