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Abstract
The Housing and Economic Recovery Act of 2008 contained a number of important provisions concerning REITs. One of the most important provisions addressed the "safe harbor" in Section 857(b)(6), which provides that certain sales are not part of a prohibited transaction. Section 857(b)(6)(A) imposes a 100-percent tax on the net income derived from prohibited transactions. A prohibited transaction is defined in Section 857(b)(6)(B)(iii) as a sale or other disposition of property described in Section 1221 (a)(1) which is not foreclosure property. From a practical standpoint, this change to Section 857(b)(6)(C) is a welcome one, because REITs will now have greater comfort that sales after two years are not prohibited transactions. However, care will need to be taken to make certain that all the requirements of Section 857(b)(6)(C) are satisfied. Furthermore, this change will also create greater pressure on a REIT that desires to sell a property within less than two years to establish that the property was not acquired for sale.