Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 70-69

1970-1 C.B. 155

Sec. 857

IRS Headnote

An income tax refund received by a real estate investment trust, which obtained the right to such refund from a building corporation pursuant to a reorganization, is not taxable income for purposes of section 857(a) of the Code; however, interest included therewith is taxable income for such purposes.

Full Text

Rev. Rul. 70-69

A building corporation, as part of a formal plan, reorganized to become a real estate investment trust described in section 856 of the Internal Revenue Code of 1954. As part of the reorganization the real estate investment trust was assigned all rights as plaintiff in a suit filed by the building corporation in the United States District Court for the refund of Federal income taxes. The Court found for the plaintiff and the real estate investment trust received a refund, including interest, which it retained as working capital.

Section 857(a) of the Code requires that a real estate investment trust distribute 90 percent of its taxable income as dividends during the taxable year in order to keep its status as a real estate investment trust.

Held, since the real estate investment trust obtained the right to the refund from the building corporation pursuant to the reorganization, the refund of Federal income taxes previously paid is not taxable income to the trust. However, any interest received in conjunction with the refund is taxable income and must be taken into account to determine whether the real estate investment trust has fulfilled the requirements of section 857(a) of the Code.