Section 1061

Forum|Forum|5 years ago
March 30, 2021
1 reply
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Does Section 1061 apply?

- I own shares of CUZ Cousins Properties Inc. common stock.

- my 2020 1099-DIV has an amount in Box 2a and Box 2b.

- no performance of substantial services by the taxpayer.

Do I need to reclassify any of the capital gains?

ThomasM125

Level 15

Section 1061 is applicable to partnership interests, not corporate interests. So, since you mention dividends and common stock, I assume you own stock in a corporation, so it seems section 1061 would not apply here.

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mullenwiAuthor

Level 2

Actually, it's a REIT. I tried to read through the Federal Register Section 1061. There is mention of REITs in 1.1061-4(4) Special rules for capital gain dividends from (RICs) and (REITs). Would that apply?

ReneeM7122

Level 9

It depends. There are special rules that apply for dividends from Real Estate Investment Trusts. Section 1061(a) increases the required holding period required for long-term capital gains treatment from more than one year to more than three years for capital gain related to an API. Real estate, private equity and hedge fund professionals who receive profits interests for services generally are treated as holding an API under Section 1061 and its regulations.

The preamble to the proposed regulations recognizes that long-term capital gain treatment should be available for a capital gain dividend paid by a RIC or REIT to the extent that the capital gain dividend is attributable to assets held for more than three years or is attributable to assets that are not subject to section 1061. Proposed §1.1061-4(b)(4) facilitates this treatment by allowing a RIC or REIT to disclose two additional amounts based on modified computations of the RIC’s or REIT’s net capital gain. First, the RIC or REIT may disclose the amount of the capital gain dividend that is attributable to the RIC’s or REIT’s net capital gain excluding any amounts not taken into account for purposes of section 1061 under proposed §1.1061-4(b)(6) from the computation. Second, the RIC or REIT may disclose the amount of the capital gain dividend that is attributable to the RIC’s or REIT’s net capital gain both (1) excluding any amounts not taken into account for purposes of section 1061 under proposed §1.1061- 4(b)(6) from the computation, and (2) substituting three years for one year in applying section 1222. The proposed regulations allow a RIC or REIT to disclose these two additional amounts in writing to its shareholders with its section 852(b)(3)(C)(i) capital 65 gain dividend statement or section 857(b)(3)(B) capital gain dividend notice.

For more information please see this IRS link.