Use Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a REIT.

A corporation, trust, or association that meets certain conditions (discussed below) must file Form 1120-REIT if it elects to be treated as a REIT for the tax year (or has made that election for a prior tax year and the election has not been terminated or revoked). The election is made by figuring taxable income as a REIT on Form 1120-REIT.

To qualify as a REIT, an organization:

The election to be treated as a REIT remains in effect until terminated or revoked. It terminates automatically for any tax year in which the corporation, trust, or association is not a qualified REIT.

The organization may revoke the election for any tax year after the 1st tax year the election is effective by filing a statement with the service center where it files its income tax return. The statement must be filed on or before the 90th day after the 1st day of the tax year for which the revocation is to be effective. The statement must include the following:

The organization may not make a new election to be taxed as a REIT during the 4 years following the 1st year for which the termination or revocation is effective. See section 856(g)(4) for exceptions.

A REIT may own up to 100% of the stock in one or more taxable REIT subsidiaries (TRS). A TRS must be a corporation (other than a REIT) and may provide services to the REIT's tenants without disqualifying the rent received by the REIT. See section 856(l) for details, including certain restrictions on the type of business activities a TRS may perform. Also, not more than 20% of the fair market value of a REIT's total assets may be securities of one or more TRS (see section 856(c)(4) for details). Transactions between a TRS and its associated REIT must be at arm's length. A REIT may be subject to a 100% excise tax to the extent it improperly allocates income and deductions between the REIT and the TRS (see section 857(b)(7) for details). Additional limitations on transactions between a TRS and its associated REIT include:

To elect to have an eligible corporation treated as a TRS, the corporation and the REIT must jointly file Form 8875, Taxable REIT Subsidiary Election.

Generally, a REIT must file its income tax return by the 15th day of the 3rd month after the end of its tax year. A new REIT filing a short period return must generally file by the 15th day of the 3rd month after the short period ends. A REIT that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved.

If the due date falls on a Saturday, Sunday, or legal holiday, the REIT may file on the next business day.

The return must be signed and dated by the president, vice president, treasurer, assistant treasurer, chief accounting officer, or any other corporate officer (such as tax officer) authorized to sign. Receivers, trustees, or assignees must also sign and date any return filed on behalf of a REIT.

If an employee of the REIT completes Form 1120-REIT, the paid preparer's space should remain blank. Anyone who prepares Form 1120-REIT but does not charge the REIT should not complete that section. Generally, anyone who is paid to prepare the return must sign it and fill in the “Paid Preparer's Use Only” area.

The paid preparer must complete the required preparer information, sign the return in the space provided for the preparer's signature, and give a copy of the return to the taxpayer.

File the REIT's return at the applicable IRS address listed below.

A group of corporations with members located in more than one service center area will often keep all the books and records at the principal office of the managing corporation. In this case, the tax returns of the corporations may be filed with the service center for the area in which the principal office of the managing corporation is located.

If the REIT wants to allow the IRS to discuss its 2003 tax return with the paid preparer who signed it, check the “Yes” box in the signature area of the return. This authorization applies only to the individual whose signature appears in the “Paid Preparer's Use Only” section of the return. It does not apply to the firm, if any, shown in that section.

If the “Yes” box is checked, the REIT is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The REIT is also authorizing the paid preparer to:

The REIT is not authorizing the paid preparer to receive any refund check, bind the REIT to anything (including any additional tax liability), or otherwise represent the REIT before the IRS. If the REIT wants to expand the paid preparer's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.

The authorization cannot be revoked. However, the authorization will automatically end no later than the due date (without regard to extensions) for filing the REIT's 2004 tax return.

The REIT may have to file some of the following forms. See the applicable forms for more information.

An accounting method is a set of rules used to determine when and how income and expenses are reported. Figure taxable income using the method of accounting regularly used in keeping the REIT's books and records. Generally, permissible methods include cash, accrual, or any other method authorized by the Internal Revenue Code.

In all cases, the method used must clearly show taxable income. If inventories are required, the accrual method must be used for sales and purchases of merchandise.

A REIT must figure its taxable income on the basis of a tax year. A tax year is the annual accounting period a REIT uses to keep its records and report its income and expenses. A REIT adopts a tax year when it files its first income tax return. It must adopt a tax year by the due date (not including extensions) of its first income tax return.

A REIT must adopt a calendar year unless it first qualified for REIT status before October 5, 1976.

The REIT may round off cents to whole dollars on its returns and schedules. If the REIT does round to whole dollars, it must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar (for example, $1.39 becomes $1 and $2.50 becomes $3).

If two or more amounts must be added to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

Keep the REIT's records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Usually, records that support an item of income, deduction, or credit on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Keep records that verify the REIT's basis in property for as long as they are needed to figure the basis of the original or replacement property.

The REIT should also keep copies of all filed returns. They help in preparing future and amended returns.

A REIT must pay the tax due in full no later than the 15th day of the 3rd month after the end of the tax year. The two methods of depositing REIT income taxes, including the capital gains tax, are discussed below.

Deposits With Form 8109

If the REIT does not use EFTPS, deposit REIT income tax payments (and estimated tax payments) with Form 8109, Federal Tax Deposit Coupon. If you do not have a preprinted Form 8109, use Form 8109-B to make deposits. You can get this form by calling 1-800-829-4933. Be sure to have your EIN ready when you call.

Do not send deposits directly to an IRS office; otherwise, the REIT may have to pay a penalty. Mail or deliver the completed Form 8109 with the payment to an authorized depositary (i.e., a commercial bank or other financial institution authorized to accept Federal tax deposits). Make checks or money orders payable to the depositary.

To help ensure proper crediting, write the REIT's EIN, the tax period to which the deposit applies, and “Form 1120-REIT” on the check or money order. Be sure to darken the “1120” box on the coupon. Records of these deposits will be sent to the IRS.

If you prefer, you may mail your coupon and payment to Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197. Make check or money order payable to “Financial Agent.”

For more information on deposits, see the instructions in the coupon booklet (Form 8109) and Pub. 583, Starting a Business and Keeping Records.

If the REIT owes tax when it files Form 1120-REIT, do not include the payment with the tax return. Instead, mail or deliver the payment with Form 8109 to an authorized depositary or use EFTPS, if applicable.

Generally, the REIT must make installment payments of estimated tax if it expects its total tax for the year (less applicable credits) to be $500 or more. The installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. If any date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day. Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to compute estimated tax. If the REIT does not use EFTPS, use the deposit coupons (Forms 8109) to make deposits of estimated tax.

For more information, including penalties that apply if the REIT fails to make required payments, see the instructions for line 25 on page 9.