[Code of Federal Regulations]
[Title 26, Volume 9]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.857-7]

[Page 82-83]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.857-7  Earnings and profits of a real estate investment trust.

    (a) Any real estate investment trust whether or not such trust meets 
the requirements of section 857(a) and paragraph (a) of Sec. 1.857-1 for 
any taxable year beginning after December 31, 1960 shall apply paragraph 
(b) of this section in computing its earnings and profits for such 
taxable year.
    (b) In the determination of the earnings and profits of a real 
estate investment trust, section 857(d) provides that such earnings and 
profits for any taxable year (but not the accumulated earnings and 
profits) shall not be reduced by any amount which is not allowable as a 
deduction in computing its taxable income for the taxable year. Thus, if 
a trust would have had earnings and profits of $500,000 for the taxable 
year except for the fact that it had a net capital loss of $100,000, 
which amount was not deductible in determining its taxable income, its 
earnings and profits for that year if it is a real estate investment 
trust would be $500,000. If the real estate investment trust had no 
accumulated earnings and profits at the beginning of the taxable

[[Page 83]]

year, in determining its accumulated earnings and profits as of the 
beginning of the following taxable year, the earnings and profits for 
the taxable year to be considered in such computation would amount to 
$400,000 assuming that there had been no distribution from such earnings 
and profits. If distributions had been made in the taxable year in the 
amount of the earnings and profits then available for distribution, 
$500,000, the trust would have as of the beginning of the following 
taxable year neither accumulated earnings and profits nor a deficit in 
accumulated earnings and profits, and would begin such year with its 
paid-in capital reduced by $100,000, an amount equal to the excess of 
the $500,000 distributed over the $400,000 accumulated earnings and 
profits which would otherwise have been carried into the following 
taxable year. For purposes of section 857(d) and this section, if an 
amount equal to any net loss derived from prohibited transactions is 
included in real estate investment trust taxable income pursuant to 
section 857(b)(2)(F), that amount shall be considered to be an amount 
which is not allowable as a deduction in computing taxable income for 
the taxable year. The earnings and profits for the taxable year (but not 
the accumulated earnings and profits) shall not be considered to be less 
than (i) in the case of a taxable year ending before October 5, 1976, 
the amount (if any) of the net capital gain for the taxable year, or 
(ii) in the case of a taxable year ending after December 31, 1973, the 
amount (if any), of the excess of the net income from foreclosure 
property for the taxable year over the tax imposed thereon by section 
857(b)(4)(A).

(Sec. 856(d)(4) (90 Stat. 1750; 26 U.S.C. 856(d)(4)); sec. 856(e)(5) (88 
Stat. 2113; 26 U.S.C. 856(e)(5)); sec. 856(f)(2) (90 Stat. 1751; 26 
U.S.C.(856(f)(2)); sec. 856(g)(2) (90 Stat. 1753; 26 U.S.C. 856(g)(2)); 
sec. 858(a) (74 Stat. 1008; 26 U.S.C. 858(a)); sec. 859(c) (90 Stat. 
1743; 26 U.S.C. 859(c)); sec. 859(e) (90 Stat. 1744; 26 U.S.C. 859(e)); 
sec. 6001 (68A Stat. 731; 26 U.S.C. 6001); sec. 6011 (68A Stat. 732; 26 
U.S.C. 6011); sec. 6071 (68A Stat. 749, 26 U.S.C. 6071); sec. 6091 (68A 
Stat. 752; 26 U.S.C. 6091); sec. 7805 (68A Stat. 917; 26 U.S.C. 7805), 
Internal Revenue Code of 1954))

[T.D. 6598, 27 FR 4088, Apr. 28, 1962. Redesignated and amended by T.D. 
7767, 46 FR 11277 and 11279, Feb. 6, 1981]