[Code of Federal Regulations]
[Title 26, Volume 9]
[Revised as of April 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.857-7]

[Page 83-84]
 
                       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 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

[[Page 84]]

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]