Overcoming Complex REIT Tax Hurdles for a Seamless Acquisition

Castle Harbour enabled a strategic acquirer to move forward with confidence on a major acquisition by resolving a technical tax exposure involving a Real Estate Investment Trust (REIT).

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During diligence, the target REIT discovered an error in its tax accounting methods that required a change in accounting and triggered a large one-time income inclusion (a Section 481 adjustment). This adjustment raised concerns that the REIT might inadvertently violate complex IRS rules (such as the REIT income tests or distribution requirements), potentially leading to penalty taxes or loss of tax benefits. Castle Harbour worked closely with the company’s tax advisors – even incorporating the guidance of a favorable IRS private ruling – to structure a narrowly tailored insurance policy covering the specific risks arising from the accounting change. By securing coverage for those contingent tax exposures, Castle Harbour removed the remaining uncertainty around the REIT’s tax status. The buyer was able to proceed with a seamless acquisition, assured that any unforeseen tax consequences from the REIT’s compliance correction were fully insured.

Policy type: Tax Insurance (Buyer-Side)
Size: $500MM - $1B
Sector: Telecommunications Infrastructure

Buyer type: Strategic (Corporate)
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.