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| BMR > SEC Filings for BMR > Form 8-K on 30-Sep-2008 | All Recent SEC Filings |
30-Sep-2008
Other Events
• insurance companies;
• tax-exempt organizations;
• "S" corporations;
• traders in securities that elect to mark to market;
• persons holding our common stock through a partnership or other pass-through entity;
• holders subject to the alternative minimum tax;
• regulated investment companies and REITs;
• foreign corporations or partnerships, and persons who are not residents or citizens of the United States;
• broker-dealers or dealers in securities or currencies;
• United States expatriates;
• persons holding our common stock as a hedge against currency risks or as a position in a straddle; or
• United States persons whose functional currency is not the United States dollar.
The information in this summary is based on:
• the Code;
• current, temporary and proposed Treasury regulations promulgated under the Code;
• the legislative history of the Code;
• current administrative interpretations and practices of the Internal Revenue Service, or IRS; and
• court decisions;
in each case, as of the date of this Current Report on Form 8-K, or Form 8-K. In
addition, the administrative interpretations and practices of the IRS include
its practices and policies as expressed in private letter rulings which are not
binding on the IRS except with respect to the particular taxpayers who requested
and received those rulings. Future legislation, Treasury regulations,
administrative interpretations and practices and/or court decisions may
adversely affect the tax considerations described in this Form 8-K. Any such
change could apply retroactively to transactions preceding the date of the
change. We have not requested and do not intend to request a ruling from the IRS
that we qualify as a REIT, and the statements in this summary are not binding on
the IRS or any court. Thus, we can provide no assurance that the tax
considerations contained in this summary will not be challenged by the IRS or
will be sustained by a court if so challenged. State, local and foreign income
tax laws may differ substantially from any corresponding federal income tax
laws. This discussion does not address any aspect of the laws of any state,
local or foreign jurisdiction.
You are urged to consult your tax advisors, regarding the specific tax
consequences to you of:
• the acquisition, ownership, sale or other disposition of shares of our
common stock, including the federal, state, local, foreign and other tax
consequences;
• our election to be taxed as a REIT for federal income tax purposes; and
• potential changes in the applicable tax laws.
Taxation of Our Company
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with our taxable year ended December 31, 2004. We believe
that we have been organized and have operated in a manner that has allowed us to
qualify for taxation as a REIT under the Code commencing with our taxable year
ended December 31, 2004, and we intend to continue to be organized and operate
in this manner. However, our qualification and taxation as a REIT depend upon
our ability to meet the various qualification tests imposed under the Code,
including through our actual annual operating results, asset composition,
distribution levels and diversity of stock ownership. Accordingly, no assurance
can be given that we have been organized and have operated, or will continue to
be organized and operated, in a manner so as to qualify or remain qualified as a
REIT. See "- Failure to Qualify."
The sections of the Code and the corresponding Treasury regulations that
relate to qualification and operation as a REIT are highly technical and
complex. The following sets forth the material aspects of the sections of the
Code that govern the federal income tax treatment of a REIT and its common
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, relevant rules and regulations promulgated under the Code, and
administrative and judicial interpretations of the Code and these rules and
regulations.
Provided we qualify for taxation as a REIT, we generally will not be required
to pay federal corporate income taxes on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates the
"double taxation" that ordinarily results from investment in a C corporation. A
C corporation is a corporation that is generally required to pay tax at the
corporate-level. Double taxation means taxation that occurs once at the
corporate level when income is earned and once again at the stockholder level
when that income is distributed. We will, however, be required to pay federal
income tax as follows:
• We will be required to pay tax at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
• We may be required to pay the "alternative minimum tax" on our items of tax preference under some circumstances.
• If we have (1) net income from the sale or other disposition of "foreclosure property" held primarily for sale to customers in the ordinary course of business or (2) other nonqualifying income from foreclosure property, we will be required to pay tax at the highest corporate rate on this income. Foreclosure property generally is defined as property we acquired through foreclosure or after a default on a loan secured by the property or a lease of the property and for which an election is in effect.
• We will be required to pay a 100% tax on any net income from prohibited transactions.
Prohibited transactions are, in general, sales or other taxable dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
• If we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained our qualification as a REIT because certain other requirements are met, we will be required to a pay a tax equal to (1) the greater of (a) the amount by which 75% of our gross income exceeds the amount qualifying under the 75% gross income test, and (b) the amount by which 95% of our gross income (90% for our taxable year ended December 31, 2004) exceeds the amount qualifying under the 95% gross income test, multiplied by (2) a fraction intended to reflect our profitability.
• If we fail to satisfy any of the REIT asset tests (other than a de minimis failure of the 5% or 10% asset tests), as described below, due to reasonable cause and not due to willful neglect, and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test.
• If we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of the REIT gross income tests or certain violations of the asset tests described below) and the violation is due to reasonable cause and not due to willful neglect, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such failure.
• We will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for the year, and (3) any undistributed taxable income from prior periods.
• If we acquire any asset from a corporation which is or has been a C corporation in a transaction in which the basis of the asset in our hands is determined by reference to the basis of the asset in the hands of the C corporation, and we subsequently recognize gain on the disposition of the asset during the ten-year period beginning on the date on which we acquired the asset, then we will be required to pay tax at the highest regular corporate tax rate on this gain to the extent of the excess of (1) the fair market value of the asset over (2) our adjusted basis in the asset, in each case determined as of the date on which we acquired the asset. The results described in this paragraph with respect to the recognition of gain assume that certain elections specified in applicable Treasury regulations are either made or forgone by us or by the entity from which the assets are acquired, in each case, depending on the date such acquisition occurred.
• We will be required to pay a 100% tax on any "redetermined rents," "redetermined deductions" or "excess interest." In general, redetermined rents are rents from real property that are overstated as a result of services furnished to our tenants by a "taxable REIT subsidiary" of ours. Redetermined deductions and excess interest represent amounts that are deducted by our taxable REIT subsidiary for amounts paid to us that are in excess of the amounts that would have been deducted based on arm's-length negotiations. See "- Penalty Tax."
• Certain of our subsidiaries are C corporations, the earnings of which will be subject to United States federal corporate income tax.
Requirements for Qualification as a Real Estate Investment Trust. The Code
defines a "REIT" as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to evidence its
beneficial ownership;
(3) that would be taxable as a domestic corporation, but for special Code
provisions applicable to REITs;
(4) that is not a financial institution or an insurance company within the
meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals, including specified
entities, during the last half of each taxable year; and
(7) that meets other tests, described below, regarding the nature of its income
and assets and the amount of its distributions.
The Code provides that conditions (1) to (4), inclusive, must be met during
the entire taxable year and that condition (5) must be met during at least
335 days of a taxable year of twelve months, or during a proportionate part of a
taxable year of less than twelve months. Conditions (5) and (6) do not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of condition (6), the term "individual" generally includes
a supplemental unemployment compensation benefit plan, a private foundation or a
portion of a trust permanently set aside or used exclusively for charitable
purposes, but does not include a qualified pension plan or profit sharing trust.
We believe that we have been organized, have operated and have issued
sufficient shares of capital stock with sufficient diversity of ownership to
allow us to satisfy conditions (1) through (7) inclusive during the relevant
time periods. In addition, our charter provides for restrictions regarding the
ownership and transfer of our shares that are intended to assist us in
continuing to satisfy the share ownership requirements described in (5) and
(6) above. These restrictions, however, may not ensure that we will, in all
cases, be able to satisfy the share ownership requirements described in
conditions (5) and (6) above. If we fail to satisfy these share ownership
requirements, except as provided in the next sentence, our status as a REIT will
terminate. If, however, we comply with the rules contained in applicable
Treasury regulations that require us to ascertain the actual ownership of our
shares and we do not know, or would not have known through the exercise of
reasonable diligence, that we failed to
meet the requirement described in condition (6) above, we will be treated as
having met this requirement. See the section below entitled "- Failure to
Qualify."
In addition, we may not maintain our status as a REIT unless our taxable year
is the calendar year. We have and will continue to have a calendar taxable year.
Ownership of Interests in Partnerships and Limited Liability Companies. In
the case of a REIT which is a partner in a partnership, Treasury regulations
provide that the REIT will be deemed to own its proportionate share of the
assets of the partnership based on its interest in partnership capital, subject
to special rules relating to the 10% asset test described below. Also, the REIT
will be deemed to be entitled to its proportionate share of the income of the
partnership. The assets and gross income of the partnership retain the same
character in the hands of the REIT, including for purposes of satisfying the
gross income tests and the asset tests. Thus, our pro rata share of the assets
and items of income of our operating partnership, including our operating
partnership's share of these items of any partnership in which it owns an
interest, are treated as our assets and items of income for purposes of applying
the requirements described in this summary, including the REIT income and asset
tests described below. A brief summary of the rules governing the federal income
taxation of partnerships and limited liability companies is set forth below in
"- Tax Aspects of Our Operating Partnership, the Subsidiary Partnerships and the
Limited Liability Companies." The treatment described above also applies with
respect to the ownership of interests in limited liability companies that are
treated as partnerships for tax purposes.
We have control of our operating partnership and the subsidiary partnerships
and limited liability companies and intend to continue to operate them in a
manner consistent with the requirements for our qualification as a REIT. In the
future, we may be a limited partner or non-managing member in a partnership or
limited liability company. If such a partnership or limited liability company
were to take actions which could jeopardize our status as a REIT or require us
to pay tax, we could be forced to dispose of our interest in such entity. In
addition, it is possible that a partnership or limited liability company could
take an action which could cause us to fail a REIT income or asset test, and
that we would not become aware of such action in time to dispose of our interest
in the applicable entity or take other corrective action on a timely basis. In
that case, we could fail to qualify as a REIT unless we were entitled to relief,
as described below. See "- Failure to Qualify."
Ownership of Interests in Qualified REIT Subsidiairies. We may from time to
time own certain wholly-owned subsidiaries that we intend to be treated as
"qualified REIT subsidiaries" under the Code. A corporation will qualify as our
qualified REIT subsidiary if we own 100% of the corporation's outstanding stock
and we do not elect with the corporation to treat it as a "taxable REIT
subsidiary," as described below. A qualified REIT subsidiary is not treated as a
separate corporation for federal income tax purposes, and all assets,
liabilities and items of income, gain, loss, deduction and credit of a qualified
REIT subsidiary are treated as assets, liabilities and items of income, gain,
loss, deduction and credit (as the case may be) of the parent REIT for all
purposes under the Code, including the REIT qualification tests. Thus, in
applying the federal income tax requirements described in this summary, any
corporation in which we own a 100% interest (other than a taxable REIT
subsidiary) is ignored, and all assets, liabilities, and items of income, gain,
loss, deduction and credit of such corporation are treated as our assets,
liabilities and items of income, gain, loss, deduction, and credit. A qualified
REIT subsidiary is not required to pay federal income tax, and our
ownership of the stock of a qualified REIT subsidiary will not violate the
restrictions on ownership of securities described below under "- Asset Tests."
Ownership of Interests in Taxable REIT Subsidiaries. A taxable REIT
subsidiary is a corporation other than a REIT in which a REIT directly or
indirectly holds stock, and that has made a joint election with the REIT to be
treated as a taxable REIT subsidiary. A taxable REIT subsidiary also includes
any corporation, other than a REIT, with respect to which a taxable REIT
subsidiary owns securities possessing more than 35% of the total voting power or
value. Other than some activities relating to lodging and health care
facilities, a taxable REIT subsidiary may generally engage in any business,
including the provision of customary or non-customary services to tenants of its
parent REIT. A taxable REIT subsidiary is subject to federal income tax as a
regular C corporation. In addition, a taxable REIT subsidiary may be prevented
from deducting interest on debt funded directly or indirectly by its parent REIT
if certain tests regarding the taxable REIT subsidiary's debt to equity ratio
and interest expense are not satisfied. A REIT's ownership of securities of its
taxable REIT subsidiaries will not be subject to the 10% or 5% asset tests
described below. See "Asset Tests."
We currently hold an interest in one taxable REIT subsidiary and may acquire
securities in additional taxable REIT subsidiaries in the future.
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT. First, in each taxable year, we must
derive directly or indirectly at least 75% of our gross income, excluding gross
income from prohibited transactions, certain hedging transactions entered into
after July 30, 2008, and certain foreign currency gains recognized after
July 30, 2008, from (a) investments relating to real property or mortgages on
real property, including "rents from real property" and, in certain
circumstances, interest, or (b) some types of temporary investments. Second, in
each taxable year, we must derive at least 95% of our gross income, excluding
gross income from prohibited transactions, certain designated hedges of
indebtedness, and certain foreign currency gains recognized after July 30, 2008,
from the real property investments described above, dividends, interest and gain
from the sale or disposition of stock or securities, or from any combination of
the foregoing. For these purposes, the term "interest" generally does not
include any amount received or accrued, directly or indirectly, if the
determination of all or some of the amount depends in any way on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
Rents we receive from a tenant will qualify as "rents from real property" for
the purpose of satisfying the gross income requirements for a REIT described
above only if all of the following conditions are met:
• The amount of rent must not be based in any way on the income or profits of
any person. However, an amount we receive or accrue generally will not be
excluded from the term "rents from real property" solely because it is based
on a fixed percentage or percentages of receipts or sales;
• We, or an actual or constructive owner of 10% or more of our capital stock, must not actually or constructively own 10% or more of the interests in the tenant, or, if the tenant is a corporation,
10% or more of the voting power or value of all classes of stock of the tenant. Rents we receive from such a tenant that is also our taxable REIT subsidiary, however, will not be excluded from the definition of "rents from real property" as a result of this condition if at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the taxable REIT subsidiary are substantially comparable to rents paid by our other tenants for comparable space. Whether rents paid by a taxable REIT subsidiary are substantially comparable to rents paid by other tenants is determined at the time the lease with the taxable REIT subsidiary is entered into, extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a "controlled taxable REIT subsidiary" is modified and such modification results in an increase in the rents payable by such taxable REIT subsidiary, any such increase will not qualify as "rents from real property." For purposes of this rule, a "controlled taxable REIT subsidiary" is a taxable REIT subsidiary in which we own stock possessing more than 50% of the voting power or more than 50% of the total value;
• Rent attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent received under the lease. If this requirement is not met, then the portion of the rent attributable to personal property will not qualify as "rents from real property"; and
• We generally must not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis exception and except as provided below. We may, however, perform services that are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not otherwise considered "rendered to the occupant" of the property. Examples of these services include the provision of light, heat, or other utilities, trash removal and general maintenance of common areas. In addition, we may employ an independent contractor from whom we derive no revenue to provide customary services, or a taxable REIT subsidiary, which may be wholly or partially owned by us, to provide both customary and non-customary services to our tenants without causing the rent we receive from those tenants to fail to qualify as "rents from real property." Any amounts we receive from a taxable REIT subsidiary with respect to the taxable REIT subsidiary's provision of non-customary services will, however, be nonqualifying income under the 75% gross income test and, except to the extent received through the payment of dividends, the 95% gross income test.
We generally do not intend, and as a general partner of our operating
partnership, do not intend to permit our operating partnership, to take actions
we believe will cause us to fail to satisfy the rental conditions described
above. However, we may intentionally fail to satisfy some of these conditions to
the extent we conclude, based on the advice of our tax counsel, the failure will
not jeopardize our tax status as a REIT. In addition, with respect to the
limitation on the rental of personal property, we have not obtained appraisals
of the real property and personal property leased to tenants. Accordingly, there
can be no assurance that the IRS will agree with our determinations of value.
Income we receive that is attributable to the rental of parking spaces at the
properties will constitute rents from real property for purposes of the REIT
gross income tests if certain services provided with respect to the parking
facilities are performed by independent contractors from whom we derive no
income, either directly or indirectly, or by a taxable REIT subsidiary, and
certain other
conditions are met. We believe that the income we receive that is attributable
to parking facilities meets these tests and, accordingly, will constitute rents
from real property for purposes of the REIT gross income tests.
From time to time, we enter into hedging transactions with respect to one or
more of our assets or liabilities. The term "hedging transaction" generally
means any transaction we enter into in the normal course of our business
primarily to manage risk of (1) interest rate changes or fluctuations with
respect to borrowings made or to be made by us to acquire or carry real estate
assets, or (2) for hedging transactions entered into after July 30, 2008,
currency fluctuations with respect to an item of qualifying income under the 75%
or 95% gross income test. Our hedging activities may include entering into
interest rate swaps, caps, and floors, options to purchase these items, and
futures and forward contracts. Income we derive from a hedging transaction,
including gain from the sale or disposition thereof, that is clearly identified
as a hedging transaction as specified in the Code will not constitute gross
income and thus will be exempt from the 95% gross income test to the extent such
a hedging transaction is entered into on or after January 1, 2005, and will not
constitute gross income and thus will be exempt from the 75% gross income test
to the extent such hedging transaction is entered into after July 30, 2008.
Income and gain from a hedging transaction, including gain from the sale or
disposition of such a transaction, entered into on or prior to July 30, 2008
will be treated as nonqualifying income for purposes of the 75% gross income
test. Income and gain from a hedging transaction, including gain from the sale
. . .
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