SECTION 2. BACKGROUND

.01 Rev. Proc. 2017-45 provides a safe harbor for Publicly Offered REITs and Publicly Offered RICs that make a distribution to their shareholders with respect to their stock to ensure that such distributions of stock pursuant to a distribution in which each shareholder may elect to receive up to all of the shareholder’s distribution in cash or stock of equivalent value are treated as distributions of property to which § 301 applies by reason of § 305(b). See generally Rev. Proc. 201745, section 3.12 (defining Publicly Offered REIT ), section 3.13 (defining Publicly Offered RIC ), and section 5 (enumerating safe harbor requirements). Rev. Proc. 2017-45 allows a Publicly Offered REIT or Publicly Offered RIC to eliminate C corporation earnings and profits in order to satisfy the REIT or RIC distribution requirements while maintaining sufficient liquidity. If each condition set forth in sections 5.01 through 5.07 of Rev. Proc. 2017-45 is met, (1) the Internal Revenue Service will treat the stock distribution as a distribution of property under § 301 by reason of § 305(b), and (2) the value of the stock received by any shareholder in lieu of cash will be considered to be equal to the amount of cash which could have been received instead.

.02 Section 5.03 of Rev. Proc. 2017-45 requires that the Cash Limitation Percentage be at least 20 percent. Section 3.05 of Rev. Proc. 2017-45 defines the Cash

Limitation Percentage as the percentage obtained by dividing (1) the maximum aggregate amount of cash to be distributed to all shareholders as limited by the Publicly Offered REIT’s or Publicly Offered RIC’s declaration of the distribution, by (2) the amount of cash that would be distributed if each shareholder elected to receive solely cash under their respective Cash-or-Stock Election. Section 3.06 of Rev. Proc. 2017-45 generally defines a Cash-or-Stock Election as an election each shareholder may make to receive up to all of the shareholder’s entire distribution subject to the election either (1) in cash, or (2) in stock of the distributing corporation of equivalent value as determined under section 5.07 of Rev. Proc. 2017-45. .03 To enable Publicly Offered REITs and Publicly Offered RICs to conserve capital and thereby enhance their liquidity, Rev. Proc. 2020-19 temporarily allowed such REITs and RICs to further limit the amount of cash available to be distributed to their shareholders by reducing the Cash Limitation Percentage to 10 percent. Rev. Proc. 2020-19 applied to distributions declared on or after April 1, 2020, and on or before December 31, 2020.

.04 For the same reasons, this revenue procedure temporarily allows Publicly Offered REITs and Publicly Offered RICs to limit the amount of cash available to be distributed to their shareholders by reducing the Cash Limitation Percentage to 10 percent.