Attached files
| file | filename |
|---|---|
| 8-K - 8-K - KILROY REALTY CORP | form8k.htm |
SUPPLEMENTAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This discussion is a supplement to, and is intended to be read together with, the discussion under the heading “United States Federal Income Tax Considerations,” or the 8-K Disclosure, in Exhibit 99.2 to our Current Report on Form 8-K filed with the SEC on March 15, 2012, which was filed with respect to Item 8.01 of Form 8-K. This summary is for general information only and is not tax advice.
The following is a supplement to, and should be read together with, the discussion under the heading “United States Federal Income Tax Considerations-Taxation of the Company” in the 8-K Disclosure.
Proposed Treasury Regulations Regarding Certain Asset Dispositions
If we acquire any asset from a corporation which is or has been a C corporation in a transaction in which the tax basis of the asset in our hands is less than the fair market value of the asset, in each case determined at the time we acquired the asset, 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 as described in the 8-K Disclosure under the heading “-Taxation of the Company-General,” we generally will be required to pay tax at the highest regular corporate tax rate on this gain to the extent of the excess of (a) the fair market value of the asset over (b) 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 the necessary parties make or refrain from making the appropriate elections under the applicable Treasury regulations then in effect.
The IRS has issued Proposed Treasury Regulations which would exclude from the application of this built-in gains tax any gain from the sale of property acquired by us in an exchange under Section 1031 (a like kind exchange) or 1033 (an involuntary conversion) of the Code. These Proposed Treasury Regulations will not be effective unless they are issued in final form, and as of the date of this report, it is not possible to determine whether the proposed regulations will be finalized in their current form or at all.
The following discussion supersedes the first three paragraphs in the discussion under the heading “United States Federal Income Tax Considerations-Taxation of Our Company-Annual Distribution Requirements” in the 8-K Disclosure.
To maintain our qualification as a REIT, we are required to distribute dividends, other than capital gain dividends, to our stockholders in an amount at least equal to the sum of:
• | 90% of our “REIT taxable income”; and |
• | 90% of our after tax net income, if any, from foreclosure property; minus |
• | the excess of the sum of specified items of our non-cash income over 5% of our “REIT taxable income” as described below. |
For these purposes, our “REIT taxable income” is computed without regard to the dividends paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income generally means income attributable to leveling of stepped rents, original issue discount, cancellation of indebtedness, and any like-kind exchanges that are later determined to be taxable.
Also, our “REIT taxable income” will be reduced by any taxes we are required to pay on any gain we recognize from the disposition of any asset we acquired from a corporation which is or has been a C corporation in a transaction in which our basis in the asset is less than the fair market value of the asset, in each case determined at the time we acquired the asset, within the ten-year period following our acquisition of such asset. See “Proposed Treasury Regulations Regarding Certain Asset Dispositions” above.
The following discussion supersedes the discussion under the heading “United States Federal Income Tax Considerations-Taxation of Our Company-Federal Income Tax Considerations for Holders of Our Capital Stock-Foreign Accounts” in the 8-K Disclosure.
Foreign Accounts. Withholding taxes may apply to certain types of payments made to “foreign financial institutions” (as specially defined in the Code) and certain other non-United States entities. Specifically, a 30% withholding tax may be imposed on dividends on, and gross proceeds from the sale or other disposition of, our capital stock paid to a foreign financial institution or to a non-financial foreign entity, unless (1) the foreign financial institution undertakes certain diligence and reporting, (2) the non-financial foreign entity either certifies it does not have any substantial United States owners or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the United States Treasury requiring, among other things, that it undertake to identify accounts held by certain United States persons or United States-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to non-compliant foreign financial institutions and certain other account holders.
Although these rules currently apply to applicable payments made after December 31, 2012, Proposed Treasury Regulations and subsequent IRS guidance provide that the withholding provisions described above will generally apply to payments of dividends made on or after January 1, 2014 and to payments of gross proceeds from a sale or other disposition of capital stock on or after January 1, 2017.
The guidance described above will not be effective until it is reflected in final Treasury Regulations. Prospective investors should consult their tax advisors regarding these withholding provisions.