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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1 to
Current Report Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: March 4, 1992
MEDITRUST
(Exact name of registrant as specified in charter)
Massachusetts 0-14022 04-6532031
(State of (Commission (I.R.S. Employer
Incorporation) File Number) Identification No.)
197 First Avenue, Needham, MA 02194
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 433-6000
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Item 5. Other Information
FEDERAL INCOME TAX CONSIDERATIONS
Meditrust (the "Company") has elected to be and intends to remain
qualified as a "real estate investment trust" under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code"). The following is a
general summary of the federal income tax treatment of real estate investment
trusts and their shareholders. This discussion does not purport to deal with all
aspects of taxation that may be relevant to particular shareholders in light of
their personal circumstances, or to certain types of shareholders subject to
special treatment under the federal income tax laws.
Qualification of the Company as a real estate investment trust will
depend upon its continued ability to meet, through actual annual operating
results, the various qualification tests imposed under the Code and discussed
below. No assurance can be given that the actual results of the Company's
operations will satisfy such requirements. In particular, the various
qualification tests imposed under the Code may not be met if the Company's
leases for facilities (the "Leases") are not true leases for federal income tax
purposes. See "Federal Income Tax Treatment of Leases."
Taxation of the Company
General
If the Company qualifies for taxation as a real estate investment trust
and distributes to its shareholders at least 95% of its "real estate investment
taxable income," it generally will not be subject to federal corporate income
taxes on the amount distributed. However, a real estate investment trust is
subject to special taxes on the net income derived from "prohibited
transactions," on nonqualified income when it fails certain income tests, on the
net income from foreclosure properties and on undistributed capital gains. In
addition, under certain circumstances, the Company may be subject to a minimum
tax on its items of tax preference and a 4% excise tax on certain amounts of
undistributed income.
Requirements for Qualification
Section 856(a) of the Code defines a real estate investment trust as a
corporation, trust or association (1) which is managed by one or more trustees;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable,
but for
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Sections 856 through 860 of the Code, as a domestic corporation; (4) which is
neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) not more than 50% in value of the outstanding shares of which
is owned, directly or indirectly (after the application of certain attribution
rules) by five or fewer individuals at any time during the last half of the
Company's taxable year; and (7) which meets certain other tests, described
below. Section 856(b) of 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 12 months, or during a
proportionate part of a taxable year of less than 12 months.
It is the expectation of the Company that it will have at least 100
shareholders during the requisite period for each of its taxable years.
Furthermore, the Board of Trustees of the Company have the power under the
Company's Declaration of Trust to prohibit any transfer of the Company's Shares
of Beneficial Interest (the "Shares") and to redeem Shares that have been
transferred pursuant to any transfer that in the opinion of the Trustees would
jeopardize the status of the Company as a real estate investment trust.
Nevertheless, there can be no assurance that the Company will continue to meet
this requirement, and, if the Company has fewer than 100 shareholders during the
requisite period, condition (5) described above will not be satisfied, and the
Company will not qualify as a real estate investment trust during such taxable
year. See "Failure to Qualify."
To qualify as a real estate investment trust for a taxable year under
the Code, the Company must elect or previously have elected to be so treated and
must meet other requirements, certain of which are summarized below, including
percentage tests relating to the sources of its gross income, the nature of the
Company's assets, and the distribution of its income to shareholders. The
Company also must take certain actions specified in regulations under the Code
to attempt to ascertain the true owners of its Shares and must maintain records
of such ownership.
Income Tests
There are three gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from certain sales of property
held primarily for sale to customers in the ordinary course of the Company's
business ("dealer sales")) must be derived directly or indirectly from
investments relating to real property (including "rents from real property") or
mortgages on real property, or must be "qualified temporary investment income."
Second, at least 95% of the Company's gross
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income (excluding gross income from dealer sales) must be derived from such real
property investments, dividends, interest, certain payments under interest rate
swap and cap agreements and gain from the sale or disposition of stock,
securities or real property or from any combination of the foregoing. Third,
gain from the sale or other disposition of stock or securities (including
certain interest rate swap and cap agreements) held for less than one year, gain
from dealer sales (other than foreclosure property) and gain on the sale or
other disposition of real property interests held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of the Company's gross income.
The Company may temporarily invest a portion of the net proceeds from
the sale of Shares in short-term investments. Although the Company will make
every effort to ensure that its income generated by these investments will be of
a type which satisfies the 75% and 95% gross income tests, there can be no
assurance in this regard. Moreover, the Company may realize capital gain upon
sale or exchange of such assets held for less than one year, and any such
short-term capital gain will be subject to the limitations imposed by the 30%
gross income test.
In order to qualify as "rents from real property," the amount of rent
received may be based on receipts or sales, but must not be determined from the
income or profits of any person, unless such person is a tenant all of whose
income would qualify as "rents from real property" if such amounts were received
by the real estate investment trust. The Code provides also that rents will not
qualify as "rents from real property" in satisfying the gross income tests if
the real estate investment trust, or an owner of 10% or more of the real estate
investment trust, also owns 10% or more of the tenant. In addition, the Company
must not manage the property or furnish or render services to the tenants of
such property, except through an independent contractor from whom the Company
derives no income. However, there is an exception to this rule which permits a
real estate investment trust to perform certain customary tenant services of the
sort which a tax-exempt organization could perform without being considered in
receipt of "unrelated taxable business income." Finally, if rent attributable to
personal property leased in connection with a lease of real property is greater
than 15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." If any rent payments do not qualify as rents from real property for
the purposes of Section 856 of the Code, it will be more difficult for the
Company to meet the 95% or 75% gross income tests and qualify as a real estate
investment trust.
Interest income received by the Company with respect to its loans will
be qualifying income for purposes of the 75% test only
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to the extent the interest is attributable to obligations secured by interests
in real property. Interest is deemed attributable to obligations secured by real
property only to the extent the value of the real property securing such loan
equals or exceeds the amount of the loan. The Company believes that the value of
the real property securing its loans is such that interest on such loans will
not cause the Company to fail the 75% gross income test. However, there is no
assurance that the IRS will not assert a contrary position respecting the value
of the real property securing the Company's loans with the result that the
Company may fail to meet the 75% gross income test in a taxable year. See
"Failure to Qualify." Moreover, interest which is based on receipts or sales of
the debtor may constitute qualifying income for purposes of the 75% test, but
interest based on income or profits of the debtor will generally not constitute
qualifying income.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a real estate
investment trust for such year if its failure to meet such tests was due to
reasonable cause and not due to willful neglect, it attaches a schedule of the
sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would be entitled to
the benefit of these relief provisions. If these relief provisions apply, a 100%
tax is imposed upon the greater of the amount by which the Company failed the
75% gross income test or the 95% gross income test less an amount which
generally reflects the expenses attributable to earning the non-qualified
income.
Asset Tests
At the close of each quarter of the Company's taxable year, it must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of the Company's total assets must consist of real estate
assets (including real estate assets held by any "qualified REIT subsidiary" of
the Company and its allocable share of real estate assets held by joint ventures
or partnerships in which the Company participates), cash, cash items and
government securities. Second, not more than 25% of the Company's total assets
may be represented by securities other than those includible in the 75% asset
class. Finally, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by the Company may not exceed 5% of the value
of the Company's total assets, and the Company may not own more than 10% of any
one issuer's outstanding voting securities. Shares in a "qualified REIT
subsidiary" of the Company are excluded from the foregoing computation. A
"qualified REIT subsidiary" of the Company is any corporation 100% of the stock
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of which is held by the Company at all times during the corporation's existence.
The Company's management believes that each of the Company's subsidiaries meets
the requirements for classification as a "qualified REIT subsidiary."
Where a failure to satisfy the 25% asset test results from an
acquisition of securities or other property during a quarter, the failure can be
cured by disposition of sufficient non-qualifying assets within 30 days after
the close of such quarter. The Company intends to maintain adequate records of
the value of its assets to determine the compliance with the 25% asset test, and
to take such action as may be required to cure any failure to satisfy the test
within 30 days after the close of any quarter.
Distribution Requirements
The Company, in order to qualify as a real estate investment trust, is
required to distribute to its shareholders an amount equal to or greater than
the excess of (A) the sum of (i) 95% of the Company's "real estate investment
trust taxable income" (computed without regard to the dividends paid deduction
and the Company's net capital gain) and (ii) 95% of the net income, if any,
(after tax) from foreclosure property, over (B) the Company's "excess noncash
income," if any. "Excess noncash income" is the excess of the sum of (A) certain
imputed rent receipts, income from like-kind exchanges intended in good faith to
qualify but ultimately determined to be ineligible for nonrecognition under
Section 1031 of the Code and, in the case of a real estate investment trust on
the cash method of accounting, the excess of imputed original issue discount
income from certain debt instruments over amounts actually received under such
instruments over (B) five percent of the real estate investment trust taxable
income for the year determined without regard to the deduction for dividends
paid or net capital gain. In addition, the Company must have qualified as a real
estate investment trust for every taxable year beginning after February 28, 1986
or have no earnings and profits accumulated in any non-real estate investment
trust year. To the extent that the Company does not distribute all of its net
long-term capital gain or distributes at least 95%, but less than 100% of its
"real estate investment trust taxable income," as adjusted, even if it is not
subject to tax as a regular corporation it will be subject to regular federal
income tax on such undistributed net long-term capital gain or such
undistributed real estate investment trust taxable income. In addition, a
nondeductible 4% excise tax is imposed on the excess of (i) 85% of the Company's
ordinary income for the year plus 95% of capital gain net income for the year
and any undistributed income from prior years over (ii) the actual distribution
to the shareholders during the year. Dividends declared in October, November or
December and paid during the
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following January will be treated as having been paid and received on December
3l.
It is possible that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirements, due to timing differences between the actual receipt of income and
actual payment of deductible expenses on the one hand and the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company on the other hand. In the event that timing differences were to occur,
in order to meet the 95% requirement, the Company might find it necessary to
arrange for short-term, or possibly long-term, borrowing.
In particular, the Company has borrowed significant amounts to acquire
certain of the facilities which it has leased. If and when the Company sells
such a facility, it will be required to repay any outstanding loans securing
such facility. If at the time of sale the debt required to be repaid exceeds the
Company's basis in the facility, the Company will, because of the repayment of
the loan, realize a greater amount of income than cash from the sale. As a
consequence, the Company may be unable, without additional borrowings, to meet
the 95% distribution requirement for such taxable year.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest and a penalty based upon
the amount of any deduction for deficiency dividends.
Federal Income Tax Treatment of Leases
The availability to the Company of, among other things, depreciation
deductions with respect to the Company's facilities will depend upon the
treatment of the Company (or its subsidiary or a partnership in which the
Company or its subsidiary is a partner) as the owner of the facilities and the
classification of the Leases as true leases, rather than as sales or financing
arrangements, for federal income tax purposes. The questions whether the Company
is the owner of the facilities and whether the Leases are true leases for
federal income tax purposes are essentially factual matters. In a series of
Revenue Procedures (Rev. Procs. 75-21, 75-28, 76-30, 79-48) the Internal Revenue
Service (the "IRS") set forth guidelines (regarding such matters as the residual
value of the property, the term of the lease, the lessor's investment in the
property and the terms of purchase
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options, if any) for the issuance of rulings with respect to whether certain
transactions purporting to be leases of property would be treated as such for
federal income tax purposes. Although the transactions pursuant to which the
Company leases the facilities do not fully satisfy the conditions enumerated in
such Revenue Procedures, such conditions are applicable only to advance ruling
requests and are not statements of substantive law.
The Company believes that the Leases are true leases and it (or its
subsidiary or the partnership in which the Company or a subsidiary is a partner)
should be treated as the owner of the facilities so leased for federal income
tax purposes. However, no assurance can be given that the IRS will not
successfully challenge the status of the Company as the owner of the facilities
and the status of the Leases as true leases. In such event the Company would not
be entitled to claim depreciation deductions with respect to such facilities
and, as a result, the Company might fail to meet the 95% dividend distribution
requirement, or if such requirement is met, then a larger percentage of
distributions from the Company may in some years constitute ordinary dividend
income, instead of a partial return of capital to shareholders.
The IRS could assert that the acquisition price of one or more of the
facilities leased back to the seller was less than the fair market value of the
facility, and that the Company therefore realized prepaid rent in the amount of
the difference in the year of the purchase. Although the Company believes it has
paid fair market value for each of the facilities, there can be no assurance
that the IRS would not be successful in such a challenge. If the IRS were to
prevail, the Company might fail to meet the requirement that it distribute
annually at least 95% of its "real estate investment trust taxable income," in
which event it could lose its qualification as a real estate investment trust.
The Company should be able to rectify a failure to meet the 95% distribution
requirement arising from a determination by a court or a so-called "closing
agreement" with the IRS that the Company has prepaid rental income by paying a
"deficiency dividend" to its shareholders in a later year, which would be
included in the Company's deduction for dividends paid for the year challenged.
The Company might thus be able to avoid disqualification of real estate
investment trust status and being subject to the regular corporate income tax on
amounts ultimately distributed as deficiency dividends; however, it would in
such case remain liable for interest and penalties with respect to any failure
to meet the 95% distribution requirement until the deficiency dividend was paid.
Furthermore, the Company might have to borrow funds to pay any deficiency
dividend and such interest, penalties and excise tax, since it will not actually
have received cash equal to any deemed prepaid rental income, and
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as a result the Company's ability to pay future dividends might be impaired.
Additionally, it should be noted that Code Section 467 (concerning
leases with increasing rents) could apply to the Leases because each Lease
provides for percentage or additional rents which may increase from one period
to the next. Section 467 provides that in the case of a so-called "disqualified
leaseback agreement" rental income must be accrued at a constant rate. If such
constant rent accrual is required, the Company would recognize rental income in
excess of cash rents and as a result may fail to meet the 95% dividend
distribution requirement. See "Failure to Qualify." Because Section 467 directs
the Department of the Treasury to issue regulations providing that rents will
not be treated as increasing for tax avoidance purposes where the increases are
based upon a fixed percentage of lessee receipts, the additional rent provisions
of the leases should not cause the leases to be "disqualified leaseback
agreements." However, the absence of Treasury Regulations to date means that
there can be no assurance that none of the leases will be treated as
"disqualified leaseback agreements" resulting in constant rent accrual. Section
467 also requires that if the leased properties are disposed of during the lease
term (without taking into account renewal options), the Company must recapture
as ordinary income the portion of its realized gain that is equal to the excess
amounts of income that would have been accrued in prior years had constant
accrual been required.
Prohibited Transactions
Most of the Leases grant the lessee the option to purchase the leased
property. It is possible that the IRS, upon the sale of a facility either to the
lessee pursuant to such a purchase option or to another party, or upon the sale
of part or all of a loan made by the Company, will take the position that the
gain from such sale is income from a "prohibited transaction." A prohibited
transaction occurs when a real estate investment trust sells property to
customers in the ordinary course of its business. The determination whether a
sale by the Company of any of its real estate assets will occur in the ordinary
course of its business will be based upon the facts and circumstances of the
transaction, including the frequency of the Company's sales of property and the
length of time the Company held the property. The consequences to the Company of
realizing gain from a prohibited transaction are that the Company will be
subject to a l00% penalty tax upon the gain realized from such transaction and
such gain will be treated as non-qualifying income for purposes of the 30% test,
which could adversely affect the Company's status as a real estate investment
trust. See "Failure to Qualify". The Company believes that it does not hold any
of its
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real estate assets for sale to customers in the ordinary course of its business.
However, no assurance can be given that the IRS will not successfully assert a
contrary position with respect to a sale of any of the Company's assets with the
consequences described above.
Failure to Qualify
If the Company fails to qualify for taxation as a real estate
investment trust in any taxable year, and the relief provisions do not apply,
the Company will be subject to tax (including any applicable minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in any
year in which the Company fails to qualify will not be deductible by the Company
nor will they be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income. Subject to certain limitations provided in the Code,
corporations will be eligible for the dividends received deduction with respect
to such dividends. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a real estate
investment trust for the next four taxable years. It is not possible to state
whether in all circumstances the Company would be entitled to statutory relief.
Failure to qualify for even one year could result in the Company's incurring
substantial indebtedness (to the extent borrowings are feasible) or liquidating
substantial investments in order to pay the resulting taxes.
Taxation of Shareholders-Generally
As long as the Company qualifies as a real estate investment trust,
distributions made to the Company's shareholders out of current or accumulated
earnings and profits will be taken into account by them as ordinary income
(which will not be eligible for the dividends received deduction for
corporations). Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains to the extent they do not exceed the
Company's actual net capital gain for the taxable year. Distributions in excess
of current or accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Shares, but will reduce the basis of the shareholder's Shares. To
the extent that such distributions exceed the adjusted basis of a shareholder's
Shares, they will be included in income as capital gain (long-term or short-term
depending upon the holding period for the Shares) assuming the Shares are a
capital asset in the hands of the shareholder. Shareholders may not include in
their individual income tax returns any net operating losses or capital losses
of the Company.
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In general, any loss upon a sale or exchange of Shares by a shareholder
who has held such Shares for six months or less (after applying certain rules),
will be treated as a long-term capital loss to the extent of distributions from
the Company required to be treated by such shareholder as long-term capital
gain.
Distributions by the Company will constitute "portfolio income" to the
shareholders, and not "passive income," for purposes of applying the provisions
of Code Section 469. Accordingly, shareholders will not be able to net any
"passive losses" against such distributions.
Tax-Exempt Shareholders
In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a
real estate investment trust to a tax-exempt employees' pension trust did not
constitute "unrelated business taxable income". Revenue rulings are interpretive
in nature and subject to revocation or modification by the IRS. However, based
upon Revenue Ruling 66-106 and the analysis therein, dividend distributions by
the Company to qualified pension plans (including individual retirement
accounts) and other tax-exempt entities should not constitute "unrelated
business taxable income." This Ruling may not apply if a shareholder has
borrowed money to acquire Shares or if the Company makes a distribution of long
term capital gain.
Tax-exempt shareholders are urged to consult their tax advisers
respecting the tax consequences to them from their investment in the Company.
Withholding on Dividends
Shareholders may be subject to "back-up withholding" from a reportable
payment at a rate of 31 percent if, among other things, (i) the shareholder
fails to furnish a social security number or other taxpayer identification
number ("TIN") to the Company certified under penalties of perjury within a
reasonable time after the request therefor; (ii) the IRS notifies the Company
that the TIN furnished by the shareholder is incorrect; (iii) the IRS notifies
the Company that backup withholding should be commenced because the shareholder
has failed to properly report interest or dividends; or (v) when required to do
so, the shareholder fails to certify under penalties of perjury that such
shareholder is not subject to backup withholding or that the TIN provided to the
Company is correct.
Any amount withheld is creditable against a shareholder's federal
income tax liability for such year. Shareholders should
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consult their tax advisors as to their qualification for exemption from
withholding and the procedure for obtaining such an exemption.
The Company will report to its shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any.
Alternative Minimum Tax
The Company will be subject to the alternative minimum tax on its
undistributed real estate investment trust taxable income to the extent such tax
exceeds its regular tax liability. Tax preference items of a real estate
investment trust must be apportioned between the trust and its shareholders in
accordance with regulations. No such regulations have yet been issued and,
accordingly, the proper method of apportionment of preference items of the
Company is unclear.
Prospective investors should consult their tax advisors to determine
whether and to what extent an investment in the Company would have an adverse
effect on their alternative minimum tax position.
Foreign Shareholders
The following is a general discussion of certain United States federal
income tax consequences to individual shareholders who are not residents of the
United States and corporate shareholders not organized under the laws of the
United States or any State ("foreign shareholders"). Under the Code, an
individual may be treated as a resident of the United States if the individual
has been granted the privilege of residing permanently in the U.S. or if the
individual in fact spends a certain amount of time in the U.S. Individuals who
are uncertain whether they are U.S. residents for U.S. tax purposes should
consult their tax advisors.
(a) Distributions of cash made by the Company to a foreign shareholder are
generally subject to United States withholding tax at a 30 percent rate unless a
lower rate or exemption is provided by an applicable tax treaty. A foreign
shareholder receiving a distribution subject to such withholding tax will be
able to claim a refund to the extent the withholding has been imposed on a
portion of such distribution which does not constitute a "dividend" (i.e., a
distribution out of the Company's current or accumulated earnings and profits).
The basis which a foreign shareholder has in his shares is reduced by the
portion of the distribution that does not constitute a dividend, and after basis
has been reduced to zero, such non- dividend distributions generally represent
capital gain from the sale or exchange of the shares. The United States tax
treatment of such gain is described in section (c) below. If a distribution is
effectively connected with a United States trade
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or business conducted by the foreign shareholder, the portion of such
distribution constituting a dividend is generally subject to graduated United
States federal income tax.
(b) Distributions attributable to gain from the Company's sale or exchange of
United States real property interests are subject to the same United States
graduated federal income tax which applies to U.S. persons unless a lower rate
or exemption is provided under an applicable tax treaty. Such distributions to a
foreign holder are also subject to withholding at a 35 percent rate to the
extent the distributions are designated as capital gains dividends by the
Company. If a distribution is designated as a capital gain dividend after the
time that the distribution has been made, the 35 percent withholding rate will
generally apply to subsequent distributions in an amount equal to the previous
distribution designated as capital gain.
(c) The Company believes that it is currently a domestically- controlled Real
Estate Investment Trust (i.e., a real estate investment trust where less than
50% in value of its shares is held directly or indirectly by foreign persons at
all times during the period in question). As such, gain realized by a foreign
holder on the sale, exchange, redemption or other disposition of Shares is not
subject to United States federal income tax unless (1) the gain is effectively
connected with a United States trade or business of the foreign holder, in which
case the gain is generally subject to graduated United States federal income
tax; or (2) in the case of a nonresident alien, the individual is present in the
United States for 183 days or more during the year of disposition, and either
has a tax home in the United States or maintains an office or other fixed place
of business in the United States and the income is attributable to such office,
in which case the gain is subject to 30 percent federal income tax.
If the Company is not a domestically-controlled Real Estate Investment
Trust, the sale of Shares will be treated as a disposition of United States real
property interest, and consequently the gain will be subject to graduated United
States income tax rates and withholding as described in section (b).
(d) Shares held by an individual at the time of his death (or previously
transferred subject to certain rights or powers or certain transfers by gift
within three years of death) are subject to United States federal estate tax
unless otherwise provided by an applicable treaty.
(e) Dividend distributions are not subject to information reporting or backup
withholding. Under current law, payments of proceeds from the sale of Shares to
or through a broker are generally subject to information reporting and backup
withholding
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unless the shareholder certifies as to his non-United States status or otherwise
establishes an exemption.
Future Tax Laws
The foregoing discussion is based on provisions of the Code, Treasury
Regulations, administrative interpretations and court decisions. No assurance
can be given that subsequent legislation, Treasury Regulations, administrative
interpretations or court decisions will not change the tax laws so that the
treatment of a real estate investment trust or the consequences of an investment
in the Company would vary substantially from the treatment described above. Any
such change might apply retroactively.
Other Tax Consequences
Certain of the Company's investments are through partnerships (the
"Partnerships"), which may involve certain tax risks. Such risks include
possible challenge by the IRS of (a) allocations of income and expense items
which could affect the computation of taxable income of the Company and (b) the
status of the Partnerships as partnerships (as opposed to associations taxable
as corporations) for income tax purposes. If any of the Partnerships in which
the Company is a partner is treated as an association, it would be treated as a
taxable entity. In such a situation, if the Company's ownership interest in any
of the Partnerships exceeded 10% of the Partnership's voting interests or the
value of such interest exceeded 5% of the value of the Company's assets, the
Company would cease to qualify as a real estate investment trust. Furthermore,
in such a situation distributions from any of the Partnerships to the Company
would be treated as dividends, which are not taken into account in satisfying
the 75% gross income test described above and which could therefore make it more
difficult for the Company to qualify as a real estate investment trust for the
taxable year in which such distribution was received. In addition, in such a
situation the interest in any of the Partnerships held by the Company would not
qualify as a "real estate asset," which could make it more difficult for the
Company to meet the 75% asset test described above. Finally, in such a situation
the Company would not be able to deduct its share of losses generated by any of
the Partnerships in computing its taxable income. See "Failure to Qualify". The
Company believes that each of the Partnerships will be treated for tax purposes
as a partnership. However, no assurance can be given that the IRS may not
successfully challenge the tax status of any of the Partnerships.
The Company and its shareholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which it or
they transact business or reside.
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There may be other federal, state, local or foreign tax considerations
applicable to the circumstances of a particular shareholder.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDITRUST
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(Registrant)
March 20, 1996 /s/ Lisa P. McAlister
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(Date) Lisa P. McAlister
Treasurer
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