By BDC Council | May 15, 2020
New guidance from the Internal Revenue Service allows RICs and REITs to retain more capital by distributing less cash to shareholders in certain stock distributions—welcome relief during the current economic volatility resulting from the coronavirus (COVID-19) pandemic.
“The new guidance temporarily expands the existing safe harbor of Revenue Procedure 2017-45, which applies to a distribution where the amount of cash to be paid is limited only if the shareholders, assuming they all elect to receive cash, will receive at least 20% of the aggregate declared distribution in cash. The new guidance temporarily reduces the 20% threshold to 10%. As both RICs and REITS are facing increased liquidity needs during the current period of economic volatility, the ability to retain capital by distributing less cash to shareholders will be welcome relief for RICs and REITs in satisfying their distribution requirements.”