Umbrella Partnership Structures: Key Tax Considerations for Up-C and UPREITs, Compensation, Tax Agreements

Real estate investment trusts (REITs) and publicly traded partnerships (PTPs) frequently use umbrella partnership structures which allow partnerships to achieve liquidity through rights in certain publicly traded equity. Tax professionals must recognize the critical tax implications of umbrella partnership structures to implement practical tax planning tools for the taxpayer.

In an umbrella partnership C corporation structure (Up-C), an LLC or partnership undertakes a public offering through a newly formed corporation as a holding company that owns an interest in the pass-through entity. This allows the pass-through entity to undertake a public offering without disrupting the tax status of the pass-through entity, where the principal assets and operations remain.

Similarly, in an umbrella partnership real estate investment trust (UPREIT), all property is owned by an operating partnership, with a REIT owning an interest as a partner. Transactions undertaken as an UPREIT can be completed on a tax-deferred basis, since the owner does not acquire publicly-traded stock in the REIT, but instead receives units in the operating partnership.

If structured correctly, an Up-C or UPREIT structure provides tax benefits and exit strategy options for partners with the deferral of taxable gain and the ability to create specific tax attributes. However, tax professionals must recognize critical tax issues such as the allocation of liabilities, limitations under Section 162(m), and other tax considerations for Up-C and UPREIT transactions.

Listen as our panel discusses tax considerations for umbrella partnership structures, the impact of Section 162(m) on compensation paid by partnerships, and methods to ensure flow-through treatment and tax deferral, as well as addresses tax issues for the tax agreements.