Tax Matters Related to Real Estate

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Baker Botts tax lawyers help some of the world’s largest corporations, partnerships, other joint ventures and independent businesses achieve efficient solutions to their tax problems. We advise on topics ranging from corporate tax issues, employee benefits and executive compensation matters to tax controversies and state and local taxation. In addition, we counsel individuals, families and entrepreneurs on wealth transfer, succession planning and other estate tax issues.


STRUCTURES FOR U.S. REAL ESTATE INVESTMENT
Baker Botts tax lawyers are highly experienced with the tax issues incident to investments in U.S. real property, the leasing of U.S. real property and to the formation and operation of private equity funds that invest in U.S. real property. We suggest innovative structures for such investments, and we advise on issues related to recapitalizations and buy-outs of interests in such investments. Our lawyers advise on tax structuring for sale/leaseback transactions involving U.S. real property. Our lawyers also develop structures that minimize tax under the Foreign Investment in Real Property Tax Act (FIRPTA) and effectively connected income (ECI) issues for foreign investors and minimize unrelated business taxable income (UBTI) issues related to tax-exempt investors, and we have particular experience with tax issues affecting REITs. More particularly, we have experience with the tax and other issues that arise in connection with the admission of a wide range of different investor types, including issues such as the following:

  • ECI, FIRPTA, IRC Section 892 and tax withholding issues of foreign sovereigns and other foreign investors, including issues relating to (i) the structuring of portfolio investments (e.g., the type of vehicle through which investments are acquired), (ii) the utilization of applicable treaty provisions to minimize withholding taxes on passive income and (iii) the use of offshore investment vehicles.
  • UBTI issues of pension plans and other tax-exempt investors, including issues relating to (i) the structuring of portfolio investments (e.g., the type of vehicle through which investments are acquired), (ii) the use of leverage in connection with the acquisition of investments, (iii) fee income earned by the private equity fund and (iv) special rules applicable to private equity funds that invest in real estate.
  • Forming, structuring merger and acquisition transactions involving, and liquidating REITs, including advising on (i) acquisition structures where a REIT is the acquirer, (ii) REIT qualifying income and asset issues and (iii) issues applicable to foreign investors in REITs.
  • Formulating incentive based compensation structures for the managers and sponsors of real estate investment funds and ventures.
  • Structuring and advising on IRC Section 1031 “like-kind” exchange transactions, including multiple-property, deferred and reverse exchanges.
  • Structuring and advising on leasing and sale-leaseback transactions and financing and refinancing transactions.
  • ERISA Plan Assets Regulation issues associated with employee benefit plans and other benefit plan investors, including issues relating to the qualification of the private equity fund as a venture capital operating company (VCOC) or real estate operating company (REOC).State and local tax nexus issues for investors in Funds that hold assets or are managed in the various states.
  • State and local tax treatment of REIT, blocker and other special structures used for tax-exempt investors and non-U.S. investors that have ECI and UBTI concerns.
  • Planning and structuring to minimize state and local real estate transfer, sales, income, and property taxes in connection with real estate and personal property transfers, including comparative state and local tax analyses of asset v. entity sales.
  • Negotiating state and local tax incentives for real estate investments and planning for preservation of incentives in real estate transfers.

PARTNERSHIP TAX 
We provide innovative solutions that address thorny questions relating to the allocation of tax benefits (including various tax credits), liquidation mechanics, the proper role of capital accounts and recourse and nonrecourse debt allocations.
We routinely solve complex formation, allocation and distribution questions that arise under partnership and limited liability company (LLC) agreements. We counsel clients on the prudence of using partnerships, LLCs and other flow-through structures to achieve their business objectives with particular experience with flow-through vehicles for the acquisition, development and operation of real estate, from both the developer and investor perspective. We provide the same counsel to oil and gas assets from the perspectives of the operator, working interest investor and royalty owner.

CORPORATE TAX
We have been involved in many of the largest, most complicated M&A transactions in the U.S. and abroad spanning virtually every industry sector, including energy, media, technology, life sciences, real estate, telecommunications and manufacturing.
We provide creative tax advice to clients in transactions involving investments in projects, joint ventures, mergers, acquisitions, divestitures, restructurings and financings, including asset leasing. We have broad substantive experience in corporate, partnership and real estate tax, tax accounting methods, financial products, energy tax issues and regulated utilities. We partner with clients to develop plans, structures and instruments that permit them to achieve their business objectives and minimize the federal and state tax costs and restrictions.

INTERNATIONAL TAX
We provide innovative tax advice to clients engaged in cross-border transactions. These transactions involve investments in projects, mergers, acquisitions, restructurings, leases and financings. Our lawyers advise U.S. and international investors in their investments in companies, ventures and projects around the world, as well as international investors in their investments in U.S. companies, ventures and projects. This often requires familiarity with the tax laws of several countries and bilateral and multilateral tax treaties, as well as the U.S. tax laws.

STATE AND LOCAL TAX
Baker Botts’ dynamic state and local tax section provides the full spectrum of state and local tax planning and controversy services. The scope of our state and local tax practice is truly nationwide—we have handled significant state tax controversies throughout the U.S. and have demonstrated expertise in multistate issues involving unitary combination, apportionment and nexus. Our lawyers have significant experience with all tax types, including income, franchise, sales and use, property, and excise taxes, as well as unclaimed property and economic development incentives. 
Our state and local tax section consists of a team of nationally recognized experts that are dedicated entirely to state and local tax issues. As state and local laws, policies, and enforcement practices continue to evolve, this concentrated focus allows our experts to stay on the forefront of state and local tax issues most important to our clients.  

STATE AND LOCAL TAX INCENTIVES
Baker Botts’ state tax section is uniquely experienced in state and local tax and other incentives for economic development. Section members have extensive experience negotiating and securing tax incentives for capital-intensive projects including real estate development and corporate relocations. Examples of economic development services performed include:

  • Negotiating economic development incentive packages
  • Preparing analyses and models supporting incentive requests
  • Preparing analyses of issues impacting eligibility for and maximization of incentives
  • Structuring purchases and contracts to maximize tax benefits and incentives
  • Handling legislative issues related to incentive availability and optimization
  • Litigating challenges to and controversies arising from incentive programs
Monitoring and demonstrating compliance with incentive obligations

Our state and local tax lawyers work with clients to structure a proposed project, identify potential incentives, and develop a strategy for approaching state and local officials and negotiating the best possible incentive package, all in the context of a client’s overall business strategy.

STATE AND LOCAL TAX PLANNING
Baker Botts’ state and local tax section has significant expertise assisting clients in all facets of state and local tax planning across all tax types. Our broad jurisdictional experience allows us to develop and maintain comprehensive and consistent nationwide strategies. We regularly advise clients on state and local tax implications of corporate transactions and assist our clients with creating corporate structures and policies to minimize state and local taxes and compliance burdens. Our dedicated state and local tax lawyers work seamlessly with our federal tax lawyers to provide coordinated global tax solutions to our clients.

STATE AND LOCAL TAX CONTROVERSY
Baker Botts is widely recognized for its multistate tax controversy expertise. We represent clients in audits, redetermination hearings and litigation throughout the U.S. Our state tax lawyers team with our seasoned appellate lawyers to provide an exceptional appellate tax practice. We also represent clients in “nontraditional” controversies, including managed audits, Multistate Tax Commission audits, voluntary disclosure, unclaimed property audits, and reversing adverse policies of tax agencies.