7896. What diversification requirements apply in determining whether a trust qualifies as a REIT?Alexis Longrcline212014-09-18T14:51:00Z2014-09-18T14:51:00Z23101772Summit Business Media1442078147896. What diversification requirements apply in determining whether a trust qualifies as a REIT?In addition to meeting the asset-based tests described in Q 7891, a REIT must satisfy several diversification tests with respect to its assets in order to qualify for pass-through tax treatment as a REIT. The following diversification tests are applied at the close of each quarter of each taxable year of a REIT’s existence: 1.No more than five percent of the value of a REIT’s total assets may consist of securities of any one issuer (except with respect to taxable REIT subsidiaries (TRS) and securities permitted under the 75 percent test).2.A REIT may not hold securities that represent more than ten percent of the voting power of the outstanding securities of any one issuer.3.A REIT may not hold securities that represent more than ten percent of the total value of the outstanding securities of any one issuer.IRC Sec. 856(c)(4)(B)(iii).The IRC recognizes that the value of securities may fluctuate between quarters. As such, Section 856 provides that if a REIT meets the diversification requirements at the close of any given quarter, it will not fail to meet the requirements in the subsequent quarter unless the failure is due to the acquisition of securities or property and is wholly or partially the result of that acquisition. If a REIT fails to meet the diversification tests at the close of a quarter as a result of an acquisition of securities made during that quarter, it has a thirty day period in which to correct the discrepancy. If the discrepancy is eliminated within that thirty day period, the REIT will be treated as having satisfied the diversification test for the quarter.IRC Sec. 856(c)(4).For purposes of the preceding paragraph, the term “value” means market value of those securities with readily available market quotations. For other securities and assets, fair value is as determined by the REIT trustees but not to exceed the greater of market value or asset value. IRC Sec. 856(c)(5)(A).