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December 27, 2017 The Tax Lawyer

Fast-Pay Stock

Volume 71, No. 1 - Fall 2017

David W. Mayo & Lucas R. Deppermann


     The Service promulgated Regulation section 1.7701(l)-3 in an attempt to stop certain transactions commonly referred to as “fast-pay transactions.” Fast-pay transactions typically involved a regulated investment company (RIC) or a real estate investment trust (REIT) issuing preferred stock to take advantage of the dividends received deduction to benefit its common shareholders. Because the fast-pay regulations are drafted very broadly, the regulations may capture transactions that are not the paradigm fast-pay transaction and that have no tax avoidance purpose at all. If, pursuant to the fast-pay regulations, a transaction is treated as a “fast-pay arrangement,” it may be subject to recharacterization pursuant to the fast-pay regulations and, regardless of whether such transaction is subject to recharacterization, will be a listed transaction.

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