The IRS recently released published guidance relating to the treatment of foreign currency gains of real estate investment trusts ('REITs') from overseas real estate operations. The guidance shows that the IRS is beginning to provide some clarity for REITs that have overseas real estate operations and operate in the global marketplace.

In Revenue Ruling 2007-33, 2007-21 I.R.B. 1281 (the “Ruling”), the IRS ruled that foreign currency

gains under Section 988 of the Internal Revenue Code of 1986, as amended (the “Code”) that are recognized by a REIT will constitute qualifying income for purposes of the REIT gross income tests to the extent that the underlying income so qualifies. In Notice 2007-42, 2007-21 I.R.B. 1288 (the

“Notice”), the IRS provided guidance with respect to the circumstances under which foreign currency gain from a foreign branch under Section 987 is treated as qualifying income for purposes of the REIT gross income tests.