A determination by the Service that a company is a PHC could result in a deficiency notice, which will require the PHC to distribute a deficiency dividend out of current gross income.
If the company distributes the deficiency dividend, it will not be subject to a penalty surtax.
If a PHC tax deficiency is assessed because of a bona fide difference of opinion with the IRS relating to an amount of income or deduction, there is a relief provision that permits the taxpayer to escape the PHC tax by the payment of a
deficiency dividend.
If a determination is made that the REIT incorrectly calculated its taxable income and did not meet the distribution requirements for qualification as a REIT, a deficiency dividend may be appropriate.
The deficiency dividend now allows the REIT to make the additional distribution within 90 days of the determination and retain qualifying status without the additional tax penalty, although interest charges do apply.
The
deficiency dividends mechanism, described in Sec.
