On December 1, 2021, the Internal Revenue Service issued Revenue Procedure 2021-53, which provides temporary guidance regarding the treatment of certain stock distributions by publicly offered regulated investment companies (RICs) and real estate investment trusts (REITs). Revenue Procedure 2021-53 modifies Revenue Procedure 2017-45, which provides a safe harbor under which a publicly offered RIC or REIT may permit shareholders to elect to receive a distribution in stock in lieu of cash, provided, among, other things that the RIC or REIT makes at least 20 percent of the aggregate distribution in cash. (See Vedder Price’s publication Strategies for Funds Facing Liquidity Issues as a Result of the COVID-19 Pandemic, available here, for additional information on the safe harbor.) Recognizing the need RICs and REITs may have for liquidity as a result of the effects of the ongoing COVID-19 pandemic, the IRS issued Revenue Procedure 2021-53 to reduce temporarily the minimum required aggregate amount of cash that RIC and REIT shareholders receive to not less than 10 percent of the total distribution. Revenue Procedure 2021-53 is effective only with respect to distributions declared by a publicly offered RIC or REIT on or after November 1, 2021 and on or before June 30, 2022.

The IRS previously granted similar temporary relief applicable to distributions declared by publicly offered RICs and REITs between April 1, 2020 and December 31, 2020 pursuant to Revenue Procedure 2020-19.

The full text of Revenue Procedure 2021-53 is available here.