CNSREIT-AR-2024 Final - Flipbook - Page 89
We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our
operating flexibility and reduce the price of our common stock.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S.
federal income tax laws applicable to investments similar to an investment in shares of our common stock.
Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will
not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in
our shares or on the market value or the resale potential of our assets. Although REITs generally receive certain tax
advantages compared to entities taxed as regular corporations, it is possible that future legislation would result in a REIT
having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be
treated for U.S. federal income tax purposes as a corporation. As a result, our charter authorizes our Board to revoke or
otherwise terminate our REIT election, without the approval of our stockholders, if it determines that changes to U.S.
federal income tax laws and regulations or other considerations mean it is no longer in our best interests to qualify as a
REIT.
The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
We may acquire mezzanine loans, for which the IRS has provided a safe harbor but not rules of substantive law.
Pursuant to the safe harbor, if a mezzanine loan meets certain requirements, it will be treated by the IRS as a real estate
asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying
mortgage interest for purposes of the REIT 75% income test. We may acquire mezzanine loans that do not meet all of the
requirements of this safe harbor. If we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge
such loan9s treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were
sustained, we could fail to qualify as a REIT.
If our Operating Partnership failed to qualify as a partnership or was not otherwise disregarded for U.S. federal income
tax purposes, we would cease to qualify as a REIT.
If the IRS were to successfully challenge the status of our Operating Partnership as a partnership or disregarded entity
for U.S. federal income tax purposes, it would be taxable as a corporation. If this occurred, it would reduce the amount of
distributions that our Operating Partnership could make to us. This would also result in our failing to qualify as a REIT and
becoming subject to a corporate-level tax on our income, which would substantially reduce our cash available to pay
distributions and the yield on your investment.
Our qualification as a REIT could be jeopardized as a result of an interest in joint ventures or investment funds.
We may hold certain limited partner or non-managing member interests in partnerships or limited liability companies
that are joint ventures or investment funds. Our ability to qualify as a REIT will be affected by such investments. To the
extent that our investment in an entity that is classified as a partnership for U.S. federal income tax purposes is not held
through a taxable REIT subsidiary, our share of the gross income of the entity will be taken into account for purposes of
determining whether we satisfy the gross income tests and our share of the assets of the entity will be taken into account for
purposes of determining whether we satisfy the asset tests. If a partnership or limited liability company in which we own an
interest takes or expects to take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may
be forced to dispose of our interest in such entity or contribute such interest to a taxable REIT subsidiary. In addition, it is
possible that a partnership or limited liability company could take an action which could cause us to fail a gross income or
asset test, and that we would not become aware of such actions in time to dispose of our interest in the partnership or
limited liability company or take other corrective action on a timely basis. In addition, we will have to take into account our
share of the income of such joint ventures and investment funds that are classified as partnerships for tax purposes, without
regard to whether such joint ventures or funds make distributions to us to fund our distribution requirements.
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