Changing from a standard corporation to a real estate investment trust, or REIT — a designation signed into law by President Dwight D. Eisenhower — has suddenly become a hot corporate trend. One Wall Street analyst has characterized the label as a "golden ticket" for corporations.
"I've been in this business for 30 years, and I've never seen the interest in REIT conversions as high as it is today," said Robert O'Brien, the head of the real estate practice at Deloitte & Touche, the big accounting firm.
At a time when deficits and taxes loom large in Washington, some question whether the new real estate investment trusts deserve their privileged position.
When they were created in 1960, they were meant to be passive investment vehicles, like mutual funds, that buy up a broad portfolio of real estate — whether shopping malls, warehouses, hospitals or even timberland — and derive almost all of their income from those holdings.
One of the bedrock principles — and the reason for the tax exemption — was that the trusts do not do any business other than owning real estate.
But bit by bit, especially in recent years, that has changed as the I.R.S., in a number of low-profile decisions, has broadened the definition of real estate, and allowed companies to split off parts of their business that are unrelated to real estate.
For example, prison companies like the Corrections Corporation and the Geo Group successfully argued that the money they collect from governments for holding prisoners is essentially rent. Companies that operate cellphone towers have said that the towers themselves are real estate.
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The conversions generally do not require the companies to change their underlying business. The chief executive of the Corrections Corporation, Damon T. Hininger, told investors in February that the new structure should help in the company's aim of "housing more and more population for federal, state and local levels as they grow or deal with overcrowding."
The I.R.S. released its latest decision, allowing a data and document storage company to convert, on April 5. The letter did not include the name of the company, but several data storage companies, including Iron Mountain and Equinix, are in the process of converting.
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A few days later, a strategist at the Wall Street firm Jefferies wrote in a report: "It is not a far stretch to envision REITs concentrated in railroads, highways, mines, landfills, vineyards, farmland or any other 'immovable' structure that generates revenues."
Today, there are more than 1,000 real estate investment trusts, about 10 percent of them traded publicly on the stock market. Investors like them because, by law, they must distribute at least 90 percent of their taxable income to their shareholders — a particularly alluring prospect today, given the low interest rates paid by many other basic investments.
The benefits of converting are obvious for stockholders and corporate insiders as well. The conversion typically drives up a company's stock price. Investors are drawn by the prospect of lucrative dividends under the new structure. The mere rumor that a company might convert has been enough to send its stock price soaring.
The trend has been a concern to advocates of the traditional trusts, who fear that the newcomers may eventually jeopardize the tax status of older funds that do not do any business other than owning real estate.
"I worry that in a world where Congress is very sensitive to taxes, that a lot of these structures could end up attracting a lot of attention that might not be entirely positive," said Ross L. Smotrich, an analyst at Barclays.
Steven Rosenthal, a staff member at the Joint Committee on Taxation during the 1990s and now a visiting fellow at the nonpartisan Tax Policy Center, said that the trend raises questions about the purpose of corporate income taxes at a time when there are so many ways around them. The conversions are one of many strategies that businesses use to avoid paying the corporate tax rate of 35 percent.
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"What is there about a business owning real estate that suggests we should not tax them?" Mr. Rosenthal said.
Some Congressional staff members said they had noticed the recent conversions and were monitoring the issue.
This is not the first wave of companies seeking out a new type of corporate status to avoid taxes. In the 1980s, dozens of companies, including Sahara Resorts and the Boston Celtics, became master limited partnerships, another corporate form that is tax-exempt. After the practice attracted notice, Congress passed laws that limited the industries that could use the structure. In the 1990s, hotel companies took advantage of the laws, but a change to the laws in 1999 soon snuffed that out.
It is too soon to tell how far the current round of conversions will spread. PricewaterhouseCoopers recently counted 20 companies that are at some stage in the process of converting, and there has been a steady stream of suggestions for what industry might next secure I.R.S. approval.
Lawyers have also been finding creative ways to follow the letter of the law by splitting off parts of a company into subsidiaries that can be taxed. In the legal world, the most controversial such effort is being undertaken by Penn National, the casino company. It won approval from the I.R.S. late last year to turn itself into a real estate holding company. In the process, it created a tax-paying subsidiary that holds the casino operations and pays rent to the parent company.
Mr. O'Brien, at Deloitte & Touche, said he has been talking with other casino operators that are looking at making similar moves. The ruling could also open the door for restaurant companies like McDonald's and retailers like J. C. Penney to follow a similar route, though neither company has indicated it is considering such a move.
For now, companies like the Corrections Corporation are quickly moving through the process.
"The good news about this is that we are going to be able to enjoy a full year of tax savings for 2013," Mr. Hininger, the chief executive, said in February. Last week, the company's share price hit its highest level in over a decade.