IRS Form 8612 – Real Estate Investment Trusts (REITs) play a vital role in the investment landscape, offering investors exposure to real estate without direct property ownership. However, to maintain their favorable tax status, REITs must adhere to strict distribution requirements. When these aren’t fully met, IRS Form 8612 comes into play. This form is essential for calculating and paying the excise tax on undistributed income, ensuring compliance with federal tax laws. In this article, we’ll break down everything you need to know about IRS Form 8612, including its purpose, who needs to file, how to complete it, and potential penalties. Whether you’re a REIT manager, tax professional, or investor, understanding this form can help avoid costly mistakes.
What Is IRS Form 8612?
IRS Form 8612, officially titled “Return of Excise Tax on Undistributed Income of Real Estate Investment Trusts,” is a specialized tax return used by REITs to report and remit a 4% excise tax on certain undistributed earnings. This tax is imposed under Internal Revenue Code (IRC) Section 4981, which aims to encourage REITs to distribute the majority of their income to shareholders rather than retaining it.
The form focuses on calendar-year calculations, even if the REIT operates on a fiscal year. It requires REITs to compare their “required distribution” against the “distributed amount” and pay tax on any shortfall. This mechanism helps align REIT operations with their pass-through tax benefits, where income is taxed primarily at the shareholder level.
For the latest version of the form, you can download it directly from the IRS website: IRS Form 8612 PDF.
Purpose of the Excise Tax on Undistributed Income for REITs
The excise tax serves as an incentive for REITs to distribute at least 85% of their ordinary income and 95% of their capital gain net income annually. This aligns with the core REIT requirement under IRC Section 857, which mandates distributing at least 90% of taxable income to qualify for deduction of dividends paid. The 4% tax on undistributed amounts discourages hoarding profits, ensuring steady dividends for investors and maintaining the REIT’s tax-advantaged status.
Without this tax, REITs might delay distributions, potentially leading to double taxation (at the entity and shareholder levels). By imposing this penalty, the IRS promotes transparency and fairness in the real estate investment sector.
Who Must File IRS Form 8612?
Not every REIT needs to file Form 8612—only those liable for the excise tax. Liability arises if the required distribution exceeds the distributed amount for the calendar year. This includes:
- REITs that failed to distribute sufficient ordinary income or capital gains.
- Entities treated as REITs under IRC rules, even if they have fiscal years.
- REITs with prior-year shortfalls or adjustments from deficiency dividends.
If your REIT has no tax due, you may still need to file to report zero liability, but consult the instructions to confirm. Receivers, trustees, or assignees managing a REIT must sign and file on its behalf.
Filing Deadlines and Extensions for Form 8612
Form 8612 must be filed by March 15 of the year following the calendar year in question. For example, for undistributed income in 2025, the due date would be March 15, 2026. Submit the form to the Internal Revenue Service Center in Cincinnati, OH 45999.
Extensions are available using Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.” This extends the filing deadline but not the payment due date—tax must still be paid by March 15 to avoid interest and penalties. All payments over a certain threshold must be made electronically via the Electronic Federal Tax Payment System (EFTPS).
How to Calculate the Excise Tax on Undistributed REIT Income?
The excise tax is straightforward: 4% of the excess of the required distribution over the distributed amount. Here’s a high-level overview:
- Required Distribution (Line 3a on Form 8612):
- 85% of ordinary income (refigured REIT taxable income, excluding dividends paid deduction and net capital gains/losses).
- 95% of capital gain net income.
- Plus any undistributed amount from the prior year.
- Distributed Amount (Line 11):
- Deduction for dividends paid during the year (under IRC Section 561).
- Tax imposed on undistributed capital gains.
- Adjustments for deficiency dividends and certain post-year-end payments.
- Tax Calculation (Line 12): 4% of (Required Distribution – Distributed Amount).
Use calendar-year figures, and include adjustments for partnership items or deficiency dividends as per Revenue Ruling 94-40 and Revenue Procedure 94-71. Round amounts to whole dollars.
| Component | Percentage | Based On |
|---|---|---|
| Ordinary Income | 85% | Refigured REIT Taxable Income |
| Capital Gain Net Income | 95% | Excess of Gains Over Losses |
| Prior-Year Shortfall | 100% | Undistributed from Previous Year |
Step-by-Step Guide to Completing IRS Form 8612
Filling out Form 8612 requires careful attention to detail. Here’s a breakdown based on the official instructions:
- Header Information: Enter the REIT’s name, address, EIN, and the calendar year.
- Part I – Required Distribution:
- Line 1a: Refigured ordinary income.
- Line 2a: Capital gain net income.
- Line 3a: Total required (sum adjusted for prior shortfalls).
- Part II – Distributed Amount:
- Line 5: Dividends paid deduction (excluding foreclosure property).
- Line 6: REIT taxable income plus undistributed capital gains.
- Line 11: Total distributed.
- Part III – Tax and Payments:
- Line 12: Compute 4% tax.
- Line 13: Handle overpayments or refunds, including direct deposit details.
- Signature: Must be signed by an authorized officer.
Attach any necessary explanations for amendments or reasonable cause for late filing. No specific schedules are attached to Form 8612, but cross-reference data from Form 1120-REIT or Form 2438 if applicable.
Penalties for Non-Compliance with Form 8612
Failing to file or pay on time can result in significant penalties:
- Late Payment Penalty: 0.5% per month (up to 25%).
- Late Filing Penalty: 5% per month (up to 25%).
- Interest: Charged on unpaid tax at the underpayment rate under IRC Section 6621.
- Other Penalties: For negligence, substantial understatements, or fraud (up to 75% or more).
Penalties may be waived if you can show reasonable cause. Always document your efforts to comply.
Recent Updates to IRS Form 8612
As of December 2025, the form and instructions have been revised to reflect minor clarifications, such as updated EFTPS contact information. There are no major changes to the calculation methodology, but REITs should check for inflation adjustments or legislative impacts from recent tax laws. For instance, REIT dividend planning strategies may involve electing to treat certain 2025 distributions as 2024 payments, potentially triggering the excise tax.
Stay informed by visiting the IRS website for the most current versions.
Conclusion: Ensuring REIT Compliance with Form 8612
IRS Form 8612 is a critical tool for REITs to manage their excise tax obligations on undistributed income, helping maintain their tax benefits while rewarding shareholders with consistent dividends. By understanding the filing requirements, calculations, and deadlines, REIT operators can minimize penalties and optimize distributions. Always consult a tax advisor for personalized guidance, and use official IRS resources for the latest information. Proper compliance not only avoids fines but also enhances investor confidence in your REIT’s operations.