SIE Understanding Products and Their Risks Practice Question 19

Correct Answer: B

Explanation:

B: The Internal Revenue Code requires substantially all (90 percent) of ordinary income to be distributed to investors to merit pass-through tax treatment, which eliminates double taxation of dividends. Otherwise, the REIT would pay income tax on its income, and the investor would then pay income tax on dividends from the REIT. Choice A is incorrect because 90 percent of ordinary income from assets must be distributed to investors. Choices C and D are requirements in order for 20 percent of the income distributed by an REIT to be nontaxable, which is another attractive REIT tax benefit to investors.