Are REITs Qualified Replacement Property?

In the August 7 issue of the BNA Pension Reporter, noted tax analyst Robert Willens, a managing director at Lehman Brothers, argued that real estate investment trusts (REITs) that perform active and substantial management duties should be eligible as qualified replacement property under Section 1042 of the Code (the section that defines eligible investments for private C corporation owners who sell to an ESOP and take a tax deferral on the gain). The article is as notable for the argument as for the fact that Willens is writing it, suggesting that there may be a move afoot to use REITs for the kind of major transaction that would be of interest to a firm such as Lehman Brothers.