Company: RWT-PA
Filing Date: 2025-03-03
Form Type: S-3ASR
Source: 0001104659-25-019828
Chunk: 59

Company: REDWOOD TRUST INC
Filing Date: 2025-03-03
Form: S-3ASR
Chunk 59
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.S. Federal Income Tax Considerations—Taxation of the Company—Annual Distribution Requirements.”

Prohibited Transaction Income

Any gain that we realize
on the sale of an asset (other than foreclosure property, as described below) held as inventory or otherwise held primarily for sale
to customers in the ordinary course of business, either directly or through any qualified REIT subsidiaries or subsidiary partnerships,
or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us, will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax, unless certain safe harbor exceptions apply. This prohibited transaction income may
also adversely affect our ability to satisfy the gross income tests for qualification as a REIT. Under existing law, whether an asset
is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends
on all the facts and circumstances surrounding the particular transaction. We intend to conduct our operations so that no asset we own
will be held as inventory or primarily for sale to customers, and that a sale of any assets we own will not be in the ordinary course
of business. However, the IRS may successfully assert that some or all of the sales made by us, our qualified REIT subsidiaries or our
subsidiary partnerships, or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us, are prohibited
transactions. We would be required to pay the 100% penalty tax on our allocable share of the gains resulting from any such sales. The
100% penalty tax will not apply to gains from the sale of assets that are held through a TRS, but such income will be subject to regular
U.S. federal corporate income tax.

Foreclosure Property

Foreclosure property is real
property and any personal property incident to such real property (1) that is acquired by a REIT as a result of the REIT having bid on
the property at foreclosure or having otherwise reduced the property to ownership or possession by agreement or process of law after
there was a default (or default was imminent) on a lease of the property or a mortgage loan held by the REIT and secured by the property,
(2) for which the related loan or lease was acquired by the REIT at a time when default was not imminent or anticipated and (3) for which
such REIT makes a proper election to treat the property as foreclosure property. REITs generally are subject to tax at the U