Company: RWT-PA
Filing Date: 2025-01-15
Form Type: 424B5
Source: 0001104659-25-003632
Chunk: 104

Company: REDWOOD TRUST INC
Filing Date: 2025-01-15
Form: 424B5
Chunk 104
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 broad discretion to assert that amounts paid between related parties should be reallocated to
clearly reflect their respective incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty
tax on any overstated rents paid to us, or any excess deductions or understated income of our TRSs.

Failure to Satisfy the Gross Income Tests.

We monitor our income and
take actions intended to keep our nonqualifying income within the limitations of the gross income tests. Although we expect these actions
will be sufficient to prevent a violation of the gross income tests, we cannot guarantee that such actions will in all cases prevent
such a violation. If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify
as a REIT for the year if we are entitled to relief under certain provisions of the Code. We generally may make use of the relief provisions
if:

| · | following our                                                                                                                           
 identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the IRS setting   
 forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance with Treasury 
 Regulations to be issued; and                                                                                                           |

| · | our failure                                                                     
 to meet these tests was due to reasonable cause and not due to willful neglect. |

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It is not possible, however,
to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy
the gross income tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income,
the IRS could conclude that our failure to satisfy the tests was not due to reasonable cause. If these relief provisions do not apply
to a particular set of circumstances, we will not qualify as a REIT. See “Material U.S. Federal Income Tax Considerations—Taxation
of the Company—Failure to Qualify” below. As discussed above in “Material U.S. Federal Income Tax Considerations—Taxation
of the Company—General,” even if these relief provisions apply, and we retain our qualification as a REIT, a tax would be
imposed with respect to our nonqualifying income. We may not always be able to comply with the gross income tests for REIT