The Legacy of Chattel Slavery: Private Prisons Blur the Line Between Real People and Real Estate With New IRS Property Gambit

An article by Christopher Petrella at the online magazine,, reports on how the large private prison corporations are re-inventing themselves as Real Estate Investment Trusts (REIT’s) with the primary objective of reducing their taxes on profits.The corporate sleight-of-hand rang a bitter bell for Petrella, which is that slaves used to be considered “real estate,” too. Missing from the corporate tax filings is the objective of rehabilitation of prisoners.- Morrison Bonpassee


Monday, 04 February 2013 00:00
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By Christopher Petrella, Truthout | News Analysis

"All servants imported and brought into the country ... who were not Christians in their native country ... shall be accounted and be slaves. All Negro, mulatto and Indian slaves within this dominion ... shall be held to be real estate. If any slave resist his master ... correcting such slave, and shall happen to be killed in such correction ... the master shall be free of all punishment ... as if such accident never happened."
-Virginia Slave Code of 1705, Virginia General Assembly

Although many criminal justice activists are quick to denounce the most egregious race-based expressions of prison privatization, ranging from involuntary prison labor to racially disparate sentencing policies, few, if any, have attended to the deeply racialized, yet somewhat arcane, relationship developing between the private prison industry and the Internal Revenue Service (IRS). Curiously, one of the best ways to understand exactly how the private prison industry views itself and its fundamental mission is to analyze changes in the IRS corporate filing status of private prison companies.

In July 2012, the GEO Group - the nation's second-largest private prison operator behind Corrections Corporation of America - sent a letter to the IRS requesting a conversion from a typical "class-c" corporation to a Real Estate Investment Trust (REIT).

At the time, the Florida-based company specializing in "correctional detention and residential treatment services" billed its potential REIT conversion as a way to increase long-term shareholder value, lower the cost of capital and attract a larger base of potential shareholders.

According to the US Securities and Exchange Commission (SEC), an REIT is an entity that annually distributes at least 90 percent of its taxable income to shareholders in the form of dividends in exchange for a zero federal and state corporate tax liability. GEO estimates a $50 million annual tax savings), invests at least 75 percent of its total assets in real estate, and - here's the key - derives at least 95 percent of its gross income from real estate-related sources.

Over the last six months, the GEO Group has assiduously lobbied the IRS claiming that it meets REIT eligibility criteria. "Fundamentally, GEO is in a real estate intensive industry ... and GEO has attractive real estate characteristics," reads an excerpt from its most recent investor presentation - one that leaves out all mention of rehabilitation.

On January 18, the GEO Group announced it had received a favorable private-letter ruling from the IRS in connection with its previously announced intention to convert to a REIT. Hours later, the company's shares hit an all-time high. (Corrections Corporation of America, by the way, is still awaiting its own REIT conversion ruling from the IRS.) Based on the receipt of the private-letter ruling, GEO's board of directors authorized the company to elect REIT status retroactive to January 1, 2013.

According to the AP, George Zoley, GEO's chairman, CEO and founder, said:

We are very pleased to have received a favorable private-letter ruling from the Internal Revenue Service. This important milestone validates the decisive actions taken by our bBoard and our management team to position GEO to achieve REIT status effective January 1, 2013 and enable our shareholders to begin enjoying the benefits of REIT status as soon as possible.

Lobbying for and achieving a REIT corporate filing status with the IRS demonstrates that the GEO Group primarily sees itself as a real estate firm that incidentally dabbles in corrections, not an agency whose primary objective is rehabilitation, safety, or community restoration.

Mark Twain once said that although history doesn't repeat itself, it sure does rhyme.

The GEO Group's newly-minted REIT status calls attention to the relationship between historical forms of race-based, profit-making and racialized expressions of prison privatization. The language of "real estate" firmly codified by REIT status is deeply troubling in light of the reality that African-Americans - a racialized group once legally "held to be real estate" according to Virginia's 1705 Slave Codes - are vastly over-represented today in GEO's only Virginia-based corrections facility. GEO-operated Lawrenceville Correctional Center is a 358,000-square-foot corrections center located about 65 miles south of the state capital in Richmond, which houses around 1,500 inmates.

Whereas African-Americans comprise roughly 20 percent of Virginia's population and 61 percent of the state's total correctional population, they account for a full 75 percent of all inmates housed in GEO's for-profit Lawrenceville facility.

The striking overrepresentation of African-Americans in the only private, for-profit facility in Virginia operated by a REIT suggests that the containment of African-Americans - and people of color more generally – in that prison still functions primarily as a source of profit extraction, rather than as a resource for rehabilitation. In this scenario, "real estate" serves as a proxy for blackness. What's worse is that this trend extends far beyond Virginia. In a first-of-its-kind study recently published by The Society Pages, my colleague, Josh Begley, and I found that people of color are overrepresented in private prisons relative to their public counterpart institutions in states like California, Texas and Arizona.

Whereas the primary objective of public corrections agencies, ostensibly, is the promotion of public safety and personal growth through rehabilitation, private prison firms - which house around 8 percent of the prison population in the US - are first accountable to their shareholders. Companies like the GEO Group are legally obligated to increase shareholder value, an imperative that inherently compromises any deep commitment to rehabilitation, social re-entry or recidivism reduction.

GEO's successful conversion to a Real Estate Investment Trust ultimately proves that for all of its vainglorious depictions of high quality "residential treatment services," its unquenchable pursuit of profit erodes the difference between people of color - particularly African-Americans - and property, between real people and real estate.