<PAGE>
EXHIBIT 8
OPINION OF HOLLAND & KNIGHT LLP
REGARDING TAX MATTERS
<PAGE>
[LETTERHEAD OF HOLLAND & KNIGHT LLP]
January 15, 2001
General Partners
Wells Real Estate Fund XIII, L.P.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
Re: Wells Real Estate Fund XIII, L.P.
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
aspects of the offering and sale of Units of limited partnership interest in
Wells Real Estate Fund XIII, L.P., a Georgia limited partnership (hereinafter
referred to as the "Partnership"), which has Wells Capital, Inc., a Georgia
corporation, and Leo F. Wells, III, as general partners (the "General
Partners"), all as described in the Registration Statement on Form S-11 filed
with the Securities and Exchange Commission on October 31, 2000, as amended (as
amended, the "Registration Statement"), and the Prospectus included therein (as
amended, the "Prospectus"). Capitalized terms used herein shall have the meaning
ascribed to them in the "Glossary" section of the Prospectus or as set forth in
Article III of the Agreement of Limited Partnership of the Partnership included
in the Prospectus.
In order to render our opinion, we have reviewed and relied upon (a)
executed copies of the Certificate of Limited Partnership of the Partnership
dated September 15, 1998 and the amendment thereto dated October 20, 2000; (b)
the Prospectus; and (c) representations of the General Partners as provided
herein and as disclosed in the Prospectus, including, inter alia, that: (i) all
----- ----
statements and information in the Prospectus are accurate and complete; and (ii)
the Partnership will be operated in a business-like manner and substantially in
accordance with the Partnership Agreement and Prospectus. We have assumed the
accuracy of the representations contained in the Prospectus, that the Agreement
of Limited Partnership of the Partnership (the "Partnership Agreement") will be
executed substantially in the form included as Exhibit A to the Prospectus and
that the Partnership will be operated in accordance with the provisions of the
Partnership Agreement. We have also relied upon, and based our interpretation
on, pertinent provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations (including Temporary and Proposed Regulations)
promulgated thereunder ("Regulations"), existing judicial decisions, and current
administrative rulings and procedures issued by the Internal Revenue Service
("IRS"), all of which are subject to change, with or without retroactive
application, by legislation, administrative action and judicial decision. Any
changes in the facts assumed hereunder or in the Code or Regulations made
subsequent to the date of this opinion could materially affect the statements
made herein and have adverse effects on the income tax consequences of investing
in the Partnership.
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 2
This opinion is strictly subject to all of the terms, conditions and
limitations set forth herein, and all references to this opinion contained in
the Prospectus are expressly qualified by reference to the entirety of this
opinion. Further, this opinion is directed primarily to individual taxpayers who
are citizens of the United States. No opinion is given with respect to federal
income tax aspects of the offering which depend upon a Limited Partner's
particular circumstances, and no opinion is given with respect to the federal
income tax consequences to any new Limited Partner substituted for a Limited
Partner. The opinions expressed herein also do not extend to a continuation of
operations following the resignation or removal of the General Partners.
In giving this opinion, we have considered and attempted to follow the
guidelines of Formal Opinion 346 (revised) of the American Bar Association
Standing Committee on Ethics and Professional Responsibility issued January 29,
1982, which requires that an attorney should, if possible, state his opinion as
to the probable outcome on the merits of each material tax issue, i.e., each
----
issue that would have a significant effect in sheltering income from sources
other than the Partnership from federal income taxes by providing deductions in
excess of the income of the Partnership. In this regard, it should be noted that
the General Partners do not intend for an investment in the Partnership to be a
tax shelter; however, it is possible that holders of the Tax Preferred Units may
be allocated deductions in a given year in excess of income allocated to them
from the Partnership. Accordingly, our opinion attempts to address each material
tax issue that involves a reasonable possibility of challenge by the IRS;
however, it should be noted that this opinion is not a representation or a
guarantee that the tax results opined to herein or described in the Prospectus
will be achieved. This opinion has no binding effect or official status of any
kind, and no assurance can be given that the conclusions reached in this opinion
would be sustained by a court if contested by the IRS. For purposes of our
opinion, any statement that it is "more likely than not" that any tax position
will be sustained means that in our judgment at least a 51% chance of prevailing
exists if the IRS were to challenge the allowability of such tax position and
that challenge were to be litigated and judicially decided.
Summary of Opinions.
-------------------
In reliance on the representations and assumptions described herein and in
the Prospectus, and subject to the qualifications set forth herein and in the
Prospectus, we are of the opinion that the following material tax issues are
more likely than not to have a favorable outcome on the merits for federal
income tax purposes if challenged by the IRS, litigated and judicially decided:
(1) The Partnership will be classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation;
(2) The Partnership will not be classified as a "publicly traded
partnership" under Section 7704 of the Code since the Partnership Agreement
limits transfers of Units, except for transfers of Units which satisfy
applicable safe harbors from "publicly traded partnership" status adopted by the
IRS;
(3) A Limited Partner's interest in the Partnership will be treated as a
passive activity;
(4) Partnership items of income, gain, loss, deduction and credit will be
allocated among the General Partners and the Limited Partners substantially in
accordance with the allocation provisions of the Partnership Agreement;
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 3
(5) The activities contemplated by the Partnership will be considered
activities entered into for profit by the Partnership; and
(6) The Partnership is not currently required to register as a tax shelter
with the IRS under Section 6111 of the Code prior to the offer and sale of the
Units based upon the General Partners' representation that the "tax shelter
ratio" with respect to an investment in the Partnership, as defined in the Code
and Regulations, will not exceed 2 to 1 for any investor as of the close of any
year in the Partnership's first five calendar years.
In addition, we are of the opinion that, in the aggregate, substantially
more than half of the material federal income tax benefits contemplated by the
Prospectus, in terms of their financial impact on a typical investor, will more
likely than not be realized by an investor in the Partnership.
We are unable to form opinions as to the probable outcome of certain
material tax aspects of the transactions described in the Prospectus if
challenged by the IRS, litigated and judicially decided, including (i) the issue
of whether the Partnership will be considered to hold any or all of its
properties primarily for sale to customers in the ordinary course of business,
and (ii) whether the Partnership will be classified as a "tax shelter" under
Section 6662(d) of the Code for purposes of determining certain potential
exemptions from the application of the accuracy-related penalty provisions.
As noted above, the IRS may also attempt to disallow or limit some of the
tax benefits derived from an investment in the Partnership by applying certain
provisions of the Code at the individual or partner level rather than at the
partnership level. No opinion is given herein as to the tax consequences to
Limited Partners with regard to any material tax issue which impacts at the
individual or partner level and is dependent upon an individual Limited
Partner's tax circumstances, including but not limited to, issues relating to
the alternative minimum tax, investment interest limitations or the application
of Section 183 of the Code at the partner level.
As of the date of this opinion, no properties have been acquired by the
Partnership, nor has the Partnership entered into any contracts to acquire any
properties. Therefore, it is impossible at this time for us to opine on the
application of federal income tax laws to the specific facts which will exist
when properties are acquired by the Partnership.
Discussion.
----------
1. Partnership Classification (Generally).
--------------------------------------
The availability of the income tax attributes of the Partnership's
activities to the Partners depends upon the classification of the Partnership as
a partnership for federal income tax purposes and not as an association taxable
as a corporation. In the event that the Partnership, for any reason, were to be
treated for federal income tax purposes as an association taxable as a
corporation, the Partners of the Partnership would be treated as shareholders
with the following results, among others: (a) the Partnership would become a
taxable entity subject to the federal income tax imposed on corporations; (b)
items of income, gain, loss, deduction and credit would be accounted for by the
Partnership on its federal income tax return and would
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 4
not flow through to the Partners; and (c) distributions of cash would generally
be treated as dividends taxable to the Partners at ordinary income rates, to the
extent of current or accumulated earnings and profits of the Partnership, and
would not be deductible by the Partnership in computing its income tax.
Under current Regulations, an organization that qualifies as a limited
partnership under state law (such as the Partnership) will be classified as a
partnership unless it is otherwise required, under state law or pursuant to the
application of the publicly traded partnership rules discussed hereinbelow, to
be classified for federal income tax purposes as a corporation. Treas. Reg. (S)
301.7701-3(b)(1) (1998). As an "eligible entity" under the Regulations, i.e., a
----
business entity having two or more members and not otherwise required to be
classified as a corporation, no action need be taken by the Partnership in order
to be classified as a partnership for tax purposes.
Accordingly, although the General Partners do not intend to request a
ruling from the IRS as to the classification of the Partnership as a partnership
for income tax purposes, based upon the current Regulations, IRS rulings and
judicial decisions under Section 7701(a) of the Code, and based upon certain
representations of the General Partners and other assumptions as set forth
herein and in the Prospectus, we are of the opinion that the Partnership will
more likely than not be classified as a partnership for federal income tax
purposes and not as an association taxable as a corporation.
2. Partnership Classification (Status as a Publicly Traded Partnership).
--------------------------------------------------------------------
Section 7704 of the Code provides that even though an entity may be treated
as a partnership under Section 7701(a) of the Code, entities which are deemed to
be "publicly traded partnerships" will nonetheless be treated as corporations,
rather than as partnerships, for federal income tax purposes. Under Section
7704(b), a publicly traded partnership is defined as any partnership whose
interests are traded on an established securities market (or are readily
tradeable on a secondary market or the substantial equivalent thereof).
Regulations issued under Section 7704 (the "Section 7704 Regulations")
contain definitions of what constitutes an established securities market and a
secondary market or the substantial equivalent thereof and what transfers may be
disregarded in determining whether such definitions are satisfied with respect
to the activities of a partnership. Treas. Reg. (S) 1.7704-1 (1995). The Section
7704 Regulations further provide certain safe harbors (the "secondary market
safe harbors") which, after taking into consideration all transfers other than
those deemed disregarded, may be satisfied in order to avoid classification of
such transfers as being made on a secondary market or the substantial equivalent
thereof. The Section 7704 Regulations also make it clear, however, that the fact
that a partnership does not qualify for a secondary market safe harbor shall be
disregarded if, under all facts and circumstances, it is determined that
interests in the partnership are not readily tradeable on a secondary market or
the substantial equivalent thereof. Id. (S) 1.7704-1(c)(3).
--
One of the secondary market safe harbors provides that interests in a
partnership will not be considered tradeable on a secondary market or the
substantial equivalent thereof if the sum of the partnership interests
transferred during any taxable year, other than certain disregarded transfers,
does not exceed 2% of the total interests in the partnership's capital or
profits. Disregarded transfers include, among other things, transfers by gift,
transfers at death, transfers between family members, distributions from a
qualified retirement plan, block transfers, which are defined as transfers by a
partner and any persons related
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 5
to such partner during any 30 calendar day period of partnership units
representing more than 2% of the total interests in a partnership's capital or
profits, and transfers not recognized by the partnership.
The General Partners have represented that Units in the Partnership, when
issued, will not be traded on an established securities market or a secondary
market or the substantial equivalent thereof. Further, the General Partners have
also represented that they do not intend to cause the Units to be traded on an
established securities market or a secondary market in the future. Further, the
Partnership Agreement limits Unit transfers of all types to transfers of Units
which satisfy an applicable secondary market safe harbor contained in the
Section 7704 Regulations (or which shall satisfy any other applicable safe
harbor from "publicly traded partnership" status adopted by the IRS). The
General Partners have represented that the Partnership will be operated strictly
in accordance with the Partnership Agreement and that they will void any
transfers or assignments of Units if they believe that such transfers or
assignments will cause the Partnership to be treated as a publicly traded
partnership under the Section 7704 Regulations or any Regulations adopted by the
IRS in the future. Accordingly, based upon the foregoing, and assuming the
Partnership will be operated strictly in accordance with the terms of the
Partnership Agreement, we are of the opinion that it is more likely than not
that the Partnership will not be classified as a publicly traded partnership
under Section 7704 of the Code.
If, notwithstanding the foregoing, the Partnership were deemed to be a
publicly traded partnership, Section 7704(c) of the Code provides an exception
to treatment as a corporation if 90% or more of the gross income of the
Partnership for each taxable year consists of "qualifying income." Qualifying
income includes interest, real property rents and gain from the sale or other
disposition of real property. According to the legislative history of Section
7704, qualifying income does not include real property rents which are
contingent on the profits of the lessees or income from the rental or lease of
personal property. H.R. Rep. No. 495, 100th Cong., 1st Sess. 947, reprinted in
------------
[1987] U.S. Code Cong. & Ad. News 2313-1693. The General Partners have
represented that they intend to operate the Partnership such that at all times
more than 90% of the gross income of the Partnership will be derived from
interest, real property rents (excluding rents which are contingent on the
profits of the lessees and rents from rental of personal property) and gains
from the sale of real property in an attempt to qualify for the 90% qualifying
income exception. Hence, even if the Partnership were deemed to be a publicly
traded partnership, assuming the Partnership is operated in accordance with its
stated investment objectives, it is more likely than not that the qualifying
income exception will be satisfied by the Partnership and that the Partnership
will not be treated as a corporation for federal income tax purposes. It should
also be noted, however, that even if the Partnership satisfies the qualifying
income exception, being deemed to be a publicly traded partnership would
nonetheless result in certain material adverse tax consequences to Limited
Partners, including the treatment of income of the Partnership as portfolio
income, rather than passive income, as discussed hereinbelow.
The remaining summary of federal income tax consequences in this opinion
assumes that the Partnership will be classified as a partnership for federal
income tax purposes. Accordingly, if as anticipated the Partnership is treated
as a partnership for federal income tax purposes, the Partnership will not be
treated as a separate taxable entity subject to federal income tax, but instead
each Partner will be required to report on his federal income tax return for
each year his distributive share of the Partnership's items of income, gain,
loss, deduction or credit for that year (without regard to whether any actual
cash distributions have been made to him).
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 6
3. Limitations on Deduction of Partnership Losses.
----------------------------------------------
As noted, partnership deductions and losses are generally reflected in each
partner's distributive share of such deductions and losses; however, the
deductibility of a partner's share of such deductions and losses is subject to
various limitations, including limitations relating to the basis of a limited
partner's partnership interest, the deductibility of passive losses and the "at
risk" provisions of the Code.
(a) Basis Limitations.
-----------------
A Limited Partner may not deduct his share of Partnership losses and
deductions in excess of the adjusted basis of his Partnership interest
determined as of the end of the taxable year. I.R.C. (S) 704(d). Losses which
exceed a Partner's basis will not be allowed but may be carried over
indefinitely and claimed as a deduction in a subsequent year to the extent that
such Partner's adjusted basis in his Units has increased above zero. Id. A
--
Limited Partner's adjusted basis in his Units will include his cash investment
in the Partnership along with his pro rata share of any Partnership liabilities
as to which no Partner is personally liable (such as any nonrecourse mortgage
financing which, although not currently contemplated, could, with the approval
of the Limited Partners, be incurred by the Partnership in the future). I.R.C.
(S)(S) 722 and 752(a). A Limited Partner's basis in his Units will be increased
by his distributive share of the Partnership's income and decreased (but not
below zero) by his distributive share of the Partnership's losses and by the
amount of any cash distributions which are made to him. I.R.C. (S) 705. (A
decrease in a Limited Partner's share of nonrecourse Partnership liabilities
included previously in the basis of his Units is treated for tax purposes as
though it were a cash distribution to that Partner. I.R.C. (S) 752(b)).
(b) Passive Loss Limitations.
------------------------
The Code substantially restricts the ability of many taxpayers
(including individuals, estates, trusts, certain closely-held corporations and
certain personal service corporations) to deduct losses derived from so-called
"passive activities." I.R.C. (S) 469(a). Passive activities generally include
any activity involving the conduct of a trade or business in which the taxpayer
does not materially participate (including the activity of a limited partnership
in which the taxpayer is a limited partner) and certain rental activities
(including the rental of real estate). I.R.C. (S) 469(c). Based on the above-
cited authority, we are of the opinion that it is more likely than not a Limited
Partner's interest in the Partnership will be treated as a passive activity.
Accordingly, income and loss of the Partnership, other than interest or other
similar income earned on temporary investments and working capital reserves
(which would constitute portfolio income), will constitute passive activity
income and passive activity loss, as the case may be, to Limited Partners.
Generally, losses from passive activities are deductible only to the extent
of a taxpayer's income or gains from passive activities and will not be allowed
as an offset against other income, including salary or other compensation for
personal services, active business income and "portfolio income," which includes
nonbusiness income derived from dividends, interest, royalties, annuities and
gains from the sale of property held for investment. I.R.C. (S) 469(e)(1).
Passive activity losses that are not allowed in any taxable year are suspended
and carried forward indefinitely and allowed in subsequent years as an offset
against passive activity income in future years. I.R.C. (S) 469(f). Upon a
taxable disposition of a taxpayer's entire interest in a passive activity to an
unrelated party, suspended losses with respect to that activity will then be
allowed as
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 7
a deduction against: (i) first, any remaining income or gain from that activity
including gain recognized on such disposition; (ii) then, net income or gain for
the taxable year from other passive activities; and (iii) finally, any other
non-passive income or gain. I.R.C. (S) 469(g). Under the Regulations, suspended
losses derived from a specific Partnership Property would generally not be
available to offset non-passive income or gain following the sale of such
property (other than in liquidation of the Partnership) because similar real
estate undertakings under common control and ownership of a pass-through entity
such as the Partnership are generally aggregated into a single "activity" for
purposes of these rules; hence, the sale of a single Partnership property not in
liquidation of the Partnership would not be treated as a disposition of the
entire interest in the passive activity. See Temp. Treas. Reg. (S) 1.469-
---
4T(k)(2)(ii).
In the case of partnerships which are deemed to be publicly traded
partnerships, the Code provides that the passive activity loss rules are applied
separately with respect to items attributable to a publicly traded partnership.
I.R.C. (S) 469(k). Accordingly, if the Partnership were deemed to be a publicly
traded partnership, Partnership losses, if any, would be available only to
offset future non-portfolio income of the Partnership. H.R. Rep. No. 495, 100th
Cong., 1st Sess. 951, reprinted in [1987] U.S. Code Cong. & Ad. News 2313-1697.
------------
In addition, if the Partnership were deemed to be a publicly traded partnership
which is not treated as a corporation because of the qualifying income
exception, Partnership income would be treated as portfolio income rather than
passive income. Id.
--
(c) At Risk Limitations.
-------------------
The deductibility of partnership losses is limited further by the "at
risk" limitations in the Code. I.R.C. (S) 465(a). Limited partners who are
individuals or certain closely-held corporations are not allowed to deduct
partnership losses in excess of the amounts which such limited partners are
considered to have "at risk" at the close of the partnership's year. Id. A
--
limited partner's amount "at risk" will generally include the amount of his cash
capital contribution to the partnership plus his pro rata share of "qualified
nonrecourse financing" of the partnership, if any. I.R.C. (S) 465(b). Qualified
nonrecourse financing is defined to mean nonrecourse financing provided by a
person unrelated to the taxpayer which is actively and regularly engaged in the
business of lending money (other than a person from whom the property was
purchased). I.R.C. (S) 465(b)(6). Unless and until the Partnership incurs any
such financing, only the cash Capital Contribution of a Limited Partner will be
taken into account when determining such Partner's amount "at risk." A limited
partner's amount "at risk" is reduced by his allocable share of partnership
losses and by partnership distributions and increased by his allocable share of
partnership income. Any deductions disallowed to a limited partner under this
limitation may be carried forward indefinitely and utilized in subsequent years
to the extent that the limited partner's amount "at risk" is increased in those
years.
4. Allocation of Profit and Loss.
-----------------------------
Generally, partnership items of income, gain, loss, deduction and credit
are allocated among partners as set forth in the relevant partnership agreement
pursuant to Section 704(a) of the Code. Section 704(b) provides, however, that
if an allocation to a partner under the partnership agreement of income, gain,
loss, deduction or credit (or items thereof) does not have substantial economic
effect, such allocation will instead be made in accordance with the partner's
interest in the partnership (determined by taking into account all facts and
circumstances).
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 8
The Partnership has not received an advance ruling with respect to whether
its allocations of profits and losses will be recognized for federal income tax
purposes, and the IRS may attempt to challenge the allocations of profits and
losses made by the Partnership, which challenge, if successful, could adversely
affect the Limited Partners by changing their respective shares of taxable
income or loss.
Regulations issued under Section 704(b) (the "Section 704(b) Regulations")
provide that in order to have economic effect: (i) partners' capital accounts
must be determined and maintained in accordance with the Section 704(b)
Regulations; (ii) upon the liquidation of the partnership, liquidating
distributions must be made in accordance with the positive capital account
balances of the partners after taking into account all capital account
adjustments for the partnership's taxable year during which such liquidation
occurs; and (iii) if a partner has a deficit balance in his capital account
following the liquidation of his interest in the partnership after taking into
account all capital account adjustments for the partnership taxable year during
which such liquidation occurs, he must be unconditionally obligated to restore
the amount of such deficit balance to the partnership. Treas. Reg. (S) 1.704-
1(b)(2)(ii)(b) (1991).
The Section 704(b) Regulations contain an alternate test for economic
effect, however, which sets forth circumstances under which allocations will be
deemed to have economic effect without the requirement to restore capital
account deficits upon liquidation. Such alternative test provides that an
allocation will be considered to have economic effect if the partnership
agreement contains provisions satisfying (i) and (ii) above, the partnership
agreement contains a "qualified income offset" provision and the allocation in
question does not cause or increase a deficit balance in a partner's capital
account as of the end of the partnership's taxable year to which such allocation
relates. Treas. Reg. (S) 1.704-1(b)(2)(ii)(d) (1991). In determining whether an
allocation causes or increases the deficit balance in a partner's capital
account, such partner's capital account must be reduced for distributions that
are reasonably expected to be made to such partner to the extent they exceed
offsetting increases to such partner's capital account that are reasonably
expected to occur during or prior to the partnership taxable years in which
distributions reasonably are expected to be made. Id. A partnership agreement
--
contains a qualified income offset if it provides that a partner who
unexpectedly receives an adjustment, allocation or distribution which causes a
deficit capital account balance will be allocated items of income and gain
(consisting of a pro rata portion of each item of partnership income, including
gross income, and gain for such year) in an amount and manner sufficient to
eliminate the deficit balance as quickly as possible. Id.
--
The Partnership Agreement provides for the determination and maintenance of
capital accounts pursuant to the Section 704(b) Regulations and provides that
liquidation proceeds are to be distributed in accordance with capital accounts;
however, the Partnership Agreement does not contain any provision requiring
Partners having deficit capital accounts to restore the amount of such capital
account deficits upon liquidation. The Partnership Agreement does, however,
contain a qualified income offset provision. The qualified income offset
provision in the Partnership Agreement provides that in the event that any
Partner receives an adjustment, allocation or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit
balance in such Partner's capital account, such Partner will be allocated items
of income or gain (consisting of a pro rata portion of each item of Partnership
income, including gross income, and gain from such year) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible.
Accordingly, no Partner will be allocated items of loss or deduction which would
cause his capital account to be reduced below zero in any year. In addition, the
General Partners have represented that Partnership distributions are not
anticipated to reduce any Limited Partner's
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 9
capital account below zero and that distributions of Net Cash From Operations
should not have a material effect on a Limited Partner's capital account since
such distributions are anticipated to be matched by allocations of Net Income to
such Partner.
Even if the allocations of profits and losses of a partnership are deemed
to have economic effect under the Section 704(b) Regulations, however, an
allocation will not be upheld unless the economic effect of such allocation is
"substantial." The Section 704(b) Regulations generally provide that the
economic effect of an allocation is "substantial" if there is a reasonable
possibility that the allocation will affect substantially the dollar amounts to
be received by partners from a partnership, independent of tax consequences.
Treas. Reg. (S) 1.704-1(b)(2)(iii) (1988). The economic effect of an allocation
is presumed not to be substantial if there is a strong likelihood that the net
adjustments to the partner's capital account for any taxable year will not
differ substantially from the net adjustments which would have been made for
such year in the absence of such allocation and the total tax liability of the
partners for such year is less than it would have been in the absence of such
allocations. Id. The economic effect will also be presumed not to be substantial
--
where: (i) the partnership agreement provides for the possibility that the
allocation will be largely offset by one or more other allocations; (ii) the net
adjustments to the partners' capital accounts for the taxable years to which the
allocations relate will not differ substantially from the net adjustments which
would have been recorded in such partners' respective capital accounts for such
years if the original allocations and the offsetting allocations were not
contained in the partnership agreement; and (iii) the total tax liability of the
partners for such year is less than it would have been in the absence of such
allocations. With respect to the foregoing provision, the Section 704(b)
Regulations state that original allocations and offsetting allocations will not
be insubstantial if, at the time the allocations become part of the partnership
agreement, there is a strong likelihood that the offsetting allocations will
not, in large part, be made within five years after the original allocations are
made. Id. The Section 704(b) Regulations further state that for purposes of
--
testing substantiality, the adjusted tax basis of partnership property will be
presumed to be the fair market value of such property, and adjustments to the
adjusted tax basis of partnership property (such as depreciation or cost
recovery deductions) will be presumed to be matched by corresponding changes in
the property's fair market value. Id.
--
It should be noted that the Partnership Agreement contains a provision
specially allocating items of depreciation, amortization and cost recovery
expenses to Limited Partners holding Tax Preferred Units up to the amount which
would reduce their capital accounts to zero. The Partnership Agreement also
provides that upon the sale or other disposition of a Partnership Property, Gain
on Sale is allocated first pursuant to the qualified income offset provisions
described above, then to Partners having negative capital accounts, if any,
until all negative capital accounts have been restored to zero, and then to
Limited Partners holding Tax Preferred Units in an amount equal to the items of
depreciation, amortization and cost recovery expense which were previously
specially allocated to them with respect to the specific Partnership Property,
the sale or disposition of which resulted in the Gain on Sale being allocated,
but not in excess of the amount of Gain on Sale recognized by the Partnership
pursuant to the sale or other disposition of said Partnership Property. Because
of the presumption contained in the Section 704(b) Regulations that adjustments
to the adjusted basis of a partnership's property will be presumed to be matched
by corresponding changes in such property's fair market value, the foregoing
allocation of Gain on Sale should not be considered to create a strong
likelihood that the economic effect of the prior allocation of depreciation,
amortization and cost recovery expenses would be offset within the meaning of
the Section 704(b) Regulations. Moreover, the prohibition against transitory
allocations in the Section 704(b) Regulations will not render original
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 10
allocations invalid if, at the time the allocations become part of the
partnership agreement, there is a strong likelihood that the offsetting
allocations will not, in large part, be made within five years after the
original allocations are made. Treas. Reg. (S) 1.704-1(b)(2)(iii)(c)(2) (1988).
In this regard, the General Partners have represented that it is contemplated
that the Partnership will hold each property which it acquires for development
for a minimum period of 10 years and that it is contemplated that the
Partnership will hold existing income-producing properties for a period of 10 to
12 years.
As noted in the preceding paragraph, the Partnership Agreement contains a
provision specially allocating items of depreciation, amortization and cost
recovery expenses to Limited Partners holding Tax Preferred Units up to the
amount which would reduce their capital accounts to zero. In order to ensure
that such Limited Partners will bear the risk of actual economic loss in the
event that a Partnership Property is sold at a loss, the Partnership Agreement
further provides for a special allocation of Sale Proceeds in favor of Limited
Partners holding Cash Preferred Units in an amount equal to the excess of the
original purchase price of such Partnership Property over the sale price of such
Partnership Property but not in excess of the amount of the special allocation
to Limited Partners holding Tax Preferred Units of items of depreciation,
amortization and cost recovery expense with respect to the specific Partnership
Property sold. Further, since the allocation of depreciation, amortization and
cost recovery expense to Limited Partners holding Tax Preferred Units will cause
decreases to their capital accounts and since the Partnership Agreement provides
that liquidation proceeds will be distributed among the Partners in accordance
with their capital accounts, Limited Partners holding Tax Preferred Units should
be deemed to bear the economic risk of loss with respect to such deductions.
If the allocations of profits and losses in a partnership agreement are
deemed not to have substantial economic effect, then as stated above, the
allocations will be made in accordance with partners' interests in the
partnership as determined by taking into account all facts and circumstances.
Treas. Reg. (S) 1.704-1(b)(3)(i) (1991). In this regard, the Section 704(b)
Regulations provide that a partner's interest in a partnership will be
determined by taking into account all facts and circumstances relating to the
economic arrangement of the partners, including: (i) the partners' relative
contributions to the partnership; (ii) the interests of the partners in economic
profits and losses (if different from those in taxable income or loss); (iii)
the interests of the partners in cash flow and other nonliquidating
distributions; and (iv) the rights of the partners to distributions of capital
upon liquidation. Id. (S) 1.704-1(b)(3)(ii).
--
Since the Partnership Agreement: (i) provides for the determination and
maintenance of capital accounts in accordance with the Section 704(b)
Regulations; (ii) provides that liquidation proceeds will be distributed to the
Partners in accordance with capital accounts; (iii) contains a qualified income
offset provision; and (iv) shifts the economic risk of loss to the Limited
Partners holding Tax Preferred Units, assuming the allocations of depreciation,
cost recovery and amortization expense to such Limited Partners were matched by
corresponding reductions in the fair market value of the Partnership's Property,
and assuming the accuracy of the representations of the General Partners that
the Partnership will be operated strictly in accordance with the terms of the
Partnership Agreement, we are of the opinion that it is more likely than not
that Partnership items of income, gain, loss, deduction and credit will be
allocated among the General Partners and the Limited Partners substantially in
accordance with the allocation provisions of the Partnership Agreement.
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 11
5. Activities Not Engaged in for Profit.
------------------------------------
Section 183 of the Code provides for the disallowance of deductions
attributable to activities "not engaged in for profit." The term "not engaged in
for profit" is defined as any activity other than an activity that constitutes a
trade or business or an activity that is engaged in for the production or
collection of income. I.R.C. (S) 183(c). In general, an activity will be
considered as entered into for profit where there is a reasonable expectation of
profit in the future; however, the determination of whether an activity is
engaged in for profit is based upon the facts and circumstances of each case.
Treas. Reg. (S) 1.183-2(a) (1972).
Based upon the investment objectives of the Partnership and the
representations of the General Partners that the Partnership will be operated in
a business-like manner in all material respects and strictly in accordance with
the Partnership Agreement and the Prospectus, based upon our analysis of the
relevant factors to be considered set forth in the Regulations, and assuming the
determination as to whether the activities of the Partnership are activities
entered into for profit under Section 183 is made at the partnership level (see
---
Vorsheck v. C.I.R., 933 F.2d 757 (9th Cir. 1991); Brannen v. C.I.R., 722 F.2d
------------------ -----------------
695 (11th Cir. 1984)), we are of the opinion that it is more likely than not
that the activities contemplated by the Partnership will be considered
activities entered into for profit by the Partnership.
Since the test of whether an activity is deemed to be engaged in for profit is
based upon facts and circumstances that exist from time to time, however, the
principles of Section 183 may be applied in the future to disallow deductions
otherwise allocable to Limited Partners from Partnership operations, and we are
unable to give an opinion on the applicability of Section 183 to the Partnership
if our underlying assumptions are changed. Further, we give no opinion as to the
application of Section 183 at the partner level.
6. Tax Shelter Registration.
------------------------
Under Section 6111 of the Code, any entity deemed to be a "tax shelter" as
defined in Section 6111(c) is required to register with the IRS. For these
purposes, a "tax shelter" is defined as any investment with respect to which (i)
a person can reasonably infer from the representations made that the "tax
shelter ratio" for any investor may be greater than 2 to 1 as of the close of
any of the first five years ending after the date in which the investment is
offered for sale; and (ii) is either registered under federal or state
securities laws, sold pursuant to an exemption from such registration which
requires the filing of a notice with a federal or state securities agency or is
a substantial investment. Temp. Treas. Reg. (S) 301.6111-1T, Q&A 4. The "tax
shelter ratio" is determined by dividing the investor's share of the aggregate
deductions derived from the investment, determined without regard to income or
any limitations on the deductibility of passive losses, by the amount of an
investor's contributions. Id. Q&A 5, 13 and 14.
--
The aggregate amount of the deductions potentially allowable to any of the
Partners, including the General Partners, in the offering of Units in the
Partnership is not expected, and has not been represented in the Prospectus or
any other writing connected with the offering approved by the General Partners,
to exceed an amount equal to twice any such Partner's investment in the
Partnership in any of the Partnership's first five calendar years. In addition,
the General Partners have represented that, in the absence of events which are
unlikely to occur, the aggregate amount of deductions derived from any Partner's
investment in the Partnership, determined without regard to income, will not
exceed twice the amount of any such Partner's
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 12
investment in the Partnership as of the close of any year in the Partnership's
first five calendar years. Further, even if the Partnership were deemed to
constitute a tax shelter under Section 6111, the Regulations provide that the
registration requirements are suspended with respect to a tax shelter that
qualifies as a "projected income investment." Temp. Treas. Reg. (S) 301.6111-1T,
Q&A 57A. The Regulations define a "projected income investment" as a tax shelter
that is not expected to reduce the cumulative tax liability of any investor for
any year during the first five years ending after the date in which the
investment is offered for sale. Id. A tax shelter is not expected to reduce the
--
cumulative tax liability of an investor for any year during the five year period
only if (a) a written financial projection or other written representation that
is provided the investor prior to sale of interests in the investment states (or
leads a reasonable investor to believe) that the investment will not reduce the
investor's tax liability with respect to any year in the five year period, and
(b) no written or oral projections or representations, other than those related
to circumstances that are highly unlikely to occur, state (or lead a reasonable
investor to believe) that the investment may reduce the cumulative tax liability
of any investor with respect to such years. Id.
--
Based upon the authority of the Regulations and the representations of the
General Partners that, in the absence of events which are unlikely to occur, the
"tax shelter ratio" with respect to an investment in the Partnership will not
exceed 2 to 1 for any investor as of the close of any year in the Partnership's
first five calendar years, we are of the opinion that it is more likely than not
the Partnership is not currently required to register as a tax shelter with the
IRS under Section 6111 of the Code.
7. Other Material Tax Issues.
-------------------------
A. Depreciation and Cost Recovery. Section 167(a) of the Code provides that
------------------------------
the real property improvements acquired or constructed by the Partnership and
the personal property acquired by the Partnership shall generally be entitled to
a reasonable allowance for exhaustion, wear and tear or obsolescence. The amount
of the allowable deduction is generally determined under Section 168 of the
Code.
In this regard, Sections 168(g)(1)(B) and (g)(2) of the Code provide that to
the extent real property constitutes "tax-exempt use property," the cost
recovery period will be 40 years, and in the case of personal property which
constitutes "tax-exempt use property," the recovery period will be 12 years and
the straight-line method must be utilized for determining deductions in each
case. "Tax-exempt use property" generally includes that percentage of
depreciable property owned by a partnership which equals the percentage of the
partnership interests owned by tax-exempt entities unless all allocations of
partnership items to the tax-exempt entity are "qualified allocations." I.R.C.
(S) 168(h)(6). The allocations under the Partnership Agreement will not
constitute "qualified allocations," and the General Partners have represented
that all of the Partnership's real and personal property will be treated as
"tax-exempt use property" to be depreciated for tax purposes using the straight-
line method over 40 year and 12 year recovery periods, respectively.
It should also be noted that if the Partnership were determined to be holding
one or more properties primarily for sale to customers in the ordinary course of
business, the Partnership might not be entitled to depreciation allowances with
respect to such properties, or such depreciation allowances could be
substantially curtailed. See I.R.C. (S) 167(a).
---
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 13
B. Income Tax Treatment of Organizational and Start-Up Expenses. No
------------------------------------------------------------
deduction will be allowed for the cost of organizing the Partnership, but at the
election of the Partnership certain qualified organizational costs may be
amortized ratably over a period of not less than 60 months. I.R.C. (S) 709(b).
Organizational expenses are generally defined as expenses which are incident to
the creation of a partnership, are chargeable to a capital account and are of a
character which, if expended incident to the creation of a partnership having an
ascertainable life, would be amortized over such life.
In addition, certain start-up expenditures may, at the election of the
taxpayer, be amortized ratably over a period of not less than 60 months. I.R.C.
(S) 195. Under Section 195, start-up expenditures which may qualify for this
treatment include amounts which are paid or incurred in connection with
investigating the creation or acquisition of the business, the actual creation
of an active trade or business, and any activity engaged in for profit and the
production of income before the active trade or business begins, in anticipation
of such activity becoming an active trade or business, and which would otherwise
be deductible in the year in which paid or incurred.
The cost of syndicating the Partnership, including costs and expenditures
incurred in connection with promoting and marketing the Units such as sales
commissions, professional fees and printing costs, are neither deductible nor
amortizable. I.R.C. (S) 709(a).
C. Investment by Qualified Plans and Other Tax-Exempt Entities. The IRS may
-----------------------------------------------------------
take the position that income derived from the ownership of Units by tax-exempt
entities should be subject to federal income tax as "unrelated business taxable
income" ("UBTI"), which is defined generally as income derived from any
unrelated trade or business carried on by a tax-exempt entity or by a
partnership of which it is a member. I.R.C. (S) 512(a).
While the types of income and gain which should be realized by the Partnership
should not generally constitute UBTI within the meaning of Section 512(a) of the
Code, all or a portion of such income would constitute UBTI if the Partnership
were to own property which is subject to "acquisition indebtedness." I.R.C. (S)
512(b)(4). Acquisition indebtedness is defined as the unpaid amount of: (i)
indebtedness incurred in acquiring or improving property; (ii) indebtedness
incurred before the acquisition or improvement of property if such indebtedness
would not have been incurred but for such acquisition or improvement; and (iii)
indebtedness incurred after the acquisition or improvement of property if such
indebtedness would not have been incurred but for such acquisition or
improvement and the incurrence of such indebtedness was reasonably foreseeable
at the time of such acquisition or improvement. I.R.C. (S) 514(c)(1). The
Partnership's acquisitions of property will be made on an all cash basis;
however, the Partnership Agreement does authorize the Partnership, inter alia,
----- ----
to borrow funds in order to finance improvement of and improvements to
properties when the General Partners deem such improvements to be necessary to
protect the capital previously invested in the properties, to protect the value
of the Partnership's investment in a property or to make a particular property
more attractive for sale or lease. The General Partners have represented that
they will not exercise this authority on behalf of the Partnership unless they
have first received an opinion of counsel or an opinion of the Partnership's tax
accountants that the proposed indebtedness more likely than not will not cause
the income of the Partnership to be characterized as UBTI.
If all or any portion of the Partnership's income were to be characterized as
UBTI by reason of the "acquisition indebtedness" rules, the "dealer" status
rules (discussed at paragraph F below) or otherwise, a
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 14
tax-exempt entity holding Units would be required to report a portion of its pro
rata share of the Partnership's taxable income as UBTI. I.R.C. (S) 514(c)(1).
Moreover, a "charitable remainder trust" qualifying for exemption from income
taxation under Section 664 of the Code would lose such exemption with respect to
all of its income for a tax year in which UBTI is derived from its ownership of
Units and would be required to file an income tax return on Form 1041. A tax-
exempt entity (other than a charitable remainder trust) is required to file an
Exempt Organization Business Income Tax Return when its gross UBTI from all
sources exceeds $1,000 in any year, and it will generally be taxable on UBTI in
excess of $1,000 in any year. I.R.C. (S) 512(b)(12).
D. Characterization of Leases. The Partnership has the authority to purchase
--------------------------
properties and lease them back to the sellers of such properties pursuant to
"sale-leaseback" transactions. The tax benefits described in the Prospectus
associated with ownership of a property, such as depreciation or cost recovery
deductions, will depend on having the lease in any such leaseback transaction
treated as a "true lease" under which the Partnership is treated as the owner of
the property for federal income tax purposes, rather than having such
transaction treated as a conditional sale of the property or a financing
transaction entered into with the seller. See Rev. Rul. 72-408, 1972-2 C.B. 86.
---
In this regard, judicial decisions and administrative pronouncements of the
IRS make it clear that the characterization of a transaction as either a true
lease, conditional sale or financing is determined on the basis of weighing many
factors, although courts have reached different conclusions even in instances
where the characteristics of two transactions are substantially similar. The
factors considered by courts derive primarily from the analyses in the case of
Frank Lyon Company v. United States, 435 U.S. 561 (1978) and Revenue Ruling 55-
-----------------------------------
540, 1955-2 C.B. 39. Typically, the matters considered by courts and the IRS
are: (i) the extent to which the transaction is entered into by the lessor with
a bona fide profit motive and the extent to which the lessor will forfeit
economic benefits if it forfeits the property; (ii) the extent to which rentals
are equivalent to fair market rental value of the property and the extent to
which the lessor will derive cash flow during the term of the lease; (iii) the
extent to which the lessor's investment is "at risk" at the inception of the
lease and at all times during the lease term; (iv) the extent to which the
original cost of the property does not exceed its fair market value at the time
of purchase; (v) the lessor's original cost for the property compared to the
anticipated fair market value at the end of the lease term; (vi) whether the
lessee has the right to purchase the property at the end of the lease term at
less than fair market value; (vii) whether the lessee furnishes funds to, or
makes any guaranties on behalf of the lessor; (viii) the extent to which the
lease is entered into on a "net" basis; (ix) the extent to which the lessee or
the lessor controls the price and terms of settlement in the event of casualty
to, or condemnation of, the leased property; (x) whether the lessee may assign
its leasehold without the lessor's consent; (xi) whether the lessor may assign
its interest without the lessee's consent; (xii) whether the lessee has any
unilateral authority to cancel the lease; and (xiii) whether the lessor or the
lessee will be the beneficiary of any appreciation in value of the leased
property.
The General Partners have represented that they will use their best efforts to
structure any sale-leaseback transaction such that the lease will be
characterized as a true lease; however, if any such transaction were
characterized as a financing for federal income tax purposes, depreciation and
cost recovery deductions attributable to such property would not be available to
the Partnership, and any income derived from the leaseback by the Partnership
would be treated as "interest" which is "portfolio income," rather than passive
activity income. See I.R.C. (S) 469.
---
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 15
E. Sales of Partnership Property. The General Partners anticipate that most
-----------------------------
and perhaps all of the assets to be acquired and held by the Partnership will
constitute "Section 1231 property," defined as real property and depreciable
assets used in a trade or business and held for more than one year. I.R.C. (S)
1231(a). To the extent that Partnership assets constitute Section 1231
property, a Limited Partner's share of the gains or losses resulting from the
sale of the Partnership's assets would be combined with any other Section 1231
gains or losses realized by the Limited Partner in that year from sources other
than the Partnership, and the net Section 1231 gain or loss would be treated as
long-term capital gain (subject to depreciation or cost recovery allowance
recapture, if any) or ordinary loss, as the case may be. Net Section 1231 gains
must be treated as ordinary income, however, to the extent of the aggregate
amount of net Section 1231 losses claimed for the five most recent taxable years
(to the extent such losses have not previously been "recaptured" pursuant to
this rule). I.R.C. (S) 1231(c).
Gain will be recognized by the Partnership to the extent that the amount
realized from any sale of Partnership Property exceeds the adjusted basis of
such property. I.R.C. (S) 1001(a). The adjusted basis of Partnership Property
will in general be its original cost less depreciation and cost recovery
allowances allowed to the Partnership with respect to such property. I.R.C. (S)
1011. Loss will be recognized to the extent that the adjusted basis of such
property exceeds the amount realized. The amount realized from a sale or other
disposition of property includes the sum of cash and property received plus the
amount of any liabilities assumed by the purchaser or to which the property
remains subject. I.R.C. (S) 1001(b).
Any excess of gains over losses realized by the Partnership on sales of
capital assets (generally all property other than property held primarily for
sale in the ordinary course of a trade or business or Section 1231 property)
held for more than one year will be long-term capital gain. I.R.C. (S) 1221(a)
and 1222(3). Any excess of losses over gains by the Partnership on the sales of
any such capital assets held for more than one year will be net long-term
capital loss.
F. Property Held Primarily for Sale. The Partnership has been organized for
--------------------------------
the purpose of acquiring and developing real estate for investment and rental
purposes; however, if the Partnership were at any time deemed for tax purposes
to be a "dealer," i.e., a seller of real estate held primarily for sale to
----
customers in the ordinary course of a trade or business, any gain recognized
upon a sale of such real property would be taxable as ordinary income, rather
than as capital gain, and would constitute UBTI to Limited Partners which are
Exempt Organizations. I.R.C. (S)(S) 1221(a)(1) and 512(b)(5)(B).
Whether property is held primarily for sale to customers in the ordinary
course of a trade or business must be determined from all the facts and
circumstances surrounding the particular property and sale in question. In this
regard, the General Partners have represented that the Partnership intends to
acquire real estate and construct improvements thereon for investment and rental
only and to engage in the business of owning and operating such improvements.
Further, the Partnership will make sales thereof only as, in the opinion of the
General Partners, are consistent with the Partnership's investment objectives.
The IRS may take the position, however, that the gain realized on the sale of a
Partnership Property should be characterized as ordinary income (and UBTI).
Because the resolution of this issue is dependent upon facts which will not be
known until the time a property is sold or held for sale, and due to the lack of
judicial authority specific to such sales by similar partnerships, we are unable
to render an opinion as to whether the Partnership will be considered to hold
any or all of its properties primarily for sale to customers in the ordinary
course of a trade or business.
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 16
G. Sales of Limited Partnership Units. The gain or loss realized on any sale
----------------------------------
of Units by a Limited Partner (who is not a "dealer" with respect to such Units)
who has held the Units for more than one year will be long-term capital gain or
loss, except for that portion of any gain attributable to such Limited Partner's
share of the Partnership's "unrealized receivables" and "inventory items," which
portion would be taxed as ordinary income. I.R.C. (S) 741. Potential cost
recovery allowance recapture on personal property associated with Partnership
Property will be treated as "unrealized receivables" for this purpose. I.R.C.
(S) 751(c). The Partnership generally must report to the IRS the sale or
exchange of any partnership interest where any portion of the consideration
received in exchange for such interest is attributable to "unrealized
receivables" or "inventory items" of the Partnership. I.R.C. (S) 6050K.
Gain or loss on any such sale will be measured by the difference between the
gross sale price and the Limited Partner's adjusted tax basis in his Units.
I.R.C. (S) 1001(a). In computing the gross proceeds received from the sale or
other disposition of his Units, a Partner must include among other things his
pre-sale share of the Partnership's nonrecourse indebtedness, if any, as
determined under Treas. Reg. (S) 1.752-3 (1991).
H. Dissolution and Liquidation of the Partnership. The dissolution and
----------------------------------------------
liquidation of the Partnership will involve the distribution to the Partners of
the cash remaining after the sale of its assets, if any, and after payment of
all the Partnership's debts and liabilities. If a Partner receives cash in
excess of the basis of his Units, such excess will be taxable as a gain. I.R.C.
(S) 731(a)(1). If a Partner were to receive only cash upon dissolution and
liquidation, he would recognize a loss to the extent, if any, that the adjusted
basis of his Units exceeded the amount of cash received. I.R.C. (S) 731(a)(2).
There are a number of exceptions to such general rules, however, including but
not limited to, the effect of a special basis election under Section 732(d) of
the Code for a Partner who may have acquired his Partnership interest within the
two years prior to the dissolution, and the effects of distributing one kind of
property to some Partners and a different kind of property to others under
Section 751(b) of the Code.
I. Foreign Investors. Non-resident aliens, foreign corporations, foreign
-----------------
partnerships, foreign trusts and foreign estates (collectively referred to as
"foreign investors") who are partners in a partnership engaged in a trade or
business in the United States will be considered to be engaged in such trade or
business, even if such foreign investors are only limited partners. A foreign
investor engaged in a U.S. trade or business who has income that is "effectively
connected" with that trade or business will be subject to regular U.S. income
taxes. I.R.C. (S) 871(b).
After the Partnership has acquired income-producing equity investments, the
anticipated activities of the Partnership will likely constitute a U. S. trade
or business and a "permanent establishment" within the meaning of the Code and
tax treaties entered into with foreign jurisdictions ("Tax Treaties"), and the
income from such investments (i.e., rents) will likely be deemed to be
----
effectively connected with that trade or business. Therefore, a foreign
investor who becomes a Limited Partner in the Partnership will be required to
file a U.S. income tax return on which he must report his distributive share of
the Partnership's items of income, gain, loss, deduction and credit, and pay
U.S. income taxes at regular U.S. income tax rates on his share of any Net
Income. In addition, Section 1446 of the Code currently provides for
withholding taxes in an amount equal to 39.6% (35% in the case of foreign
corporate investors) of the effectively connected taxable income allocated to
such foreign investors. See generally Rev. Proc. 89-31, 1989-1 C.B. 895, as
-------------
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 17
modified by Rev. Proc. 92-66, 1992-2 C.B. 428.
Since a foreign investor who becomes a Limited Partner in the Partnership will
likely be considered to be engaged in a U.S. trade or business and to have a
permanent establishment in the United States, certain types of U.S. related
income from other business transactions of the foreign investor could also be
attributed to that trade or business or permanent establishment under the Code
or a Tax Treaty (e.g., rents from other U.S. real estate owned by such
----
investor). Furthermore, a foreign investor may be subject to tax on his
distributive share of the Partnership's income and gain in his country of
nationality, residence or elsewhere. The method of taxation in such
jurisdictions, if any, may vary considerably from the U.S. tax system with
respect to characterization of the Partnership and its income.
It should also be noted that a foreign investor's allocable share of escrow
earnings and interest income from funds placed in temporary investments pending
acquisition of income-producing equity investments will likely not be considered
to be U.S. source income effectively connected with a U.S. trade or business,
and the foreign investor will not be deemed to be otherwise engaging in a U.S.
trade or business with respect to those investments. Accordingly, the
Partnership will generally be obligated to withhold U.S. tax in the amount of
30% of such investor's allocable share of the income derived from these
investments. I.R.C. (S) 1441(a).
A foreign investor will also be subject to U.S. income tax on gain realized
from the sale of a United States real property interest and also, for this
purpose, the sale of a Unit. I.R.C. (S) 897. Further, under Section 1445 of
the Code, a partnership is required to withhold tax equal to 35% of the foreign
investor's allocable share of the gain realized from the sale of partnership
real property (regardless of whether an actual distribution is made to such
investor). I.R.C. (S) 1445(e)(1). The amount required to be withheld by a
purchaser of Units is generally equal to 10% of the purchase price paid for the
Units. I.R.C. (S) 1445(e)(5); Temp. Treas. Reg. (S) 1.1445-11T.
It is impossible for us to predict the impact of the above-described general
principles on specific foreign investors, or how the provisions of any Tax
Treaty between the United States and the foreign investor's country of
nationality or residence may affect these results. Accordingly, we give no
opinion as to the income tax consequences to a foreign investor investing as a
Limited Partner in the Partnership.
J. State and Local Taxes. The Partnership will conduct its activities and
---------------------
own properties in different taxing jurisdictions. Accordingly, it is likely
that an investment in the Partnership will impose upon a Limited Partner the
obligation to file annual tax returns in a number of different states or
localities, as well as the obligation to pay taxes to a number of different
states or localities. In addition, many states require partnerships to withhold
and pay state income taxes owed by non-resident partners relating to income-
producing properties located in such states.
The Prospectus makes no attempt to summarize the state and local tax
consequences to a Limited Partner in those states in which the Partnership may
own properties or carry on activities, and it is impractical for us to opine on
all state laws or to predict the states in which the Partnership may own
properties. However, the issues which a Limited Partner should consider
include: (i) whether the state in which he resides will impose a tax upon his
share of the taxable income of the Partnership; (ii) whether an income tax or
other return must be filed in those states where the Partnership will acquire
properties; and
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 18
(iii) whether he will be subject to state income tax withholding in states where
the Partnership will acquire properties.
K. General Considerations.
----------------------
(i) Partnership Items. The income tax treatment of all Partnership
-----------------
items will be determined at the partnership level. I.R.C. (S) 6221. In this
regard, the General Partners will take primary responsibility for contesting
federal income tax adjustments proposed by the IRS, to extend the statute of
limitations as to all Partners and, in certain circumstances, to bind the
Limited Partners to such adjustments. For partnerships such as the Partnership,
where the total number of partners is more than 100, the IRS is not required to
furnish notice of the commencement of any administrative proceeding or the final
disposition of any such proceeding to any partner having less than a 1% interest
in the profits of the partnership. I.R.C. (S) 6223(b).
(ii) Accuracy-Related Penalties. Under Section 6662 of the Code, a
--------------------------
penalty equal to 20% of any underpayment of tax due to (i) negligence or
disregard of rules or regulations, (ii) any substantial valuation misstatement,
or (iii) any "substantial understatement of income tax" can be imposed on a
taxpayer. In general, a "substantial understatement of income tax" will exist if
the actual income tax liability of the taxpayer exceeds the income tax liability
shown on his return by the greater of 10% of the actual income tax liability or
$5,000 ($10,000 in the case of a corporation other than a Subchapter S
corporation or a personal holding company). I.R.C. (S) 6662(d)(1). Unless the
understatement is attributable to a "tax shelter," the amount of an
understatement is reduced by any portion of such understatement which is
attributable to (a) the income tax treatment of any item shown on the return if
there is "substantial authority" for the taxpayer's treatment of such item on
his return or (b) any item with respect to which the taxpayer adequately
discloses on his return the relevant facts affecting the item's income tax
treatment. I.R.C. (S) 6662(d)(2). In the case of a "tax shelter," which is
defined in Section 6662(d)(2)(C)(iii) of the Code as a partnership or other
entity, or other plan or arrangement, if a significant purpose of such
partnership, entity, plan or arrangement is the avoidance or evasion of federal
income tax, this reduction in the understatement only will apply in cases where,
in addition to having "substantial authority" for treatment of the item in
question, the taxpayer reasonably believed that the income tax treatment of that
item was more likely than not the proper treatment. I.R.C. (S) 6662(d)(2)(C)(i).
Although the Partnership is not intended to be a so-called "tax shelter," it
is possible that it may be considered a tax shelter for purposes of Section 6662
of the Code and that certain Partnership tax items could be considered tax
shelter items within the meaning of Section 6662. Based on the investment
objectives of the Partnership, the General Partners believe there are
substantial grounds for a determination that the Partnership does not constitute
a tax shelter. However, the definition of a "tax shelter" for these purposes
has been broadened recently to include entities which have as a "significant
purpose" the avoidance or evasion of federal income tax, rather than a
"principal purpose," as under prior law. Due to the lack of judicial or
administrative interpretation of this new standard, and because the resolution
of this issue is dependent upon facts relating to future Partnership operations,
the acquisition and disposition of Partnership Properties and other factual
determinations which are not known at this time, we are unable to render an
opinion as to whether an investment in the Partnership will be considered a tax
shelter for purposes of determining certain potential exemptions from the
application of Section 6662 of the Code.
<PAGE>
General Partners
Wells Real Estate Fund XIII, L.P.
January 15, 2001
Page 19
(iii) Tax Shelter Investor Lists. Section 6112 of the Code requires that
--------------------------
a list identifying each person who has invested in a potentially abusive tax
shelter be maintained by the tax shelter organizer. The list must include the
name, address and taxpayer identification number of each investor, as well as
certain other information. The organizer is also required to make the list
available for inspection upon request by the IRS. The term "potentially abusive
tax shelter" is defined for this purpose as (a) any tax shelter with respect to
which registration is required, as described above, and (b) any other entity,
plan or arrangement that is treated by applicable Regulations as a tax shelter
for purposes of the list requirements. The Regulations under Section 6112
clarify that an entity which is a tax shelter under Section 6111, but which is
not required to register as such because it qualifies as a "projected income
investment," continues to be subject to the list requirements of Section 6112.
Although the General Partners do not believe that the Partnership constitutes a
"potentially abusive tax shelter," the General Partners do intend to maintain a
list of the Limited Partners as required by Section 6112 of the Code.
8. Aggregate Opinion.
-----------------
Subject to the assumptions and limitations set forth herein, it is our opinion
that it is more likely than not that, in the aggregate, substantially more than
half of the material tax benefits contemplated by the Prospectus, in terms of
their financial impact on a typical investor, will be realized by an investor in
the Partnership. We advise you further that the section of the Prospectus
entitled "Federal Income Tax Consequences" accurately reflects our opinion with
respect to those matters therein as to which an opinion is specifically
attributed to us.
We undertake no obligation to update the opinions expressed herein at any time
after the date hereof. This opinion letter has been prepared solely for your
use in connection with the filing of the Registration Statement on the date of
this opinion letter and should not be quoted in whole or in part or otherwise
referred to, nor filed with or furnished to any governmental agency or other
person or entity, without the prior written consent of this firm.
Consent is hereby given to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the captions
"Legal Opinions" and "Federal Income Tax Consequences" in the Prospectus
concerning this opinion. In giving this consent, however, we do not thereby
admit that we are an "expert" within the meaning of the Securities Act of 1933,
as amended, or that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
or regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
HOLLAND & KNIGHT LLP
/s/ Holland & Knight LLP
