(Editor’s Note: This story originally appeared in ALM sister publication, GlobeSt.com.)

Last week the Treasury Department startled the REIT sector with the announcement that it was closing, effective immediately, a perceived loophole to the PATH Act.

This week Treasury has backtracked somewhat by stating that the new regulations that “force” a “deemed sale election” for some C corporation to REIT conversion transactions will be corrected “to give effective date relief” for conversions that relate back to a spin-off that occurred before Dec. 7, 2015, according to a client note by tax expert Robert Willens of Robert Willens LLC.

This slight change will save Colony Capital, NorthStar Realty Finance and NorthStar Asset Management’s $58 billion proposed equity REIT, which fit the initial criteria, according to Willens.

 He wrote:

Accordingly, it appears that the NSAM conversion transaction, even though it takes place well within 10 years of a precedent spin-off transaction, will be wholly unaffected by the new regulations — i.e., the assets of NSAM will not be deemed sold at the time of the conversion transaction — since such precedent spin-off transaction occurred well before December 7, 2015. Thus, these new regulations will in no way affect the decision whether to proceed with the merger in which NSAM and Colony Capital are scheduled to merge with and into NSAM.

For those not keeping track of this issue:

The PATH Act stands for Protecting Americans from Tax Hikes Act of 2015. It was a small part of the larger Consolidated Appropriations Act for 2016 passed by Congress last December.

PATH required companies who elected a REIT status for assets that have been spun off within 10 years of that event to recognize the gain as though the assets had been sold at their fair market value on the sale date.

The regulation, however, said nothing about a company engaging in a REIT conversion after a spin off, such as by merging with an existing REIT. What the Treasury Department, via the IRS, did last week was update the rules to include conversions.

GlobeSt.com spoke with Willens Wednesday morning. He said Treasury made the comment about the new effective date at a well-attended Texas Bar Association seminar.

(Editor’s Note: This story originally appeared in ALM sister publication, GlobeSt.com.)