“REAL PROPERTY” DEFINED UNDER REIT RULES”

Professionals working with REITs now have a bit more of a framework to work with regarding what constitutes “real property” by the US Treasury Department. When the Proposed Regulations were published in 2014, the Treasury Department left open how “real property” would be interpreted for treatment of REITs.  For the past 50 + years, those interested in investing in REITs had to obtain IRS clearance whenever there was insufficient clarity to determine whether or not the property was considered “real property” to qualify for REIT status. Such determinations were published to individual taxpayers in the form of a Private Letter Ruling (PLR) and subsequent taxpayers could not rely on the prior PLR as support for claiming that their property is “real property”. Finally, with the promulgation of the Final Regulations by the IRS, this past August, there should be less need to obtain PLR’s each time a property type needs to be defined. While, of course, it will not eliminate the need for PLR’s, it should greatly reduce the demand.

The definitions for “real property” are to be used strictly for REIT purposes and not for any other tax related issues outside the purview of REITs. The definitions went into effect on August 31, 2016 and pertain to tax years subsequent to that date.  The IRS and Treasury Dept. consider any PLR which is inconsistent with the definitions contained in the Final Regulations as revoked.  Authors:  Thomas Humphreys, Michelle Jewett, Shane Shelley, Shiukay Hung and Clara Kim.  Source:  Morrison Foerster.  Learn more…