New Rulings Present Opportunities, but Not Carte Blanche

Abstract

Background The primary barrier to qualification as a real estate investment trust (“REIT”) is the requirement for REITs to meet certain income source requirements. At least 75% of a REIT’s income must consist of real-estate related items, and at least 95% must consist of passive income. Income classified as “rent from real property” within the meaning of Section 856(c)(2) is the primary component of income satisfying these income tests (other than for mortgage and hybrid REITs). Due to the fact-intensive nature of the determination of whether a given item of income qualifies as rent from real property, taxpayers often rely heavily on private letter rulings from the IRS in evaluating whether a given item of income will qualify. Over the years, the general trend has been towards more liberal rulings. 2012 was no exception to that trend.