Another REIT Ruling by the IRS – This Time, Billboards

By:  Amanda Wilson

The IRS has released yet another private letter ruling (Letter 201522002) in the REIT area.  This time, the IRS addressed the REIT treatment of income from the rental of outdoor advertising space (i.e., billboards).  At issue were outdoor advertising displays which allowed for multiple advertising copy to be shown on the same display, with the copy for the various advertisers rotating every few seconds.

The IRS held that the income derived from renting this advertising space constituted rents from real property and thus was good REIT income.

Ski Lift Towers Held to Be Good REIT Asset

By:  Amanda Wilson

In order to qualify for the tax advantages available for real estate investment trusts (“REITs”), the majority of a REIT’s assets must qualify as “real property”.  As the areas that REITs are investing in continue to grow, we are seeing more and more rulings from the IRS on what constitutes “real property” .

Most recently, the IRS released a private letter ruling last week (LTR 201521006) that held that ski lift towers constitute “real property” and are good REIT assets.  This ruling was not particularly surprising, but it is helpful guidance nonetheless.

New REIT Bill Coming?

By:  Amanda WilsonCapitol building

In late April, Senator Orrin Hatch introduced Senate bill 915, the Real Estate Investment and Jobs Act of 2015.  When a foreign person invests in property in the U.S., that person is subject to U.S. tax when he/she/it disposes of their real estate investment under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”).  FIRPTA tax applies to the disposition of stocks of U.S. real estate investment trusts (“REITs”).  FIRPTA tax is a damper on encouraging foreign investment in the U.S.

To address this negative impact on investing, the bill increases and clarifies the existing FIRPTA exemptions that are available to foreign investors holding REIT stock.   For example, the bill increases from 5% to 10% the amount of REIT stock that an investor can hold and still qualify for the publicly traded REIT FIRPTA exception.  The bill also clarifies what it means to be a domestically controlled REIT, providing helpful guidance for another common FIRPTA exception.

While these changes are good, the bill is not all good news.  The bill also increases from 10% to 15% the general FIRPTA withholding rate.

If you deal with REITs, be sure to keep an eye on this bill for additional developments.


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