Each edition of Tax Matters consists of free-flowing responses by three tax practitioners to a question regarding a current issue in tax law and policy. Tax Matters commentaries provide insightful perspectives on a broad range of topics, making important contributions to the dialogue within the tax bar about cutting-edge issues. Although the commentaries are certainly of interest to the academic community, they are primarily directed toward tax professionals and their clients.
In several recent private letter rulings, the IRS appears to apply an expansive interpretation of the definition of “real property” and “rents from real property” in relation to real estate investment trusts (REITs). As REITs purchase properties that include renewable assets, such as solar panels and wind turbines, the continuing development of such assets puts further pressure on the definition of real property and rents from real property. Although private letter rulings do not have precedential effect, some practitioners may look to them for guidance regarding specific issues, especially if a transaction comes squarely within, or close to, the four corners of a ruling. If a private letter ruling describes property such as electricity transmission lines, natural gas pipelines, cell towers, billboards, or renewable assets with sufficient specificity, perhaps tax advisors could become comfortable concluding that similar assets would qualify for the treatment granted in the private letter rulings.
What effects, if any, do the series of private letter rulings have on advice practitioners are giving to clients? Do the rulings provide sufficient insight into the IRS’s thinking to extrapolate a general definition of real property and rents from real property? Or should Congress or Treasury develop a general definition of real property and rents from real property? What policy reasons, if any, support an expansive definition of real property and rents from real property?
Bradley Borden, Professor of Law, Brooklyn Law School
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.
REIT Conversion Opportunities and Investment Opportunities for Existing REITs
Although REITs were originally envisioned by Congress primarily as a vehicle for ordinary retail investors to passively invest in real estate, certain businesses with significant non-real estate activities that nevertheless possess substantial real estate holdings have identified REIT structures as attractive vehicles for reducing the tax liability of their enterprises. Recent rulings and high-profile conversion announcements have sparked a flurry of interest in the potential for REIT conversions for businesses that previously might have had difficulty satisfying the REIT income tests. For example, SBA Communications’ recently announced intention to convert to a REIT may have been inspired by a reaffirmation by the IRS that communications towers and antenna superstructures may be classified as real, as opposed to, personal property. Likewise, the IRS recently granted several rulings allowing the leasing of billboards and other advertising structures to qualify as rent from real property, making way for Lamar Advertising’s recent REIT conversion announcement.
Structures analogous to those holding advertising or broadcasting equipment could conceivably qualify as real property. When a structure is substantial and permanent in nature, and does not serve any purpose other than to provide a mounting point for equipment, there exists a reasonable argument that the rental of such a structure will produce rents from real property. A mounting structure for a wind turbine or solar panel, for example, would likely qualify as “real property” so long as the structure itself is not related to energy production. Or, more conservatively, building rooftops may be rented for the purpose of installing energy-producing equipment under the same rationale allowing the rental of similar space for other equipment.
Despite the excitement, it is unlikely that the recent rulings portend an expansion of the definition of “real property” to include actual production equipment or the sale of energy. The recent rulings generally rely on a representation that communications or advertising structures are “integral” to another edifice, such that they are not readily removable. Although stand-alone antenna towers have already been defined as real property, the “integral part” representation provides a distinguishing factor between permanent real estate and “equipment”, such as antennas themselves, which have been clearly identified as personal property. However, no consistent rule exists to parse the distinction between equipment and structures. Without such a rule, enterprises seeking to apply the real property definition to new and novel situations would be well advised to seek their own rulings rather than rely on opinion of counsel.
Even with a liberalized and better-defined definition of rents from real property, REIT status is not appropriate for all enterprises with significant real estate holdings. One significant impediment is cost. Section 857(a)(2)(B) requires the converting entity to distribute all its accumulated earnings and profits as a taxable dividend. For organizations with significant accumulated earnings and profits, lack of available cash may stymie a conversion to REIT status. Additionally, REIT status imposes significant administrative and legal costs, which, depending on the organization’s circumstances, could outweigh any tax benefits.
Particular caution should be exercised with respect to enterprises whose business activities must be carefully tailored or altered to satisfy the REIT income tests. For example, a wind energy company attempting to qualify as a REIT could be forced to forgo a potentially lucrative opportunity to invest in a new form of turbine. While it may be possible to successfully bifurcate qualifying and non-qualifying REIT income through the use of taxable REIT subsidiaries or independent contractors, such solutions may cause the REIT to forgo the economic benefit of the activity or incur significant administrative burdens.
Despite the caveats, qualification as a REIT carries with it very favorable tax benefits. Markets have rewarded businesses poised to convert to REIT status with healthy jumps in share price. Directors of potential REITs would be wise to examine the new possibilities for REIT creation or conversion.
 Although Code Section 856(d) prevents related party rents from qualifying as rents from real property (other than for certain lodging and healthcare facilities), a public company may avoid this provision by spinning off its real estate assets into a separate publicly-held company.
 See Rev. Rul. 75-424, 1975-2 C.B. 269; Priv. Ltr. Rul. 201206001 (Feb. 10, 2012).
 See Priv. Ltr. Rul. 201204006 (Jan. 27, 2012).
 It has been reported that the IRS intends to issue a ruling on solar properties, but it is unlikely that such a ruling, at least in the context of a commercial production facility, would include photovoltaic cells themselves as “real property”, since such a ruling would far exceed the scope of prior rulings and the regulations under Section 856. See Tom Konrad, IRS to Rule on Status of Solar PV Owned by REITs, Forbes (Oct. 12, 2012), available at http://www.forbes.com/sites/tomkonrad/2012/10/12/irs-to-rule-on-status-of-solar-pv-owned-by-reits/.
 See supra note 3.
 Treas. Reg. 1.856-3(d) provides that assets used in the “operation of a business” are not considered real property.Defining Real Property and Its Consequences
In recent years, the definition of real property under Section 856 has been expanded to include assets in a number of industries that previously might not have been considered qualifying REIT assets. These have included data storage centers, cold storage facilities, electricity transmission and distribution property, natural gas pipelines and associated assets such as liquefied natural gas converters, cell towers, offshore oil platforms, and electronic billboards on buildings. Also, it has been reported that a ruling request has been filed seeking confirmation that solar panels meet the real property definition.
This definitional process has occurred exclusively through the private ruling process whereby the IRS has interpreted “real property” under Section 856 and the applicable regulation, Section 1.856-3(d). The Code itself does not define “real property,” but rather the working definition is found in the regulations, which include two components: (i) the asset must be deemed permanent (either as a structure or a structural component of such structure) and (ii) it must not be an accessory to the operation of a business. An initial question is the relationship between these two tests. For example, could an asset meeting the permanency requirement fail to qualify as real property since it was deemed to be an accessory to the operation of a business? In a series of GCM’s in the 1960’s and 1970’s, the IRS considered this issue and concluded at one point that such a result could not occur because the tests were “mutually exclusive.” However, subsequent declarations have not been consistent with that position. Moreover, the IRS apparently has lost interest in the issue in that the recent rulings have failed to discuss it. Rather, decisions frequently have been made by the IRS on the basis of such considerations as whether the assets in question resemble railroad beds and trackage rather than microwave transmitters and receivers.
While discernible standards have been lacking during this process, what has been clear is that through this highly technical, and at times, strained analysis, the IRS has been setting economic policy by providing a number of industries with the highly favorable tax regime and capital cost afforded by REIT qualification. Not surprisingly, there is anecdotal evidence that other industries have been reviewing these rulings to determine if they similarly can reap theses advantages. This trend does raise a number of questions: (1) would the IRS benefit from incorporating into its analyses tests that have been employed in discerning the meaning of real property under other sections of the Code; (2) should the IRS consider other factors in making these determinations, such as equitable treatment of competing industries; and (3) should Congress step into the breach and provide specific statutory categories of activities that qualify for REIT treatment.
Having a consistent definition of real property under the Code at first impression is an attractive proposition. The specter of an asset being treated variously as real property and personal property suggests a set of tax rules without coherency or logic. However, a review of the various definitions of real property under the Code may lead to the conclusions that the attainment of such a goal is illusory and that the goal itself in fact may not be desirable. To illustrate, the following provisions will be considered: Sections 48/168, 263A, 897 and 1031.
Under Section 48, the investment tax credit (when in effect) has been available principally to personal property, and the provisions of Section 168 have piggy-backed on its rules where the personal property definition is relevant, e.g., in the case of defining 5-year property. The distinction between personal and real property for purposes of these provisions has proven to be a fertile ground for activity by the courts and the IRS, spawning numerous cases and rulings, some of which extend to considerable length. In general, the analyses found in those cases and rulings have focused on the concept of permanency as delineated through the application of the six-factor test set forth in Whiteco Industries, Inc. v. Commissioner. Those tests consist of six questions that probe such matters as the nature of affixation, the removability of the asset after fixation and the intent of permanency when installed.
Interestingly, the Whiteco tests have been cited rarely in the IRS’s determinations under the REIT provisions although their influence can be detected in some of the rulings. While the tests do provide an analytically attractive framework to differentiate between the real and the personal, there is good reason not to import the specific analyses to the REIT provisions—namely, by specific intent there is a bias towards personal property characterization. The ITC and MACRS provisions represented efforts by Congress to encourage investment in personal property assets such as machinery and equipment. Accordingly, in the committee reports, Congress admonished future interpreters of these provisions to not narrowly construe such provisions when determining which assets meet the personal property definition. By contrast, no such Congressional direction exists with respect to the REIT provisions. Accordingly, although the precedents under Sections 48/168 might provide guidance in certain circumstances for REITs, Congress has indicated that the definitions of real property under the respective provisions should not be identical.
In contrast, the IRS has concluded that the uniform capitalization rules of Section 263A mandate a more expansive definition of real property. In pertinent part, subsection (f) provides that interest costs incurred in connection with the self-production of real property are to be capitalized. The definition of real property under the regulations bears similarity to that under Section 48, but the IRS has indicated that assets deemed personal property for purposes of the latter provision may be real property for the capitalization rules. For example, electrical and plumbing systems have been ruled as real property under Section 263A while qualifying as personal property for MACRS. To provide a rationale for different treatment, the IRS has cited the legislative comments in connection with the enactment of Section 189, the predecessor to the current provisions. The Section 263A precedents, therefore, may provide a more balanced definition of real property in its application, but because of the paucity of judicial and administrative pronouncements, that section most likely will be of limited use to the IRS in its endeavors to interpret Section 856.
The definition of real property is central also to Section 897, the so-called Foreign Investment in Real Property Tax Act or FIRPTA. Under FIRPTA, nonresident alien individuals and foreign corporations are subject to a special tax upon the disposition of U.S. real property interests. The definition of the latter term, however, may limit the referential value of precedents under FIRPTA. Specifically, the statute provides that real property includes movable walls, furnishings and other personal property associated with the use of real property. With this acknowledgement that certain personal property may be treated as real property, undoubtedly inspired by the desire to expand the types of assets subject to the tax, it is doubtful that faced with an issue of qualification under the REIT provisions, the IRS would look to FIRPTA.
The final provisions to consider are the like kind exchange provisions set forth in Section 1031. Neither the Code nor the regulations thereunder provide for a definition of real property even though qualifying an asset as real property can have significant ramifications in completing a successful tax-free exchange. Specifically, real property is not like kind to personal property, thereby precluding qualification under Section 1031, and most real property is like kind to other real property. Despite the critical nature of the classification of the property, it fairly can be said that utter confusion has existed as to the applicable standards in determining such classification. Historically, the principal source of this confusion has been the role the courts and the IRS have extended to the state law classification of the asset. Opinions have ranged from the proposition that state law is dispositive to the declaration that only a federal definition, whatever that may entail, is to be considered. There may be some reason for a more optimistic view, however, in that very recently the IRS has taken the position that the real/personal divide is to be based on federal law and that state law, while it may be considered, is not to be the standard of delineation. Much needs to be done, though, towards creating a coherent standard of real property under Section 1031.
If referring to analogous definitions under the Code yields little benefit because of, among other things, different policy objectives embedded in those provisions, the question arises as to what extent policy considerations should be a factor in issuing Section 856 rulings. In contrast to some of the above provisions, the legislative history of that section does not reveal much as to how real property should be construed. Perhaps the most relevant statement is that the purpose of the REIT regime was to provide an investment vehicle similar to mutual funds for small investors and that the investments were to be real estate that was passive in nature analogous to the stocks and bonds held by mutual funds. The recent ruling activity of the IRS (as well as certain legislative initiatives regarding the scope of permissible REIT income and the use of taxable REIT subsidiaries) reflects that the REIT vehicle has moved substantially beyond those original objectives. With that being the case, the question does arise as to whether in processing ruling requests to extend the REIT regime to other industries, policy issues such as equitable treatment among competing industries should be considered. For example, if the issue was the treatment of wind farms, should it be relevant that offshore oil platforms qualify as REITs? The tax purist of course would object to importing such policy considerations into decisions, which to his mind should be solely technical in nature. On the other hand, does such a perspective ignore the fact that these technical decisions have the consequences of effecting economic policy and altering financing cost among industries?
One potential solution is the legislative one, i.e., revising the Code to specifically provide which industries can qualify for REIT status. To a certain extent, that is the approach that has been embodied in the master limited partnership provisions of Section 7704. The downside to such an approach is that only those industries with the greatest lobbying clout most likely will be successful in securing inclusion and historically industry-specific provisions in the Code have tended to become ossified.
In summary, the IRS has embarked through its ruling process upon a course that unwittingly has benefitted a number of industries. There does not appear to be a clear course of action to determine which other industries, including those who are competitors of those previously benefited, should similarly be favored. The proverbial ship has left the port but the captain continues to search for a reliable navigator.
 In the interest of full disclosure, the author recently has argued the case that renewable energy assets should qualify for inclusion as REIT assets.
REITs and the Expanding Universe of “Rents from Real Property”
A “Real Estate Investment Trust” (a “REIT”) is an entity that generally would be taxable as a corporation but that makes a special election to be taxable as a REIT. The benefit of REITs is that they generally are subject to only one level of tax. The downside to REITs is that 75% of a REIT’s assets must consist of “real estate assets,” and at least 95% of a REIT’s income typically must consist of “rents from real property.” Treasury Regulations define “real property” to include “land or improvements thereon, such as buildings or other inherently permanent structures. . . .” Recently, the IRS has issued several private letter rulings expanding this definition in the context of infrastructure assets.
In PLR 200725015, a REIT owned and leased a “system.” The REIT was not licensed to operate the system, and instead leased the system to an unrelated, licensed operator. The system consisted of “physically connected and functionally interdependent assets that serve as a conduit to allow [‘a’] created by a generation source to flow through the system to end-users.” The system was passive and did not include machinery that created or generated any ‘a’ or any other commodity. The system is understood to be an electricity transmission system.
The IRS found that the system was designed so that the components were physically and functionally interdependent, that it was not feasible to move all or any substantial part of the system, and that each component of the system was intended to serve indefinitely and remain in place once affixed to other system parts or the underlying land. The IRS also found that the system was a passive conduit that allowed ‘a’ generated by another source to flow through the system to end-users. Thus, the IRS ruled that the system was an “inherently permanent structure” yielding rents from real property.
PLR 200937006 considered a similar system involving gas pipelines leased to an unrelated, licensed operator. The lessee owned all equipment to maintain and operate the system, and employed or contracted with all service and repair personnel necessary for maintenance and operation of the system. The system consisted of “physically connected and functionally interdependent assets designed for the distribution of Product within a local area.” No component of the system could be operated for its intended purpose without each of the other components of the system, and the system was designed and constructed to remain permanently in place. The system was passive and did not include any equipment that produced Product or any commodity. Generally, the system consisted of interests in land, pipes, pipelines, regulators, valves, meters, monitoring and control devices, and compressor stations.
The IRS found that the system was designed so that the components were physically and functionally interdependent, it was not feasible to move all or any substantial part of the system, each component of the system was intended to serve indefinitely and remain in place once affixed to other system parts, and the system was a passive conduit. Thus, the IRS concluded that the system was an inherently permanent structure and a real estate asset.
In PLR 201005018, “X” leased a “Facility” to lessee, an unrelated entity. The Facility was a system of physically connected and functionally interdependent assets designed to receive, store, and distribute “Product.” No single component of the Facility could be effectively operated for its intended useful purpose without each of the other components of the Facility, and that the Facility was designed and constructed to remain permanently in place.
The major structural components of the Facility included (1) hoses, pipes, manifolds, valves, and an underground scale, (2) loading racks, (3) insulated heat traced pipes that were suspended above ground on a steel girder system affixed to the land, (4) pumps, valves, and vents affixed to the piping system, (5) storage tanks that were permanently affixed to the system and/or to the ground, (6) boilers that were permanently affixed to the system, (7) blending devices permanently affixed to the piping system, (8) buildings permanently affixed to the ground, (9) various interests in land, including easements, and (10) various driveways and roadways, docks, rail spurs, dikes, containment areas, and security fencing. The IRS ruled that the Facility was an inherently permanent structure and real property under Code Section 856(d).
In PLR 201129007, a REIT owned wireless and broadcast communication towers that it leased pursuant to long-term leases. The REIT’s interests in the tower sites were comprised of a variety of ownership interests, including fee interests, leaseholds, easements, licenses, and rights-of-way. Tower sites consisted of a compound enclosing the tower site, a tower structure, one or more equipment shelters that housed transmitting, receiving, and switching equipment, and possibly a backup generator permanently installed at the tower site, as well as certain fences and buildings. The base of the tower was bolted and welded to a concrete base set upon pilings driven deep into the ground for anchoring. Most of the personal property at a tower site, such as antennas, wiring, power supply, and switching equipment was owned separately by the lessees.
The IRS found that the towers were “constructed to remain permanently in place, cannot be readily moved, are unlikely to be moved, and are not intended to be moved.” Because of the method of construction and permanency of the towers, the IRS ruled that the towers and their sites (including fencing, shelters, and permanently installed backup generators) were inherently permanent structures and real estate assets for purposes of Code Section 856(c).
In PLR 201250003, “X” leased an offshore platform and related machinery and equipment installed on the platform to an unrelated lessee. The facility consisted of an offshore oil platform located in deep water. It consisted of three sections: (a) a vertical hull, (b) a topside section attached to the hull, and (c) a mooring system to permanently attach the facility to the seabed. The three sections were constructed to be permanently connected and operated as a single structure. The structure was intended to remain in place indefinitely, and no similar off-shore platform had ever been moved. No portion of the platform extracted crude oil from undersea wells; instead, additional equipment installed on the platform and used by the lessee performed this function. The IRS ruled that the platform and structural components (but not the machinery and equipment) were inherently permanent structures giving rise to rents from real property.
The foregoing rulings generally share the following features:
- The facilities are “passive,” do not create any of the material flowing through them, and are not used in a manufacturing or production process.
- It is not feasible to move all or any substantial part of the facility, and each component part is intended to serve indefinitely and remain in place once affixed to the underlying land or other parts of the facility.
- The taxpayer is not licensed to operate the facility, and instead leases it to a licensed operator.
- The lease is a triple net lease whereby the operator is responsible for operating and maintaining the system, hiring all employees, and paying all expenses associated with the facility.
- The facility consists of physically connected and functionally interdependent assets that serve as a conduit.
Practitioners seeking to issue tax opinions or obtain rulings on behalf of clients regarding the status of infrastructure assets as “real property” should take appropriate steps to ensure that the foregoing factors are satisfied.
 Treas. Reg. § 1.856-3(d) (emphasis added).
 Although “X” was a publicly traded partnership (“PTP”) and not a REIT, the rents from real property test is the same for both.
 Also a PTP. See id.The Service’s Trend of Friendly REIT Rulings Continues
A real estate investment trust (a “REIT”) is a corporation or an association otherwise taxable as a domestic corporation intended to own interests in real property or in debt secured by real property. The principal advantage of a REIT for holding real property is the deduction for dividends paid that enables a REIT to avoid corporate level taxation.
To qualify as a REIT, a corporation must satisfy a number of shareholder, income and asset tests, including income tests requiring that at least 75 percent of its gross income must be derived from real estate sources, principally (i) rents from real property, (ii) interest on debt obligations secured by mortgages or deeds of trust on real property, (iii) gains from the sale of real property; and that at least 95 percent of the corporation’s gross income must be derived from interest or dividends as well as real estate income qualifying for the 75 percent of income test.
As a statutorily favored entity, REITs are often the objects of generous revenue rulings and private letter rulings. For example, in late 2012, the Internal Revenue Service released several favorable private letter rulings on the issue of REITs holding an interest in a passive foreign investment company (a “PFIC”) or a controlled foreign corporation (a “CFC”), ruling that the Subpart F Income of a CFC (CFCs are foreign corporations at least 50% of whose stock, by vote and value, is owned by US shareholders and are subject to federal income tax on their undistributed “Subpart F Income”) and the foreign personal holding company income of a PFIC in each case recognized by a REIT owning interests in a CFC or a PFIC may be treated as qualifying for the 95 percent of income test under Section 856(c)(2). A PFIC is a foreign corporation, at least 75% of whose income is “passive income” and at least 50% of whose assets are held for the production of passive income. For that purpose, “passive income” is generally dividends, interest, royalties, rents, annuities, and gains from the sale of property. US shareholders are required to include in income their share of certain of the PFIC’s excess distributions.
In addition to the income tests described above, to qualify as a REIT, at least 75% of the value of the corporation’s assets must consist of real estate assets, cash and cash items and government securities as of the last day of each calendar quarter. In a recent private letter ruling, the Service held that the value of deferred organizational expenses carried as an asset on a REIT’s balance sheet would be considered zero for purposes of the quarterly asset test. By so ruling, the IRS enabled the REIT not to have to consider the deferred organizational expenses in comparison to the value of its real estate, government securities and cash and cash items.
The Service has long treated various fixtures as real estate assets for REIT qualification purposes, going back to 1973 when it held that a building’s “total energy system,” powered by turbines, would qualify as a real estate asset. More recently, relying in part on that 1973 revenue ruling, the Service agreed to treat an offshore oil drilling platform (exclusive of machinery) as real property.
The Service has also been issuing favorable “infrastructure” rulings for REITs engaged in owning wireless cell towers. In those rulings, the cell towers are held to qualify as real property and the income attributable to tenants’ payments for power generated by the REIT’s on-site generators is treated as includible in rents from real property.
The Service also provided a favorable published revenue ruling to the effect that investments in money market funds qualify as “cash items” for purposes of the 75 percent of assets quarterly REIT qualification test. In reaching its favorable conclusion, the Service looked to the Investment Company Act of 1940. While the Investment Company Act itself does not define the term “cash item,” the Securities and Exchange Commission issued a no-action letter, upon which the Service relied in issuing its private letter ruling, to the effect that an investment in a money market fund is a cash item under Section 3(a)(1)(C) of the Investment Company Act.
In addition to the income and asset tests, the REITs dividend distributions must be pro rata within the meaning of Section 562 in order to be deductible. In Private Letter Ruling 201244012 (Nov. 2, 2012), the Internal Revenue Service issued a favorable ruling on the issue of whether dividends distributed among three different classes of stock of a REIT would be deductible. In order for a REIT to be able to deduct dividend distributions, a REIT’s distributions must be made pro rata among the shareholders in accordance with the rights and preferences set forth in the REIT’s corporate charter. REIT “distributions must not prefer any shares of stock of a class over other shares of stock of that same class. The distribution must not prefer one class of stock over another class except to the extent that one class is entitled (without reference to waivers of their rights by stockholders) to that preference.”
In that letter ruling, the subject REIT adopted some of the liquidity features of a mutual fund. The REIT had issued shares of its common stock (the “Class E Shares”) to accredited investors in a private placement on its formation. Thereafter, the REIT filed a registration statement to register the sale of two new classes of its stock, Class A and Class M. The Class A Shares and Class M Shares were to be offered for sale on a daily basis at the net asset value (“NAV”) for shares of such class plus, with respect to Class A Shares, applicable selling commissions and would be repurchased by the REIT at the NAV for such share class. Subject to certain limitations, the REIT intended the share repurchase plan to allow holders of Class A Shares and Class M Shares to request that the REIT repurchase their shares in an amount up to an agreed percentage of the REIT’s NAV after such shares have been outstanding for at least one year. The Class A Shares would be subject to a selling commission (“Selling Commission”) to the extent not otherwise waived or reduced and paid directly by the shareholder, in addition to the NAV for such shares. No Selling Commission would be charged with respect to the Class M Shares. Despite the differences among the three classes of stock, the Service held that dividend distributions on all of the classes of stock would be deductible as pro rata according to the terms and preferences stated in that REIT’s charter documents.
The Service continues its long-standing practice of issuing favorable rulings, private as well as published, on REIT qualification issues, including assets constituting real property, and the types of income qualifying for the 75% of income and 95% of income REIT qualification tests. Because of the Service’s willingness to accept reasonable pro-REIT analyses in issuing private letter rulings, practitioners may feel more comfortable relying on the analysis set forth in private letter rulings when opining on REIT issues, especially in the context of a REIT that is not publicly issued and traded.
 Priv. Ltr. Rul. 201246013 (Nov. 16, 2012).
 Priv. Ltr. Rul. 201236006 (Sept. 7, 2012).
 Rev. Rul. 73-425, 1973-2 C.B. 222.
 Priv. Ltr. Rul. 201250003 (Dec. 14, 2012).
 Priv. Ltr. Rul. 201301007 (Jan. 4, 2013); see also Priv. Ltr. Rul. 201129007 (Jul. 22, 2011).
 Rev. Rul. 2012-17, 2012-25 I.R.B. 1018 (June 15, 2012).
 15 U.S.C. §§80a-1, et. seq. I.R.C. Section 856(c)(5)(F) so authorizes (“All other terms shall have the same meaning as when used in the Investment Company Act of 1940…”).
 Op. Off. of Chief Counsel, No. 200010241124 (Oct. 23, 2000), available at http://www.sec.gov/divisions/investment/noaction/2000/willkiefarrgallagher102300.pdf.
 Treas. Reg. §1.562-1.
 See Treas. Reg. §1.562-2(a).