New REIT Regulations Proposed, by the IRS

File Type: Free Content, Article
Release Date: June 2014
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The IRS recently published proposed new regulations regarding what constitutes “real estate investment trust real property.” These regulations, which followed a period in which the agency issued several individual rulings to non-traditional companies seeking REIT status, aim to provide a more concrete framework for REIT qualification. The agency will accept comments until August 12 and will hold a public hearing on the proposed regulations on September 18.

The proposed rules offer a framework for evaluating the types of assets in which REITs may invest. Under the proposed regulations, if an asset has an active function, such as the generation, manufacture, or creation of a product, then it is not considered “real property,” unless it is a structural component serving a “utility-like function” such as electricity, heating and cooling for an “inherently permanent structure” of which it is a constituent part. They identify “outdoor advertising displays” (billboards) as inherently permanent structures that may be classified as real property.