IRS PLR 202012003 Cold Storage Warehouse | FTI Consulting

IRS Releases PLR 202012003 on Treatment of Cold Storage Warehouse Operations

Real Estate | Corporate Finance & Restructuring

June 1, 2020

Cold storage warehouse

On March 20, 2020, the Internal Revenue Service (“IRS”) released a Private Letter Ruling (“PLR”) addressing the treatment of cold storage warehouse operations by a real estate investment trust (“REIT”). 

The Service ruled that amounts received under storage agreements for providing space will qualify as rents from real property within the meaning of Internal Revenue Code (“IRC”) §856(d).


In order for an entity to qualify as a REIT, at least 75% of a REIT’s gross income must be derived from sources that include rents from real property, gain from the sale or other disposition of real property, dividends from REIT stock, and/or abatements and refunds on taxes on real property. 

Further, at least 95% of its gross income must be derived from sources that include qualifying income from the 75% test, plus dividends, interest, and gain on sale or other disposition of stock and securities1.


The REIT, together with the operating partnership and subsidiaries, will own storage warehouses and provide unrelated manufacturers, distributors and retailers with storage space as well as handling and other supply chain services. The REIT may rent to a customer an entire warehouse, a set amount of reserved space in a warehouse for a set term that is generally one year, or non-exclusive space in a warehouse. 

Storage rates are based on an anticipated number of days a customer will store goods in a warehouse. Some storage agreements may provide for a fixed minimum storage commitment. While the REIT may not guarantee available space to customers under each type of storage agreement, based on customer data and space utilization planning, each customer is effectively guaranteed space in a particular warehouse.


1: §856(c)(2) and §856(c)(3)

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