IRS Releases PLR 202013006 & 202013007 on Treatment of Parking Revenue

Executive Summary: On March 27, 2020, the IRS released two substantially similar Private Letter Rulings (“PLR”) concluding that the share of parking revenue a Real Estate Investment Trust (“REIT”) receives will qualify as rents from real property under Internal Revenue Code (“IRC”) §856(d).

Background

In order for an entity to qualify 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.

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. PLR 202013006 & PLR 202013007 appear to address the same facts for both REITs.

Facts

REIT A and REIT B (together, “Companies”) are engaged in a mixed-use development project consisting of Parcel 1 and Parcel 2.

Parcel 1 is intended to have an office condo (owned by REIT A) and a retail condo unit (owned by REIT B). Additionally, Parcel 1 will have an underground parking garage that is used by REIT A; however, REIT A is required to leave a certain amount of parking spaces available for public parking (included to be used by retail tenants of REIT B and their customers).

Further, REIT A represents that the garage is expected to be used predominantly by the office condo unit’s tenants and their guests, subtenants, and customers and will be built for this purpose.

Footnote:

1: §856(c)(2) and §856(c)(3)