PLR 201315004: The IRS rules favorably on a REIT’s prohibited transaction issues

August 2013
  • Print-friendly version
PLR 201315004:  The IRS rules favorably on a REIT’s prohibited transaction issues

At a glance

The IRS has recently ruled in PLR 201315004 that net income derived from sales of a portfolio of properties may not be treated as income derived from prohibited transactions.

In particular, the IRS considered the proposed sale of one property, "Project X," which may be sold relatively soon after the completion of construction instead of being held for the production of rental income for the long term.

In PLR 201315004, the “Taxpayer” is a real estate investment trust whose investment plan, since inception, was to acquire, develop, or redevelop a variety of real estate assets diversified by property type and location for long-term investment purposes, with a majority of return on its investment being derived from rents rather than proceeds from sale (the “Original Investment Plan”).

Nevertheless, the Original Investment Plan did not preclude properties from being sold at opportune times to maximize returns over the long term. Taxpayer acquired various properties between Years 2 through 6 through its interest in various QRSs, LLCs and partnerships, including “Project X,” which was acquired in Year 4; no properties were acquired during Years 7 through 10.

Further reading