On May 9, 2014, the IRS released proposed regulations (“Proposed Regulations”) which are intended to clarify the definition of “real property” for purposes of the asset tests applicable to real estate investment trusts (“REITs”). The IRS’s expectation is that taxpayers will be able to utilize the additional guidance in the proposed regulations to analyze whether their assets qualify as real property in lieu of seeking private letter rulings.
The Proposed Regulations define real property to include the same three broad categories: (1) land, (2) inherently permanent structures and (3) structural components. In addition, unlike the current regulations, the Proposed Regulations identify certain types of intangible assets that are real property for purposes of the REIT asset tests. This tax alert provides a summary of the Proposed Regulations.