• Home
• Federal Income Taxes
• State Tax Laws
• Estate Planning
• Publications
• Professional Research
  • Master Index
  • Case Law
  • Revenue Rulings
  • Private Letter Rulings
  • Regulations
  • Internal Revenue Code
  • Public Laws
  • Research Process
• Tax Workshops/Education
• Tax Policy
• Links

Real Estate Investment Trust Summary

REIT's Income From Timber Is Treated as Derived From Real Property
The Service has ruled that income a REIT earns from the sale of timber will be treated as income derived from gain on the sale or disposition of real property, provided that cutting agreements are governed by section 631(b).
A partnership with timber interests, along with a corporation and its subsidiary, plan to operate in an umbrella partnership REIT format. The corporation, which intends to qualify as a REIT, is a limited partner of the partnership, while the subsidiary is a corporate general partner that will be treated as a qualified REIT sub under section 856(i).
The timber sales will be made under contracts in which the partnership retains economic interests in the timber. Tax treatment of the timber disposals will be governed by section 631(b).
Under a longstanding principle of law, the Service said, timber is treated as real property and is therefore considered real estate assets for purposes of applying section 856(c)(5)(B) and 856(c)(4)(A). The Service also said that the income will not be treated as prohibited transaction income under section 857(b)(6).
Full Text: LTR 9925015

REIT's Income From Timber Is Treated as Derived From Real Property
The Service has ruled that for purposes of applying section 856(c), a REIT's timber interests will be treated as real property and reimbursements it receives from other subsidiaries will not be treated as gross income.
A publicly traded limited partnership with timber interests, citing potential economic benefits, plans to convert to a REIT. Following the conversion, a new corporation (the REIT) will hold the timber interests through entities disregarded for federal tax purposes. The REIT will dispose of timber held for more than one year under contracts in which it will retain an economic interest in the standing timber, consistent with the requirements of section 631(b). The REIT and its subsidiaries will perform services that benefit each other, and a reimbursement plan has been devised in which the entities will reimburse each other for shared expenses. The REIT will not report the reimbursements as income nor claim a deduction for expenses incurred on behalf of there subsidiaries.
Under a longstanding principle of law, the Service said, standing timber is treated as real property and is therefore considered real estate assets for purposes of applying section 856(c)(5)(B) and 856(c) (4)(A). The Service also said, citing Rev. Rul. 84-138, 1984-2 C.B. 123, which addressed an analogous situation, that the reimbursement of expenses was tantamount to the repayment of a loan. Thus the reimbursement to the REIT is not gross income. It also noted that that difference between the proceeds that the REIT received from the timber sales and the adjusted basis of the disposed timber is considered gain from the sale of real property under sections 856(c)(2)(D) and 856(c)(3)(C).
Full Text: LTR 9927021

REIT's Income From Timber Is Treated as Derived From Real Property
The Service has ruled that income a REIT earns from the sale of timber will be treated as income derived from gain on the sale or disposition of real property, provided that cutting agreements are governed by section 631(b).
A REIT that conducts business through other entities, including a partnership, holds timber interests. The REIT, through the partnership, intends to dispose of timber held for more than a year. The timber sales will be made under contracts in which the REIT retains economic interests in the timber.
Under a longstanding principle of law, the Service said, timber is treated as real property and is therefore considered real estate assets for purposes of applying section 856(c)(5)(B) and 856(c)(4)(A). The Service also said that the timber income will not be treated as prohibited transaction income under section 857(b)(6). Moreover, the period for which the REIT will be treated as having been a member of the partnership will include the period during which a publicly traded partnership (PTP) held assets that were later transferred to the REIT at the time of the REIT's formation. The PTP assets consisted primarily of interests in the other partnership.
Full Text: LTR 9945055