The Internal Revenue Service (“IRS”) recently issued proposed regulations (the “Proposed Regulations”)  clarifying the definition of “real property” for purposes of the REIT rules. The Proposed Regulations  generally reflect the IRS’s approach to defining “real property” in the context of private letter rulings. If  finalized, the Proposed Regulations would, unlike private letter rulings, provide published guidance upon  which all taxpayers may rely. The Proposed Regulations provide a list of items that are considered to be  “real property” under the REIT rules. They further provide a list of factors to be employed in a facts and  circumstances analysis for items that do not appear on the list. Discussed below are some of the more  significant provisions of the Proposed Regulations.

Continue reading for a description of some of the more significant provisions of the Proposed  Regulations.

The Proposed Regulations clarify that the following items, which are not currently addressed by published  IRS guidance, constitute “real property” under REIT rules:

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The Proposed Regulations also provide factors to be utilized in making a “facts and circumstances  determination” as to whether items not specifically listed above or otherwise in the Proposed Regulations  qualify as real property. The IRS provided several examples indicating certain types of property that do or  do not qualify as “real property.” Based on the facts in the examples, the Proposed Regulations made the  following classifications:

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Effective Dates

The Proposed Regulations would be effective for calendar quarters beginning after the Proposed  Regulations are finalized.

A copy of the Proposed Regulations is available here.