Communications antenna and cellular tower leasing companies have recently been converting to real estate investment trusts (“REITs”) in the wake of a series of favorable rulings from the IRS. The increased confidence in the REIT structure as a viable alternative legal structure is the result of the IRS having blessed various types of communications, broadcast and cellular antennas, towers and other superstructure as constituting real property for REIT tax purposes.1 While such rulings certainly provide taxpayers operating in the wireless and broadcast infrastructure industry with new opportunities in the REIT arena, qualification of an asset as real property alone does not necessarily ensure qualification as a REIT and it is important to consider how the streams of income therefrom will fit within the “qualifying income” tests in the Code.2 In Private Letter Ruling 201301007 (the “PLR”), the IRS provided such guidance with respect to on-site power generation at communications antenna facilities, ruling that income received from such power generation qualifies as “rents from real property.”3


The Taxpayer in the PLR is a wireless and broadcast infrastructure company that conducts business in the United States and various other countries around the world. The Taxpayer,together with its subsidiaries,  4 owns a portfolio of communications sites, substantially all of which are freestanding and rooftop antenna towers, and engages primarily in the business of acquiring, developing and leasing antenna space. Its multi-tenant communications sites are leased to various types of tenants, including wireless telecom providers, radio and television broadcast companies and paging companies. The Taxpayer’s real estate portfolios consist of fee interests in land, as well as temporary or permanent easements in land. In addition, the Taxpayer also acts as a ground landlord for certain real estate portfolios consisting of secondary ground leases or rooftop lease positions where the space has already been leased to the Taxpayer for purposes of antenna tower use.

On-site Power Generation

Certain of the Taxpayer’s communications sites are equipped with on-site power generators that are intended to supply power to the site when the local power grid is offline or where local power may not be available. 5 The generators are operated and maintained by either the Taxpayer, a taxable REIT subsidiary of the Taxpayer, an independent contractor, or some combination thereof. The power generated on-site is provided solely for the use of the tenants and the Taxpayer’s assets (e.g., HVAC, lighting systems) at the communications site, including the antenna tower itself. Because the communications sites are frequently in rural areas or in developing countries, licenses and leases of such facilities may require that the Taxpayer keep on-site generators fueled and ready for operations at all times, and may additionally require backup batteries. In addition, such licenses and leases may require that the taxpayer provide power to an antenna for a specified amount of time each day or month. In certain cases, the taxpayer charges separately for the electricity generated by such on-site power generators.6

In seeking to receive the ruling from the IRS, the Taxpayer made the following representations with respect to the provision of on-site power generation:

  • The Taxpayer does not and will not generate power to sell back to the local electricity grid, and any electricity generated on-site is contemporaneously consumed or stored in on-site backup batteries for later consumption.
  • The on-site generation is intended to ensure that each communications site has a secure source of electric power, and such power is provided solely for the use of the communications site’s tenants and the Taxpayer’s assets.
  • The use of on-site generators to provide power to tenants of communications sites is usual and customary in the geographic markets in which the Taxpayer has on-site generators.
  • Any charges for electricity are not based on the income or profits of any person, and Taxpayer’s collection for such power generation may exceed or fall short of its actual costs for providing such power.
  • The Taxpayer will compensate its taxable REIT subsidiaries on an arm’s-length basis for any services they provide in connection with on-site power generation.

While the IRS has issued a series of rulings indicating that the type of communications, broadcast and cellular antennas, towers and other superstructure at issue in the PLR constitute real estate assets for REIT tax purposes, the PLR takes the analysis a step further and addresses whether certain ancillary income generated in connection therewith (in this case, onsite power generation) nevertheless constitutes qualifying income for purposes of the REIT qualification tests under the Code.

Applicable Law

In order to qualify as a REIT, an entity’s gross income is evaluated under a series of tests in order to ensure that entities taking advantage of the beneficial REIT tax rules are generating income of the various types Congress intended when formulating the REIT rules.7 At least 95 percent of a REIT’s gross income must be derived from certain qualifying income, including, among other sources, rents from real property. 8 Similarly, in general at least 75 percent of its gross income must be derived from, among other sources, rents from real property.9 Subject to certain exclusions and limitations, in general rents from real property includes rents from interests in real property, charges for services customarily furnished or rendered in connection with the rental of real property (whether or not such charges are separately stated), and rent attributable to personal property leased under, or in connection with, a lease of real property (but only if the rent attributable to such personal property for the taxable year does not exceed 15 percent of the total rent for the taxable year attributable to both the real and personal property).10

As the rules show, it is not enough that a service simply be provided in connection with real property. Services must additionally be “customarily furnished.” Services rendered to tenants will be considered to be customary if, in the geographic market in which the property is located, tenants in property of a similar class are customarily provided with the service. 11 For example, in particular geographic areas where it is customary to furnish electricity or other utilities to tenants in property of a particular class, the sub-metering of those utilities to tenants will be considered a customary service.

Further, certain “impermissible tenant service income” is excluded from the definition of rents from real property and, if present in sufficient amounts, may taint all income received or accrued with respect to a particular property. Impermissible tenant service income is defined as any amount received or accrued directly or indirectly by a REIT for services furnished or rendered by the REIT to tenants at the property, or for managing or operating the property.12 If the amount of impermissible tenant service income exceeds one percent of all amounts received or accrued by the REIT with respect to the property during the tax year, then all amounts received or accrued with respect to the property will be considered impermissible tenant service income.13

Despite the limitations in respect of impermissible tenant service income, the Code does provide for certain exceptions to the general rule. For example, services furnished or rendered, or management or operation provided through an independent contractor from whom a REIT does not derive or receive income, shall not be treated as having been furnished, rendered or provided by the REIT.14 In addition, any amounts that would be excluded from “unrelated business taxable income” shall not be taken into account.15 For example, under the unrelated business taxable income regulations, payments for the use of occupancy of rooms or other space where services are also rendered to the occupant do not constitute rent from real property.16 Generally, services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only.17 Thus, for example, the furnishing of heat and light is not considered as services rendered to the occupant.18

Application of Law to On-site Power Generation

In the PLR, the IRS concluded that the on-site power generation will not cause income from the communications sites to be treated as other than rents from real property, and amounts derived from providing on-site power generation will qualify as rents from real property. Describing the Taxpayer as a “responsible landlord” providing on-site power generation only in connection with the lease of real property, the IRS reasoned that the Taxpayer was merely bridging the gap between its tenant’s requirements for predictable power versus unpredictable or nonexistent power available from the local power grid. Citing the reference to the provision of heat and light in the unrelated business taxable income regulations, the PLR concludes that the provision of the on-site power should not be treated as impermissible tenant service income because it is not considered to be rendered to the occupant.


The PLR represents another ruling in the recent series of IRS guidance further opening the door for participants in the wireless and broadcast infrastructure industry to enter the REIT arena. While the PLR provides support for the classification of income generated in connection with onsite power generation at communications antenna sites as rents from real property, taxpayers should continue to proceed with caution. For example, the IRS’ conclusion in the PLR is limited to the Taxpayer’s particular facts and circumstances, most notably the location of the communications sites in rural areas and developing countries with inconsistent or nonexistent electricity grids. This raises the question of the wider applicability of the ruling to on-site power generation at communications antenna located in more developed areas. Regardless, this PLR is another significant ruling in connection with the burgeoning communications antenna REIT industry.