Internal Revenue Service Issues Private Ruling That Entity with Zero Gross Income or Assets Can Qualify as a Real Estate Investment Trust
Tax attorneys Mark Melton, Ross Tuminello and Bryce Klein authored an article discussing a recent private letter ruling (Priv. Ltr. Rul. 202440007) in which the Internal Revenue Service (IRS) concluded that a real estate investment trust (REIT) with no income or assets during the year of its formation did not fail the REIT gross income or asset tests for that period. The article explains that the IRS relied on legislative history to support a technical interpretation of Section 856(c), clarifying the relevant tests focus on the character of income and assets, not their mere existence in the first year. This ruling provides valuable assurance to entities forming REIT structures, confirming initial-year inactivity does not automatically jeopardize REIT qualification.