May 20, 2014

Proposed Regulations Expand Definition of Real Estate for REITS to Include Solar Sites

On May 9, 2014, the Internal Revenue Service issued Proposed Treasury Regulation 1.856-10 which clarifies and expands the definition of “real estate” for purposes of the REIT provisions of the Code. The Proposed Regulation removes the uncertainty whether certain assets are permanent structures or components thereof are real estate because they can be viewed as used in the operation of a business. Instead, the Proposed Regulation requires that each distinct asset be analyzed separately to determine whether it is a permanent structure or component thereof and whether it serves an active or passive function.

Applying the new test, the Proposed Regulation concludes that a standalone solar site constitutes real estate, except for the PV Modules. Where the solar site is dedicated and restricted to serving the heating and coaling needs of a single building, the entire solar site qualifies as real estate. Other features of the Proposed Regulation are the broad list of assets which will be deemed to qualify as permanent structures or components thereof and the inclusion of intangibles as real estate. There are 10 detailed examples illustrating the provisions of the Proposed Regulation.

The provisions of the Proposed Regulation apply for calendar quarters beginning after the date of publication of the Final Regulations. [More ...]


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