IRS approves new REIT with no initial income or assets

Katie LaKoma and her co-authors discuss a landmark IRS private letter ruling confirming that a newly formed REIT can satisfy the REIT income and asset tests even if it has no income or assets during its first year of operation. The ruling resolves a longstanding area of uncertainty for REIT sponsors and tax advisors by clarifying that the tests focus on the nature of a REIT’s income and assets, not whether it has any income or assets at all. LaKoma notes that the guidance provides greater flexibility for newly formed REITs and may eliminate the need for certain interim investments that were previously used to avoid qualification concerns.