Income from parking facilities is qualifying REIT income.

• Author: Fisher, Mark
• Position: Real estate investment trust

In Letter Ruling 201628020, the IRS ruled that amounts received by a real estate investment trust (REIT) from the provision of parking spaces in its parking garage, in part, to the tenants of the REIT's office building and, in part, to a third-party owner of an adjacent building under a long-term lease constitute qualifying rents from real property. Letter Ruling 201628021 appears to address the same facts as Letter Ruling 201628020 for another REIT investor in the partnerships described below, and it reaches a consistent conclusion.

Facts

Taxpayer, an entity that has elected to be taxed as a REIT, owns Building 1 through its interest in a partnership (Partnership 1). TRS1, a taxable REIT subsidiary of Taxpayer, owns Parking Garage through its interest in another partnership (Partnership 2).

Building 1, Building 2 (which is adjacent to Building 1), and Parking Garage make up the office park. Building 2 is owned by an unrelated third party, which originally built Building 1, Parking Garage, and Building 2 as one integrated office park and then subsequently sold Building 1 and Parking Garage. Parking Garage, a parking structure adjacent to Building 1, was built to accommodate the tenants of Building 1 and Building 2, as well their employees, customers, and guests.

In a prior year, the owners of Building 1, Building 2, and Parking Garage entered into an easement agreement, which requires the owner of Parking Garage to maintain the number of parking spaces required to satisfy the legal on-site parking requirements under the city municipal code and to make Parking Garage available for the nonexclusive use of the owners and occupants of Building 1 and Building 2. Except for a small number of reserved spaces, the garage is unreserved and unassigned. Use by the general public is de minimis.

The owner of Parking Garage has entered into an agreement with Operator to operate the Parking Garage. The garage has unmanned entrances and exits with electronic gates. One Operator employee is present during weekday business hours to ensure that everything is in order and there are no safety concerns. In a prior year, the owner of Building 2 entered into a long-term lease (parking lease) with the owner of Parking Garage under which the owner of Building 2 must lease between X and Y parking spaces within the Parking Garage and pay the owner of Parking Garage fixed, monthly rent. In a prior year, the owner of Building 2 also entered into a long-term agreement...