Real Estate Investment Trust Corner: REITs: Fifty Shades of Gray in "Customary" Services

Seven years ago, one of the authors of this column wrote about the "gray" area of a real estate investment trust's income that is derived from "services customarily furnished" in connection with the rental of real property. Determining "customary" services provided...

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Bibliographic Details
Published in:Journal of Passthrough Entities 2018-09, Vol.21 (5), p.23-26
Main Authors: Cullen, Daniel F, Matejcak, Peter R, Gong, Sukbae David
Format: Article
Language:English
Subjects:
Cable TV
Customer services
Electricity
Government agencies
Gross income
Independent contractors
Internal Revenue Code
Investments
Marketing
Parking facilities
Pest control
Real estate
Real estate investment trusts
Real estate management firms
REITs
Related parties
Snow removal
Sprinkler systems
Tenants
Third party
Treasuries
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Summary:Seven years ago, one of the authors of this column wrote about the "gray" area of a real estate investment trust's income that is derived from "services customarily furnished" in connection with the rental of real property. Determining "customary" services provided to tenants is becoming an increasing difficult task for a real estate investment trust (a "REIT") and this column hopes to provide an update by breaking down the Internal Revenue Service ("IRS") rulings by property type and discussing how to best address the "gray" areas. As background, a brief overview of the REIT income tests would be helpful for the readers. In addition to a number of statutory requirements outside of the scope of this column, a REIT must satisfy two separate percentage tests relating to the sources of its gross income for each taxable year. The first gross income test for a REIT is the "75% Test," which requires at least 75% of the REIT's gross income to be derived from "qualifying income."
ISSN:1099-7407