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ARTICLE · 05 SEPTEMBER 2017

IRS Rules Interest Is Qualifying REIT Income

Grant Thornton LLP
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The IRS Office of Chief Counsel ruled in a private letter ruling (PLR 201732012) released Aug. 11 that interest received by a REIT was qualifying income for purposes of the REIT income test under Section 856(c)(3).

United StatesFinance and Banking
Jeff Borghino
Jeff Borghino
Lorraine White
Lorraine White
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The IRS Office of Chief Counsel ruled in a private letter ruling (PLR 201732012) released Aug. 11 that interest received by a real estate investment trust (REIT) was qualifying income for purposes of the REIT income test under Section 856(c)(3).

Under the facts of the ruling, a REIT held property in its disregarded limited liability company (LLC) and was constructing a large residential rental building. Based on the cost of constructing the building, the REIT utilized financing options offered by a state agency. The agency issued bonds to the public and REIT would receive the proceeds of the bonds from the agency pursuant to a loan agreement.

As part of the agency's bond resolution, the agency could direct the investment of a portion of the bond proceeds until the funds were needed by the REIT. The earnings of the bond proceeds would be applied to reduce the debt service on the bonds. Although neither the REIT nor its LLC held legal title to the investments, the

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