IRS Rules On REIT Asset And Income Tests

In a private letter ruling (PLR 201428002) released on April 2, the IRS ruled that a real estate investment trust's (REIT) right to receive a state franchise tax refund constitutes a receivable arising in the REIT's ordinary course of operations.

To qualify as a REIT, a corporation must meet the asset tests under Section 856(c)(4) and the income tests under Sections 856(c)(2) and (3).

The asset tests under Section 856(c)(4) include a test that the total assets of a REIT, at the close of each quarter, must consist of at least 75% of "qualifying assets" including real estate assets, cash and cash items (including receivables), and government securities. The term "total assets" means gross assets of the REIT determined according to GAAP.