treatment of a REIT and its taxable REIT subsidiary (TRS) under section 856

IRS Private Letter Ruling 201214009

Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201214009
Release Date: 4/6/2012
Index Number:  856.00-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
—————-, ID No. ————
Telephone Number:
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Refer Reply To:
CC:FIP:B02
PLR-128509-11


This is in reply to a letter dated July 6, 2011, and a subsequent submission, requesting rulings on behalf of Taxpayer.  The requested rulings concern the treatment of a REIT and its taxable REIT subsidiary (TRS) under section 856 of the Internal Revenue Code in the circumstances described below.


Facts:
Taxpayer is a publicly held State A corporation that elected to be taxed as a real estate investment trust (REIT) for its tax year beginning Year 1.  Taxpayer invests in Properties through the acquisition and development of primarily single tenant properties.  In general, Taxpayer’s Properties are leased under absolute-net lease terms to third party lessee/operators, and Taxpayer is not involved in the management of the properties.


On Date 1, Taxpayer acquired all of the stock of Company A as part of a merger transaction (the Merger).  Prior to the Merger, Taxpayer had an approximately b% interest in Company A.  As part of the Merger, Company A was merged with a transitory subsidiary of Taxpayer with Company A surviving as a wholly-owned subsidiary of Taxpayer.  After the Merger, Company A is a qualified REIT subsidiary (QRS) of
Taxpayer.  The Merger included the acquisition by Taxpayer of Company A’s Facilities. Facilities were leased to TRS in a RIDEA  structured transaction by Taxpayer and Company B, which was formed by nine senior executives of Company A (Management REIT Investment Diversification and Empowerment Act of 2007 which permits a REIT to lease qualified health care facilities to a TRS.)  Prior to the merger, Company A had spun off its Services Businesses into a new company, Company C.


Taxpayer and Management Team established a limited liability company, Lessor, to own Facilities and, through TRS, established a separate limited liability company, Lessee, to own the operations portion of the business.  Company A owns approximately d percent of Lessor and TRS owns approximately d percent of Lessee.  Management Team owns approximately a percent of each entity.  Lessor leases Facilities to Lessee
under three separate master leases. A wholly-owned subsidiary of Company C manages the Facilities as an eligible independent contractor (EIK).