Still Awaiting Official Qualification from IRS, Three Firms Begin Operating as REITs
A few months of hand-wringing by the IRS this past summer over what corporate assets constitute real estate did indeed stall the rush of firms seeking to qualify as REITs by Jan. 1 of this year. Several firms that initiated the process last year to convert have commenced operating as real estate investment trusts effective Jan. 1, but have yet to qualify as a REIT for U.S. federal income tax purposes for this year.
Missing their internally set deadlines for qualifying as REITs were: Crown Castle International Corp., Lamar Advertising Co. and Iron Mountain Inc. In addition, CBS Outdoor Advertising and Equinix Inc. are also in the process of REIT conversions and expected to do so later this year.
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Crown Castle confirmed that it is now operating as a REIT, Iron Mountain and Lamar Advertising had planned to do so also. The conversion processes are still ongoing for all the firms.
What slowed down the efforts was an announcement early last summer that the IRS had formed a “working group” to in essense define what constitutes as "real property" for the sake of qualifying as a REIT, informing those that had filed to qualify as REITs that all such cases would not go forward until the IRS group concluded its work.
Then just as unexpectedly last November, the IRS basically said “never mind,” and notified firms that it would resume working on their conversion requests.
Crown Castle commenced operating as a REIT effective Jan. 1, based on opinions obtained from its law firms. While Crown Castle plans to operate in a manner consistent with REIT, the company said it cannot give assurance that it would qualify. Crown Castle owns, operates and manages over 40,000 wireless communication sites in the U.S.
Lamar Advertising is actively considering an election to convert to a REIT. On Jan. 2, the IRS published an updated list of those provisions for which it said it will not issue letter rulings or determination letters. The classification of outdoor advertising displays for REIT qualification purposes was included in this “no rule” list.
Lamar Advertising, which currently operates more than 150 outdoor advertising companies, said it believes a loophole exists under which if it makes an election to treat its outdoor advertising displays as real property, the IRS may rule on whether an asset that is not within the scope of the election, but is related to the outdoor advertising displays, constitutes real property for REIT purposes.
Based on discussions with counsel and its ongoing discussions with the IRS, Lamar Advertising said last month that it remained optimistic that it would be in a position to convert to a REIT effective Jan. 1. As part of that process, it completed an internal corporate restructuring to transfer certain of its assets and activities to newly formed, wholly owned taxable REIT subsidiaries late last month.
Iron Mountain elected to begin operating as REIT but has not yet received an official ruling from the IRS.
CBS Outdoor Americas Inc., currently an indirect wholly owned subsidiary of CBS Corp, intends to separate itself from its parent in 2014 and would be treated as REIT from that point thereon. The outdoor advertising firm is proceeding with that process.
Equinix also continues to implement its plan to convert to a REIT, but is not looking to elect REIT status until Jan. 1, 2015.
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