In PLR 201628009, the IRS determined that a dockside casino barge and a moored riverboat constituted "real estate assets" for purposes of the REIT qualification test.
The taxpayer requesting the ruling owned, operated, and developed casinos and entertainment facilities. The taxpayer had constructed riverboats and barges (the "Water Properties") on water adjacent to its land-based facilities. The Water Properties were unable to be moved from their moored location. The Water Properties were connected to the land-based facilities for utilities such as electricity, water, and communications. Although certain casino barges maintained propulsion systems, the Water Properties maintained these systems solely to comply with state gaming regulations; moving any of the Water Properties would "require a determination that movement is at all feasible, and the preparation for movement could take several weeks." Further, although certain riverboats maintained propulsion systems, the riverboats were indefinitely moored and not intended for transportation. The taxpayer represented that the taxpayer did not intend to move any Water Property from its current location before the end of its economic useful life and that taxpayer's intent in designing and constructing each Water Property was to have it remain in place for the entirety of its useful life.
At least 75% of a REIT's income must be derived from specific sources and at least 75% of a REIT's assets must be real estate assets, cash and cash items, and Government securities. I.R.C. § 856(c)(4)(A). Real estate assets include interests in real property. I.R.C. § 856(c)(5)(B).
The IRS determined that the Water Property qualified as real estate assets because (1) the Water Properties were "inherently permanent structures"; (2) the Water Properties were moored or attached for a number of years; (3) the Water Properties were connected to "land-based utilities", like electricity, water, and sewage systems; (4) the Water Properties were designed to, and the parties intended that the Water Properties would, remain in place for their entire economic useful lives; (5) moving the Water Properties would be "costly, burdensome, and would require significant time and expenditure"; and (6) moving the Water Properties would be impracticable or impossible without completely destroying the facilities.
Although the IRS's guidance specifically relates to casino barges, the IRS's rationale is useful in analyzing whether other property, such as a mobile home or house boat, constitutes a real estate asset under the REIT qualification rules. As the PLR suggests, whether property is a real estate asset largely depends on the permanence of the structure and the extent to which the subject property could be moved from its current location. REIT practitioners should review this PLR when analyzing whether non-traditional property qualifies as a real estate asset.
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