The IRS publicly released a private letter ruling* addressing the tax treatment of patronage dividends received by a real estate investment trust (REIT). PLR 201524017 (released June 12, 2015, and dated March 16, 2015)
Read text of PLR 201524017 [PDF 53 KB]
The taxpayer—a state corporation and taxed as REIT—requested a ruling that its patronage dividends did not constitute gross income to the taxpayer for purposes of section 856(c)(2) or (3). The IRS determined that the taxpayer must include the patronage dividend income in its gross income under section 1385(a)(1), but that the patronage dividends also effectively reduce the taxpayer’s interest expense paid during the prior year.
Therefore, the IRS concluded that the patronage dividends do not interfere with congressional policy objectives in enacting income tests; thus, the patronage dividends included under section 1385 are excluded from gross income for purposes of section 856(c)(2) and (c)(3).
*Private letter rulings are taxpayer-specific rulings furnished by the IRS National Office in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. It is important to note that, pursuant to section 6110(k)(3), such items cannot be used or cited as precedent. Nonetheless, such rulings can provide useful information about how the IRS may view certain issues.
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