"With Iron Mountain Ruling, IRS Continues Consistent Approach to Defining REIT ‘Real Estate’"

by Skadden, Arps, Slate, Meagher & Flom LLP

A significant amount of press attention has been given to an unusual press release filed with the SEC yesterday by Iron Mountain regarding its planned conversion to a real estate investment trust (REIT). Iron Mountain said that the IRS had informed the company that the IRS is “tentatively adverse” on Iron Mountain’s private letter ruling (PLR) request that racking structures constitute “real estate” for REIT purposes. The press release stated that a PLR confirming that racking structures are real property is necessary for Iron Mountain’s REIT conversion, presumably because of the significant value associated with these assets.

Racking structures are the steel storage racks inside Iron Mountain’s warehouses that hold the boxes stored by tenants. The IRS historically has taken the position that some racks are comparable to permanently secured supermarket counters and do not qualify as real property for REIT purposes. In that sense, close scrutiny by the IRS of these assets is not surprising, as the IRS carefully evaluates REIT PLR requests to ensure consistency with the REIT rules in the tax code and with the IRS’s prior rulings. In addition, there always will be areas in which changes in technology, for example, require the IRS to apply the definition of real property to new facts, requiring thorough analysis.

Iron Mountain stated that its “tentatively adverse” notice from the IRS occurred shortly before the company learned of the formation of a new internal IRS working group that is studying the current legal standards used to define “real estate” for purposes of the REIT provisions of the tax code. The IRS has been considering this issue for some time, and it has had the short term effect of slowing down the receipt of REIT PLRs. We believe the current heightened level of review is indicative of the agency’s continued desire to make careful and thoughtful decisions with regard to determining REIT status. We do not, however, believe that the IRS has changed its position on the fundamental definition of what assets constitute real property, nor do we believe the IRS will apply the REIT rules inconsistently with its prior and accurate interpretations of the law as written by Congress.

Recent REIT conversions that have garnered significant press attention are not a result of a change in the IRS definition of real estate. To be a REIT, a company must own real property. All of the companies that have recently converted to REITs own significant amounts of assets that qualified as real estate prior to their conversions — for each company, the relevant question was not if it could become a REIT, but rather when to become a REIT. Notwithstanding recent press stories to the contrary, the IRS has not expanded the definition of “real estate” to make the REIT structure more widely available than Congress originally intended. Rather, the IRS has interpreted the definition of real estate with remarkable consistency, applying the law strictly as Congress wrote it. Each ruling issued by the IRS with respect to REIT conversion simply has confirmed that the assets of these companies are real estate, as that term always has been understood.

Companies have become REITs over the years in response to economic incentives, including, in recent cases, the demand for high-yield investments at a time when alternative investment returns are at record lows. These types of investments are in short supply because of the Federal Reserve’s policy of quantitative easing. The recent interest in REIT conversions is thus driven by market demand as opposed to a more permissive ruling posture at the IRS.

Iron Mountain’s press release contains an unusual statement, speculating that the current scrutiny at the IRS will impact the timing of PLR requests submitted by other companies. While the ongoing study by the IRS may delay some rulings, PLR requests are confidential and individually considered based upon their particular facts. The position of the IRS with respect to Iron Mountain’s assets should not be interpreted as any significant shift in the definition of assets qualifying as real property for REIT tax purposes. Companies considering REIT status have no reason to conclude that the focus on the meaning of real estate or the possible receipt of an adverse ruling by Iron Mountain will prevent their conversions.

At the end of the day, we are confident that, consistent with its prior practice, the IRS will remain consistent in its interpretation of what constitutes real estate. Assets that historically have not qualified as real estate will continue not to qualify. Assets that have historically fallen within the definition of real estate will continue to qualify as such. Assets for which no determination has been made will be given close scrutiny by the IRS.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Skadden, Arps, Slate, Meagher & Flom LLP | Attorney Advertising

Written by:

Skadden, Arps, Slate, Meagher & Flom LLP

Skadden, Arps, Slate, Meagher & Flom LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.