In a 1967 court case, the Ninth Circuit denied tenant-stockholder status to a taxpayer because the interest in the apartment was evidenced by a debt instrument. The intent of IRC Sec. 216 is to allow tenant-stockholders the same benefits as other home owners. The key linkage is the ownership of the unit by the tenant-stockholder. In the 1967 case, because only debt was issued by the corporation, the interest in the apartment was that of a creditor, not an owner.
Some additional restrictions apply to CHCs.
Second, single-family units whose stockholders are entitled to a private room for perpetual use do not qualify as CHCs. The IRS's interpretation is that each unit must have facilities for cooking, sleeping, and sanitation. The tenant-stockholder must have the right of occupancy. Prior to 1987, only individual taxpayers were allowed tenant- stockholder status. TRA 86, however, made it possible for other taxable entities such as corporations, trusts, estates, partnerships to be qualified tenant-stockholders.