internal_revenue_service number release date index number --------------- ------------------------------------ ---------------------------------------------- --------------------------------- ----------------------- ----------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ----------------- telephone number --------------------- refer reply to cc fip b03 plr-148889-11 date date legend legend taxpayer ---------------------------------------------- ------------------------ ------------------- ---------------------------- ---------------------------- ----------------------------------------- --------------------------------------------------- ----------------------------------------- ------------------------------------------------ -------------------------------------- ------------------------------ -------------------------------- -------------------------------------------- --------------------------------------------------------------- hotel gp op lp lp lp llc llc llc hotel trs hotel lessee llc company ------------------------------------------------------------------------------------------------------------------ date date a b -------------------------- ------------------------- ---- ----- dear ------------ this responds to a letter dated date on behalf of taxpayer taxpayer requests rulings under sec_856 d and l of the internal_revenue_code code concerning the leasing and the operation and management of hotel plr-148889-11 facts taxpayer is an affiliate of gp a domestic_corporation that has elected under sec_856 to be treated as a real_estate_investment_trust reit for federal_income_tax purposes gp is the managing general_partner of op owning approximately a percent of the outstanding common units of op op through separate limited_liability companies llcs partnerships or reits owns and operates numerous real properties throughout the united_states in particular op owns through wholly owned llcs disregarded as separate from op for federal_income_tax purposes interests in lp and lp each of lp and lp is a partnership for federal_income_tax purposes lp owns interests in llc lp owns interests in taxpayer each of llc and taxpayer is an llc that has elected to be an association_taxable_as_a_corporation for federal_income_tax purposes hotel includes b guest rooms lobby space meeting rooms a restaurant and steel billboard structures permanently affixed thereto no wagering activities are conducted at or in connection with hotel as of date hotel was owned for federal_income_tax purposes by lp through several tiers of wholly owned disregarded llcs including llc and llc as of the same date hotel was managed by company a domestic_corporation in the ruling_request submitted on behalf of taxpayer taxpayer stated its intention to engage in the following transaction on or around date a each of taxpayer and llc will make a capital_contribution to llc in exchange for interests in llc which will become a partnership for federal_income_tax purposes b taxpayer llc lp and lp will form hotel trs an llc which will elect to be an association_taxable_as_a_corporation for federal_income_tax purposes c reit and trs elections i ii each of taxpayer and llc will elect under sec_856 to be treated as a reit for federal_income_tax purposes effective for the tax_year beginning on date taxpayer and hotel trs jointly will make an election under sec_856 for hotel trs to be treated as a taxable_reit_subsidiary trs with respect to taxpayer effective as of date plr-148889-11 iii llc and hotel trs jointly will make an election under sec_856 for hotel trs to be treated as a trs with respect to llc effective as of date d hotel trs and lp will form hotel lessee llc an llc that will be treated as a partnership for federal_income_tax purposes e llc will lease hotel to hotel lessee llc under terms consistent with those of leases of similar_property between unrelated parties f the portion of the rent under the lease of hotel that will be attributable to personal_property will not exceed percent of the total rent attributable to both the real and personal_property g hotel will be managed and operated on behalf of hotel lessee llc in which hotel trs will be a member by either company or another third-party manager hereinafter company or such other manager is referred to as manager at all times i ii iii manager will be an independent_contractor within the meaning of sec_856 with respect to taxpayer and llc manager will be actively engaged in the trade_or_business of operating qualified lodging_facilities within the meaning of sec_856 for entities unrelated to taxpayer llc or hotel trs manager will be owned by persons unrelated to taxpayer llc and hotel trs for purposes of sec_856 and sec_52 and b taxpayer entered into the above transaction on or around date law and analysis sec_856 provides that at least percent of a reit's gross_income must be derived from among other sources rents_from_real_property sec_856 provides that at least percent of a reit's gross_income must be derived from among other sources rents_from_real_property sec_856 provides that the term rents_from_real_property includes a rents from interests_in_real_property b charges for services customarily furnished or rendered in connection with the rental of real_property whether or not such charges are plr-148889-11 separately_stated and c rent attributable to personal_property which is leased under or in connection with a lease of real_property but only if the rent attributable to such personal_property for the taxable_year does not exceed percent of the total rent for the taxable_year attributable to both the real and personal_property leased under or in connection with such lease sec_856 provides that a person is an independent_contractor if -- a it does not own directly or indirectly more than percent of the shares or certificates of beneficial_interest in the relt and b if such person is a corporation not more than percent of the total combined voting power of its stock or percent of the total shares of all classes of its stock -- or if such person is not a corporation not more than percent of the interest in its assets or net profits -- is owned directly or indirectly by one or more persons owning percent or more of the shares or certificates of beneficial_interest in the reit sec_856 states that except as provided in sec_856 the term rents_from_real_property does not include any amount received or accrued directly or indirectly from any person if the reit owns directly or indirectly-- i in the case of any person which is a corporation stock of the person possessing percent or more of the total combined voting power of all classes of stock entitled to vote or percent or more of the total value of shares of all classes of stock of the person or ii in the case of any person which is not a corporation an interest of percent or more in the assets or net profits of the person sec_856 provides that amounts paid to a reit by a trs of the reit will not be excluded from qualifying as rents_from_real_property by reason of sec_856 when a relt leases a qualified_lodging_facility or qualified_health_care_property to a trs of the reit and the facility or property is operated on behalf of the trs by a person who is an eligible_independent_contractor sec_856 provides that the term eligible_independent_contractor means with respect to any qualified_lodging_facility or qualified_health_care_property any independent_contractor if at the time the contractor enters into a management agreement or similar service_contract with a trs to operate the facility or property the contractor or any related_person is actively engaged in the trade_or_business of operating qualified lodging_facilities or qualified health care properties for any person who is not a related_person with respect to the reit or the trs sec_856 provides that for purposes of sec_856 persons are treated as related to plr-148889-11 each other if they are treated as a single employer under subsection a or b of sec_52 sec_856 defines a qualified_lodging_facility as any lodging_facility unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility under sec_856 the term lodging_facility means a i hotel ii motel or iii other establishment more than one-half of the dwelling units in which are used_on_a_transient_basis sec_856 provides that if a reit directly or indirectly owns stock in a corporation other than a reit the reit and the corporation may jointly elect for the corporation to be treated as a trs sec_856 provides that a trs cannot directly or indirectly operate or manage a lodging_facility or a health_care_facility in this case taxpayer represents that manager which will operate and manage hotel at all times i will qualify as an independent_contractor under sec_856 with respect to taxpayer and llc and ii will be actively engaged in the trade_or_business of operating qualified lodging_facilities within the meaning of sec_856 for entities unrelated to taxpayer llc or hotel trs thus under sec_856 manager will meet the definition of an eligible_independent_contractor with respect to the management and operation of hotel since manager will manage and operate hotel at all times i manager will be treated as managing and operating hotel on behalf of hotel trs for purposes of sec_856 and ii hotel trs will not be treated as operating or managing a lodging_facility in violation of sec_856 hotel is a lodging_facility within the meaning of sec_856 no wagering activities are conducted at or in connection with hotel by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with hotel thus under sec_856 hotel meets the definition of a qualified_lodging_facility thus a qualified_lodging_facility will be leased by llc to hotel lessee llc in which hotel trs will be a member accordingly the qualified_lodging_facility will be treated as being managed and operated on behalf of hotel trs a member of hotel lessee llc by an eligible_independent_contractor so that the requirements of sec_856 will be met as a result under sec_856 rent paid_by hotel lessee llc to llc will not be excluded from rents_from_real_property by reason of sec_856 plr-148889-11 conclusion accordingly based on the facts and representations submitted by taxpayer we conclude that under the circumstances described above manager will be treated as an eligible_independent_contractor with respect to the management and operation of hotel for purposes of sec_856 manager will be treated as managing and operating hotel on behalf of hotel trs for purposes of sec_856 and with respect to hotel hotel trs will not be treated as operating or managing a lodging_facility in violation of sec_856 rent paid_by hotel lessee llc to llc will be qualifying_income to taxpayer for purposes of the reit gross_income tests under sec_856 and c except as specifically ruled upon above no opinion is expressed concerning any federal_income_tax consequences relating to the facts herein under any other provision of the code specifically we do not rule whether taxpayer otherwise qualifies as a reit under part ii of subchapter_m of chapter of the code and we do not rule whether the requirement under sec_856 that rents must be substantially comparable has been met this ruling is directed only to the taxpayer requesting it taxpayer should attach a copy of this ruling to each tax_return to which it applies sec_6110 of the code provides that this ruling may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives sincerely alice bennett coppersmith chief branch office of associate chief_counsel financial institutions products enclosures copy of this letter copy for sec_6110 purposes