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 plr-151324-12 date date legend taxpayer ------------------------------------------------------ -------------------- state a exchange date date date date date date a b c d e -------------- ------------------------------------ ---------------------- ---------------------- --------------------------- --------------------------- ----------------------- --------------- ----- -------- ------ ------------ ---------- plr-151324-12 f g h i w x y ------------ ---- --------- ---- -------- ------------ ---------- dear -------------- this is in reply to a letter dated date and subsequent correspondence in which taxpayer requests rulings in connection with its election to qualify for taxation as a real_estate_investment_trust reit under sections of the internal_revenue_code_of_1986 as amended the code facts currently taxpayer is a publicly traded state a corporation that is the common parent of an affiliated_group_of_corporations that files a consolidated federal_income_tax return taxpayer is a calendar-year accrual-basis taxpayer that together with its subsidiaries together referred to as the company acquires leases purchases develops and builds data center buildings throughout the united_states and in several foreign countries and then leases space within those buildings to unrelated tenants company intends to reorganize so that taxpayer can elect to be taxed as a reit under sections commencing with the taxable_year beginning date as of date taxpayer will no longer be the common parent of a consolidated_group for federal_income_tax purposes and taxpayer will jointly elect with some of its subsidiaries to treat those subsidiaries as taxable reit subsidiaries trss the trss will do business in some or all of the jurisdictions in which company does business_company provides space in colocation data centers for its tenants’ information_technology systems in some locations company occupies campuses consisting of multiple buildings that are close together although not necessarily adjacent and connected by dedicated conduits ducts or pipes in other locations company leases exclusive space in multi-tenanted buildings where the other tenants are other data center providers or carriers these buildings offer meet me rooms where company’s tenants can interconnect with other tenants including tenants of other landlords within plr-151324-12 the building company’s freestanding buildings including buildings that constitute a campus and its spaces within multi-tenanted buildings are collectively referred to as buildings the major components of a building include the following integrated systems electrical distribution and redundancy system the electrical components hvac and redundancy system the hvac components humidification system the humidification components security system the security components fire protection system the fire protection components and telecommunications infrastructure the telecommunications components each of these systems and their integrated components collectively the core systems is designed and constructed to remain permanently in place is integrated into the building to which it is a part and is unlikely and not intended to be moved or removed the electrical components are designed to i provide power for use in the tenant space and ii ensure uninterrupted power through the use of redundant electrical systems including battery backup backup diesel generators and diesel_fuel tanks so that the system can operate for a minimum of g hours before needing refueling the hvac components are designed to i maintain acceptable room temperature levels and ii ensure uninterrupted cooling through such components as back-up water chillers and above-ground water storage towers the humidification components are designed to maintain humidity levels in the tenant space the security components are designed to meet the heightened security requirements of data center tenants by protecting both the building and the individual tenant spaces from unauthorized access and by monitoring all access the fire protection components include both detection and suppression systems the telecommunications components provide access and rights of way for tenants to connect to third-party telecommunications providers’ equipment and other tenants’ equipment through integrated building systems such as conduits and meet me rooms interconnectivity assets as defined below are not telecommunications components buildings also contain the following components doors walls building wiring structural steel support posts and special flooring together with the core systems components data center buildings differ from ordinary office buildings in the magnitude reliability and quality of the core systems that are furnished to tenants and the redundancies built into the core systems each core system is designed and constructed specifically for the particular building of which it is a part and is intended to remain in place indefinitely additionally the buildings have structural steel support posts permanently affixed to the floors of buildings these posts are installed during the build-out of floor space that occurs either during construction of a building or upon retrofitting an existing_building to be a data center the posts are among the first components installed in a building because they support overhead components of the core systems such as overhead cable trays electrical power conduits lighting and security components plr-151324-12 thus the structural steel support posts are bolted into the floor in a manner that can support the overhead core system components the posts are also used to anchor the mesh panels that form a cage the perimeter of a tenant’s space as described below and because the structural steel support posts are installed with the design and intention of remaining in place indefinitely cages are configured around the existing structural steel support posts in rare instances when the structural steel support posts are removed a laborious demolition process is required including bracing or removal of the overhead core system components and the steel is not reusable each tenant of company leases space ranging in size from a cabinet to several cages pursuant to a license and services agreement agreement each tenant space is prepared by company or an independent_contractor hired by taxpayer in accordance with the agreement terms including the installation of mesh paneling into the structural steel support posts to set a perimeter around the tenant’s leased space for a tenant leasing one or more cages individual cages typically enclose between a to b square feet of space may contain multiple cabinets and generally employ biometric access controls to ensure that the cages automatically lock and can only be accessed by authorized persons the agreements have initial terms that are generally more than c years thereafter the contracts typically renew automatically on a d e or f basis tenants generally use the tenant space to locate telecommunications computing and electronic data storage equipment and occasionally personnel tenants may lease rooftop space on the data center building for placement of antennas or other communication equipment that transmit through satellite microwave or other means or may lease on either an exclusive basis or on a shared basis with other building tenants secure shelf or secure office space or business recovery stations taxpayer may also receive additional payments from tenants that opt to reserve square footage within a building for future expansion of their operations tenants may also lease from company an incidental amount of personal_property under or in connection with their rental of space in a building additionally tenants may have access to common area space used for staging and storage as well as loading dock space for receipt and shipping of equipment the agreements generally provide for a monthly recurring fee for_the_use_of space in the data center as well as payments for the provision of uninterrupted stable electrical power the fee amount includes a tenant’s lease of space along with receipt of associated core services discussed below and a lease of any incidental personal_property taxpayer represents that the rent attributable to leased cages cabinets and any other personal_property leased by taxpayer to each tenant under or in connection with a lease of real_property for a taxable_year will constitute less than percent of the total rent based on the average fair market values of the real_property and personal_property for the taxable_year attributable to both the real and personal_property leased by taxpayer to the tenant under or in connection with each agreement plr-151324-12 taxpayer represents that the services it will provide to tenants under the agreements consist of ordinary necessary usual and customary services in connection with the operation and maintenance of the buildings these services will not include any personal services noncustomary services or services that are primarily for the convenience of a particular tenant these services include controlled utilities including electrical power and basic telephone controlled temperature and humidity security fire protection common area maintenance including cleaning and maintenance of public areas reservations of space within the buildings accepting shipments landscaping management operation maintenance and repair of the major building systems and components including the core systems pest control unattended parking and site preparation of tenant space together with the telecommunications and interconnectivity services described below the core services taxpayer also offers to connect tenants to telecommunication carriers and other tenants through interconnection interconnections use wires cables meet me rooms and other transmission components to provide tenants with connectivity to third-party telecommunications providers’ equipment to trs servers and routers to other buildings to properties owned by third-parties and to other tenants’ equipment tenants pay a one-time installation fee for the service of connecting a tenant by setting- up wires or cables to establish an interconnection and a recurring right-of-way charge to use the corridor through which the dedicated wire or cable connecting tenant equipment travels in the building taxpayer represents that all of its interconnectivity offerings constitute services that are ordinary necessary usual and customary for comparable buildings in the geographic market in which the buildings are located and that no interconnectivity offering constitutes personal services noncustomary services or services that are primarily for the convenience of a particular tenant taxpayer represents that interconnectivity assets that route logically handle or control access among tenants’ data including servers routers switches and ports are owned and operated by a trs trs interconnectivity assets together with the wires or cables that connect tenant equipment within a building the interconnectivity assets for those tenants who connect to trs interconnectivity assets the recurring charge is both for the right-of-way and for the services provided by the trs through the trs interconnectivity assets other tenants may connect only to interconnectivity assets owned by others to other tenants or to the tenant’s own antenna another service that is provided to building tenants particularly in markets outside of the united_states is the resale of telecommunications bandwidth to tenants who prefer to purchase these utilities from taxpayer in connection with the lease of building space rather than deal with the local telecommunications utilities in these situations taxpayer will acquire bandwidth from local telecommunications utilities and resell that bandwidth to tenants for a price either less than equal to or above that charged to taxpayer by the local utility taxpayer represents that markups average h percent and any markup for reservation and resale will not exceed i percent taxpayer represents that in a building where taxpayer offers to resell or reserve bandwidth for plr-151324-12 tenants such resale or reservation of bandwidth or the provision of similar telecommunications utility_services constitute services customarily offered to tenants in similar classes of buildings in the geographic location in which such building is located installation and set-up of building infrastructure such as installation and set-up of the cage with cabinets and similar items and connection of these items to the building’s core systems as well as physical interconnections may be performed by taxpayer by an independent_contractor or by a trs at the determination of taxpayer taxpayer represents that these site preparation services are rendered in connection with the operation and maintenance of the building or as a service that is ordinary necessary usual and customary for the buildings and are not rendered for the convenience of a particular tenant as part of an agreement taxpayer will charge tenant for these site preparation services charges for interconnection will include a one-time set up fee as well as a monthly charge for the right-of-way through the building and for the services provided by the trs through the trs interconnectivity assets taxpayer will not provide move-in or move-out services for tenants but may supervise such activities to ensure compliance with building codes and uninterrupted operation of the data center services involving tenant equipment including installation requested by the tenant will be performed by an independent_contractor or a trs additionally after receiving specific orders from tenants a trs of taxpayer may provide smart hand services these smart hand services may include for example set up of tenants’ telecommunications computing and electronic data storage equipment tape maintenance for tape drives within a cage emergency maintenance network management and various system checks and labeling in addition other noncustomary services or personal services requested by tenants will be provided by trss together with the smart hand services the trs-provided services or through independent contractors from whom taxpayer derives no income however taxpayer expects to collect all or nearly all the amounts owing from tenants including amounts for services done by a trs or independent_contractor space rental to trss some trss will rent space in a building from taxpayer to use for supplying services to tenants in such cases at least percent of the leased space at such building will be leased to persons other than trss and other than related_persons described in sec_856 the rental charge paid_by a trs for rental space will represent an arm’s length charge and will be substantially comparable to the rents paid_by unrelated tenants for comparable space in the building or where no comparable space exists in the building for comparable space either in one of taxpayer’s other buildings or in other properties in the same geographic area plr-151324-12 real_estate intangibles taxpayer will have certain intangible assets recorded on its books resulting from purchase_price allocations made under generally_accepted_accounting_principles gaap when accounting for acquisitions taxpayer’s intangible assets are those that relate to taxpayer’s acquisition of real_estate_assets intangibles associated with trs assets are not assets of the taxpayer and therefore are not real_estate intangibles as defined below generally identifiable intangible assets are recorded under gaap if they arise from contractual or legal rights regardless of whether those rights are transferable or separable from the underlying physical business_assets identifiable intangible assets acquired through these transactions that are related to real_estate include customer contracts favorable leases and trade names taxpayer represents that the remaining amount of the purchase_price after allocation to identifiable tangible and intangible assets is allocated to goodwill residual_value goodwill collectively taxpayer’s customer contracts favorable leases and residual_value goodwill are referred to herein as real_estate intangibles the intangible asset for customer contracts represents the expected value to taxpayer of the tenant leases in place at the time of an acquisition of another data center lessor including estimated lease renewals by those tenants the intangible asset for favorable leases represents the expected value to taxpayer of acquiring leaseholds that charge taxpayer at the time of the acquisition rent that is less than fair market rental values finally the intangible asset for residual_value goodwill represents the difference between the amounts assigned to identified net tangible and intangible assets and the amount that taxpayer actually paid for the acquired buildings based on its expectation of being able to lease space within the buildings at attractive rental rates taxpayer represents that for federal_income_tax purposes the value attributable to the residual_value goodwill under gaap is properly included as part of the depreciable tax basis of the acquired buildings under sec_197 and f taxpayer represents that the residual_value goodwill is inextricable and inseparable from taxpayer’s underlying physical real_estate taxpayer further represents that any residual_value goodwill of company that is not inextricably linked to and inseparable from taxpayer’s real_estate_assets will become an asset of a trs and is not a real_estate intangible the amount of real_estate intangibles is based upon gaap principles and is derived from the real_property that has been acquired by taxpayer taxpayer represents that the real_estate intangibles are inseparable from the buildings or leases to which they relate and have no value separate and apart from the value of these assets while trade names are an identifiable intangible of taxpayer they are not included as part of this ruling_request plr-151324-12 shared costs for administrative convenience and to avail itself of economies of scale with respect to employment costs taxpayer intends to have certain employees who will perform services both for taxpayer and for its trss taxpayer and its trss will enter into employee sharing agreements under which these employees will be shared and the employing entity will be reimbursed for an allocable share of the employee costs including salaries benefits and other compensation costs associated with payroll administration and allocable overhead costs including office supplies furniture and equipment the reimbursement will be solely for costs determined on the basis of the relative amount of time such employees spend performing services on behalf of each employer or a similar reasonable allocation method taxpayer also contemplates that it and one or more trss may share certain equipment with respect to such shared equipment taxpayer and the applicable trs will enter into an agreement which will provide that each party pays its allocable share of the costs associated with the shared equipment based upon the relative use of the equipment reimbursements for shared personnel and equipment will be at cost and will be deducted or capitalized as applicable only by the party ultimately bearing such costs under the cost-sharing arrangement neither taxpayer nor any trs will be in the business of providing to third parties any service or equipment that is the subject of reimbursement at cost domestic and foreign trss taxpayer will operate in foreign countries through one or more foreign subsidiaries and associated intermediate holding_companies each a foreign sub a foreign sub may either be partially or wholly owned by taxpayer and its affiliates taxpayer is expected to jointly elect trs status with some foreign subs that are corporations for united_states federal_income_tax purposes each a foreign trs taxpayer will make loans to its domestic trss and foreign trss that are secured_by assets that are interests_in_real_property under sec_856 and are held by that borrower when made the amount of each secured loan will be less than the fair_market_value of the real_property securing such loan and the applicable security interests will be mortgages or deeds of trust under united_states state law or in the case of foreign real_property comparable to mortgages or deeds of trust under united_states state law some foreign trss will be controlled_foreign_corporations cfcs within the meaning of sec_957 with respect to which taxpayer will be a united_states_shareholder within the meaning of sec_951 a united_states_shareholder additionally with regard to foreign trss that are cfcs taxpayer will occasionally i pledge shares of one or more foreign trss ii cause one or more foreign trss to plr-151324-12 pledge assets or iii cause one or more foreign trss to guarantee obligations of taxpayer in each case as collateral or support for certain debt of taxpayer incurred to finance taxpayer’s acquisition improvement or development of interests_in_real_property that produce qualifying_income under sec_856 taxpayer expects that the cfcs with respect to which taxpayer is a united_states_shareholder will earn the following types of income a interest_income on working_capital b rental income from leasing space in colocation data centers and c interest dividend or rental income that is not excepted from foreign_personal_holding_company_income within the meaning of sec_954 fphci additionally taxpayer will own entities treated as passive foreign investment companies under sec_1297 pfics with respect to which it is a shareholder taxpayer expects that a majority of the income of its pfics will be passive_income as defined in sec_1297 in some cases taxpayer may make an election under sec_1295 to treat a pfic as a qualified_electing_fund qef in light of the above taxpayer expects to have gross_income under sec_951 sec_986 sec_1291 and sec_1293 depreciation and earnings profits on date taxpayer filed a form_3115 application_for change in accounting_method under revproc_2011_14 2011_4_irb_330 automatic change procedures for the taxable_year ended date to change for federal_income_tax purposes its method of depreciating the core systems predominantly_used in the united_states under the general depreciation system gds in sec_168 to treat these assets as real_property and its method of depreciating real_estate intangibles to treat these assets as real_property taxpayer’s form_3115 was intended to change to a method_of_accounting that was consistent with the characterization of these assets as real_property and as interests_in_real_property for purposes of sec_856 under taxpayer’s method_of_accounting for federal_income_tax purposes for taxable years ended before date taxpayer classified the core systems predominantly_used in the united_states as or year property as applicable under sec_168 and depreciated the property under the gds in sec_168 also for federal_income_tax purposes taxpayer amortized the real_estate intangibles under sec_197 under taxpayer’s method_of_accounting for federal_income_tax purposes beginning with taxable years ended date taxpayer classifies the core systems predominantly_used in the united_states that were placed_in_service after and the real_estate intangibles as nonresidential_real_property under sec_168 and depreciates the assets under the gds using the straight-line method_of_depreciation the mid-month_convention and a 39-year recovery_period sec_168 c plr-151324-12 and d a the changes in methods_of_accounting for federal_income_tax purposes resulted in net positive sec_481 adjustments sec_481 adjustments that are taken into account ratably over four taxable years beginning with the taxable_year ended date in computing taxpayer’s taxable_income on date taxpayer filed a form_3115 under revproc_97_27 1997_1_cb_680 advance consent procedures for its taxable_year ending date to change the depreciation for these same items for earnings_and_profits e_p purposes the service declined to rule on this issue because no consent was required as discussed under taxpayer’s ruling_request number ten for e_p purposes for taxable years ended before date taxpayer depreciated the core systems predominantly_used in the united_states using the alternative_depreciation_system under sec_168 ads pursuant to sec_312 and amortized the real_estate intangibles using a 15-year period and the straight-line method_of_depreciation pursuant to sec_312 beginning with its taxable_year ended on date taxpayer depreciates for e_p purposes the core systems and real_estate intangibles predominantly_used in the united_states under the ads in accordance with sec_312 using the straight- line method_of_depreciation a 40-year recovery_period and the mid-month_convention stock and cash distributions taxpayer has one class of voting common_stock outstanding taxpayer stock which is publicly traded and listed on the exchange as mentioned above taxpayer intends to elect under sec_856 of the code to be treated as a reit effective date first reit taxable_year in connection with the reit election taxpayer intends to distribute all of its e_p that were or will be accumulated by taxpayer for all taxable periods ending prior to the first reit taxable_year c_corporation e_p as required by sec_857 these distributions are expected to be made to taxpayer’s shareholders with respect to taxpayer stock both before and during the first reit taxable_year purging distributions the tax consequences of purging distributions to be made during the taxable years prior to the first reit taxable_year are the subject of a previously issued private_letter_ruling plr-117298-13 the tax consequences of the purging distributions to be made during the first reit taxable_year are the subject of this letter_ruling in its first reit taxable_year taxpayer will have sec_481 inclusions related to the depreciation method changes made in anticipation of the first reit taxable_year and will have to make a purging distribution taxpayer expects to make distributions in its first reit taxable_year to cover both taxable_income for that year plr-151324-12 and undistributed c_corporation e_p such distributions may be made in a combination of stock and cash stock and cash distributions with respect to each stock and cash distribution taxpayer will give each shareholder an election to receive its portion of the distribution i entirely in cash the cash_option or ii entirely in taxpayer stock the equity_option in the event that a shareholder does not make an election that shareholder will be considered to have chosen the equity_option in no event will the total amount of cash available in a stock and cash distribution the cash amount be other than a specified percentage of the aggregate value of the stock and cash distribution or be less than percent of the aggregate value of the stock and cash distribution if the number of shareholders that elect the cash_option would result in the payment of cash in an aggregate amount that is less than or equal to the cash amount then all shareholders electing the cash_option will receive cash equal to the amount elected if the payment of cash would exceed the cash amount then each shareholder that elects the cash_option will receive a pro- rated portion of the cash amount which will not be less than percent of its entire entitlement under the distribution and the remaining balance in taxpayer stock taxpayer also anticipates paying cash in lieu of fractional shares of taxpayer stock although cash paid in lieu of fractional shares will not count against the cash amount taxpayer also has two classes of convertible debentures one class that was issued on date the date convertible debt and one class that was issued on date the date convertible debt the initial conversion rate for the date convertible debt was w shares of taxpayer stock per dollar_figurey principal_amount and for the date convertible debt was x shares of taxpayer stock per dollar_figurey principal_amount in connection with each stock and cash distribution and pursuant to the terms of each of the convertible debts the conversion rates applicable to the convertible debts will be increased the adjustments which will entitle the holders of convertible debt the holders to receive upon conversion a greater number of shares of taxpayer stock than they otherwise would be entitled to receive if the adjustments to the convertible debts’ conversion rates were not made accordingly the adjustments will entitle the holders to receive upon conversion a greater proportionate interest in the assets or e_p of taxpayer than they otherwise would receive if the adjustments were not made taxpayer represents that the calculation of the number of taxpayer shares to be received by any shareholder will be determined over a period of up to two weeks ending as close as practicable to the payment_date based upon a formula utilizing market prices that is designed to equate in value the number of shares to be received with the amount of money that could be received instead similarly taxpayer represents that the adjustment to the conversion rate on each class of the convertible debt is typical for comparable convertible debt in accordance with market practices and norms and designed to adjust the conversion rate so that a holder of the convertible debt receives value comparable to the distribution he would have received had he plr-151324-12 previously converted his notes into taxpayer stock and thus received the distribution paid on that stock hedging prior to the time that taxpayer becomes a reit taxpayer will have some pre- existing hedges in addition prior to the time that taxpayer converts one or more of its trss to either partnerships qualified reit subsidiaries qrss or other disregarded entities some of these trss will also have entered into hedges finally some entities that company acquires in merger and acquisition transactions m a target entities also will have entered into hedges prior to acquisition such hedges are thus expected to be pre-existing as of the first day that these entities are included as part of taxpayer for reit income or asset testing purposes some of the pre-existing hedges will have been clearly identified by the entity that entered into them pursuant to sec_1221 with respect to any pre-existing hedging_transaction that has not been clearly identified prior to the time it becomes part of taxpayer taxpayer represents that it intends to identify each hedge pursuant to sec_856 on the first day the hedge is included as part of taxpayer for reit income or asset testing purposes law and analysis ruling_request whether taxpayer’s buildings including the components will be treated as real_property for purposes of sec_856 sec_856 provides that at the close of each quarter of its tax_year at least percent of the value of a reit’s total assets must be represented by real_estate_assets cash and cash items including receivables and government securities sec_856 defines the term real_estate_assets in part to mean real_property including interests_in_real_property and interests in mortgages on real_property and shares or transferable certificates of beneficial_interest in other reits sec_1_856-3 provides that the term real_estate_assets means real_property interests in mortgages on real_property including interests in mortgages on leaseholds of land or other improvements thereon and shares in other qualified reits sec_1_856-3 provides that the term real_property means land or improvements thereon such as buildings or other inherently permanent structures thereon including items that are structural_components of those buildings or structures in addition real_property includes interests_in_real_property local law definitions do not control for purposes of determining the meaning of the term real_property as used in sec_856 and the regulations thereunder the term includes for example the wiring plr-151324-12 of a building plumbing systems central heating or central air-conditioning machinery pipes or ducts elevators or escalators installed in the building or other items that are structural_components of a building or other permanent structure the term does not include assets accessory to the operation of a business such as machinery printing press transportation equipment which is not a structural_component of the building office equipment refrigerators individual air-conditioning units grocery counters furnishings of a motel hotel or office building etc even though those items may be termed fixtures under local law revrul_75_424 1975_2_cb_269 concerns whether various components of a microwave transmission system are real_estate_assets for purposes of sec_856 the system consists of transmitting and receiving towers built upon pilings or foundations transmitting and receiving antennae affixed to the towers a building equipment within the building and waveguides the waveguides are transmission lines from the receivers or transmitters to the antennae and are metal pipes permanently bolted or welded to the tower and never removed or replaced unless blown off by weather the transmitting multiplex and receiving equipment is housed in the building prewired modular racks are installed in the building to support the equipment that is installed upon them the racks are completely wired in the factory and then bolted to the floor and ceiling they are self-supporting and do not depend upon the exterior walls for support the equipment provides for transmission of audio or video signals through the waveguides to the antennae also installed in the building is a permanent heating and air-conditioning system the transmission site is surrounded by chain link fencing the revenue_ruling holds that the building the heating and air-conditioning system the transmitting and receiving towers and the fence are real_estate_assets the ruling holds further that the antennae waveguides transmitting receiving and multiplex equipment and the prewired modular racks are assets accessory to the operation of a business and therefore not real_estate_assets revrul_73_425 1973_2_cb_222 considers whether a mortgage secured_by a shopping center and its total energy system is an obligation secured_by real_property a total energy system is a self-contained facility for the production of all the electricity steam or hot water and refrigeration needs of associated commercial or industrial buildings building complexes shopping centers apartment complexes and community developments the system may be permanently installed in the building attached to the building or it may be a separate structure nearby the principal components consist of electric generators powered by turbines or reciprocating engines waste heat boilers heat exchangers gas-fired boilers and cooling units in addition each facility includes fuel storage tanks control and sensor equipment electrical substations and air handling equipment for heat hot water and ventilation it also includes ducts pipes conduits wiring and other associated parts machinery and equipment the revenue_ruling holds in part that a mortgage secured_by the building and the system is a real_estate asset regardless of whether the system is housed in the building it serves or is housed in a separate structure apart from the building it serves this is because the plr-151324-12 interest in a structural_component is included with an interest held in a building or inherently_permanent_structure to which the structural_component is functionally related similar to the properties and structural_components described in revrul_75_ and revrul_73_425 that qualify as real_property for purposes of sec_856 the buildings are inherently permanent structures and the components are structural_components of the buildings although the buildings and components may facilitate the technology businesses of the tenants of such buildings the buildings and components themselves are not assets accessory to the operation of a business under sec_1_856-3 accordingly based on the information submitted and representations made we conclude that the buildings and components as described above constitute real_property for purposes of sec_856 ruling_request whether payments received by taxpayer from tenants under the agreements will qualify as rents_from_real_property under sec_856 whether amounts received for the trs-provided services give rise to impermissible_tenant_service_income 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 a broader group of sources which also includes rents_from_real_property sec_856 provides that rents_from_real_property include subject_to exclusions provided in sec_856 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 separately_stated and c rent attributable to personal_property leased under or in connection with a lease of real_property but only if the rent attributable to the personal_property for the taxable_year does not exceed percent of the total rent based on the average fair market values of the real_property and personal_property for the taxable_year attributable to both the real and personal_property leased under or in connection with such lease sec_1_856-4 provides in relevant part that the term rents_from_real_property means generally the gross amounts received for_the_use_of or the right to use real_property of the reit sec_1_856-4 provides that for purposes of sec_856 and c the term rents_from_real_property includes charges for services customarily furnished or rendered in connection with the rental of real_property whether or not the charges are separately_stated services furnished to tenants of a particular building will be considered customary if in the geographic market in which the building is located tenants in buildings of a similar class are customarily provided with the service in particular geographic areas where it is customary to furnish electricity or other utilities to plr-151324-12 tenants in buildings of a particular class the submetering of those utilities to tenants in the buildings will be considered a customary service sec_1_856-4 provides that the trustees or directors of a reit are not required to delegate or contract out their fiduciary duty to manage the trust itself as distinguished from rendering or furnishing services to the tenants of its property or managing or operating the property thus the trustees or directors may do all those things necessary in their fiduciary capacities to manage and conduct the affairs of the trust itself sec_856 provides that any impermissible_tenant_service_income is excluded from the definition of rents_from_real_property sec_856 defines impermissible_tenant_service_income to mean with respect to any real or personal_property any amount received or accrued directly or indirectly by the reit for services furnished or rendered by the reit to tenants of such property or for managing or operating the property sec_856 provides certain exclusions from impermissible_tenant_service_income sec_856 provides that for purposes of sec_856 services furnished or rendered or management or operation provided through an independent_contractor from whom the reit does not derive or receive any income or through a trs of the reit shall not be treated as furnished rendered or provided by the reit and there shall not be taken into account any amount which would be excluded from unrelated_business_taxable_income under sec_512 if received by an organization described in sec_511 sec_512 provides in part that there shall be excluded from the computation of unrelated_business_taxable_income all rents_from_real_property and all rents from personal_property leased with such real_property if the rents attributable to such personal_property are an incidental amount of the total rents received or accrued under the lease determined at the time the personal_property is placed_in_service sec_1_512_b_-1 provides that payments for the use or occupancy of rooms and other space where services are also rendered to the occupant such as for the use or occupancy of rooms or other quarters in hotels boarding houses or apartment houses furnishing hotel services or in tourist camps or tourist homes motor courts or motels or for the use or occupancy of space in parking lots warehouses or storage garages do not constitute rent from real_property generally services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only the supplying of maid service for example constitutes such service whereas the furnishing of heat and light the cleaning of public entrances exits stairways and lobbies and the collection of trash are not considered as services rendered to the occupant plr-151324-12 in revrul_2002_38 2002_2_cb_4 a reit pays its trs an arm’s length rate to provide non-customary services to tenants the reit does not separately state charges to tenants for the services thus a portion of the amounts received by the reit from tenants represents an amount received for services provided by the trs trs employees perform all of the services and trs pays all of the costs of providing the services the trs also rents space from the reit for carrying out its services to tenants the revenue_ruling concludes that the services provided to the reit’s tenants are considered to be rendered by the trs rather than the reit for purposes of sec_856 accordingly the services do not give rise to impermissible_tenant_service_income and do not cause any portion of the rents received by the reit to fail to qualify as rents_from_real_property under sec_856 of the code under an agreement taxpayer will rent to the tenant physical space which may include colocation space within a building for tenant equipment rights-of-way for the wires or cables needed for the tenant’s interconnectivity including interconnectivity to trs-operated logical or managed network systems office suites secure shelf space rooftop space or business recovery stations within a building in conjunction with the rental of physical space within a building taxpayer may also rent to the tenant incidental personal_property that satisfies the standard of sec_856 and provide core services to the tenant taxpayer represents that the core services taxpayer will provide to tenants as described above are usual or customary services that are rendered in connection with the leasing and maintenance of space in data centers and are not rendered primarily for the convenience of tenants taxpayer also represents that rent for personal_property leased by taxpayer to a tenant under or in connection with a lease of real_property for a taxable_year will constitute less than percent of the total rent based on the average fair market values of the real_property and personal_property for the taxable_year attributable to both the real and personal_property leased by taxpayer to the tenant under or in connection with taxpayer’s agreement with the tenant accordingly the rents from interests_in_real_property charges for core services and amounts for incidental personal_property leased under or in connection with a lease of real_property by taxpayer are rents_from_real_property under sec_856 other services will be performed by an independent_contractor from whom taxpayer receives no income or by a trs taxpayer on behalf of itself and its trss will collect all or nearly all the amounts owing from tenants under an agreement some trs-provided services such as set-up and installation and smart hands support may be listed as separate line items on invoices to tenants under the lease when a trs performs services for taxpayer’s tenants the trs will receive arm’s-length fees from taxpayer for such services as noted above taxpayer expects to collect all or nearly all of the amounts owing from tenants some trs-provided services may be listed as separate line items plr-151324-12 on invoices to tenants all trs-provided services will be performed by employees of a trs and a trs will pay all costs of providing such services in addition the trs will receive arm’s-length fees from taxpayer for providing trs-provided services consequently the trs not the taxpayer is the provider of the impermissible services as a result the amounts received for the trs-provided services do not give rise to impermissible_tenant_service_income and thus do not cause any portion of the rents received by taxpayer to fail to qualify as rents_from_real_property under sec_856 of the code ruling_request whether the real_estate intangibles will be treated as real_property for purposes of sec_856 sec_856 provides that the term interests_in_real_property includes fee ownership and co-ownership of land or improvements thereon leaseholds of land or improvements thereon options to acquire land or improvements thereon and options to acquire leaseholds of land or improvements thereon but does not include mineral oil or gas royalty interests sec_1_856-2 provides that in determining the investment status of a reit the term total assets means the gross assets of the reit determined in accordance with gaap the customer contracts and favorable lease intangibles recognized as assets by gaap are attributable to the acquisition of leaseholds on real_property with below-market rent and the acquisition of lease contracts these intangibles must be analyzed to determine whether they qualify as real_property for purposes of sec_856 to qualify as real_property for this purpose the customer contracts and favorable lease intangibles must be inseparable from and inextricably and compulsorily tied to real_property or interests_in_real_property gaap requires an allocation of the excess purchase_price over the value of the tangible assets to identified intangible assets and then to residual_value goodwill taxpayer’s real_estate intangibles arose when taxpayer acquired other colocation data center lessors taxpayer represents that the real_estate intangibles are derived from taxpayer’s leases to its tenants or from taxpayer’s leases of buildings and in each case are inextricably and compulsorily tied to the buildings taxpayer also represents that the real_estate intangibles are inseparable from the buildings or leases to which they relate and have absolutely no value separate and apart from the value of these assets taxpayer further represents that intangibles associated with trs assets are not real_estate intangibles the customer contract intangibles represent tenant leases for space in data centers that are in place at the time of acquisition of a building the customer contract intangibles cannot exist without the underlying lease of real_property in the data center supporting taxpayer’s representation that the real_estate intangible of customer plr-151324-12 contracts are inseparable from and inextricably and compulsorily tied to the real_property rental element of the customer contracts the favorable lease intangibles represent below-market leases taxpayer assumes upon acquisition the favorable lease intangibles cannot exist without the underlying leaseholds supporting taxpayer’s representation that the real_estate intangible of favorable leases are inextricably and compulsorily tied to the below-market leaseholds both the customer contract and favorable lease real_estate intangibles are derived from interests_in_real_property and are inseparable from inexplicably tied to and have no value separate and apart from the interests_in_real_property from which they are derived gaap recognizes residual_value goodwill as the excess purchase_price over the net tangible and identified intangible assets acquired this residual_value goodwill which is attributable to the purchase of real_property as opposed to goodwill that may arise from the acquisition of a business exists only because of the underlying real_property supporting taxpayer’s representation that the real_estate intangible of residual_value goodwill is inextricably and compulsorily tied to the buildings in the present case taxpayer’s real_estate intangibles are inseparable from and inextricably and compulsorily tied to taxpayer’s real_property or interests_in_real_property accordingly we rule that taxpayer’s real_estate intangibles the identifiable intangibles of customer contracts and favorable leases as well as the residual_value goodwill attributable to real_property of the reit and not intangibles associated with trs assets as described above qualify as real_property for purposes of sec_856 ruling_request whether a loan by taxpayer to a trs that is secured_by real_property of the trs that qualifies as an interest_in_real_property under sec_856 will be treated as an interest_in_real_property for purposes of sec_856 rather than as a security under sec_856 a reit is permitted to hold the securities of one or more trss as long as such securities do not exceed of the value of the reit's total assets the value test the question presented in this ruling_request is whether a loan to a trs that qualifies as a real_estate asset under sec_856 should be considered a security for purposes of the value test under sec_856 sec_1_856-3 provides that the term securities for purposes of subchapter_m of the code does not include interests_in_real_property or real_estate_assets as those terms are defined in sec_856 plr-151324-12 the rule in sec_1_856-3 applies for purposes of subchapter_m including the value test under sec_856 thus in applying the value test the term securities does not include interests_in_real_property or real_estate_assets as defined in sec_856 and sec_1_856-3 revrul_74_191 1974_1_cb_170 holds that foreign real_estate acquired by a reit is a real_estate asset for purposes of sec_856 and that the term mortgages on real_property includes a security_interest which under the laws of the jurisdiction in which the property is located is the legal equivalent of a mortgage or deed_of_trust in the united_states the ruling describes an unincorporated domestic_trust otherwise qualifying as a reit under sec_856 that made short term construction loans secured_by security interests_in_real_property located outside the united_states such security interests were legally equivalent to those created by mortgages or deeds of trust in the united_states the trust also had direct interests in real_estate located abroad the ruling reasons that neither sec_856 nor the regulations thereunder restrict the term real_estate_assets to those located within the united_states in the present situation taxpayer represents that the loans between taxpayer and any trs that are secured_by interests_in_real_property owned by that trs will be adequately secured based on the loan value of the real_property under sec_1 c by such interests_in_real_property taxpayer has further represented that the loans create a security_interest in real_property which under the laws of the jurisdiction in which the property is located is the equivalent of a mortgage and in all cases includes a traditional right of foreclosure against the real_property based on the information provided and the representations made a loan by taxpayer to a trs secured_by a sec_856 interest_in_real_property of that trs will be treated as an interest_in_real_property and will not be treated as a security under sec_856 ruling_request whether rents received by taxpayer from a trs for the leasing of space in taxpayer’s buildings where at least percent of the leased space at a building is leased to persons other than a trs or related_person described in sec_856 in connection with the trs’s provision of services to taxpayer’s tenants will be treated as rents_from_real_property under sec_856 through the application of sec_856 sec_856 provides 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 that is a corporation stock of such 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 such person or ii in the case plr-151324-12 of any person that is not a corporation an interest of percent or more in the assets or net profits of such person sec_856 provides that amounts received by a reit from its trs will not be excluded from rents_from_real_property under sec_856 if the terms of the limited rental exception of sec_856 are met the requirements of sec_856 are met with respect to any property if at least percent of the leased space of the property is rented to persons other than trss of such reit and other than related parties described in sec_856 but only to the extent that the amounts paid to the reit by the trs as rents_from_real_property without regard to sec_856 are substantially comparable to such rents paid_by the other tenants of the reit's property for comparable space taxpayer represents that the rents paid_by the trs for space in a building will be arm’s length and will be substantially comparable to rents paid_by unrelated tenants for comparable space either in the building itself if there is comparable space leased to unrelated tenants in such building or if there is no such comparable space in taxpayer’s other buildings or in properties in the same geographic area taxpayer also represents that in substantially_all instances in which a trs enters into a lease with taxpayer for the occupancy of space within a building at least percent of the leased space of the building will be leased to persons other than trss and other than related_persons described in sec_856 accordingly based on taxpayer’s representations and provided that at least percent of the leased space in a building is leased to persons other than trss or related_persons described in sec_856 rents received by taxpayer from a trs for the leasing of space in the building in connection with the trs’s provisions of services to taxpayer’s customers will be treated as rents_from_real_property under sec_856 through the application of sec_856 ruling_request any amounts received by taxpayer as reimbursements under a cost-sharing arrangement will not be included in taxpayer’s gross_income for purposes of sec_856 and in revrul_84_138 1984_2_cb_123 a regulated_investment_company ric and its wholly owned subsidiary shared facilities and some personnel it was agreed that the ric would pay all the expenses for general and administrative overhead including personnel costs and the subsidiary would reimburse the ric for its pro_rata share of the expenses on an arm's length basis the ruling in distinguishing jergens co v comm’r 40_bta_868 states that the ric was not engaged in the business of receiving compensation_for services of the type that were reimbursed instead reimbursements to the ric from the subsidiary were merely repayments of advances made by the ric on behalf of the subsidiary accordingly the ruling holds plr-151324-12 that the reimbursements were not included in the ric's gross_income under sec_61 and therefore were not subject_to the gross_income requirement of sec_851 in the present case the reimbursement and cost sharing arrangements to be executed between taxpayer and its trs are analogous to the situation in revrul_84_138 taxpayer and the applicable trs intend to enter into an employee sharing_agreement under which certain employees of taxpayer will be treated as loaned or advanced to the trs and certain employees of the trs will be treated as loaned or advanced to taxpayer in addition taxpayer and a trs will enter into equipment sharing agreements whereby each party will bear allocable_costs based on use and the primary party will be reimbursed for the expenses related to use of the equipment by the other party on an at-cost basis neither taxpayer nor the trs will profit under any cost-sharing arrangement neither taxpayer nor the trs will be in the trade_or_business of providing to third parties any service or equipment that is the subject of reimbursement under any cost- sharing arrangement accordingly based on the information provided and representations made reimbursement payments received under cost-sharing_arrangements will not be treated as gross_income for purposes of sec_856 and additionally neither taxpayer nor trs will be entitled to a deduction for payment of the expenses that are reimbursed ruling_request whether taxpayer’s subpart_f inclusions pfic inclusions and sec_956 inclusions each defined below will be treated as qualifying_income under sec_856 as noted earlier taxpayer intends to own either partially or wholly foreign subs for which trs elections will be made such foreign subs are either cfcs within the meaning of sec_957 with respect to which taxpayer is a united_states_shareholder within the meaning of sec_951 pfics for which taxpayer intends to make elections under sec_1295 to treat as qefs or pfics for which taxpayer has not made a qef or mark-to-market_election as a result of being a united_states_shareholder with respect to cfcs taxpayer is required by sec_951 to include in its gross_income its pro_rata share of the subpart_f_income as defined in sec_952 of the cfcs taxpayer expects to report sec_951 inclusions with respect to one or more cfcs as a result of the cfc earning passive rental income_interest and dividends that constitute fphci the subpart_f inclusions in addition as a result of being a united_states_shareholder with respect to cfcs taxpayer is required by sec_951 to include in its gross_income the amount determined under sec_956 taxpayer expects to report sec_951 inclusions as a result of its cfcs being pledgors or guarantors of taxpayer’s obligations plr-151324-12 within the meaning of sec_956 and sec_1_956-2 but the obligations will be limited to debt of taxpayer that will be incurred to finance taxpayer’s acquisition improvement or development of interests_in_real_property that produce qualifying_income under sec_856 the sec_956 inclusions as a result of being a shareholder in pfics for which taxpayer makes qef elections taxpayer is required under sec_1293 to include in its gross_income its pro_rata share of the e_p of each such qef also as a result of being a shareholder in pfics for which taxpayer has not made qef or mark-to-market elections taxpayer is required to include amounts in its gross_income as ordinary_income pursuant to sec_1291 taxpayer expects to report sec_1293 income inclusions attributable to passive_income from numerous pfics for which qef elections have been made the qef inclusions and include amounts in ordinary_income under sec_1291 attributable to passive_income from pfics for which qef or mark-to- market elections have not been made together with qef inclusions the pfic inclusions sec_856 provides that to the extent necessary to carry out the purposes of part ii of subchapter_m of the code the secretary is authorized to determine solely for purposes of such part whether any item_of_income or gain which i does not otherwise qualify under sec_856 or may be considered as not constituting gross_income for purposes of sec_856 or or ii otherwise constitutes gross_income not qualifying under sec_856 or may be considered as gross_income which qualifies under sec_856 or the legislative_history underlying the tax treatment of reits indicates that a central concern behind the gross_income restrictions is that a reit’s gross_income should largely be composed of passive_income for example h_r rep no 2d sess pincite 1960_2_cb_819 pincite states o ne of the principal purposes of your committee in imposing restrictions on types of income of a qualifying real_estate_investment_trust is to be sure the bulk of its income is from passive_income sources and not from the active_conduct_of_a_trade_or_business subpart_f inclusions sec_957 defines a cfc as a foreign_corporation in which more than percent of the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned by united_states_shareholders on any day during the corporation’s taxable_year a united_states_shareholder is defined in sec_951 as a united_states_person who owns percent or more of the total voting power of the foreign_corporation taxpayer represents that it is a united_states_shareholder within the meaning of sec_951 with respect to certain subsidiaries that are cfcs sec_951 generally provides that if a foreign_corporation is a cfc for an uninterrupted period of days or more during a taxable_year every person who plr-151324-12 is a united_states_shareholder of the corporation and who owns stock in the corporation on the last day of the taxable_year in which the corporation is a cfc shall include in income the shareholder’s pro_rata share of the cfc’s subpart_f_income for the taxable_year sec_952 defines subpart_f_income to include foreign_base_company_income as determined under sec_954 under sec_954 foreign_base_company_income includes fphci sec_954 generally defines fphci to include among other things dividends interest royalties rents and annuities sec_954 also includes gain from the sale_or_exchange of property which among other things gives rise to income described in sec_954 after application of paragraph a other than property which gives rise to income not treated as fphci by reason of sec_954 or i for the taxable_year taxpayer represents that it is a united_states_shareholder within the meaning of sec_951 with respect to certain of its subsidiaries that are cfcs as taxpayer’s cfcs earn subpart_f_income attributable to foreign_base_company_income that is fphci and such income is generally passive_income treatment of the sec_951 inclusion attributable to such passive_income as qualifying_income for purposes of sec_856 does not interfere with or impede the policy objectives of congress in enacting the income test under sec_856 accordingly we rule that under sec_856 subpart_f inclusions attributable to the fphci that is passive_income are considered as gross_income that qualifies for purposes of sec_856 pfic inclusions sec_1297 defines a pfic as a foreign_corporation if either percent or more of the gross_income of such corporation for the taxable_year is passive_income or the average percentage of assets as determined in accordance with sec_1297 held by such corporation during the taxable_year which produce passive_income or which are held for the production of passive_income is at least percent sec_1297 defines the term passive_income as income of a kind that would be fphci under sec_954 subject_to certain exceptions sec_1291 provides that if a united_states_person receives an excess_distribution as defined in sec_1291 in respect of stock in a pfic then - a the amount of the excess_distribution shall be allocated ratably to each day in the shareholder’s holding_period for the stock b with respect to such excess_distribution the shareholder’s gross_income for the current_year shall include as ordinary_income only the amounts allocated under sec_1291 to - i the current_year or ii any period in the shareholder’s holding_period before the 1st day of the 1st taxable_year of the company which begins after date and for which it was a pfic and c the tax_imposed_by_chapter_1 of the code for the current_year shall be increased by the deferred_tax_amount determined under sec_1291 under section plr-151324-12 a the rules of sec_1291 apply to any gain recognized on the disposition of stock of a pfic as if the gain were an excess_distribution sec_1295 provides that a pfic will be treated as a qef with respect to a shareholder if an election by the shareholder under sec_1295 applies to such pfic for the taxable_year and the pfic complies with such requirements as the secretary may prescribe for purposes of determining the ordinary_earnings and net capital_gains of such company sec_1293 provides that every united_states_person who owns or is treated under sec_1298 as owning stock of a qef at any time during the taxable_year of such fund shall include in gross_income - a as ordinary_income such shareholder’s pro_rata share of the ordinary_earnings of such fund for such year and b as long-term_capital_gain such shareholder’s pro_rata share of the net_capital_gain of such fund for such year taxpayer represents that it is a shareholder of certain subsidiaries that are pfics and that it intends to make qef elections with respect to certain of these pfics and not make qef or mark-to-market elections with respect to other of these pfics as taxpayer’s pfics earn income that is fphci and such income is generally passive_income treatment of the pfic inclusions as qualifying_income for purposes of sec_856 does not interfere with or impede the policy objectives of congress in enacting the income test under sec_856 accordingly we rule that under sec_856 taxpayer’s pfic inclusions are considered as gross_income that qualifies for purposes of sec_856 sec_956 inclusions sec_951 provides that if a foreign_corporation is a cfc for an uninterrupted period of days or more during a taxable_year every person who is a united_states_shareholder of the corporation and who owns stock in the corporation on the last day of the taxable_year in which the corporation is a cfc shall include in gross_income the amount determined under sec_956 with respect to the shareholder for such year but only to the extent not excluded from gross_income under sec_959 sec_956 provides that in the case of a cfc the amount determined under sec_956 with respect to any united_states_shareholder for any taxable_year is the lesser_of - the excess if any of - a such shareholder’s pro_rata share of the average of the amounts of united_states_property held directly or indirectly by the cfc as of the close of each quarter of such taxable_year over b the amount of e_p described in sec_959 with respect to such shareholder or such shareholder’s pro_rata share of the applicable_earnings of such cfc in general the amount taken into account in the preceding sentence under with respect to any property shall be its adjusted_basis as determined for purposes of computing e_p reduced by any liability to which the property is subject plr-151324-12 sec_956 provides that united_states_property includes an obligation of a united_states_person sec_956 states that a cfc shall under regulations prescribed by the secretary be considered as holding an obligation of a united_states_person if such cfc is a pledgor or guarantor of such obligation sec_1_956-2 provides that except as provided in sec_1_956-2 any obligation as defined in sec_1_956-2 of a united_states_person as defined in sec_957 with respect to which a cfc is a pledgor or guarantor shall be considered for purposes of sec_956 and sec_1_956-2 to be united_states_property held by such cfc sec_1_956-2 provides that if the assets of a cfc serve at any time even though indirectly as security for the performance of an obligation of a united_states_person then the cfc will be considered a pledgor or guarantor of that obligation as stated earlier taxpayer represents that it is a united_states_shareholder within the meaning of sec_951 with respect to certain of its subsidiaries that are cfcs taxpayer will recognize sec_956 inclusions because taxpayer is a debtor on one or more obligations with respect to which one or more of its cfcs is a pledgor or guarantor including cases in which the assets of a cfc serve indirectly as security for an obligation each of these pledges or guarantees is incurred to finance taxpayer’s acquisition of real_property taxpayer represents that the sec_956 inclusions occur as a result of debt of taxpayer that arose in connection with the acquisition improvement or development of interests_in_real_property that produce qualifying_income under sec_856 to the extent taxpayer recognizes sec_956 inclusions as a result of i the pledge of the assets of a cfc including through the pledge of cfc shares ii a cfc’s pledge of assets or iii a cfc’s guarantee of an obligation of taxpayer and the pledge or guarantee secures debt of the taxpayer that is used to finance the acquisition improvement or development of real_property from which income is derived that qualifies under sec_856 it would not interfere with or impede the policy objectives of congress in enacting the income test under that provision to consider the sec_956 inclusions as gross_income that qualifies for purposes of sec_856 accordingly we rule that under sec_856 taxpayer’s sec_956 inclusions are considered as gross_income that qualifies for purposes of sec_856 ruling_request whether foreign_currency_gain with respect to distributions of previously taxed e_p as described in sec_986 including subpart_f inclusions and similar income under sec_951 and sec_1293 will not be taken into account for purposes of sec_856 sec_959 and sec_1293 provide that when a united_states_shareholder of a cfc or a united_states_person owning an interest in a qef is taxed on undistributed corporate earnings under the subpart_f or qef inclusion rules subsequent distributions of the previously taxed earnings to the shareholder are not treated as dividends for purposes of chapter of the code plr-151324-12 sec_986 provides that foreign_currency_gain_or_loss with respect to distributions of previously taxed e_p as described in sec_959 or sec_1293 attributable to movements in exchange rates between the times of the deemed inclusion and the actual distributions shall be recognized and treated as ordinary_income or loss from the same source as the associated income inclusion sec_856 provides that passive_foreign_exchange_gain for any taxable_year will not constitute gross_income for purposes of sec_856 sec_856 defines passive_foreign_exchange_gain as a real_estate_foreign_exchange_gain as defined in sec_856 b foreign_currency gains as defined in sec_988 which is not described in subparagraph a and is attributable to i any item_of_income or gain described in sec_856 ii the acquisition or ownership of obligations other than foreign_currency gains attributable to any item described in clause i or iii becoming or being the obligor under obligations other than foreign_currency_gain attributable to any item_of_income or gain described in clause i and c any other foreign_currency gains determined by the secretary while sec_986 gain is not a foreign_currency_gain defined in sec_988 such sec_986 gain is attributable to the subpart_f inclusions and qef inclusions items of income that are qualifying_income for purposes of sec_856 sec_986 gain is substantially_similar to passive_foreign_exchange_gain described in sec_856 therefore pursuant to sec_856 sec_986 gains are excluded from gross_income for purposes of sec_856 because these currency gains are considered passive_foreign_exchange_gain that is excluded from gross_income for purposes of sec_856 ruling_request whether positive sec_481 adjustments will be considered as not constituting gross_income under sec_856 and taxpayer filed form_3115 to automatically change its method of depreciating certain assets on date the automatic change has resulted in positive sec_481 adjustments that will be includible in taxable_income over a period of four years sec_856 lists the sources of permissible income under the income tests income from a sec_481 adjustment is not specifically enumerated in sec_856 or sec_481 provides that a taxpayer that changes its method_of_accounting takes into account necessary adjustments in computing its taxable_income sec_1_481-1 provides that a sec_481 adjustment must be properly taken into account for purposes of computing gross_income_adjusted gross_income or taxable_income in determining the amount of any item of gain loss deduction or credit that depends on gross_income_adjusted gross_income or taxable_income plr-151324-12 the legislative_history underlying the tax treatment of reits indicates that the central concern behind the gross_income restrictions is that of a reit’s gross_income should be passive_income and of a reit’s gross_income should be passive real_estate income see h_r rep no supra pincite any income resulting from a sec_481 adjustment constitutes gross_income that does not qualify under sec_856 or pursuant to sec_856 that income may be considered either as not constituting gross_income under sec_856 or or as qualifying gross_income under those provisions under the facts of the instant case excluding the sec_481 adjustments from gross_income for purposes of sec_856 and does not interfere with congressional policy objectives in enacting the income tests accordingly pursuant to sec_856 we rule that the sec_481 adjustments will be considered not to constitute gross_income for purposes of sec_856 and ruling_request a a change in taxpayer’s method_of_accounting for depreciation of the core systems and the real_estate intangibles for taxable_income purposes under sec_446 and sec_481 in respect of domestic corporations within the meaning of sec_7701 - requires a correlative change in computing depreciation of the core systems and the real_estate intangibles for e_p purposes under sec_312 accordingly consent of the service is not required to make that change for e_p purposes separate and apart from the consent required to change taxpayer’s method_of_accounting for depreciation for taxable_income purposes b further because the depreciation deduction for the core systems and the real_estate intangibles for taxable_income purposes is not the same for e_p purposes additional adjustments are required to account for the change in computing depreciation for e_p purposes which are made under sec_312 and the accompanying regulations because taxpayer must take into account the positive sec_481 adjustments arising from the change in method_of_accounting for depreciation for taxable_income purposes over four years taxpayer in computing e_p shall take the correlative adjustments arising from the change in computing depreciation for e_p purposes over the same period of time four years as it takes into account such sec_481 adjustments sec_446 generally provides that taxable_income shall be computed under a method_of_accounting on the basis of which the taxpayer regularly computes income in keeping its books sec_1_446-1 provides that a taxpayer filing its first return plr-151324-12 may adopt any permissible method_of_accounting in computing taxable_income for the taxable_year covered by such return sec_446 generally provides that a taxpayer who changes the method_of_accounting on the basis of which the taxpayer regularly computes the taxpayer’s income in keeping the taxpayer’s books shall before computing the taxpayer’s taxable_income under the new method secure the consent of the secretary sec_1_446-1 provides that a taxpayer who changes the method_of_accounting employed in keeping the taxpayer’s books shall before computing the taxpayer’s income upon such new method for purposes of taxation secure the consent of the commissioner a change in method_of_accounting includes a change in the overall plan of accounting for gross_income or deductions or a change in the treatment of any material_item used in such overall plan a material_item is any item that involved the proper time for the inclusion of the item in income or the taking of a deduction sec_1 e ii a in determining whether a taxpayer’s accounting practice for an item involves timing generally the relevant question is whether the practice permanently changes the amount of a taxpayer’s lifetime taxable_income if the practice does not permanently affect the taxpayer’s lifetime taxable_income but does or could change the taxable_year in which income is reported it involves timing and is therefore a method_of_accounting see revproc_91_31 1991_1_cb_566 revproc_2011_14 2011_4_irb_330 a change in method_of_accounting does not include correction of mathematical or posting errors or errors in the computation of tax_liability such as errors in the computation of the foreign_tax_credit net_operating_loss percentage_depletion or investment_credit also a change in method_of_accounting does not include adjustment of any item_of_income or deduction that does not involve the proper time for the inclusion of the item_of_income or the taking of a deduction sec_1_446-1 a change in the period of recovery a change in the convention or a change in the depreciation or amortization_method of a depreciable or amortizable asset generally is a change in method_of_accounting under sec_446 see sec_1 e ii d i sec_481 provides that in computing the taxpayer’s taxable_income for the taxable_year year_of_change if such computation is under a method_of_accounting different from the method under which the taxpayer’s taxable_income for the preceding_taxable_year was computed then there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted except there shall not be taken into account any adjustment in respect of any taxable_year to which this section does not apply unless the adjustment is attributable to a change in method_of_accounting initiated by the taxpayer plr-151324-12 revproc_2011_14 as modified by revproc_2012_39 2012_41_irb_470 automatic consent procedures and revproc_97_27 as amplified and modified by revproc_2002_19 2002_1_cb_696 as amplified and clarified by revproc_2002_54 2002_2_cb_432 as modified by revproc_2007_67 2007_2_cb_1072 as modified by revproc_2009_39 2009_38_irb_371 as modified by revproc_2011_14 and as modified by revproc_2012_39 advance consent procedures provide the administrative procedures to request consent to change a method_of_accounting under sec_446 for the applicable_period revproc_2011_14 was the exclusive procedure to request a change in method_of_accounting that is expressly described in its appendix sec_312 generally provides that on the distribution_of_property by a corporation with respect to its stock the e_p of the corporation to the extent thereof shall be decreased by the sum of the amount of money the principal_amount of the obligations of such corporation or in the case of obligations having original_issue_discount the aggregate price of such obligations and the adjusted_basis of the other_property so distributed sec_1_312-6 provides that due consideration must be given to the facts and while mere bookkeeping entries increasing or decreasing surplus will not be conclusive the amount of the e_p in any case will be dependent on the method_of_accounting properly employed in computing taxable_income or net_income as the case may be for instance a corporation keeping its books and filing its income_tax returns on the cash receipts and disbursements basis may not use the accrual basis in determining e_p sec_312 generally provides that for purposes of computing e_p of a corporation the allowance for depreciation shall be determined using the straight-line method_of_depreciation sec_312 generally provides that in the case of tangible_property to which sec_168 applies the adjustment to e_p for depreciation for any taxable_year shall be determined under the ads therefore in the computation of e_p the recovery_period for nonresidential_real_property i sec_40 years sec_168 and sec_312 revproc_79_47 1979_2_cb_528 provides the procedures outlining the effect on e_p resulting from an adjustment required by sec_481 for a change in method_of_accounting for taxable_income purposes under sec_446 in order to prevent distortions when computing e_p current and accumulated available for the payment of dividends the taxpayer shall follow its new method for reporting taxable_income and shall take the applicable sec_481 adjustments into account over the same period as it does for purposes of computing taxable_income in the instant case for property subject_to sec_168 the depreciation deduction for taxable_income purposes is not the same as for e_p purposes when plr-151324-12 taxpayer changes its method of computing depreciation for taxable_income purposes it is required to change its method of computing depreciation for e_p purposes a whether separate consent of the commissioner is required on date taxpayer filed a form_3115 under revproc_2011_14 to change its method of computing depreciation for the core systems and the real_estate intangibles predominantly_used in the united_states for taxable_income purposes the changes in taxpayer’s depreciation method recovery periods and convention for the core systems for taxable_income purposes are changes in methods_of_accounting under sec_446 and sec_481 see sec_1_446-1 changes in depreciation method convention and recovery_period to compute taxable_income are changes in methods_of_accounting under sec_446 moreover the change in taxpayer’s recovery_period and convention for the real_estate intangibles for taxable_income purposes are changes in methods_of_accounting under sec_446 and sec_481 id b adjustments to e_p when taxpayer changed its method_of_accounting for depreciation for the core systems and real_estate intangibles for taxable_income purposes a correlative change to taxpayer’s method of computing depreciation for e_p purposes for the core systems and real_estate intangibles was required sec_312 and sec_1_312-6 accordingly when taxpayer changed its method_of_accounting for depreciation for taxable_income purposes no additional consent was required for taxpayer to make the required correlative change in computing its depreciation for e_p purposes revproc_79_47 recognizes that the sec_481 adjustment resulting from a change in method_of_accounting for taxable_income purposes may create a distortion in e_p available for distribution in the year_of_change and provides that the required sec_481 adjustment for taxable_income purposes shall be spread for e_p purposes over the same adjustment period as that used for taxable_income purposes however as stated above sec_312 requires taxpayer to use a different method of computing depreciation for the core systems and real_estate intangibles for e_p purposes than is permitted for taxable_income purposes as such additional adjustments to e_p under sec_312 and the accompanying regulations are necessary to correctly compute taxpayer’s current and accumulated e_p to comply with sec_312 in correcting this change in depreciation for e_p purposes taxpayer shall take into account the adjustment that must be made to its e_p under sec_312 due to the change in computing e_p for depreciation of the core systems and the real_estate intangibles over the same period of time as taxpayer does for the sec_481 adjustments due to the change in method_of_accounting for depreciation of the core plr-151324-12 systems and the real_estate intangibles for taxable_income purposes under sec_446 ruling_request to the extent that the sec_481 adjustments from the change in computing depreciation and amortization for certain assets exceed the correlative e_p adjustments any distributions of such excess shall be treated as dividends by taxpayer as referenced above taxpayer filed form_3115 to automatically change its method of depreciating certain assets as a result of this method change taxpayer has positive sec_481 adjustments that have been and will be included in taxpayer’s taxable_income ratably over four taxable years including taxpayer’s first reit taxable_year see revproc_97_27 sec_5 a 1997_1_cb_680 taxpayer previously received a private_letter_ruling allowing it to take correlative adjustments arising from the change in computing depreciation for e_p purposes ratably over the same period as the sec_481 adjustments due to differences in computing depreciation for e_p purposes versus income_tax purposes taxpayer’s correlative adjustments to its e_p are lower than its sec_481 adjustments the sec_481 adjustments are subject_to the sec_1374 built-in gains tax which is not eliminated or reduced by the dividends_paid deduction under sec_337 sec_1_337_d_-7 and sec_1374 and the regulations thereunder the sec_481 adjustments are subject_to corporate level taxation pursuant to sec_1_1374-4 and d the net amount after the application of corporate level taxation is reit taxable_income reitti subject_to the distribution_requirements of sec_857 sec_561 provides that the deduction for dividends_paid shall be the sum of the dividends_paid during the year and consent dividends for the taxable_year sec_562 provides that the term dividend shall include only dividends as described in sec_316 sec_316 defines the term dividend to mean any distribution_of_property made by a corporation to its shareholders out of either current_year or accumulated e_p sec_857 requires in part that a reit’s deduction for dividends_paid for a taxable_year equals at least percent of its reitti for the taxable_year determined without regard to the deduction for dividends_paid as defined by sec_561 or any net capital_gains such adjusted_taxable_income pre-distribution ordinary_income sec_857 generally requires that as of the close of a taxable_year a reit has no e_p accumulated in any non-reit_year plr-151324-12 sec_857 provides that in determining a reit’s taxable_income the deduction for dividends_paid as defined in sec_561 shall be allowed sec_857 provides that the e_p of a reit for any taxable_year but not its accumulated earnings shall not be reduced by any amount which is not allowable in computing the reit’s taxable_income for such taxable_year sec_857 provides that a reit is treated as having sufficient e_p to treat as a dividend any distribution that it treats as a dividend to the extent the distribution when combined with other distributions in the same calendar_year does not exceed the distributions required by sec_4981 sec_4981 generally levies an excise_tax on reits that do not make required distributions during the calendar_year in general a reit’s required_distribution equals at least percent of its current_year ordinary_income and at least percent of its current_year capital_gain_net_income the remaining percentage of the reit’s current_year ordinary_income up to percent and its current_year capital_gain_net_income up to percent are included in its required_distribution in the following year for purposes of sec_4981 ordinary_income equals the reit’s taxable_income as determined under sec_857 without regard to the sec_857 dividends_paid deduction the house conference_report for the tax_reform_act_of_1986 states the following in discussing its rejection of a senate amendment to sec_857 the conference agreement does not contain a provision from the senate amendment under which a reit’s e_p for a taxable_year would not be less than its real_estate_investment_trust_taxable_income for the taxable_year without regard to dividends_paid deduction since the conferees believe that this provision is a restatement of law h_r conf_rep no pincite therefore the regime governing the taxation of reits which requires distributions of taxable_income is intended to match the reit’s e_p to that income therefore to the extent that the sec_481 adjustments exceed the correlative e_p adjustments arising from taxpayer’s changes in computing depreciation and amortization any distributions of such excess that are distributed and treated as dividends by taxpayer in the year in which such excess arises shall be treated as made from e_p ruling_request whether all of the cash and the taxpayer stock distributed in any stock and cash distribution will be treated as a distribution_of_property on the taxpayer stock to which sec_301 applies whether convertible plr-151324-12 adjustments shall constitute a deemed_distribution of taxpayer stock to the holders of the convertible debt to which sec_301 applies by reason of sec_305 and c provided at least some cash is distributed in the associated stock and cash distribution whether if some shareholders receive a distribution of all cash all taxpayer stock or a combination of cash and taxpayer stock that differs from the distribution received by other shareholders in the same stock and cash distribution or if the fair_market_value of the taxpayer stock on the date of the stock and cash distribution differs from the amount of cash that could have been received or if convertible adjustments use a different valuation mechanism than that used in the stock and cash distribution those differences will not cause any such stock and cash distribution and associated convertible adjustments to be treated as preferential dividends under sec_562 sec_561 applies the rules of sec_562 for determining which dividends are eligible for the deduction for dividends_paid under sec_561 sec_562 provides that the amount of any distribution will not be considered as a dividend for purposes of computing the dividends_paid deduction under sec_561 unless the distribution is pro_rata the distribution must not prefer any shares of stock of a class over other shares of stock of that same class sec_1_562-2 provides that a corporation will not be entitled to a deduction for dividends_paid with respect to any distribution upon a class of stock if there is distributed to any shareholder of such class in proportion to the number of shares held by him more or less than his pro_rata part of the distribution as compared with the distribution made to any other shareholder of the same class nor will a corporation be entitled to a deduction for dividends_paid in the case of any distribution upon a class of stock if there is distributed upon such class of stock more or less than the amount to which it is entitled as compared with any other class of stock a preference exists if any rights to preference inherent in any class of stock are violated the disallowance when any preference in fact exists extends to the entire amount of the distribution and not merely to a part of such distribution based solely on the information submitted and the representations made we rule as follows any and all of the cash and taxpayer stock distributed in a stock and cash distribution by taxpayer to holders of the taxpayer stock using the election described above shall be treated as a distribution_of_property with respect to the taxpayer stock to which sec_301 applies sec_301 and sec_305 the adjustments shall constitute a deemed_distribution of taxpayer stock to the holders of the convertible debt to which sec_301 applies by plr-151324-12 reason of sec_305 and c provided at least some cash is distributed in the associated stock and cash distribution the terms of the stock and cash distribution will not cause the stock and cash distribution to be considered preferential under sec_562 accordingly if under those terms a stockholder receives a combination of taxpayer stock and cash that differs from the combination received by other stockholders and if the fair_market_value of the taxpayer stock on the date of distribution differs from the amount of money which could have been received instead or if conversion rates applicable to the convertible debts use a different valuation mechanism than that used in the stock and cash distribution those differences will not cause the distribution to be considered preferential under sec_562 ruling_request whether hedging identifications made by company prior to the first day of taxpayer’s first reit taxable_year or by a company entity or m a target entity prior to its inclusion as part of taxpayer for reit income or asset testing purposes will be effective for purposes of sec_856 to the extent the hedging identifications would have so qualified had they been made by a reit in addition whether taxpayer’s clear identification of an outstanding hedge on the first day that taxpayer becomes a party of the hedge for reit income or asset testing purposes including through conversion of a trs to a qrs or a partnership of taxpayer or through acquisition of an m a target entity that becomes a qrs or a partnership of taxpayer will be considered timely identification for purposes of sec_856 sec_61 of the code provides that except as otherwise provided gross_income includes all income from whatever source derived sec_856 provides that except to the extent determined by the secretary income of a reit from a hedging_transaction as defined in sec_1221 or iii that is clearly identified pursuant to sec_1221 including gain from the sale or disposition of such a transaction shall not constitute gross_income under sec_856 or to the extent the transaction hedges indebtedness incurred or to be incurred by the reit to acquire or carry real_estate_assets sec_856 provides that except to the extent determined by the secretary income of a reit from a transaction entered into by the reit primarily to manage risk of currency fluctuations with respect to any item_of_income or gain described in sec_856 or or any property that generates such income including gain from the termination of such a transaction shall not constitute gross_income under sec_856 or provided that the transaction is clearly identified as such before the close of the day on which it was acquired originated or entered into plr-151324-12 sec_856 provides that a corporation which is a qrs shall not be treated as a separate corporation and all the assets liabilities and items of income deduction and credit of a qrs shall be treated as assets liabilities and such items as the case may be of the reit sec_856 defines qrs as any corporation if percent of the stock of such corporation is held by the reit such term does not include a trs sec_1221 and the regulations thereunder provide that a hedging_transaction includes any transaction entered into by the taxpayer in the normal course of the taxpayer’s trade_or_business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made or ordinary obligations incurred or to be incurred by the taxpayer sec_1221 and sec_1_1221-2 require a hedging_transaction to be clearly identified as such before the close of the day on which it was acquired originated or entered into sec_1_1221-2 requires a taxpayer that enters into a hedging_transaction to make a substantially contemporaneous identification of the item items or aggregate risk being hedged and provides that an identification is not substantially contemporaneous if it is made more than days after entering into the hedging_transaction taxpayer will have entered into hedges prior to the commencement of taxpayer’s first reit taxable_year in addition prior to the time that taxpayer converts one or more of its trss that do business in foreign countries to either qrss other disregarded entities or partnerships some of these trss will have entered into hedges finally some m a target entities will have entered into hedges prior to the acquisition of these m a target entities by the company such hedges will thus be pre-existing as of the first day that taxpayer is treated as a reit or when pre-existing hedges entered into by these entities are included as part of taxpayer’s hedges for reit income testing purposes some pre-existing hedges will have been clearly and timely identified by taxpayer the trs or the m a target entity pursuant to sec_1221 these pre- existing hedges will have met the requirements of sec_856 but for the fact that these hedges were identified by as applicable_taxpayer prior to its becoming a reit a trs prior to its becoming a qrs other disregarded_entity or partnership of taxpayer or the m a target entity prior to its becoming a qrs other disregarded_entity or partnership of taxpayer with respect to any pre-existing hedge that has not been clearly identified prior to the time taxpayer becomes a reit or the hedge is included by taxpayer taxpayer intends to identify each such hedge for sec_856 purposes i on the first day that taxpayer or one of its qrss other disregarded entities or partnerships becomes a party to the hedge including through conversion of a trs to a qrs other disregarded plr-151324-12 entity or a partnership of taxpayer or through acquisition of an m a target entity that becomes a qrs other disregarded_entity or partnership of taxpayer or ii the first day of the first reit taxable_year based on the facts above and the representations of taxpayer pre-existing hedges that were properly identified by as applicable_taxpayer prior to its becoming a reit a trs prior to its becoming a qrs other disregarded_entity or partnership of taxpayer or the m a target entity prior to its becoming a qrs other disregarded_entity or partnership of taxpayer will be treated as properly identified for purposes of sec_856 accordingly pursuant to the authority under sec_856 we rule that the income from these pre-existing hedges will be considered as not constituting gross_income under sec_856 or provided that such pre-existing hedging_transaction was properly identified by the entity that acquired originated or entered into the hedge based on the facts above and the representations of taxpayer excluding the income with respect to any pre-existing hedge that has not been clearly identified prior to the time taxpayer becomes a reit from taxpayer’s gross_income for purposes of sec_856 and does not interfere with congressional policy objectives in enacting the income tests under those provisions therefore pursuant to the authority under sec_856 we rule that the income from a pre-existing hedge that was not previously properly identified will be considered as not constituting gross_income under sec_856 and provided that taxpayer clearly identifies such pre- existing hedge i on the first day that taxpayer or one of its qrss other disregarded entities or partnerships becomes a party to the hedge including through conversion of a trs to a qrs other disregarded_entity or a partnership of taxpayer or through acquisition of an m a target entity that becomes a qrs other disregarded_entity or a partnership of taxpayer or ii the first day of the first reit taxable_year caveats the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party any of the material submitted in support of this request for rulings is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied as to whether taxpayer otherwise qualifies as a reit under subchapter_m of the code additionally no opinion is expressed concerning whether any amounts received by taxpayer will be redetermined_rents under sec_857 we also express no opinion regarding whether the value that taxpayer allocated to the real_estate intangibles was properly determined or whether some of the value that taxpayer ascribes to the real_estate plr-151324-12 intangibles is properly attributable to some other intangible that would not qualify as real_property for the purposes of sec_856 except as expressly provided herein no opinion is expressed or implied concerning the tax treatment of taxpayer’s proposed distributions under other provisions of the code and regulations or the tax treatment of any condition existing at the time of or effects resulting from these distributions that is not specifically covered by the above rulings specifically rulings concerning stock and cash distributions are void and we do not express any opinion on the tax consequences of such distributions if they are not completed during taxpayer’s first reit taxable_year in addition no opinion is expressed with regard to the validity of the valuation methodology chosen by taxpayer in determining the number of shares issued in a distribution or any_tax consequences resulting from the establishment of a dividend_reinvestment_plan in the future moreover no opinion is expressed or implied as to whether i the core systems are nonresidential_real_property under sec_168 for purposes of computing depreciation under sec_168 or sec_312 ii the cost of the real_estate intangibles is taken into account as part of the basis of the tangible real or personal_property under sec_1_197-2 and iii the taxpayer’s method_of_accounting for depreciation or amortization for any taxable_year for the core systems or real_estate intangibles are permissible for federal_income_tax purposes further no opinion is expressed or implied regarding whether the sec_481 adjustment period reported or the e_p adjustments made by taxpayer at the time of the reit_conversion were proper 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 a copy of this letter is being sent to your authorized representatives sincerely andrea m hoffenson_______________ andrea m hoffenson chief branch office of associate chief_counsel financial institutions products