21 December 2016 Pension REIT is not treated as owned by single entity In PLRs 201650002 and 201650003, the IRS ruled that a pension trust fund owned by a single entity pension trust fund is not treated as owned by a single qualified trust. Taxpayer received a ruling in 2004 that it was a group trust arrangement as described in Revenue Ruling 81-100, 1981-1 C.B. 326 (an 81-100 group trust) and thus exempt from federal income tax. For purposes of determining whether a REIT held by the Taxpayer is a "pension-held REIT" (Section 856(h)(3)(D)), Taxpayer now requests a ruling that: (1) equitable ownership of the REIT by each participating entity in the group trust will be considered; and (2) the REIT stock will not be treated as owned by a single "qualified trust" (Section 856(h)(3)(E)) solely due to the Taxpayer's ownership. Taxpayer argues that the concentration of ownership should be evaluated by examining the interests equitably held for each participating entity separately. Under Section 856(h)(3)(C), a qualified trust holding more than 10% of the interests in any pension-held REIT at any time during a tax year will be treated as having gross income from an unrelated trade or business in that tax year. Section 856(h)(3)(D) defines the term "pension-held REIT" as a REIT predominantly held by qualified trusts with at least one qualified trust holding more than 25%, or one or more qualified trusts holding in aggregate more than 50% of the interests in such REIT. Examining Sections 403(b)(7)(B), 501(a) and 401(a), the IRS determined that, for purposes of determining the concentration of ownership under the pension-held REIT rules, the tax classification and the concentration of ownership in a REIT held by the group trust should be determined by evaluating the interests equitably held for each participating entity separately. Accordingly, solely for purposes of determining whether a REIT held by Taxpayer is a "pension-held REIT," to the extent the stock of a REIT is treated as owned by Taxpayer, such stock will not be treated as owned by a single "qualified trust" solely due to the Taxpayer's ownership. The concentration of ownership in a REIT held by the Taxpayer will be determined by examining the interests equitably held for each participating entity separately, because Taxpayer is an 81-100 group trust. This ruling confirms that a REIT must look through to the individual trusts that are part of a group trust under Revenue Ruling 81-100 to determine whether the REIT qualifies as a "pension-held" REIT under Section 856(h)(3)(D). It also helps provide certainty to REITs and those shareholders concerning whether the qualified trusts that are members of the group trust will be treated as incurring unrelated business taxable income from their interests in the REIT. — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg
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