PLR 200502013: Off-site parking payments count toward co-op income test

Plain-English summary

A cooperative housing corporation without an on-site garage proposed leasing spaces in nearby garages for its resident shareholders. The residents would reimburse the corporation through their monthly maintenance payments, and the corporation would pay the garages without taking a markup. The corporation asked whether those receipts counted as income from tenant-stockholders under section 216's 80 percent income test. The IRS ruled that the parking payments did count toward that test, following its treatment of occupancy-related services. The ruling addressed the income source test, not the cooperative's overall tax consequences.

Ruling snapshot

• Question: Do resident shareholders' payments for off-site parking count as tenant-stockholder income for the section 216 test?
• Outcome: Approved: the payments count toward the 80 percent gross-income requirement.
• Key authorities: IRC § 216(b)(1)(D); Rev. Rul. 68-387.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200502013
Third Party Communication: None
Release Date: 01/14/2005
Date of Communication: Not Applicable
Index Number: 216.01-02
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B07
PLR-123084-04
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Date:
October 01, 2004

Legend:

Corporation: -----------------------------------
State: -------------
Address: --------------------------------------------------------- a: ---- b: -- c: ----

Dear ----------:

We received your letter requesting a ruling under § 216 of the Internal Revenue Code. This letter responds to your request.

The represented facts are as follows. Corporation is a cooperative housing corporation organized under the laws of State. Corporation owns the land and building located at Address, which consists of a basement, a floors, b commercial units, and c residential units. Corporation does not have an on-site parking garage for its tenant-stockholders and many tenant-stockholders therefore use off-site parking garages in the neighborhood.

Corporation proposes to lease parking spaces from several off-site garages.
Corporation would then subsequently enter into separate agreements with the tenant-stockholders who desire to park their cars in the off-site garages. The tenant-stockholders would pay the Corporation for the parking rights as part of each tenant-stockholders monthly maintenance payment, and Corporation will make all required payments directly to the off-site garages. Corporation will not receive any money in excess of what is owed to the off-site garages for providing the parking services. Corporation would bear the economic risk should the payments by the tenant-stockholders be less than the required amounts due from Corporation to the

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off-site garages.
You requested a ruling that payments by tenant-stockholders to Corporation for use by them of parking spaces in off-site garages will be considered as part of the gross income derived from tenant-stockholders for purposes of the 80-percent requirement prescribed by § 216(b)(1)(D) of the Code.

Section 216(a) provides that in the case of a tenant-stockholder (as defined in subsection (b)(2)), there shall be allowed as a deduction amounts (not otherwise deductible) paid or accrued to a cooperative housing corporation within the taxable year, but only to the extent that such amounts represent the tenant-stockholder’s proportionate share of-- (1) the real estate taxes allowable as a deduction to the corporation under § 164 which are paid or incurred by the corporation on the houses or apartment building and on the land on which such houses (or building) are situated, or (2) the interest allowable as a deduction to the corporation under § 163 which is paid or incurred by the corporation on its indebtedness contracted-- (A) in the acquisition, construction, alteration, rehabilitation, or maintenance of the houses or apartment building, or (B) in the acquisition of the land on which the houses (or apartment building) are situated.

Section 216(b)(1) provides that the term “cooperative housing corporation” means a corporation-- (A) having one and only one class of stock outstanding, (B) each of the stockholders of which is entitled, solely by reason of his ownership of stock in the corporation, to occupy for dwelling purposes a house, or an apartment in a building, owned or leased by such corporation, (C) no stockholder of which is entitled (either conditionally or unconditionally) to receive any distribution not out of earnings and profits of the corporation except on a complete or partial liquidation of the corporation, and (D) 80 percent or more of the gross income of which for the taxable year in which the taxes and interest described in § 216(a) are paid or incurred is derived from tenant-stockholders.

Section 216(b)(2) provides that the term “tenant-stockholder” means a person who is a stockholder in a cooperative housing corporation, and whose stock is fully paid-up in an amount not less than an amount shown to the satisfaction of the Secretary as bearing a reasonable relationship to the portion of the value of the corporation’s equity in the houses or apartment building and the land on which situated which is attributable to the house or apartment which such person is entitled to occupy.

Rev. Rul. 68-387 provides that the amounts received by a cooperative housing corporation from its tenant-stockholders to defray expenses associated with their occupancy of the corporation’s property, including amounts received for maid and secretarial service, garage or parking space, utilities, recreation facilities, cleaning, and related services, will be considered as part of the gross income derived from tenant-stockholders for purposes of the 80-percent requirement prescribed by § 216(b)(1)(D) of the Code. On the other hand, amounts received by a cooperative housing corporation from leases for commercial purposes or from the operation of a

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trade or business (other than housing) are not considered as part of the gross income derived from tenant-stockholders for purposes of the 80-percent requirement prescribed by § 216(b)(1)(D) of the Code.

Rev. Rul. 79-137 provides that revenue that is generated by a cooperative housing corporation from real estate brokerage services provided to its tenant-stockholders in connection with the transfer of their apartment units and that is applied against recurring expenses for repair and maintenance of the corporation’s property is income derived from tenant-stockholders within the meaning of § 216(b)(1)(D) of the Code.

Applying the above standards to the facts and representations submitted and subject to the below limitation, we conclude that payments by tenant-stockholders to Corporation for use by them of parking spaces in off-site garages will be considered as part of the gross income derived from tenant-stockholders for purposes of the 80-percent requirement prescribed by § 216(b)(1)(D) of the Code.

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. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

A copy of this letter must be attached to any income tax return to which it is relevant.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,
/s/
Leslie H. Finlow
Chief, Branch 7
Office of Associate Chief Counsel
(Passthroughs & Special Industries) cc: