Private Letter Ruling 201537015 Released September 11, 2015 Approved

Condominium PILOT payments qualify as deductible real property taxes

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This page covers one taxpayer's ruling from 2015, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

A property sponsor asked whether payments in lieu of taxes under a ground lease would be treated as real property taxes. The payments were imposed at the general real-property-tax rate under an affordability plan and could be used only for public purposes. The IRS ruled that the payments were deductible by the payer under section 164. After the leasehold estate entered condominium ownership, unit owners could deduct the portion of common charges that the board applied to those obligations under section 216.

Ruling snapshot

Question: Are the ground-lease PILOT payments deductible real property taxes, including the portion paid through condominium common charges?
Outcome: Approved
Key authorities: IRC §§ 164, 216; Treas. Reg. §§ 1.164-3(b), 1.164-4; Rev. Rul. 71-49; Rev. Rul. 61-152

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201537015 Third Party Communication: None
Release Date: 9/11/2015 Date of Communication: Not Applicable
Index Number: 164.00-00, 216.00-00
Person To Contact:
--------------------------------
-------------------------------------- ID No. ------------------
---------------------------------------------------- Telephone Number:
-------------------------------------- ----------------------
-------------------------------------- Refer Reply To:
---------------------------------- CC:ITA:B02
PLR-144622-14
Date:
June 5, 2015

LEGEND:

Taxpayer or Sponsor = ---------------------------------------------------------------------------------
Property = ---------------------------------------------------------------------------------
----------------------------------------------------------------------
Borough = -------------
City = --------------
State = --------------
Authority = ---------------------------------------------------------------------------------
-----------------------------------------------------
Authority1 = ---------------------------------------------------------------------------------
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The Act = ---------------------------------------------------------------------------------
Project = ----------------------------------------------
Park = -----------------------------
Date1 = ------------------------
Date2 = -------------------
Year = -------
Ground Lease = ---------------------------------------------------------------------------------
-----------------------------------------------------

Dear Taxpayer:

This responds to your letter dated --------------------------. You request a letter ruling on
the proper treatment of certain payments in lieu of taxes (PILOT) under § 164 of the
Internal Revenue Code, specifically whether such payments are deductible by an
individual who purchases from the Taxpayer a condominium leasehold interest in a
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residential unit. Additionally, you ask whether the unit owners will be able to deduct
PILOT as real property taxes pursuant to §164.

FACTS

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RULINGS REQUESTED

The following rulings are respectfully requested:

1) That the PILOT payments to be made pursuant to the ground lease to the
Authority (or to the City should it reacquire the project area) will constitute real
property taxes allowable as a deduction to the payer under IRC §164.

2) That following the Taxpayer’s submission of the leasehold estate in the property
to condominium ownership, the unit owners will be entitled to deduct as real
property taxes under §164 that portion of the common charges paid by them to
the board of managers as applied by such board towards the PILOT obligations.

A taxpayer may not rely on a private letter ruling that has been issued to another
taxpayer. Section 11.02 of Rev. Proc. 2015-1, 2015-1 I.R.B. 1, 56-57. Therefore, a
private letter ruling addresses only the tax liability of taxpayers who are party to the
ruling request. However, Taxpayer will be the owner of units in the condominium until
the units are sold, and as such, will be liable for PILOT until the units are sold. We
consider Taxpayer's second ruling request in that context.

LAW AND ANALYSIS

Section 164 allows as a deduction the state, local and foreign real property taxes paid
or accrued in the taxable year. Section 1.164-3(b) of the regulations defines real
property taxes as taxes imposed on interests in real property that are levied for the
general public welfare. Section 1.164-4 provides that assessments for local benefits are
not treated as real property taxes.

Whether a particular charge is a "tax" within the meaning of §164 depends on its true
nature as determined under federal law. The designation given by local law is not
determinative. A charge will constitute a tax if it is an enforced contribution, exacted
pursuant to legislative authority in the exercise of taxing power, and imposed and
collected for the purpose of raising revenues to be used for public or governmental
purposes. See Rev. Rul. 71-49, 1971-1 C.B. 103; Rev. Rul. 61-152, 1961-2 C.B. 42.

Rev. Rul. 71-49 involved tax equivalency payments to the New York City Educational
Construction Fund, a public benefit corporation, by a cooperative housing corporation.
The payments were applied to debt service on obligations funding public school
construction. The ruling holds that the cooperative housing corporation may deduct the
payments as real property taxes under § 164 because: (1) The payments are measured
by and are equal to the amounts imposed by the regular taxing statutes, (2) the
payments are imposed by a specific state statute (even though the vehicle of a lease
agreement is used), and (3) the proceeds are designated for a public purpose rather
than for some privilege, service, or regulatory function, or for some other local benefit
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tending to increase the value of the property upon which the payments are made.
Accordingly, each tenant-stockholder of the cooperative housing corporation was
allowed to deduct the payments in the amount of the stockholder's proportionate share.

Section 216 provides that a tenant-stockholder in a cooperative housing corporation
shall be allowed a deduction for amounts paid or accrued to the corporation within his
taxable year representing his proportionate share of real estate taxes paid or incurred
by the corporation. To be proportionately deductible by the tenant-stockholders, such
taxes must be allowable as a deduction to the corporation under § 164.

The Pilot obligations in this case satisfy the three-prong test of Rev. Rul. 71-49 because
they: (1) are imposed at the same general rate at which real property taxes are
imposed; (2) are imposed pursuant to the Affordability Plan; and (3) may only be used
for public purposes.

Accordingly, we hold as follows:

1) The PILOT payments to be made pursuant to the ground lease to Authority (or to
City should it reacquire the project area) will constitute real property taxes
allowable as a deduction to the payer under § 164.

2) Following the Taxpayer submission of the leasehold estate in the property to
condominium ownership, the unit owners will be entitled to deduct as real
property taxes the portion of the common charges paid by them to the board of
managers and that are applied by the board to the PILOT obligations pursuant to
§ 216.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it 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.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

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
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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.

                                  Sincerely,



                                  _____________________________
                                  THOMAS D. MOFFITT
                                  Chief, Branch 2
                                  Associate Chief Counsel
                                  (Income Tax & Accounting)

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Apply this to your situation

This page covers one taxpayer's ruling from 2015, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.

On this page

Document type

Private Letter Ruling

IRS subject

Taxes

Topics

Income and deductions

Code sections

§ 164, § 216

Ruling dated

June 5, 2015

Publicly released

September 11, 2015

View Official PDF