REIT's loans to and from its joint ventures excluded from assets up to its capital interest (§ 856)

Plain-English summary

A real estate investment trust (REIT) that owns multi-tenant communications
towers asked the IRS how to treat loans it makes to, and receives from, the
joint ventures (JVs, taxed as partnerships) it forms with business partners.
A REIT has to pass strict quarterly asset tests under § 856(c)(4): most of its
assets must be real estate, cash, or government securities, and it faces caps
on how much of any one issuer's securities it can hold. Under Treasury
Regulation § 1.856-3(g), a REIT that is a partner is already treated as owning
its proportionate share of the partnership's assets. Building on that, the IRS
ruled that, up to the REIT's own capital interest in a JV, a loan between the
REIT and that JV is excluded from the REIT's assets for the § 856(c)(4) tests.
For that portion the REIT is effectively lending to itself, so counting the
loan as a separate security would double-count assets the REIT already
reflects through its partnership share. The IRS did not rule on whether the
taxpayer actually qualifies as a REIT; it only answered the asset-test
question presented.

Ruling snapshot

• Question: Are loans between a REIT and its JV partnerships excluded from the REIT's assets, up to the REIT's capital interest in each JV, for the § 856(c)(4) asset tests?
• Outcome: Approved (both rulings granted; that portion of each loan is excluded from the REIT's assets)
• Key authorities: IRC § 856(c)(4) and § 856(m); Treas. Reg. § 1.856-3(g); Treas. Reg. § 1.856-2(d); IRC § 7701(a)(2)

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury
                                                 Washington, DC 20224

Number: 202623013                                Third Party Communication: None
Release Date: 6/5/2026                           Date of Communication: Not Applicable
Index Number: 856.00-00, 856.01-00               Person To Contact:
                                                 ----------------------------, ID No. ---------------
-----------------------------------------------
                                                 -----------------
------------------------------                   Telephone Number:
-------------------------------                  --------------------
-------------------------                        Refer Reply To:
                                                 CC:FIP:B02
                                                 PLR-117459-19
                                                 Date:
                                                 March 10, 2026

LEGEND:

Taxpayer          = ------------------------------
                    -------------------------

State             = -------------

Date              = --------------------------

Dear ---------------------------

      This is in reply to a letter dated July 22, 2019, and supplemental
correspondence, in which Taxpayer requests rulings under § 856 of the Internal
Revenue Code (the "Code"). Specifically, Taxpayer requests the following rulings[1]:

        (1) The portion of each Loan from Taxpayer to a JV (including any accrued
            interest thereon), commensurate with Taxpayer's capital interest in that JV, is
            excluded from Taxpayer's assets for purposes of § 856(c)(4)(A) and (B)(i)
            through (iv)(II); and

        (2) Taxpayer's proportionate share of each Loan (including any accrued interest
            thereon) that a JV lends to Taxpayer, commensurate with Taxpayer's interest
            in that JV, is excluded from Taxpayer's assets for purposes of § 856(c)(4).

----------
[1] This letter does not address the treatment of any Loan from Taxpayer to a JV for purposes of
§ 856(c)(4)(B)(iv)(III) because § 856(m) provides comprehensive rules for calculating the portion of each
Loan not treated as a security for such purposes.
----------

                                         FACTS

        Taxpayer, a State corporation, represents that it made an election to be treated
as a real estate investment trust ("REIT") effective beginning the taxable year ended
Date. Taxpayer owns multi-tenanted communications towers and other
communications real estate. Taxpayer, together with taxable REIT subsidiaries of
Taxpayer within the meaning of § 856(l) ("TRSs") (collectively, the "Group"), is primarily
in the business of leasing space on and at communications sites to tenants in a number
of different industries. Taxpayer represents that the communications sites are primarily
comprised of real property or interests in real property within the meaning of § 1.856-10
of the Income Tax Regulations (the "Regulations"). The Group owns and leases
communications sites both in the United States and internationally.

       In the ordinary course of its business, and together with partners ranging from
third parties to its TRSs (each such partner, a "Partner"), Taxpayer forms joint ventures
treated as partnerships for federal income tax purposes (the "JVs"). Taxpayer and one
or more Partners each own a percentage interest in each JV. Taxpayer represents that
each Partner is a separate taxpayer from Taxpayer. Taxpayer from time to time lends
or borrows funds to or from the JVs generally for the purpose of financing
communications sites (the "Loans"). Each Loan is represented by a note that
commemorates and records the transaction and Taxpayer represents that each Loan is
indebtedness for federal income tax purposes. The Loans arise from capital financing
transactions and not from operational activities. Taxpayer represents that the Loans
generally are not receivables as defined in § 1.856-2(d)(1)(iii).

       With regard to a Loan made by Taxpayer to a JV, Taxpayer will have a note from
the JV for the entire amount of the Loan. Due to Taxpayer's interest in the JV and to
the extent provided in § 856(m)(4)(A), a portion of the debt obligation is not treated as a
security for purposes of § 856(c)(4)(B)(iv)(III). With regard to a Loan made by a JV to
Taxpayer, the JV will have a note from Taxpayer for the entire amount of the Loan and
Taxpayer will have the obligation to repay the Loan. However, pursuant to
§ 856(m)(3)(A)(ii) for purposes of § 856(c)(4)(B)(iv)(III) and pursuant to § 1.856-3(g),
Taxpayer is also treated as owning a proportionate share of the note in accordance with
Taxpayer's interest in the JV.

                                  LAW AND ANALYSIS

      Section 856(c)(2) provides that at least 95 percent of a REIT's gross income
must be derived from passive sources, including interest and rents from real property.

       Section 856(c)(3) provides that at least 75 percent of a REIT's gross income
must be derived from real property interests including rents from real property and
interest on obligations secured by mortgages on real property or on interests in real
property.

       Section 856(c)(4)(A) provides that, at the close of each quarter of the taxable
year, at least 75 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.

       Section 856(c)(4)(B)(i)-(iii) provides that, at the close of each quarter of the
taxable year – (i) not more than 25 percent of the value of a REIT's total assets may be
represented by securities other than those includable under § 856(c)(4)(A); (ii) not more
than 20 percent of the value of a REIT's total assets may be represented by securities
of one or more TRSs; and (iii) not more than 25 percent of the value of a REIT's total
assets may be represented by nonqualified publicly offered REIT debt instruments.

       Section 856(c)(4)(B)(iv) provides that, at the close of each calendar quarter of the
taxable year and except with respect to a TRS and securities includable under
§ 856(c)(4)(A) – (I) not more than 5 percent of the value of a REIT's total assets is
represented by the securities of any one issuer; (II) a REIT may not hold securities
possessing more than 10 percent of the total voting power of the outstanding securities
of any one issuer; and (III) a REIT may not hold securities having a value of more than
10 percent of the total value of the outstanding securities of any one issuer.

        Section 856(m)(3)(A) provides that, for purposes of applying § 856(c)(4)(B)(iv)(III)
– (i) a REIT's interest as a partner in a partnership (as defined in § 7701(a)(2)) shall not
be considered a security and (ii) the REIT shall be deemed to own its proportionate
share of each of the assets of the partnership.

      Section 856(m)(3)(B) provides that, for purposes of § 856(m)(3)(A) – (i) the
REIT's interest in the partnership assets shall be the REIT's proportionate interest in
any securities issued by the partnership (determined without regard to § 856(m)(3)(A)(i)
and (m)(4)), but not including securities described in § 856(m)(1); and (ii) the value of
any debt instrument shall be the adjusted issue price thereof, as defined in § 1272(a)(4).

       Section 856(m)(4) provides that, for purposes of applying § 856(c)(4)(B)(iv)(III) –
(A) any debt instrument issued by a partnership and not described in § 856(m)(1) shall
be not considered a security to the extent of the REIT's interest as a partner in the
partnership; and (B) any debt instrument issued by a partnership and not described in
§ 856(m)(1) shall not be considered a security if at least 75 percent of the partnership's
gross income (excluding gross income from prohibited transactions) is derived from
sources referred to in § 856(c)(3).

      Section 1.856-2(d)(3) provides in relevant part that the "total assets" of a REIT
means the gross assets of a REIT determined in accordance with generally accepted
accounting principles (GAAP).

      Section 1.856-3(g) provides that, in the case of a REIT which is a partner in a
partnership, as defined in § 7701(a)(2) and the regulations thereunder, the REIT will be
deemed to own its proportionate share of each of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such share.
For purposes of § 856, the interest of a partner in the partnership's assets shall be
determined in accordance with the partner's capital interest in the partnership. The
character of the various assets in the hands of the partnership and items of gross
income of the partnership shall retain the same character in the hands of the partners
for all purposes of § 856. Thus, for example, if the REIT owns a 30 percent capital
interest in a partnership which owns a piece of rental property, the REIT will be treated
as owning 30 percent of such property and as being entitled to 30 percent of the rent
derived from the property by the partnership.

Ruling 1: Loans to JVs Attributable to Taxpayer's Capital Interests

       Taxpayer is required to account for its proportionate share of the assets and
income of each JV based on its capital interest in each JV pursuant to § 1.856-3(g).
Accordingly, Taxpayer is deemed to own a share of the income and assets of each JV
in accordance with its interest in the JV. That share already reflects, in part, the assets
financed by each JV with the Loans, and the income used by each JV to repay the
Loans. Thus, an equivalent portion of each Loan and the accrued interest thereon will
not be treated as separate assets but will be disregarded for purposes of § 856(c).

Ruling 2: Loans from JVs Attributable to Taxpayer's Capital Interests

        In this case, it is appropriate to view § 1.856-3(g) as effectively treating Taxpayer
as directly engaging in the activities engaged in by each JV to the extent of Taxpayer's
capital interest in the JV for purposes of § 856. Pursuant to § 1.856-3(g), a Loan from a
JV to Taxpayer is treated as held in part by Taxpayer. Thus, in this case, a Loan from a
JV to Taxpayer can be viewed, in part, as a lending transaction between Taxpayer and
itself. Accordingly, the portion of a Loan from a JV to Taxpayer that is deemed held by
Taxpayer under § 1.856-3(g), including any accrued interest thereon, is excluded from
Taxpayer's assets for purposes of § 856(c)(4).

                                   CONCLUSIONS

       Based on the information submitted and representations made, we conclude that:

       (1) The portion of each Loan from Taxpayer to a JV (including any accrued
           interest thereon), commensurate with Taxpayer's capital interest in that JV, is
           excluded from Taxpayer's assets for purposes of § 856(c)(4)(A) and (B)(i)
           through (iv)(II); and

       (2) Taxpayer's proportionate share of each Loan (including any accrued interest
           thereon) that a JV lends to Taxpayer, commensurate with Taxpayer's interest
           in that JV, is excluded from Taxpayer's assets for purposes of § 856(c)(4).

       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, we do not rule whether Taxpayer qualifies as a
REIT under Part II of Subchapter M of Chapter 1 of the Code. Furthermore, except as
provided herein, we do not rule on any of the tax consequences or aspects of any of the
Loans.

      The rulings contained in this letter are based upon information and
representations submitted by Taxpayer and accompanied by a penalties 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.

      These rulings are directed only to the taxpayer that requested them. Section
6110(k)(3) provides that these rulings may not be used or cited as precedent.

        In accordance with the provisions of a Power of Attorney on file, we are sending
a copy of this ruling letter to your authorized representatives.

                                         Sincerely,



                                         ______________________________
                                         Andrea M. Hoffenson
                                         Senior Technician Reviewer, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Financial Institutions and Products)

cc: ----------------------------------
    ------------------------
    ------------------------------

    ----------------------------
    -----------------------------------
    --------------------------------
    -------------------------
    -------------------------

    ---------------------
    -----------------------------------
    --------------------------------
    -------------------------
    ---------------------------