Posted by Asha Shettigar, Agata Orzechowska
Although the IRS private letter rulings, or PLRs, apply only to the requesting taxpayer and cannot be cited as precedent, other taxpayers and their advisers can use them to have a better understanding of how the IRS would rule if presented with a similar fact pattern.
Remaining up to date on key IRS guidance is essential for strategic planning and to help ensure your Real Estate Investment Trust (REIT) complies with tax law. Below highlights eight important PLRs in 2025 that are shaping REIT strategies and regulatory considerations.
In PLR 202510011 and PLR 202510012 released on March 7, 2025, the IRS ruled that payments made by airlines for the use of common terminal space and exclusive areas, such as VIP check-in, lounges and offices, are qualifying REIT income. In both cases, REIT’s services were limited to those customarily provided in connection with leasing space in airport terminals, and the REIT did not furnish any services tailored to individual airlines.
These rulings clarified, for the first time, how REIT rental income from airport facility leases and interest on IRC Section 467 deemed loans should be treated. Per the rulings, interest on the deemed loan created by Sec. 467 rental agreement is treated as qualifying income for REIT income tests. It is important to note the IRS ruled interest does not qualify under Sec. 856(c)(3), requiring taxpayers to seek relief through the IRS’ discretionary authority under Sec. 856(c)(5)(J). This has set a precedent that will require more definitive guidance to prevent reliance on individualized rulings.
In PLR 202520010 released on May 16, 2025, the IRS ruled that income received by a REIT operating temperature-controlled warehouses for temperature reduction, tempering, blast freezing and rapid tempering services can be treated as rents from real property and not as impermissible tenant service income (ITSI). That treatment would also apply to income received for handling services performed by a taxable REIT subsidiary (TRS). These services were treated as customary and furnished as part of the rental of real property.
In PLR 202522001 released on May 30, 2025, the IRS ruled that a REIT may exclude from its 95% and 75% gross income tests certain amounts received in connection with a failed sale of real property, specifically, a contract deposit retained as liquidated damages and a negotiated legal‑fee settlement. This treatment applies to amounts received in connection with a failed property sale where the gain from the actual sale of the property would have been qualifying REIT income.
It is important to note this ruling was issued under the IRS’ discretionary authority provided in Sec. 856(c)(5)(J).
In PLR 202530005 released on July 25, 2025, the IRS determined a REIT owning storage facilities may charge tenants for electricity used at electric vehicle (EV) charging stations provided that offering EV stations is customary for similar properties in the area. Also, per the IRS, markup on EV electricity is permissible when customary in the market and represents a return on installation/admin/maintenance costs. Income from these activities would be treated as rents from real property and not ITSI. Please note this treatment only applies to electricity used for tenant business equipment, such as commercial delivery fleets, forklifts, etc. and not for personal vehicles.
Read “IRS Clarifies Impact of Electric Vehicle Charging Stations on REIT Status”
In PLR 202533008 and PLR 202533009 released on August 15, 2025, the IRS ruled amounts received by a REIT from purchased and offsetting interest rate cap transactions will not constitute gross income for REIT testing purposes. In addition, a REIT’s share of income from the cap premium was excluded from gross income for purposes of the income tests, provided the offsetting caps only hedged the purchased caps and did not exceed their notional amounts.
In PLR 202536025 released on September 5, 2025, the IRS ruled income earned by a REIT from the issuance of carbon offset credits under a state cap-and-trade program will be treated as qualifying income for purposes of the 95% and 75% REIT gross income tests. As a practical implication, REITs can participate in carbon offset programs without jeopardizing REIT qualification, provided income is properly structured.
In PLR 202538013 released on September 19, 2025, the IRS confirmed its previous rulings stating a REIT undergoing a taxable merger followed by liquidation may elect a consent dividend under Sec. 565 in its final taxable year. This ruling clarifies consent dividends can be used to satisfy REIT distribution requirements and maximize the dividends paid deduction when actual liquidating distributions are less than taxable income.
In PLR 202549006 released on December 5, 2025, the IRS ruled income earned by a REIT from the issuance of carbon credits under voluntary and compliance programs for reductions in greenhouse gas emissions generated by its timberlands will be treated as qualifying income for purposes of the 95% and 75% REIT gross income tests. In this PLR, the IRS viewed the REIT’s credits generated by agreeing to land-use restrictions on its real property as comparable to granting easements and, therefore, treated the REIT’s income as qualifying. The IRS also specified the income from issued credits would accrue under Sec. 451 when earned, received or due. This ruling provides clarity for REITs participating in carbon offset programs tied to real property use restrictions.
PLRs remain a critical resource for REITs and their advisers. While PLRs apply only to the taxpayer requesting them, they provide valuable insight into the IRS’ interpretation of complex issues, helping you anticipate IRS positions, plan strategically and ensure compliance with REIT qualification rules.
However, reliance on PLRs also creates inefficiencies: taxpayers often seek rulings on identical fact patterns, and the IRS expends significant resources issuing case-specific guidance.
In May of 2025, Nareit (National Association of Real Estate Investment Trusts) formally requested the IRS and Treasury codify some of the conclusions from existing PLRs into precedential guidance. This would make the IRS positions uniformly applicable to all taxpayers, not just those who request a ruling, and would reduce the need for repetitive PLR requests and relieve some of the burden placed on IRS resources. The request included recurring issues, such as preferential dividend rules, late TRS elections/ revocations and treatment of certain income under Sec. 856(c)(5)(J) for gross income tests.
Regrettably, Nareit’s request for the codification of certain PLRs was not included in the initial 2025-2026 Priority Guidance Plan released by the IRS and Treasury Department on September 30, 2025. For now, REITs must continue to reference PLRs to help better understand IRS guidance and remain compliant with REIT tax law.
Contact Asha Shettigar, Agata Orzechowska or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.