IRS approves new REIT with no initial income or assets

On October 4, 2024, the Treasury Department released a private letter ruling (PLR 202440007, or the PLR) addressing whether a real estate investment trust (REIT) without any income and assets in its first year of operation passes its REIT gross income and asset tests. This technical issue has been a point of contention among tax advisors and is the first time that the IRS has ruled on this issue.

Background and key highlights

• A REIT is required to earn a certain percentage of “good” REIT income and hold a certain percentage of “good” REIT assets. Uncertainty surrounds whether a REIT with no income and/or no assets satisfies these tests.


• Some REITs have purchased publicly traded REIT stock, or other suitable investments, to avoid a zero income and/or asset test issue.


• The IRS looked to the legislative history of the gross income and asset tests, noting that Congress was concerned with limiting the sources of income and types of assets a REIT has, and not with ensuring whether a REIT had income and assets. The IRS also supported the position that multiplying $0 by any percentage (specifically 95 percent and 75 percent) results in $0, concluding that a lack of assets and income in Year 1 did not cause the REIT to fail the gross income and asset tests.


• The PLR provides guidance in line with what many tax advisors believe is the correct answer from both a practical and policy standpoint.

To learn more about the PLR, please contact any of member of DLA Piper’s National REIT Tax practice. See our team snapshot and visit our REIT Tax Resource Center.