A REIT's office-building parking revenue counts as rents from real property, and storage areas, fitness centers, and building services do not create impermissible tenant service income

Plain-English summary

A publicly held real estate investment trust (REIT) that owns Class A office buildings asked the IRS to confirm that various tenant amenities would not jeopardize its rental income tests. REITs must earn most of their income from "rents from real property," and income from providing services to tenants (called impermissible tenant service income, or ITSI) does not count and can even taint otherwise-good rent. The IRS ruled four things in the REIT's favor. First, parking-facility revenue qualifies as rents from real property because the garages are operated by a taxable REIT subsidiary or an independent contractor, matching a pattern the IRS already blessed in Rev. Rul. 2004-24. Second, free bicycle/scooter storage areas and fitness centers are common areas, not services, so making them available does not generate ITSI. Third, building-wide services (routine lighting and electrical repair, refrigerated organic-waste storage, digital interior signs, and a tenant software app) are either customary landlord services excludable under section 512(b)(3) or are delivered through independent contractors, so they are not ITSI. Fourth, third-party services (a bike-repair attendant, personal training) billed and paid directly to independent contractors, from whom the REIT gets no income, do not create ITSI. The IRS expressly did not rule on whether the taxpayer otherwise qualifies as a REIT. Landlords structuring modern amenity-rich office buildings care because getting this wrong can blow the REIT income tests.

Ruling snapshot

• Question: Do a REIT's parking revenue, free storage areas and fitness centers, building-wide "Listed Services," and third-party tenant services count as rents from real property, or do they create impermissible tenant service income under section 856(d)?
• Outcome: approved (all four ruling requests granted)
• Key authorities: IRC § 856(d) (including 856(d)(2)(C), 856(d)(3), 856(d)(7)); IRC § 512(b)(3); Treas. Reg. §§ 1.856-3(g), 1.856-4, 1.512(b)-1(c)(5); Rev. Rul. 2004-24

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202304003 Third Party Communication: None
Release Date: 1/27/2023 Date of Communication: Not Applicable
Index Number: 856.04-00
Person To Contact:
--------------------- ------------------, ID No. -----------------
---------------------------------- Telephone Number:
------------------------------------ --------------------
---------------------------- Refer Reply To:
----------------------- CC:FIP:B03
---------------------------------- PLR-108896-22
------------------------------ Date:
October 28, 2022

LEGEND:

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

Operating Partnership = ---------------------------
State = ------------
City = -------------------
Content = ----------------------------
a = ---
Building A = ------------------------------------------
Building B = ------------------------------------------------
Building C = ------------------------------------------
Building D = ------------------------------------------------
Date 1 = --------------------------

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

   This letter responds to a letter dated March 30, 2022, and subsequent

submissions, requesting a ruling on behalf of Taxpayer. Taxpayer requests the
following rulings under section 856(d) of the Internal Revenue Code (the “Code”):

     (1) Taxpayer’s proportionate share, within the meaning of section 1.856-3(g) of
         the Income Tax Regulations, of the parking revenues derived from the
         Parking Facilities (defined below), will be treated as rents from real property
         under section 856(d).

   (2) Taxpayer’s provision of the Designated Storage Areas (defined below) and
       the Fitness Centers (defined below), as well as the services provided therein,
       will not result in impermissible tenant service income within the meaning of
       section 856(d)(7) (“ITSI”), and thus will not cause otherwise qualifying
       amounts received by Taxpayer to be excluded from rents from real property
       under section 856(d) by operation of section 856(d)(2)(C).

   (3) Taxpayer’s provision of the Listed Services (defined below) will not result in
       ITSI, and thus will not cause otherwise qualifying amounts received by
       Taxpayer to be treated as other than rents from real property under section
       856(d) by operation of section 856(d)(2)(C).

   (4) The availability of the Third-Party Services (defined below) to tenants of the
       Properties (defined below) will not cause otherwise qualifying amounts
       received by Taxpayer to be treated as other than rents from real property
       under section 856(d).

                                      FACTS

   Taxpayer is a publicly held entity organized in State that elected to be taxed as a

real estate investment trust (REIT) under sections 856 through 859 beginning with the
taxable year that ended on Date 1.

   Taxpayer is the sole general partner in Operating Partnership, which is a

partnership for federal income tax purposes. Taxpayer owns an interest of
approximately a percent in Operating Partnership. Through Operating Partnership and
subsidiary partnerships of Operating Partnership, Taxpayer owns interests in office
properties located in City (each a “Property” and collectively the “Properties”). As
discussed below, certain Properties will make available to tenants Parking Facilities,
Designated Storage Areas, Fitness Centers, and the Listed Services (each term defined
below). Additionally, certain Third-Party Services (defined below) are available at some
of the Properties. Taxpayer represents that the Properties are typical of Class A office
buildings located in City.

   Parking Facilities:

   Four of the Properties, Building A, Building B, Building C, and Building D each

contain parking facilities that are available to tenants and their guests, customers, and
subtenants, as well as the general public, for a fee on an hourly, daily, or monthly
unreserved basis (the “Parking Facilities”). Taxpayer represents that the number of
available spaces in each of the Parking Facilities is appropriate in size for the expected
number of tenants and their guests, customers, and subtenants.

  Taxpayer currently leases most of the Parking Facilities to taxable REIT

subsidiaries (each a “TRS”). Taxpayer intends to terminate the leases to the TRSs and

will engage either a TRS or an independent contractor within the meaning of section
856(d)(3) from whom the Taxpayer does not derive or receive any income to manage
and oversee the operation of each of the Parking Facilities (the “Parking Manager”).
The Parking Manager will employ all the individuals, including attendants, who manage
and operate each of the Parking Facilities. The Parking Manager will be directly
responsible for providing all compensation, benefits, administration, and supervision of
its employees. The Parking Manager will receive arm's-length compensation.

   The Parking Manager's employees may occasionally, as a courtesy or when

necessary, provide minor, incidental, or emergency services, such as jump starting a
car or changing a flat tire. Solely for purposes of safety and to facilitate the efficient use
of the space in the Parking Facilities, the Parking Manager's employees will at times
move vehicles in and out of parking spots.

   Designated Storage Areas:

   Certain of the Parking Facilities include designated areas for the storage of

bicycles, scooters, and similarly sized vehicles (the “Designated Storage Areas”).
Tenants are permitted to store these vehicles at the Designated Storage Areas for no
charge.

   Fitness Centers:

    Certain of the Properties contain fitness and exercise facilities with exercise

equipment, saunas, steam rooms, and shower and locker facilities (the “Fitness
Centers”). Depending on the Property, a Fitness Center may be open to the public or
may be available solely for the use of tenants. At certain Fitness Centers, all users will
need to pay a monthly membership fee for access to the Fitness Center. In some
cases, Taxpayer will offer membership discounts to certain tenants. Taxpayer will treat
any amounts it receives in the form of Fitness Center membership fees as other than
rents from real property for the purposes of section 856(d).

    Some of the Fitness Centers will be “Staffed Fitness Centers.” Taxpayer will

directly engage an independent contractor within the meaning of section 856(d)(3) from
whom Taxpayer does not derive or receive any income to operate the Staffed Fitness
Centers. Employees of the independent contractor will staff and maintain the Staffed
Fitness Centers, supply clean towels, and offer exercise classes and other services to
patrons.

    Other Fitness Centers will be “Unstaffed Fitness Centers.” Unstaffed Fitness

Centers are solely open to a Property’s tenants. Taxpayer will only perform
maintenance, cleaning, and security. Taxpayer will engage an independent contractor
within the meaning of section 856(d)(3) from whom Taxpayer does not derive or receive
any income to provide clean towels, which is the only other service offered at Unstaffed
Fitness Centers.

   The Listed Services:

   Routine Lighting & Electrical Maintenance and Repair in Tenant Space

   Taxpayer will provide general lighting to its tenants in tenant space. In

connection with the provision of lighting in tenant space, for building safety reasons,
Taxpayer's employees will repair or replace light switches and outlets, electrical fuses,
and overhead lighting fixtures, including light bulbs and ballasts. Taxpayer represents
that Taxpayer’s lighting and electrical work in tenant space is only for routine
maintenance and repair for building safety reasons and does not involve performing any
tenant-specific modifications or upgrades. Taxpayer represents that these services are
customarily furnished or arranged for by landlords in connection with the leasing of
space in Class A office buildings located in City.

   Organic Waste Refrigeration and Containment

   Each of the Properties will provide refrigerated storage space to temporarily

contain organic waste produced by tenants to prevent waste odors from escaping the
waste storage areas. The organic waste refrigeration and containment will be
conducted on a building-wide basis and is not intended to benefit any particular tenant;
rather, the organic waste refrigeration and containment is intended to benefit the entire
building.

    Taxpayer represents that any services provided by Taxpayer in connection with

the organic waste refrigeration and containment are customarily furnished or arranged
for by landlords in connection with the leasing of space in Class A office buildings
located in City.

   Interior Signs

    Digital signs will be built into certain interior walls of one or more of the Properties

(the “Interior Signs”). The Interior Signs have various functions. The Interior Signs will
at times display Content, which consists of still or moving images designed to enhance
the atmosphere of the Property. Content will be produced and controlled by an
independent contractor within the meaning of section 856(d)(3) from whom Taxpayer
does not derive or receive any income. The Interior Signs will at other times display
information about tenant businesses or other attractions located at the Property.
Certain tenants may, under the terms of their leases, be granted the right to display their
company names and logos on certain of the Interior Signs (e.g., those signs that are
located by the main lobby elevator bank that serves their floor(s), or in the passenger
elevators that serve their floor(s)). The Interior Signs will be controlled and maintained
by an independent contractor within the meaning of section 856(d)(3) from whom
Taxpayer does not derive or receive any income. Taxpayer represents that any
services provided in connection with the Interior Signs are customarily furnished or

arranged for by landlords in connection with the leasing of space in Class A office
buildings located in City.

  Software Application

    Taxpayer will make available at no charge a software application that is only

accessible to tenants of the Properties (the “Software”). The Software will be
maintained and operated by an independent contractor within the meaning of section
856(d)(3) from whom Taxpayer does not derive or receive any income. The Software
enables tenants to access information about the Properties, tenant information, and
health and safety advisories, and also to communicate with building staff. The Software
will provide entry access at the Properties for tenants, their employees, and guests
through integration with automated entry access points. The access points will be
equipped with the ability to read electronic credentials (e.g., QR codes) contained on a
cellphone or other device, as well as facial-feature recognition or other biometric
capability. Additionally, tenants can order food from certain vendors located at a
Property to be delivered to their location (including the common areas of a Property),
and if available, reserve and pay for parking spaces and book Fitness Center
appointments. Local businesses will be permitted to promote their goods and services
on the Software, including by offering promotions and discounts to tenants. Taxpayer,
however, will not negotiate, sponsor, or otherwise bear the cost of any promotions or
discounts. Taxpayer represents that any services offered by Taxpayer in connection
with the Software are customarily furnished or arranged for by landlords in connection
with the leasing of space in Class A office buildings located in City.

  Third-Party Services:

  Bicycle Attendant

   During certain times at the Designated Storage Areas, an attendant will be

present on site to assist bicycle owners with minor repairs and maintenance of their
bicycles (the “Bicycle Attendant”). The Bicycle Attendant will be an independent
contractor within the meaning of section 856(d)(3) from whom Taxpayer does not derive
or receive any income. The Bicycle Attendant will be compensated directly by its
customers. Taxpayer does not receive rent from the Bicycle Attendant, and Taxpayer
does not derive any income from the provision of any services by the Bicycle Attendant.

  Additional Services at Staffed Fitness Centers

   In addition to the services stipulated under their contracts, the independent

contractors operating the Staffed Fitness Centers may also offer additional services to
patrons (such as personal training or massages) for additional fees that will be paid
solely and directly to the independent contractors. Taxpayer will derive no income from
the rendering of these additional services by the independent contractors to their
customers at Staffed Fitness Centers.

                             LAW AND ANALYSIS

  Section 856(c)(2) provides that at least 95 percent of a REIT's gross income

must be derived from, among other sources, rents from real property.

  Section 856(c)(3) provides that at least 75 percent of a REIT's gross income

must be derived from, among other sources, rents from real property.

  Section 1.856-3(g) provides that a REIT that is a partner in a partnership is

deemed to own its proportionate share of each of the assets of the partnership and is
deemed to be entitled to the income of the partnership attributable to such share. For
purposes of section 856, the interest of a partner in the partnership's assets is
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 retain the same character in the hands of the partners as in
the hands of the partnership for all purposes of section 856.

    Section 856(d)(1) provides that rents from real property include (subject to

exclusions provided in section 856(d)(2)): (A) rents from interests in real property; (B)
charges for services customarily furnished or rendered in connection with the rental of
real property, whether or not such charges are separately stated; and (C) rent
attributable to personal property leased under, or in connection with, a lease of real
property, but only if the rent attributable to the personal property for the taxable year
does not exceed 15 percent of the total rent for the taxable year attributable to both the
real and personal property leased under, or in connection with, such lease.

 Section 1.856-4(a) defines rents from real property generally as the gross

amounts received for the use of, or the right to use, real property of the REIT.

    Section 1.856-4(b)(1) provides that, for purposes of sections 856(c)(2) and (3),

rents from real property includes charges for services customarily furnished or rendered
in connection with the rental of real property, whether or not the charges are separately
stated. Services furnished to the tenants of a particular building will be considered as
customary if, in the geographic market in which the building is located, tenants in
buildings of a similar class (such as luxury apartment buildings) are customarily
provided with the service. To qualify as a service customarily furnished, the service
must be furnished or rendered to the tenants of the REIT or, primarily for the
convenience or benefit of the tenants, to the guests, customers, or subtenants of the
tenants.

  Section 856(d)(2)(C) provides that any ITSI is excluded from rents from real

property. Section 856(d)(7)(A) defines ITSI to mean, with respect to any real or
personal property, any amount received or accrued directly or indirectly by the REIT for

services furnished or rendered by the REIT to the tenants of the property, or for
managing or operating such property.

  Section 856(d)(7)(C) provides certain exceptions from ITSI. Section

856(d)(7)(C)(i) provides that for purposes of section 856(d)(7)(A), services furnished or
rendered, or management or operation provided, through an independent contractor
from whom the REIT does not derive or receive any income, or through a TRS of the
REIT shall not be treated as furnished, rendered, or provided by the REIT.

   Section 856(d)(7)(C)(ii) provides that ITSI does not include any amount which

would be excluded from unrelated business taxable income under section 512(b)(3) if
received by an organization described in section 511(a)(2).

    Section 512(b)(3) provides, in part, that there shall be excluded from the

computation of unrelated business taxable income all rents from real property and all
rents from personal property leased with such real property, if the rents attributable to
such personal property are an incidental amount of the total rents received or accrued
under the lease, determined at the time the personal property is placed in service.

   Section 1.512(b)-1(c)(5) provides that payments for the use or occupancy of

rooms and other space where services are also rendered to the occupant, such as for
the use or occupancy of rooms or other quarters in hotels, boarding houses, or
apartment houses furnishing hotel services, or in tourist camps or tourist homes, motor
courts or motels, or for the use or occupancy of space in parking lots, warehouses, or
storage garages, do not constitute rents from real property. Generally, services are
considered rendered to the occupant if they are primarily for his convenience and are
other than those usually or customarily rendered in connection with the rental of rooms
or other space for occupancy only. The supplying of maid service, for example,
constitutes such service; whereas the furnishing of heat and light, the cleaning of public
entrances, exits, stairways, and lobbies, and the collection of trash are not considered
as services rendered to the occupant.

     Rev. Rul. 2004-24, 2004-1 C.B. 550, identifies circumstances in which a REIT's

income from providing parking facilities at its rental real properties qualifies as rents
from real property under section 856(d). In Situation 1, the REIT provides unattended
parking lots for the use of the tenants of its buildings and their guests, customers, and
subtenants. Each parking facility is located in or adjacent to a building occupied by
tenants of the REIT and is appropriate in size for the number of tenants and their
guests, customers, and subtenants who are expected to use the facility. The parking
facilities do not have parking attendants. The REIT maintains, repairs, and lights the
parking facilities as well as performs certain fiduciary functions, such as dealing with
taxes and insurance, as permitted by section 1.856–4(b)(5)(ii). In Situation 2, the facts
are the same as in Situation 1 except that at some of the REIT’s parking facilities,
parking spaces are reserved for use by particular tenants. The REIT assigns and marks
the reserved spaces in connection with leasing space in the buildings to the tenants,

and any recurring functions unique to the reserved spaces (such as enforcement) are
provided by an independent contractor from whom the REIT does not derive or receive
any income. In Situation 3, the facts are the same as in Situations 1 and 2 except that
some of the parking facilities are available for use by the general public and have
parking attendants. An independent contractor from whom the REIT does not derive or
receive any income manages and operates the parking facilities under a management
contract with the REIT whereby the independent contractor remits the parking fees from
those using the parking facilities to the REIT and receives arm’s-length compensation.
The independent contractor employs all the individuals who manage and operate the
parking facilities, including the parking attendants and is directly responsible for
providing all salary, wages, benefits, administration, and supervision of its employees.
In addition to collecting parking fees from those using the parking facilities, the parking
attendants may park cars, without charging a separate fee, and may provide minor,
incidental, and emergency services at a parking facility.

    Rev. Rul. 2004-24 quotes from the conference report underlying the 1986

revision of section 856(d) (“the 1986 Conference Report”).1 The 1986 Conference
Report provides guidance on services performed directly by REITs, as well as services
performed through an independent contractor. The 1986 Conference Report provides,
in part:

      The conferees intend, for example, that a REIT may provide customary
      services in connection with the operation of parking facilities for the
      convenience of tenants of an office or apartment building, or shopping
      center, provided that the parking facilities are made available on an
      unreserved basis without charge to the tenants and their guests or
      customers. On the other hand, the conferees intend that income derived
      from the rental of parking spaces on a reserved basis to tenants, or
      income derived from the rental of parking spaces to the general public,
      would not be considered to be rents from real property unless all services
      are performed by an independent contractor. Nevertheless, the conferees
      intend that the income from the rental of parking facilities properly would
      be considered rents from real property (and not merely income from
      services) in such circumstances if services are performed by an
      independent contractor.

   Rev. Rul. 2004-24 holds that amounts received by the REIT for furnishing

unattended parking facilities, under the circumstances described in Situations 1 and 2,
and for furnishing attended parking facilities, under the circumstances described in
Situation 3, qualify as rents from real property under section 856(d).

  The Tax Relief Extension Act of 1999 established the TRS and amended section

856(d)(7)(C) to provide that either an independent contractor within the meaning of

1 2 H.R. Conf. Rep. No. 841, 99th Cong., 2d Sess. II-220 (1986), 1986-3 (Vol. 4) C.B. 220.

section 856(d)(3) from whom the REIT does not derive or receive any income or a TRS
could be used to provide services to tenants without causing amounts received for the
services to be treated as ITSI.2

     Parking Facilities

    The size, use, management, and operation of the Parking Facilities are

comparable to those of the parking facilities described in Situation 3 of Rev. Rul. 2004-

24. Moreover, the use by Taxpayer of TRSs to operate the Parking Facilities instead of
    independent contractors does not change the analysis. Accordingly, Taxpayer’s
    proportionate share of the parking revenues derived from the Parking Facilities under
    the circumstances described above, will be treated as rents from real property under
    section 856(d).

     Designated Storage Areas
    

    The Designated Storage Areas are common areas available for use by all
    tenants of a Property for no additional charge. In determining whether a taxpayer has
    income that is ITSI, only the income that is attributable to a provision of a service is
    analyzed. The Designated Storage Areas are themselves not services. Accordingly,
    income that is attributable to making the Designated Storage Areas available to all
    tenants of the Properties for no additional charge is not income from the provision of a
    service and, therefore, is not ITSI.

     Fitness Centers
    

    Like the Designated Storage Areas, the Fitness Centers available for use by all
    tenants at no additional charge are common areas and, therefore, are not services.
    Income that is purely attributable to making Fitness Centers available to all tenants of
    the Properties at no additional charge is not income from the provision of a service and,
    therefore, is not ITSI. Taxpayer represents that income from Fitness Centers requiring
    membership fees to use the facilities will not be treated as rents from real property.

    Unstaffed Fitness Centers are available to all tenants at no additional cost and,
    thus, are common areas of the building. Taxpayer has represented that it provides
    maintenance, cleaning, and security in the Unstaffed Fitness Centers. The portion of
    the rents from the Properties that is attributable to these services provided by Taxpayer
    in the Unstaffed Fitness Centers is income that would be excluded from unrelated
    business taxable income under section 512(b)(3) if received by an organization
    described in section 511(a)(2). Pursuant to section 856(d)(7)(C)(ii), the income from
    these services will not be treated as ITSI.

2 Pub. L. 106-170, sections 542 and 543.

    All services performed at Staffed Fitness Centers and the towel service provided

at Unstaffed Fitness Centers will be provided by independent contractors within the
meaning of section 856(d)(3) from whom Taxpayer does not derive or receive any
income. Section 856(d)(7)(C)(i) provides, in part, that services furnished, or operation
provided through an independent contractor within the meaning of section 856(d)(3)
from whom the REIT does not derive or receive any income shall not be treated as
provided by the REIT. Accordingly, any portion of the rents from the Properties
attributable to services provided by independent contractors at the Fitness Centers
under the circumstances described above will not be treated as ITSI.

  The Listed Services

     Taxpayer represents that the routine lighting and electrical maintenance and

repair in tenant space, organic waste refrigeration and containment, interior signs, and
the software application are services customarily provided to tenants of Class A office
buildings located in City. Taxpayer further represents that these services are provided
to all tenants and are not personal services rendered to any particular tenant.

    The portion of the rents from the Properties that is attributable to the routine

lighting and electrical maintenance and repair in tenant space and the organic waste
refrigeration and containment is income that would be excluded from unrelated business
taxable income under section 512(b)(3) if received by an organization described in
section 511(a)(2). Pursuant to section 856(d)(7)(C)(ii), this income from these services
will not be treated as ITSI.

    The development of the Content displayed on the Interior Signs, as well as the

control and maintenance of the Interior Signs, will be performed by an independent
contractor within the meaning of section 856(d)(3) from whom Taxpayer does not derive
or receive any income. Similarly, the development, maintenance, and operation of the
software application will be performed by an independent contractor within the meaning
of section 856(d)(3) from whom Taxpayer does not derive or receive any income.
Pursuant to section 856(d)(7)(C)(i), any portion of the rents from the Properties
attributable to these services provided by independent contractors under the
circumstances described above will not be treated as ITSI.

    For the reasons set forth above, any portion of the rents from the Properties

attributable to the provision of the Listed Services will not be treated as ITSI.

  Third-Party Services

   All fees for Third-Party Services are separately billed to customers and paid by

those customers directly to the providers of the Third-Party Services, which are
independent contractors within the meaning of section 856(d)(3) from whom Taxpayer
does not derive or receive any income. Taxpayer bears none of the direct costs of
providing the Third-Party Services and derives no income from the provision of the

Third-Party Services. Thus, availability of the Third-Party Services will not result in ITSI
to Taxpayer.

                                 CONCLUSIONS

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

following:

   (1) Taxpayer’s proportionate share, within the meaning of section 1.856-3(g), of
       the parking revenues derived from the Parking Facilities under the
       circumstances described above, will be treated as rents from real property
       under section 856(d).

   (2) Taxpayer’s provision of the Designated Storage Areas and the Fitness
       Centers, as well as the services provided therein, as described above, will not
       result in ITSI, and thus will not cause otherwise qualifying amounts received
       by Taxpayer to be excluded from rents from real property under section
       856(d) by operation of section 856(d)(2)(C).

   (3) Taxpayer’s provision of the Listed Services, as described above, will not
       result in ITSI, and thus will not cause otherwise qualifying amounts received
       by Taxpayer to be treated as other than rents from real property under section
       856(d) by operation of section 856(d)(2)(C).

   (4) The availability of the Third-Party Services to tenants of the Properties will not
       cause otherwise qualifying amounts received by Taxpayer to be treated as
       other than rents from real property under section 856(d).

    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. In particular, we express no opinion regarding whether
Taxpayer otherwise qualifies as a REIT under part II of subchapter M of chapter 1 of the
Code. Additionally, no opinion is expressed regarding whether any services are
customarily provided to tenants of similar properties in the same geographic market.
Moreover, with the exception of parking fees derived from the Parking Facilities, we are
not ruling on the treatment of income that Taxpayer receives from the Properties.

   Furthermore, the rulings herein related to whether any portion of the rents from

the Properties attributable to services performed by Taxpayer is ITSI are specifically
limited to REIT qualification purposes. The definition of rents from real property under
section 856(d) differs in scope and structure from the definition of rents from real
property under section 512(b)(3), which applies to exempt organizations described in
section 511(a)(2). Therefore, an exempt organization providing the same service may
have unrelated business taxable income because the income may not be excluded
under section 512(b)(3) as rents from real property.

  The ruling contained in this letter is based upon information submitted and

representations made by Taxpayer, and accompanied by penalties of perjury
statements executed by the appropriate parties. While this office has not verified any of
the material submitted in support of the request for a ruling, it is subject to verification on
examination.

  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.

    In accordance with the terms of a power of attorney on file in this office, a copy of

this letter is being sent to your authorized representatives.

                                                Sincerely,

                                                ______________________
                                                Jason D. Kristall
                                                Branch Chief, Branch 3
                                                Office of the Associate Chief Counsel
                                                (Financial Institutions & Products)

Enclosure:
Copy for section 6110 purposes

cc: