n-06-58.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Temporary Relief for Certain REITs and Taxable REIT Subsidiaries that Provide
Accommodations to Persons Affected by Hurricanes Katrina and Rita

Notice 2006-58

The Internal Revenue Service will not treat a hotel, motel, or other establishment
located in the Gulf Opportunity Zone, as defined in § 1400M of the Internal Revenue
Code (26 U.S.C. § 1400M), that otherwise satisfies the definition of a “lodging facility”
under § 856(d)(9) as other than a “lodging facility” if it is used to provide temporary
housing to certain persons affected by Hurricane Katrina or Hurricane Rita, provided the
recordkeeping requirements of this Notice are satisfied.
BACKGROUND
On August 28, 2005, and August 29, 2005, the President issued major disaster
declarations for the states of Florida, Alabama, Louisiana, and Mississippi as a result of
Hurricane Katrina. On September 24, 2005, the President declared major disasters for
the states of Louisiana and Texas as a result of Hurricane Rita. These declarations
were made pursuant to the Robert T. Stafford Disaster Relief and Emergency
Assistance Act, 42 U.S.C. 5121-5206.
Subsequently, the Federal Emergency Management Agency (FEMA) designated

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certain counties and parishes as being eligible for individual assistance (or
individual and public assistance).
Certain real estate investment trusts (REITs) that own lodging facilities
expressed concern that extended stays at those facilities by persons affected by
these disasters may cause the REITs to fail to satisfy the income tests under
§§ 856(c)(2) and (c)(3). Although rents from real property generally are treated
as qualifying income for purposes of these tests, amounts received or accrued
from a corporation in which the REIT owns stock are subject to special rules.
Under one of these rules, if a REIT leases an interest in real property that is a
qualified lodging facility to a taxable REIT subsidiary (TRS) of that REIT, then the
lease payments may qualify as rents from real property if the property is operated
on behalf of the TRS by a person who is an eligible independent contractor.
Section 856(d)(9)(D)(ii) provides that a “lodging facility” is a hotel, motel, or other
establishment more than one-half of the dwelling units in which are used on a
transient basis. Section 856 and the regulations thereunder do not define the
term “transient basis”. Accordingly, the Internal Revenue Service issued Notice
2005-89, 2005-49 I.R.B., which provided that the Service will not treat an
establishment that met the definition of “lodging facility” as anything other than a
“lodging facility” if it was used to provide temporary housing to certain persons
affected by Hurricane Katrina or Hurricane Rita, provided certain recordkeeping
requirements were satisfied. Notice 2005-89 was effective for six months from its
effective date, August 28, 2005.

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TRANSIENT BASIS REQUIREMENT
Due to the magnitude of the disaster, the Service has become aware of
the continued need for temporary housing for certain persons affected by
Hurricanes Katrina and Rita beyond February 28, 2006, the expiration date of
Notice 2005-89. Accordingly, for purposes of § 856(d)(9)(D)(ii), the Service will
not treat a dwelling unit within a lodging facility located in the Gulf Opportunity
Zone as being used other than on a transient basis during any six month period
beginning on or after February 28, 2006, through the date on which this Notice
expires, if the unit is used to provide shelter to (a) an individual whose principal
residence for purposes of § 1033(h)(4) on August 28, 2005, was located in a
covered disaster area and who has been displaced because the residence has
been destroyed or damaged as a result of Hurricane Katrina or Hurricane Rita (a
displaced resident); (b) employees of business entities whose principal place of
business is located in a covered disaster area who have been relocated to other
areas where the business entities have job openings (a displaced employee); or
(c) a worker assisting in relief activities in the covered disaster area, whether or
not the worker is affiliated with a recognized government or philanthropic
organization (a relief worker).
A TRS that is the lessee of a hotel, motel, or other establishment and that
seeks to rely on this Notice with respect to the provision of shelter to a displaced
resident, displaced employee, or relief worker for any period after February 28,
2006, must keep records for each six month period in which it seeks to rely on
this Notice indicating the dates on which shelter was provided and the name and

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address of the displaced resident, displaced employee, or relief worker. In
addition, (a) with respect to a displaced employee, the TRS must keep records
indicating the individual’s employer, and (b) with respect to any relief worker, the
TRS must keep records indicating the name of the individual’s employer or
sponsoring organization and the nature of the relief activities undertaken during
the individual’s stay.
EFFECTIVE DATE
This Notice is effective February 28, 2006 and will expire on
August 28, 2007.
PAPERWORK REDUCTION ACT
The collections of information in the Notice have been reviewed and
approved by the Office of Management and Budget (OMB) in accordance with
the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1977.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection of information
displays a valid OMB control number.
The collections of information in the Notice are in the section of this Notice
entitled “Transient Basis Requirement”. The collections of information are
required for compliance with § 856(d)(9)(D). The collections of information are
required to obtain a benefit. The likely respondents are corporations.
The estimated total annual reporting burden is 500 hours.
The estimated annual burden per respondent varies from 25-75 hours,
depending on the circumstances, with an average of 50 hours. The estimated

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number of respondents is 10.
Books or records relating to a collection of information must be retained as
long as their contents may become material to the administration of the internal
revenue law. Generally, tax returns and tax return information are confidential,
as required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this Notice is Jonathan D. Silver of the Office of
Associate Chief Counsel (Financial Institutions & Products). For further
information regarding this Notice contact Mr. Silver at (202) 622-3930 (not a toll-
free call).