IRS written determination 201424017

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201424017
Release Date: 6/13/2014
Index Number: 856.00-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---------------, ID No. -----------
Telephone Number:
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Refer Reply To:
CC:FIP:B02
PLR-142764-13
Date:
March 12, 2014
Legend:
Taxpayer=--------------------------------------------------------------
State A=------------
Date 1 = --------------------------
Property(ies)= ---------
Crops =---------------------------
Plant(s)= -----------------------
a=--
b=--
c=--
d=--
e=--------
f=---
g=---
Dear ------------------:
This is in reply to a letter dated September 27, 2013 requesting a ruling on behalf
of Taxpayer that the Commercial Plants (as defined below) are real property for
purposes of section 856 of the Internal Revenue Code.
Facts:
Taxpayer is a State A corporation that intends to elect to be taxed as a real
estate investment trust (“REIT”) for its tax year that ended Date 1. Taxpayer owns
Properties that it leases on a triple-net lease basis to unrelated tenants. The unrelated
tenants use the Properties for the production of Crops that the tenants harvest.

PLR-142764-13
2
Taxpayer, through a wholly-owned indirect subsidiary, purchased a Plant
Property (“Property A”). Property A has approximately e Plants substantially all of which
are mature and expected to produce a commercially harvestable crop (the “Commercial
Plants”). The Commercial Plants have complex root systems that are typically b to c
feet wide and a feet deep.
Law & Analysis:
Section 856(c)(4)(A) provides that at least 75 percent of a REIT’s total assets
must be, among other sources, “real estate assets.”
Sections 856(c)(5)(B) provides that the term “real estate assets” means real
property, including “interests in real property.”
Section 856(c)(5)(C) provides that the term “interests in real property” includes
fee ownership and co-ownership of land or improvements thereon, leaseholds of land or
improvements thereon, options to acquire land or improvements thereon, and options to
acquire leaseholds of land or improvements thereon, but does not include mineral, oil,
or gas royalty interests.
Section 1.856-3(d) provides that the term “real property” means land or
improvements thereon, such as buildings or other inherently permanent structures
thereon (including items that are structural components of those buildings or structures).
In addition, real property includes interests in real property. Local law definitions do not
control for purposes of determining the meaning of the term real property as used in
section 856 and the regulations thereunder. The term includes, for example, the wiring
of a building, plumbing systems, central heating or central air-conditioning machinery,
pipes or ducts, elevators or escalators installed in the building, or other items that are
structural components of a building or other permanent structure. The term does not
include assets accessory to the operation of a business, such as machinery, printing
press, transportation equipment that is nota structural component of the building, office
equipment, refrigerators, individual air-conditioning units, grocery counters, furnishings
of a motel, hotel, or office building, etc., even though those items may be termed
fixtures under local law.
Other sections of the Code and regulations are also instructive in defining “real
property.” For example, section 897(c) and section 1.897-1(b)(2) define real property to
include land and unsevered natural products of land, including growing crops and
plants. See also section 1.263A-8(c)(1).
It is well established by the courts that standing timber is treated as real property.
Hutchins v. King, 68 U.S. 53, 59; 17 L. Ed. 544 (1863). In addition, courts have held
that the trees and shrubbery growing on the land are part and parcel of the land. See
Adjes v. Commissioner74 T.C. 1005 (1980).

PLR-142764-13
3
Rev. Rul. 67-51, 1967-1 C.B. 68 holds that trees of a fruit orchard or grove are
not tangible personal property within the meaning of former section 179. The revenue
ruling states that it is “well settled that trees are part and parcel of the land” and “such
trees of a fruit orchard . . . are in the nature of land.”
The Commercial Plants are plants with large and complex root systems, and each
Commercial Plant has an expected life of f to g years. As natural products of the land
that are attached to the land, the Commercial Plants constitute “real property.”
Therefore, the Commercial Plants, until severed from Property A, are real property
within the meaning of section 856.
No opinion is expressed or implied as to the federal tax consequences of this
transaction under any provision not specifically addressed herein. Specifically, no
opinion is expressed or implied concerning whether Taxpayer otherwise qualifies as a
REIT under subchapter M, part II of Chapter 1 of the Code. Furthermore, no opinion is
expressed or implied concerning whether the rent from Property A constitutes “rents
from real property” for purposes of section 856.
This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent. In accordance with the Power of
Attorney on file with this office, a copy of this letter is being sent to your authorized
representatives.
Sincerely,
Jonathan D. Silver____________________
Jonathan D. Silver
Assistant to the Branch Chief, Branch 2
Office of Associate Chief Counsel
(Financial Institutions & Products)