n-05-89.pdf

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing.

This collection currently includes the publisher’s available advance-release directory. Historical bulletin renditions are discovered separately; an advance-release record alone does not certify the collection archive complete.

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 2005-89

The Internal Revenue Service will not treat a hotel, motel, or other establishment
that otherwise satisfies the definition of a “lodging facility” under § 856(d)(9) of the
Internal Revenue Code 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
certain counties and parishes as being eligible for individual assistance (or individual

2
and public assistance). For purposes of this Notice, the term “covered disaster
area” means the counties and parishes designated by FEMA as being eligible for
individual assistance (or individual and public assistance) as a result of Hurricane
Katrina and/or Hurricane Rita. For a list of counties and parishes designated by
FEMA as being eligible for individual assistance (or individual and public
assistance) as a result of Hurricane Katrina, see Notice 2005-73, 2005-42 I.R.B.
723. For a list of counties and parishes designated by FEMA as being eligible for
individual assistance (or individual and public assistance) as a result of Hurricane
Rita, see IR-2005-110 (September 26, 2005).
Certain real estate investment trusts (REITs) that own lodging facilities
have 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”.

3
TRANSIENT BASIS REQUIREMENT
For purposes of § 856(d)(9)(D)(ii), the Service will treat a dwelling unit
within a lodging facility as being used on a transient basis during any period in
which 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 ending on or after
November 29, 2005 must keep records indicating the dates on which shelter was
provided and the name and 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.

4
This Notice will be effective for six (6) months from its effective date.
EFFECTIVE DATE
This Notice is effective August 28, 2005 (the date of the President’s first
major disaster declaration resulting from Hurricane Katrina).
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
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.

5
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).