Proposed regulations issued by the IRS (REG-150760-13) on May 14 under Treas. Reg. Sec. 1.856-10 would define "real property" for purposes of an entity's qualifying as a real estate investment trust (REIT) and maintaining that qualification at the close of each quarter.

The proposed regulations seek to synthesize more than 40 years' worth of revenue rulings and private letter rulings that addressed situations involving railroad assets, air rights over real property, billboards and other roadside signage, and other issues. The proposed regulations provide that the rules should apply on a distinct-asset-by-distinct-asset basis. For evaluating each distinct asset, the real property definition includes not only the land (including air and water space above), but inherently permanent structures, or structural components, as well as certain intangible assets that derive their value from real property and are inseparable from such realty.

In particular, the proposed regulations provide guidance on certain solar energy assets. The examples in the regulations provide that while the land, exit wire under the ground, and certain mounts affixed to the land (and designed to remain there) are all real property, certain photovoltaic modules that are removable are not real property.

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