Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 65-65

1965-1 C.B. 267

Sec. 856

IRS Headnote

A trustee of a real estate investment trust may be an officer or an employee of, or have a direct or indirect proprietary interest in, an independent contractor which confines its activities to the servicing of real estate mortgages owned by the trust.

Full Text

Rev. Rul. 65-65

Advice has been requested whether the provisions of section 1.856-1(d)(1) of the Income Tax Regulations preclude the trustees of a real estate investment trust from being officers and employees of a corporation which services real estate mortgages owned by the trust.

The Y Company's business includes the origination of real estate mortgages, the lending of money secured by the mortgages, the sale of the mortgages to investors, and the servicing of the mortgages sold to those investors. The X Real Estate Investment Trust will purchase real estate mortgages from the Y Company, and the Y Company will service those mortgages. The trustees of the X Real Estate Investment Trust are officers and employees of the Y Company and hold nominal shares of stock in the Y Company.

Under the provisions of section 1.856-1(d)(1) of the regulations a trustee of a real estate investment trust  may not be an officer or employee of, or have any direct or indirect proprietary interest in, any independent contractor which furnishes or renders services pertaining to the trust property, or manages or operates such property.

The phrase `renders services pertaining to the trust property' as used in section 1.856-1(d)(1) of the regulations means the rendering of services pertaining to real property owned by the trust rather than property in which the trust holds only a security interest. Accordingly, the rendering of services pertaining to mortgages does not come within the type of services contemplated by section 1.856-1(d)(1) of the regulations.

Therefore, it is held that the trustees of the X Real Estate Investment Trust may be officers or employees of, or have a direct or indirect proprietary interest in, Y Company which confines its activities to rendering services pertaining to real estate mortgages.