Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-40

1969-1 C.B. 188

Sec. 856

IRS Headnote

An unincorporated trust's interest in income-producing real estate owned by a partnership in which the trust is a limited partner is an interest in "real estate assets" within the meaning of section 856(c)(5)(A) of the Code.

Full Text

Rev. Rul. 69-40

An unincorporated trust purchased a limited partnership interest in a limited partnership classified as a partnership for Federal tax purposes under section 7701(a)(2) of the Internal Revenue Code of 1954 and section 301.7701-3 of the Regulations on Procedure and Administration. The partnership owns income-producing real estate that, if owned directly by the trust, would qualify as "real estate assets" as that term is used in section 856(c)(5)(A) of the Code and defined in section 856(c)(6)(B) of the Code, and the income from which would qualify as "rents from real property" as that term is used in section 856(c)(2)(C) of the Code and defined in section 856(d) of the Code.

Under section 1.856-3(g) of the Income Tax Regulations, a real estate investment trust that is a partner in a partnership will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share. For purposes of section 856 of the Code, the interest of a partner in the partnership's assets is determined in accordance with his capital interest in the partnership. The character of the various assets in the hands of the partnership and items of gross income of the partnership retains the same character in the hands of the partners for all purposes of section 856.

Held, (1) since the limited partnership in this case owns income-producing real estate that is considered "real estate assets" under section 856(c)(6)(B) of the Code, the trust's interest in the real estate of the limited partnership is deemed to be an interest in "real estate assets" as that term is used in section 856(c)(5)(A) of the Code; and (2) to the extent that the limited partnership's gross income from these real estate assets would qualify as "rents from real property" under section 856(d) of the Code and the regulations thereunder if derived directly by the trust, the trust's share of this gross income is considered "rents from real property" as that term is used in section 856(c)(2)(C) of the Code.