In PLR 201522002, the IRS clarified that REITs can earn good rent income from outdoor advertising displays even if multiple tenants rent the same display area for rotating ads. In the ruling, the REIT owned outdoor advertising displays (i.e., billboards) and planned to build new displays with rotating digital displays. The taxpayer planned to make an election under §1033(g)(3) to treat all of its displays as real property for purposes of chapter 1 of the Code. The IRS relied on this §1033 election for the conclusion that the outdoor displays were real property and that income from tenants under the rental agreement qualified as good “rents from real property” for REIT purposes. This is consistent with the recent proposed REIT regulations that list as an inherently permanent structure such outdoor advertising displays subject to an election to be treated as real property under §1033(g)(3).

In reaching its conclusion the IRS noted that some of the displays share their advertising space with other advertisers so that any particular advertiser’s advertising copy is displayed for only certain intervals of time in a rotation with those of other advertisers. The IRS concluded that such rotating feature does not change the character of the income as rents from real property, because the sharing of the rented space has no bearing on the passive nature of the income from renting the space on the display and advertisers pay for the right to use the display for specified intervals of time.