Rev. Rul. 75-424

Advice has been requested whether, for purposes of qualifying a trust as a real estate investment trust, certain properties relating to the transmission of microwave signals are "real estate assets" within the meaning of section 856(c)(6)(B) of the Internal Revenue Code of 1954.

An unincorporated trust made mortgage loans for the construction of systems for the transmission and reception of audio, video, and other electrical signals between communities by microwave signals.

The microwave transmission system consists of transmitting and receiving towers built upon pilings or foundations, transmitting and receiving antennae affixed to the towers, a building, equipment within the building, and waveguides. The waveguides are transmission lines from the receivers or transmitters to the antennae, and are metal pipes permanently bolted or welded to the tower and never removed or replaced unless blown off by weather.

The transmitting, receiving, and multiplex equipment is housed in the building. Prewired modular racks are installed in the building to support the equipment that is installed upon them. The racks are completely wired in the factory and then bolted into the floor and ceiling. They are self-supporting and do not depend upon the exterior walls for support. The multiplex equipment provides the channels upon which the audio or video signals are transcribed for transmission through the waveguides to the antennae. Also installed in the building is a permanent heating and air conditioning system. The transmission site is surrounded by chain link fencing.

To qualify as a real estate investment trust for Federal income tax purposes, a certain percentage of the trust's assets must be represented by specified items including "real estate assets."

Section 856(c)(6)(B) of the Code provides, in part, that the term "real estate assets" means real property (including interests in real property and interests in mortgages on real property) and shares (or transferable certificates of beneficial interest) in other qualified real estate investment trusts.

Section 1.856-3(d) of the Income Tax Regulations provides that the term "real property" means land or improvements thereon, such as buildings or other inherently permanent structures thereon (including items which are structural components of such buildings or structures). In addition, the term "real property" includes interests in real property. Local law definitions will not be controlling for purposes of determining the meaning of the term "real property" as used in section 856 of the Code and the regulations thereunder. The term includes, for example, the wiring in a building, plumbing systems, central heating or central air-conditioning machinery, pipes or ducts, elevators or escalators installed in the building, or other items which are structural components of a building or other permanent structure. The term does not include assets accessory to the operation of a business, such as machinery, printing press, transportation equipment which is not a structural component of the building, office equipment, refrigerators, individual air conditioning units, grocery counters, furnishings of a motel, hotel, or office building, etc., even though such items may be termed fixtures under local law.

Accordingly, for purposes of determining whether the trust qualifies as a real estate investment trust, it is held that the building, the heating and air conditioning system, the transmitting and receiving towers, and the chain link fencing are "real estate assets" within the meaning of section 856(c)(6)(B) of the Code. The antennae, waveguides, transmitting, receiving, and multiplex equipment, and the prewired modular racks are "assets accessory to the operation of a business" and are not "real estate assets" within the meaning of section 856(c)(6)(B).