Saturday, July 27, 2013

Company’s Form 8-K Reveals Formation of IRS Working Group to Study What Constitutes Real Estate for REIT Purposes

In a Regulation FD Disclosure filed on Form 8-K, June 6, 2013, Equinix, Inc., a company planning conversion to a real estate investment trust (“REIT”) and seeking a private letter ruling from the Internal Revenue Service, revealed that the IRS recently informed the company that the Service has convened an internal working group to study what constitutes “real estate” for purposes of the REIT provisions of the Internal Revenue Code and that, pending the completion of the study, the IRS is unlikely to issue private letter rulings on what constitutes real estate for REIT purposes.

IRS Letter Ruling. The company said that its private letter ruling request has multiple components, and the conversion to a REIT will require favorable rulings from the IRS on numerous technical tax issues, including classification of the company’s data center assets as qualified real estate assets. Equinix filed its private letter ruling request with the IRS in the fourth quarter of 2012.

The company cannot predict when the IRS working group will complete its study or what the outcome of the study will be. However, the company continues to believe, based on both existing legal precedent and the fact that other data center companies currently operate as REITs, that its data center assets constitute real estate for REIT purposes.

While the company anticipates that the formation of the IRS working group to study this issue may delay receipt of its requested private letter ruling from the IRS, the company continues to move forward on its plan to convert to a REIT, including changing its method of depreciating data center assets for tax purposes, planning for legal restructuring and enterprise reporting system upgrades and ongoing engagement of appropriate REIT advisors. At this time, the company does not expect the potential delay in receiving a private letter ruling as a result of the new IRS working group will delay its plan to elect REIT status for the taxable year beginning January 1, 2015.