LTR 201150023 allowed a taxpayer to obtain an exemption for income by voluntarily accelerating the income.
The taxpayer is a REIT that converted from C corporation status and thereafter sold property (through disregarded entities) to a lower tier subsidiary of a taxable REIT subsidiary. The sale had been on the installment method taxed under section 453, evidently with no installment to be paid within the ten year recognition period for built in gain taxation under section 1374.
However, due to the 2010 amendment to section 1374(d)(7)(B) to exempt certain gain recognized within the ten year period from the section 1374 tax, the REIT wishes to accelerate payment and gain into 2011. It wants to to take advantage of that “holiday” for NUBIG recognized in 2011 if the fifth year of the ten year period has previously occurred. Evidently the taxpayer met the requirements and the IRS ruled it qualified for the exemption as to the prepayment.
Presumably the taxpayer was worried that it might not qualify for the exemption because it was voluntarily accelerating the income. The facts of this ruling show one of the many circumstances in which taxpayers may want to accelerate income in order to take advantage of a tax benefit. Another major example is recognizing gain in order to use expiring capital losses.
