Thompson & Knight Secures Important IRS Guidance for TIC Investors

DALLAS, May 18 /PRNewswire/ -- The Internal Revenue Service has issued important guidance (PMTA 2010-05) regarding the classification of tenant-in-common (TIC) investors for tax purposes. The guidance applies when a master tenant of a co-owned property files for bankruptcy, and provides that the TIC co-owners of that property will not be classified as partners when pooling funds to cover costs, debt service payments and other fees, or when they designate one of their co-owners as a communications liaison.

"This guidance is particularly important given the fragile and dynamic nature of the real estate market nationwide," says Kevin Thomason, an attorney in the Dallas office of Thompson & Knight. "These TIC owners now have some assurance that they can pool funds, designate one of their co-owners as a communications liaison, and take other steps to protect their properties without becoming partners for federal income tax purposes."

Mr. Thomason pursued the IRS opinion on behalf of more than 1,100 individual investors who purchased TIC interests from DBSI Inc., a Boise, Idaho-based real estate company. DBSI filed for voluntary Chapter 11 bankruptcy in November of 2008, forcing its many investor groups to quickly contribute funds on a non-pro rata basis to cover bankruptcy costs, debt service payments and other fees associated with their co-owned properties across the nation.

Mr. Thomason and Todd Keator of the Thompson & Knight team worked closely with Louis Weller, a principal of Deloitte's real estate tax services group, in obtaining PMTA 2010-05.

"We want to acknowledge the pro bono efforts of the law firm of Thompson & Knight as well as the able assistance of Deloitte Tax in obtaining this guidance," said Richard Chess, president of the Real Estate Investment Securities Association (REISA). "This has been a lengthy and time-consuming process, but because of their generous and thoughtful work, thousands of investors can take comfort in knowing that they may take certain necessary actions to protect their properties in these unfortunate circumstances."

"Preserving TIC status was and is a very important goal for the investors we directly represented, as well as the other 5,000-plus investors engaged in TIC arrangements with DBSI," says Mr. Thomason. "This is an important milestone for the industry and we're very pleased to receive affirmation from the IRS, although it should be noted that the guidance relates only to TIC investors in a limited set of circumstances. I would caution investors and their legal advisors to not solely rely on this opinion as precedent."

About Thompson & Knight

Established in 1887, Thompson & Knight is a full-service firm providing legal solutions to public and private companies, governments, and individuals in all areas, including real estate, finance, banking, securities, mergers and acquisitions, taxation, commercial and tort litigation, intellectual property, corporate governance, creditors rights, labor, white collar defense, and environmental matters, among others.  We are particularly recognized for our depth of experience and capabilities on behalf of clients in the energy industry, both domestically and around the world.   Thompson & Knight has approximately 350 attorneys with offices in Texas and New York and international offices and associations in the Americas, North Africa, Europe, and Asia.

SOURCE Thompson & Knight LLP

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