SECTION 9. GUIDANCE ON

MODIFICATIONS OF REAL PROPERTY LEASES

.01 The regulations under § 467 include rules for determining the income and deductions required to be taken into account in connection with § 467 rental agreements (generally, rental agreements with increasing or decreasing rents, or deferred or prepaid rents, as described in § 1.467-1). The fixed rent under a § 467 rental agreement is included in the income of the lessor and deducted by the lessee in accordance with the allocations of fixed rent provided in the rental agreement. See § 1.467-1(d)(2)(iii). For agreements with no specific allocation of fixed rent as described in § 1.467-1(c)(2)(ii), rent is included in the lessor’s income and deducted by the lessee in accordance with the agreement’s rent payment schedule. For agreements with a specific allocation of rent, the specific allocation of rent is used

2 Although Rev. Rul. 2004–86 describes a trust that had been formed under a specific Delaware statute, the SCOPE of this revenue procedure includes trusts formed under the equivalent law (if any) of other states or the District of Columbia.

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to determine the income and deductions under the agreement.

.02 For § 467 rental agreements that have a specific allocation of fixed rent, if the payment terms under the rental agreement are modified under this revenue procedure because the tenant is experiencing a financial hardship due to the COVID-19 emergency, amendments are also permitted to the agreement’s specific allocation of fixed rent. In addition, any amendments to the rental agreement must be given appropriate tax effect under the applicable provisions of the Code and regulations, including the provisions in § 1.467-1(f)

relating to substantial modifications of § 467 rental agreements.