- 31 -
sions to attract lessees. We have also found that at the time
Partnership and BCE entered into the lease agreement in June 1988
it was a reasonable and acceptable practice throughout the
commercial real estate industry, including the Denver office
market which generally was suffering from high vacancy rates, to
grant an 11.5-month period of free rent in commercial leases such
as the lease agreement involved here, where the lease term
covered about 25 years and the lessee assumed the risk of sub-
leasing the approximately 29 percent of unleased, vacant space in
the building.
Based on our examination of the entire record before us, we
find that the 11.5-month period of zero rent provided by the
lease agreement qualifies as a reasonable rent holiday described
in section 467(b)(5)(C). Respondent concedes that if the Court
were to so find, "Partnership would be entitled to report the
rental income under the economic accrual method pursuant to the
terms of the lease agreement."19 Accordingly, pursuant to that
concession, Partnership shall accrue rent for 1988 under the
lease agreement in accordance with that agreement as provided in
section 467(b)(1)(A).
19 In light of our finding that the 11.5-month period of zero
rent qualifies as a reasonable rent holiday described in sec.
467(b)(5)(C) and respondent's concession, we shall not consider
petitioner's additional arguments that the basic rent to be paid
by BCE under the lease agreement satisfies the guidelines of Rev.
Proc. 75-21, 1975-1 C.B. 715, and that, under the facts and
circumstances presented here, tax avoidance was not a principal
purpose for providing for increasing rents under the lease
agreement.
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011