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Respondent contends that the sublease provision of the
Second Lease requires MCA to remit to the Museum 25 percent of
its profits derived from any sublease of FGA, and thus the rent
is being calculated, in part, based on a percentage of MCA's
profits from FGA. Moreover, respondent asserts that, in 1988,
amounts were remitted to the Museum as a result of a Budweiser-
sponsored event, and those amounts were in fact calculated under
the sublease provisions of the Second Lease.
At the outset, we note that certain rules related to real
estate investment trusts are made applicable to the determination
of what amounts constitute rent from real property.
Sec. 1.512(b)-1(c)(2)(iii)(b), Income Tax Regs. Pursuant to
section 1.856-4(b)(3), Income Tax Regs., where the rent received
under a lease consists of both a fixed amount and an amount based
on the income or profits of the lessee, then none of the amounts
received qualify as "rents from real property". However, where
the amount received under such a lease includes only the fixed
portion of the rent, then that amount qualifies as "rents from
real property". Id. The evidence indicates that the only
inclusion under the sublease clause occurred in 1988.
Consequently, only the rent paid in 1988 may be subject to UBIT
under this theory.
As outlined supra, respondent's argument focuses on the
sublease provision of the Second Lease, which requires MCA to
remit 25 percent of the profits derived from a sublease of FGA.
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