TAX RAMIFICATIONS OF LEASE MODIFICATIONS

Tax ramifications of lease modifications.  You need a haircut, badly, but you were momentarily thinking that there might be silver lining to the lockdown. With the salons shut, your teenage daughter can’t spend hundreds of dollars getting her hair dyed blue. But as fate will have it, she got hold of a supply of the punk staple Manic Panic temporary hair dye, and now she’s destroyed half the towels in the house. You tried to convince her that this is bad for the environment, or something, but then she threatened to join Extinction Rebellion. Meanwhile, the other half of the towels are on the floor. Why aren’t there towel services for civilians like there are for hotels ? Why haven’t creative specialist institutional linen suppliers repurposed to supply households wiling to pay ? They have towels ? Bricks and mortar–one analyst called it “bricks and mortal” in a Freudian slip–was suffering before the lockdown. Department stores and other commercial tenants want to renegotiate their leases, in the face of landlords worried about paying their lenders. Tax ramifications of lease modifications.

Commercial lease modifications are coming. Either that or many of these tax and debt strapped companies will need tax resolution services.  Many delinquent tenants are threatening to close their stores permanently. Many delinquent tenants are still within their grace periods. Some corporate tenants want their fixed rent to be converted into the equivalent of net leases. Some landlords are willing to negotiate or even lend to tenants: one REIT plans to lend $50 million. Some tenants just want shorter terms for their long term leases. Although these deals aren’t tax motivated, they could fall into the complicated tax accounting rules for leases of section 467 and its regulations, which Congress created to address the use of leases for tax planning. Section 467 is a timing rule. Timing is everything, in taxation as in life. Here the question is, what is the timing of items of income in a lease ? Make sure you know the consequences prior to making decisions.