Darryl Steinhause, ADISA’s general counsel and partner at DLA Piper, and Dan Cullen, partner at Baker & McKenzie, led a small group discussion with the IRS regarding the need for DST trustees to respond to the COVID-19 financial hardship of their tenants by engaging in one or more of the following actions: (i) modifying the trust’s real property leases with the tenants to defer or waive rent payments; (ii) requesting relief under various forbearance programs with respect to debt service on the mortgage loan secured by the trust’s real property; and (iii) accepting additional cash contributions in order to avoid default on the trust’s loan obligations, to satisfy lender demands on which receiving a loan modification may be contingent, to pay trust expenses, or to bolster trust reserves for the payment of expenses and loan payments.
 
As a result of these discussions, the IRS has now issued Rev. Proc. 2020-34, which provides that the following actions are not “manifestations of a power to vary.”
 

• Modification of one or more mortgage loans that secure the trust’s real property in (1) A CARES Act Forbearance (and all related modifications); or (2) A forbearance (and all related modifications) that the trust requested, or agreed to, between March 27, 2020 and December 31, 2020; and that were granted as a result of the trust experiencing a financial hardship due to the COVID-19 emergency.
• Modifications of one or more real property leases, so long as the lease was entered into by the trust on or before March 13, 2020, and the modifications requested and agreed to on or after March 27, 2020 and on or before December 31, 2020. The reason for the modifications must be to coordinate the lease cash flows with the cash flows that result from one or more transactions described above; or to defer or waive one or more tenants’ rental payments for any period between March 27, 2020, and December 31, 2020 (and all related modifications), because the tenants are experiencing a financial hardship due to the COVID-19 emergency.
• Acceptance of cash contributions made between March 27, 2020, and December 31, 2020, as a result of the trust experiencing financial hardship due to the COVID-19 emergency, provided the contribution must be needed to increase permitted trust reserves, to maintain trust property, to fulfill obligations under mortgage loans, or to fulfill obligations under real property leases.

"It's great to see the government, particularly the IRS, responding to real issues raised by this pandemic and all of its consequences. This should help the industry significantly," said John Grady, ADISA's Legislative & Regulatory Committee Chair and partner at Practus.