On June 9, 2025, Sullivan & Worcester submitted a comment letter to the Internal Revenue Service (IRS) in response to Notice 2025-6, which requests public input on the possible expansion of the cloud transaction framework under Treasury Regulations §§ 1.861-18 and 1.861-19 to other parts of the Internal Revenue Code.
The letter, authored by Tax Partner Ameek Ashok Ponda with contributions from Cameron Cosby, Sarah Wellings, Paul Decker, David McLaughlin, Connie Lee and Shannon Doherty, cautions against applying the analytical approach developed for cloud transactions to provisions such as Sections 856–859 governing real estate investment trusts (REITs).
The comments reaffirm the position originally taken by Ponda in 2019—that the sourcing-focused framework of the cloud transaction regulations is not appropriate for interpreting REIT rules, which have evolved under a different statutory and regulatory structure. In particular, the letter emphasizes that classifying composite arrangements as “services” under the cloud framework would conflict with Congressional intent, decades of IRS guidance, and settled market precedent recognizing such arrangements as qualifying REIT rents.
Resources
Ameek Ashok Ponda Comment Letter to IRS Urging Caution in Applying Cloud Transaction Framework to REIT Tax Rules
