Code Sec. 761

26 CFR 1.761: Terms defined.

	Partnership; coownership of apartment project. A life insurance company
and a real estate investment trust, each of which owns an undivided
one-half interest in an apartment project for which they retain an
unrelated corporation under a management contract to furnish customary
tenant services and various additional services for which it makes
separate charges, pays all costs incident thereto, and retains any profits
therefrom, will not be treated as a partnership.


REV. RUL. 75-374

	Advice has been requested whether, under the circumstance described
below, the coowners of an apartment project would be treated as a
partnership for Federal income tax purposes.

	X, a life insurance company, and Y, a real estate investment trust,
each own an undivided one-half interest in an apartment project. X and Y
entered into a management agreement with Z, an unrelated corporation, and
retained it to manage, operate, maintain, and service the project.

	Generally, under the management agreement Z negotiates and executes
leases for apartment units in the project; collects rents and other
payments from tenants; pays taxes, assessments, and insurance premiums
payable with respect to the project; performs all other services
customarily performed in connection with the maintenance and repair of an
apartment project; and performs certain additional services for the
tenants beyond those customarily associated with maintenance and repair. Z
is responsible for determining the time and manner of performing its
obligations under the agreement and for the supervision of all persons
performing services in connection with the carrying out of such
obligations.

	Customary tenant services, such as heat, air conditioning, hot and cold
water, unattended parking, normal repairs, trash removal, and cleaning of
public areas are furnished at no additional charge above the basic rental
payments. All costs incurred by Z in rendering these customary services
are paid for by X and Y. As compensation for the customary services
rendered by Z under the agreement, X and Y each pay Z a percentage of
one-half of the gross rental receipts derived from the operation of the
project.

	Additional services, such as attendant parking, cabanas, and gas,
electricity, and other utilities are provided by Z to tenants for a
separate charge. Z pays the costs incurred in providing the additional
services, and retains the charges paid by tenants for its own use. These
charges provide Z with adequate compensation for the rendition of these
additional services.

	Section 761(a) of the Internal Revenue Code of 1954 provides that the
term "partnership" includes a syndicate, group, pool, joint venture or
other unincorporated organization through or by means of which any
business, financial operation, or venture is carried on, and which is not
a corporation or a trust or estate.

	Section 1.761-1(a) of the Income Tax Regulations provides that mere
coownership of property that is maintained, kept in repair, and rented or
leased does not constitute a partnership. Tenants in common may be
partners if they actively carry on a trade, business, financial operation,
or venture and divide the profits thereof. For example, a partnership
exists if coowners of an apartment building lease space and in addition
provide services to the occupants either directly or through an agent.

	The furnishing of customary services in connection with the maintenance
and repair of the apartment project will not render a coownership a
partnership. However, the furnishing of additional services will render a
coownership a partnership if the additional services are furnished
directly by the coowners or through their agent. In the instant case by
reason of the contractual arrangement with Z, X and Y are not furnishing
the additional services either directly or through an agent. Z is solely
responsible for determining the time and manner of furnishing the
services, bears all the expenses of providing these services, and retains
for its own use all the income from these services. None of the profits
arising from the rendition of these additional services are divided
between X and Y.

	Accordingly, X and Y will be treated as coowners and not as partners
for purposes of section 761 of the Code.