Carbon credits did not have to be reported as income by a US real estate investment trust.

The REIT invests in timberland. Some of its investments are in a foreign country. It holds these investments through an offshore holding company. The country awarded carbon credits for owning forests that serve as a “sink” for absorbing carbon dioxide. The IRS said in a private letter ruling made public in July that a company receiving carbon credits from a government does not have to report the value as income upon receipt.

A later sale of the credits would trigger income. However, any sales proceeds in this case would not have to be reported in the US until the earnings are repatriated. The agency said they are not considered a form of passive income — called “subpart F income” — that the US would look through the holding company and tax without waiting for the income to come back to the United States.

The ruling is Private Letter Ruling 201228020.

Keith Martin