Iron Mountain (IRM) and Equinix (EQIX) Shares Fall After IRS Scrutinizes REIT Eligibility

By on June 11, 2013

Iron Mountain Inc. (NYSE: IRM) and Equinix Inc. (NASDAQ: EQIX), two information system infrastructure providers preparing to transition to real estate investment trusts for tax purposes fell in trading after the U.S. Internal Revenue Service (IRS) scrutinized their eligibility.

On June 7, shares of Iron Mountain fell 15.84% and shares of Equinix fell 5.5%.

The IRS is determining whether to change the legal meaning of real estate for the intention of switching to a trust, both companies disclosed in their respective regulatory filings.

As corporations from data facilities to billboard managers transition to real estate investment trusts (REITs) — which have lower tax rates and disburse higher dividends — the IRS is looking into whether certain types of business should qualify.

The investigation means corporations such as Equinix, which operates data centers, and Iron Mountain, which rents storage space and maintains paper and electronic records, may face hurdles in pursuing a reclassification.

With respect to Iron Mountain, the IRS is inquiring whether warehouses filled with servers can be defined as real estate.

Equinix said it has defended its data centers as eligible for REIT status “based on both existing legal precedent and the fact that other data center companies currently operate as REITs,” according to the company’s filing.

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