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Iron Mountain Down 16 Percent on IRS Investigation

Shares of record management company, Iron Mountain Inc. were down 16 percent Friday after the company disclosed that the IRS intends to scrutinize its plans to convert to a real estate investment trust or REIT.

Iron Mountain Inc. (NYSE: IRM) announced its intentions to convert to a REIT in June of last year. At that time, the company filed an application with the IRS requesting its approval for the conversion. On Friday, the company announced that the IRS would not rule on the request immediately because it had formed a working group to study the legal standards the IRS uses to define “real estate” for the purposes of REIT conversion.

Because REITs come with attractive tax advantages, companies have stretched the legal definition of it as they try to minimize their tax burden. REITs are require to return 90 percent of their profits to shareholders and are generally reserved for company holding real estate as investment property.

As a result of the Iron Mountain disclosure, data center operator, Equinox (NASDAQ: EQIX) saw its shares fall 5.5 percent on fears that its conversion to a REIT may face similar uphill battles.

In a separate regulatory filing, Equinox said:

“Equinix cannot predict when the IRS working group will complete its study or what the outcome of the study will be. However, Equinix continues to believe, based on both existing legal precedent and the fact that other data center companies currently operate as REITs, that its data center assets constitute real estate for REIT purposes.”

Disclosure: At the time of this writing, Tim Parker had no position in any of the equities mentioned.

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