Most asset valuation firms can easily determine the FMV and appropriate lease terms unless you have a very unique asset.
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How can I document compliance with the “market-rate lease” requirement?
Since this requirement is critical for QOF’s investing in operating businesses with leased property, how can I document it properly?
Answers
Get a fairness opinion or appraisal.
Your best bet is probably an MAI-certified appraiser for this.
From a practical standpoint, comps are usually done by performing a market survey of lease rates for similar properties, which may be available from local commercial brokers (e.g., CBRE or Marcus & Millichap) or market data providers such as CoStar.
A transfer pricing study or sample that meets Section 482 principles would be best to have in the file. Absent that, numerous similar comparable should be obtained and kept in a folder for support.
My two cents: Carefully, and with the guidance of a CPA or tax attorney.
I think if it is an arms-length negotiation between unrelated parties you are fine relying on that fact. If the parties are related in some way or have OZ or other reasons that make the negotiations not entirely arms length, then an appraisal or broker opinion of value would be important.
If you're concerned that the lease isn't clearly market-rate on its face, I'd recommend getting a valuation opinion from a local commercial real estate agent who knows the market well and can include comps from similar properties in the area to support the reasonableness of the lease terms.
The regulations required to document the market rate under the provisions of Section 482 and its regulations (deals with the transfer pricing of transactions between related persons).
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