26 U.S.C. § 110 — Qualified lessee construction allowances for short-term leases

(a) In general. If a business leases retail space under a short-term lease, this section lets the business (the "lessee") leave certain money out of its taxable income. The money can be cash, or it can take the form of a lower rent instead of cash. It must come from the landlord (the "lessor"), and it must be meant for building or improving "qualified long-term real property" that the lessee will use in its own business at that retail space. The lessee can only exclude up to the amount it actually spent on that construction or improvement — nothing more. (b) Consistent treatment by lessor. Whatever the lessee builds or improves under subsection (a) is treated, for tax purposes, as the lessor's own property. Specifically, it counts as "nonresidential real property" owned by the lessor, including for a related depreciation rule found in section 168(i)(8)(B). (c) Definitions. This subsection defines three terms. "Qualified long-term real property" means nonresidential real property that is part of, or located at, the retail space, and that reverts back to the lessor once the lease ends. "Short-term lease" means a lease, or similar occupancy agreement, for retail space lasting 15 years or less, counted using the rules in section 168(i)(3). "Retail space" means real property that a lessee leases, occupies, or uses to sell physical goods or services directly to the general public. (d) Information required to be furnished to Secretary. Under regulations, both the lessee and the lessor must report to the Secretary (the IRS): the amounts received, or treated as a rent reduction, and spent as described in subsection (a), plus any other information the Secretary decides it needs to enforce this section.