Office space is often rented without carpet, wall covering, or window covering. Furthermore, many rental agreements specify that these

improvements cannot be removed by a tenant if removal causes any damage to the property. What issue does this raise?

A$.$ Such arrangements might cause the IRS to question whether the improvements are being made in lieu of rent. If such was the case the

tenant would be required to include the value of the improvements in their taxable income.

B$.$ Such arrangements might cause the IRS to question whether the improvements are being made in lieu of rent. If such was the case then

the owner of the property may be required to include the value of the improvements in gross income.

C$.$ Such arrangements might cause the IRS to question whether losses from the damages are deductible. In this case the owner would be

responsible for including the value of the improvements in gross income, in addition to the rent that is collected from the tenant.

D$.$ This situation is normal and does not raise any issues.