REIT and subsidiary receive more time for TRS election

Plain-English summary

A parent intended to elect REIT status and have a subsidiary that provided parking services treated as a taxable REIT subsidiary from the subsidiary's formation. The parent believed its tax adviser had filed Forms 8832 and 8875, but a miscommunication caused both forms to be omitted. After discovering the problem, the parties filed the entity-classification form and requested relief for the missed joint TRS election. The IRS granted 90 days to file Form 8875, without deciding whether the parent otherwise qualified as a REIT or the subsidiary as a TRS.

Ruling snapshot

• Question: Could the parent and subsidiary make a late election to treat the subsidiary as a taxable REIT subsidiary?
• Outcome: Approved, with 90 days to file the joint election.
• Key authorities: IRC § 856(l); Treas. Reg. §§ 301.9100-1, 301.9100-3; Announcement 2001-17.

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 201638021                                                 Third Party Communication: None
Release Date: 9/16/2016                                           Date of Communication: Not Applicable
Index Number: 9100.00-00, 856.07-00
                                                                  Person To Contact:
----------------------------------                                ----------------------, ID No. -----------------
---------------------------------------------                     Telephone Number:
----------------------------------                                --------------------
------------                                                      Refer Reply To:
----------------------------                                      CC:FIP:B02
                                                                  PLR-141631-15
                                                                  Date:
                                                                  June 09, 2016




LEGEND:

Parent            =         ---------------------------------------------
--------------------------------------------------

Entity            =         -----------------------------------
--------------------------------------------------

Subsidiary =                -------------------------------------------------
--------------------------------------------------

Date 1            =        ----------------

Date 2            =        -------------------

Date 3            =        -------------------

Date 4            =        --------------------------

Date 5            =        ---------------------

Date 6            =        --------------------------

Date 7            =        ---------------------------

Property          =        ---------------------------

City              =        --------------------------

Advisor           =        -----------------------------
PLR-141631-15                                 2

State           =       -------------


Dear ---------------:

       This ruling responds to a letter dated December 23, 2015, and subsequent
correspondence, submitted on behalf of Parent and Subsidiary. Parent and Subsidiary
request an extension of time under sections 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations to jointly make an election under section
856(l) of the Internal Revenue Code (“Code”) to treat Subsidiary as a taxable REIT
subsidiary (“TRS”) of Parent effective Date 1.

                                          FACTS

        Parent is a limited liability company formed on Date 2. Parent is the sole owner
of Entity. Entity was formed on Date 2 and is classified as a disregarded entity for
federal income tax purposes. Entity is the sole owner of Subsidiary, a limited liability
company formed on Date 3. Parent, Entity, and Subsidiary were formed under the laws
of State. On Date 1, Parent indirectly acquired through Entity the retail development
Property located in City. Subsidiary was formed to provide parking services to the
Property’s tenants.

       Parent and Subsidiary each have not filed a federal income tax return for its initial
taxable year ended Date 4. Parent intends to file its initial federal income tax return for
the taxable year ended Date 4 on a Form 1120-REIT, U.S. Income Tax Return for Real
Estate Investment Trusts, on which Parent will elect to be treated as a real estate
investment trust (“REIT”) under section 856 of the Code. Parent intended that a TRS
election be made for Subsidiary upon its formation.

       Parent engaged Advisor to provide federal income tax services for Parent and
Subsidiary. Parent believed that the Form 8832, Entity Classification Election, and
Form 8875, Taxable REIT Subsidiary Election, for Subsidiary were prepared and filed
by Advisor. Due to a miscommunication with Advisor, the forms were not filed. Advisor
discovered the failure to file the forms in Date 5, which was more than 2.5 months after
Subsidiary began operations. On Date 6, a Form 8832 was filed for Subsidiary electing
to be classified as an association taxable as a corporation effective Date 1. The Form
8832 included a request for late classification relief. To be effective on Date 1, the Form
8875 should have been filed on or before Date 7.

      Parent and Subsidiary make the following additional representations in
connection with their request for an extension of time:

1. The request for relief was filed before the failure to make the regulatory election was
discovered by the Internal Revenue Service (“Service”).
PLR-141631-15                                 3


2. Granting the relief requested will not result in Parent and Subsidiary having a lower
tax liability in the aggregate for all years to which the election applies than they would
have had if the election had been timely made (taking into account the time value of
money).

3. Parent and Subsidiary do not seek to alter a return position for which an accuracy-
related penalty has been or could have been imposed under section 6662 of the Code
at the time they requested relief and the new position requires or permits a regulatory
election for which relief is requested.

4. Being fully informed of the required regulatory election and related tax
consequences, Parent and Subsidiary did not choose to not file the election.

5. Parent and Subsidiary are not using hindsight in making the decision to seek the
relief requested. No specific facts have changed since the due date for making the
election that make the election advantageous to the taxpayers.

6. The period of limitations on assessment under section 6501(a) has not expired for
Parent and Subsidiary for the taxable year in which the election should have been filed,
nor for any taxable year(s) that would have been affected by the election had it been
timely filed.

       In addition, affidavits on behalf of Parent and Subsidiary have been provided as
required by section 301.9100-3(e) of the Procedure and Administration Regulations.

                                  LAW AND ANALYSIS

        Section 856(l) of the Code provides that a REIT and a corporation (other than a
REIT) may jointly elect to treat such corporation as a TRS. To be eligible for treatment
as a TRS, section 856(l)(1) provides that the REIT must directly or indirectly own stock
in the corporation, and the REIT and the corporation must jointly elect such treatment.
The election is irrevocable once made, unless both the REIT and the subsidiary consent
to its revocation. In addition, section 856(l) specifically provides that the election, and
any revocation thereof, may be made without the consent of the Secretary.

        In Announcement 2001-17, 2001-1 C.B. 716, the Service announced the
availability of new Form 8875, Taxable REIT Subsidiary Election. According to the
Announcement, this form is to be used for taxable years beginning after 2000 for eligible
entities to elect treatment as a TRS. The instructions to Form 8875 provide that the
subsidiary and the REIT can make the election at any time during the taxable year.
However, the effective date of the election depends on when the Form 8875 is filed.
The instructions further provide that the effective date cannot be more than 2 months
and 15 days prior to the date of filing the election, or more than 12 months after the date
PLR-141631-15                                  4

of filing the election. If no date is specified on the form, the election is effective on the
date the form is filed with the Service.

       Section 301.9100-1(c) of the Procedure and Administration Regulations provides
that the Commissioner has discretion to grant a reasonable extension of time to make a
regulatory election, or a statutory election (but no more than 6 months except in the
case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code
except subtitles E, G, H, and I. Section 301.9100-1(b) defines a regulatory election as
an election whose due date is prescribed by regulations or by a revenue ruling, revenue
procedure, notice, or announcement published in the Internal Revenue Bulletin.

        Section 301.9100-3(a) through (c)(1) sets forth rules that the Service generally
will use to determine whether, under the particular facts and circumstances of each
situation, the Commissioner will grant an extension of time for regulatory elections that
do not meet the requirements of section 301.9100-2. Section 301.9100-3(a) provides
that requests for relief subject to this section will be granted when the taxpayer provides
the evidence (including affidavits described in section 301.9100-3(e)) to establish to the
satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith,
and the grant of relief will not prejudice the interests of the Government.

         Section 301.9100-3(b) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer (i) requests relief under this section before
the failure to make the regulatory election is discovered by the Service; (ii) failed to
make the election because of intervening events beyond the taxpayer’s control; (iii)
failed to make the election because, after exercising reasonable diligence (taking into
account the taxpayer’s experience and the complexity of the return or issue), the
taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the
written advice of the Service; or (v) reasonably relied on a qualified tax professional,
including a tax professional employed by the taxpayer, and the tax professional failed to
make, or advise the taxpayer to make, the election. A taxpayer will be deemed to have
not acted reasonably and in good faith if the taxpayer (i) seeks to alter a return position
for which an accuracy-related penalty has been or could be imposed under section
6662 at the time the taxpayer requests relief and the new position requires or permits a
regulatory election for which relief is requested; (ii) was informed in all material respects
of the required election and related tax consequences, but chose not to file the election;
or (iii) uses hindsight in requesting relief.

       Section 301.9100-3(c)(1) provides that a reasonable extension of time to make a
regulatory election will be granted only when the interests of the Government will not be
prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the
interests of the Government are prejudiced if granting relief would result in the taxpayer
having a lower tax liability in the aggregate for all taxable years affected by the election
than the taxpayer would have had if the election had been timely made (taking into
account the time value of money). Section 301.9100-3(c)(1)(ii) provides that the
PLR-141631-15                                  5

interests of the Government are ordinarily prejudiced if the taxable year in which the
regulatory election should have been made or any taxable years that would have been
affected by the election had it been timely made are closed by the period of limitations
on assessment under section 6501(a) before the taxpayer’s receipt of a ruling granting
relief under this section.

                                       CONCLUSION

       Based upon the facts and representations submitted, we conclude that Parent
and Subsidiary have shown good cause for granting a reasonable extension of time to
elect under section 856(l) to treat Subsidiary as a TRS of Parent. The extension of time
to make the election is 90 days from the date of this letter.

       This ruling is limited to the timeliness of the filing of Form 8875. This ruling’s
application is limited to the facts, representations, and Code and regulation sections
cited herein. No opinion is expressed as to whether Parent otherwise qualifies as a
REIT or whether Subsidiary otherwise qualifies as a TRS under subchapter M of the
Code.

       No opinion is expressed with regard to whether the tax liability of Parent and
Subsidiary is not lower in the aggregate for all years to which the election applies than
such tax liability would have been if the election had been timely made (taking into
account the time value of money). Upon audit of the federal income tax returns
involved, the director’s office will determine such tax liability for the years involved. If
the director’s office determines that such tax liability is lower, that office will determine
the federal income tax effect.

      Except as specifically provided otherwise, no opinion is expressed on the federal
income tax consequences of the transaction described above.

       This ruling is directed only to the taxpayers that requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.
PLR-141631-15                                 6

        In accordance with the terms of a power of attorney on file in this office, copies of
this letter are being sent to your authorized representatives.

                                           Sincerely,


                                           K. Scott Brown___________________
                                           K. Scott Brown
                                           Branch Chief, Branch 3
                                           Office of the Associate Chief Counsel
                                           (Financial Institutions and Products)

Enclosures (2):
      Copy of this letter
      Copy for section 6110 purposes