REIT receives 90-day extension for taxable-subsidiary election

Plain-English summary

A real estate investment trust and a subsidiary intended the subsidiary to be a taxable REIT subsidiary from its formation. An outside firm recommended filing Forms 8832 and 8875 but believed the parties would make the filings, and both forms were inadvertently overlooked. The omission was discovered later when the firm was asked to help liquidate the subsidiary, after which the subsidiary pursued late corporate-classification relief and the REIT requested more time for the TRS election. The IRS concluded that the REIT and subsidiary showed good cause for an extension. It granted 90 calendar days from the ruling date to make the section 856(l) election, while expressing no opinion on whether either entity otherwise qualified for the requested tax status.

Ruling snapshot

• Question: Could the REIT and subsidiary receive extra time to make their intended taxable REIT subsidiary election?
• Outcome: Approved, with a 90-day extension.
• Key authorities: IRC § 856(l); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Announcement 2001-17.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201952003 Third Party Communication: None
Release Date: 12/27/2019 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:02
PLR-107526-19
Date:
September 25, 2019

Legend:

Principal = -------------------------------------------------------

Taxpayer = ---------------------------------------------------

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

LLC = --------------------------------------------

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

Firm = ---------------------------

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

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

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

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

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

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

Date 6 = ------------------------
PLR-107526-19 2

Month = -------
Year = -------

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

   This letter is in reply to a letter dated April 2, 2019, submitted on behalf of

Taxpayer and Subsidiary, requesting an extension of time under sections 301.9100-1
and 301.9100-3 of the Procedure and Administration Regulations to make an election
under section 856(l) of the Internal Revenue Code (“Code”) to treat Subsidiary as a
taxable REIT subsidiary (“TRS”) of Taxpayer, effective Date 4.

                                      FACTS

  Principal is an investment fund that focuses on real estate-related investments. It

was formed as a State limited partnership on Date 1.

  Taxpayer was formed on Date 2 as a State limited liability company. It elected to

be taxed as a real estate investment trust (“REIT”) for its first taxable year that ended on
Date 3.

   LLC is a State limited liability company that is partly owned by Taxpayer and is

treated as a partnership for federal income tax purposes. LLC owns all of the interests
in Subsidiary, which was formed as a State limited liability company on Date 4.

    Subsidiary was formed to acquire Property from LLC. In connection with the

acquisition, Firm was consulted. Firm suggested filing (i) Form 8832 to treat Subsidiary
as a C corporation for federal income tax purposes and (ii) Form 8875 to treat
Subsidiary as a TRS of Taxpayer. Firm believed that Taxpayer and Subsidiary would
file the forms to make the election to treat Subsidiary as a TRS of Taxpayer, but the
filing of the forms was inadvertently overlooked. However, it was the intention of
Taxpayer and Subsidiary for Subsidiary to be a TRS of Taxpayer beginning on Date 4,
and the parties acted as if such election had been properly made.

   In Month of Year, in connection with the development of Property, Principal

engaged Firm to begin the process of liquidating Subsidiary by electing to treat
Subsidiary as an entity disregarded as separate from LLC for federal income tax
purposes. Firm asked Principal for copies of the Form 8832 and the Form 8875 that
were filed for Subsidiary. At that time, Principal and Firm discovered that neither form
had been filed.

   Subsidiary filed an Entity Classification Form 8832 on Date 5, seeking late

election relief to be taxed as a C corporation as of Date 4, its date of formation.
Taxpayer filed this request for an extension of time to make the TRS election for
PLR-107526-19 3

Subsidiary. At the time of filing this request, the period of limitations on assessment
under section 6501(a) had not expired for Taxpayer 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.

  Taxpayer 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.

2. Granting the relief requested will not result in Taxpayer or 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. Taxpayer and Subsidiary do not seek to alter a return position for which an accuracy-
   related penalty has been or could be 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, Taxpayer and Subsidiary did not choose to not file the election.

5. Taxpayer 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 Taxpayer or Subsidiary.

   In addition, affidavits on behalf of Taxpayer and Subsidiary have been provided
   as required by section 301.9100-3(e)(2) and (3) of the Procedure and Administrative
   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 such corporation, and the REIT and such corporation must jointly elect such
   treatment. The election is irrevocable once made, unless both the REIT and the
   corporation 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.
   PLR-107526-19 4

   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 of the election 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 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.
   PLR-107526-19 5

   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
   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 Taxpayer
   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 Taxpayer. Accordingly,
   Taxpayer and Subsidiary have 90 calendar days from the date of this letter to make the
   election.

   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. Except as provided herein, no opinion is expressed or implied concerning
   the tax consequences of any aspect of any transaction or item discussed or referenced
   in this letter. No opinion is expressed as to whether Taxpayer otherwise qualifies as a
   REIT or whether Subsidiary otherwise qualifies as a TRS under part II of subchapter M
   of the Code.

   No opinion is expressed with regard to whether the tax liability of Taxpayer 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.

   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-107526-19 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,
   
                                          Andrea M. Hoffenson_______________
                                          Andrea M. Hoffenson
                                          Branch Chief, Branch 2
                                          Office of the Associate Chief Counsel
                                          (Financial Institutions and Products)
   

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