IRS grants a 9100 extension of time to make a REIT election under section 856(c)(1) after a mailed extension form was lost

Plain-English summary

A limited partnership that elected to be taxed as a corporation intended to elect to be a real estate investment trust (REIT) by filing Form 1120-REIT for its first tax year. To buy time, its tax firm prepared a Form 7004 extension to be mailed. The form was mailed without certified mail or a return receipt, no proof of mailing was kept, and the IRS never processed it, so the deadline to file the REIT election was not extended. After discovering the problem, the taxpayer asked for relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3. The IRS granted the extension. It found the taxpayer acted reasonably and in good faith (it reasonably relied on a tax professional), the request came before the IRS discovered the failure, and granting relief would not prejudice the government. As a result, the taxpayer's late-filed Form 1120-REIT is treated as a timely REIT election under section 856(c)(1). The ruling is limited to the timeliness of the election and does not decide whether the taxpayer otherwise qualifies as a REIT.

Ruling snapshot

• Question: Should the taxpayer get an extension of time under section 301.9100-3 to make its REIT election under section 856(c)(1) after its mailed extension form was never processed?
• Outcome: Approved
• Key authorities: IRC § 856(c)(1); Treas. Reg. §§ 301.9100-1, 301.9100-3; Treas. Reg. § 1.856-2(b)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202142005 Third Party Communication: None
Release Date: 10/22/2021 Date of Communication: Not Applicable
Index Number: 856.00-00, 9100.00-00
Person To Contact:
------------------------ -------------------------, ID No. -----------------
------------------------ Telephone Number:
---------------------------- ---------------------
------------------------------- Refer Reply To:
----------------------------- CC:FIP:B01
PLR-102989-21
Date:
July 28, 2021

LEGEND:

Taxpayer = ---------------------------------------------------------------------------------------------
-----------------------
Subsidiary = ------------------
Manager = ----------------------
Firm = ----------------------------------------
State A = -------------
City = -------------------
Date 1 = --------------------------
Date 2 = -----------------------
Date 3 = ------------------
Date 4 = ------------------
Date 5 = -----------------
Date 6 = -----------------------
Date 7 = -------------------
Month = --------------

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

    This ruling responds to a letter dated February 2, 2021, submitted on behalf of

Taxpayer. Taxpayer requests 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(c)(1) of the Internal Revenue Code (“Code”) to be a real estate investment
trust (“REIT”) for its taxable year beginning Date 2.

                                             FACTS

   Taxpayer is a State A limited partnership formed for the purpose of acquiring and

operating real estate located in City. Taxpayer made an election on Form 8832, Entity
PLR-102989-21 2

Classification Election, to be treated as a corporation for U.S. tax purposes effective
Date 2. Taxpayer has a subsidiary entity, Subsidiary. Manager is the manager of
Taxpayer and its subsidiaries.

    Taxpayer intended to elect to be a REIT on Form 1120-REIT, U.S. Income Tax

Return for Real Estate Investment Trusts, effective for its taxable year beginning Date 2.
Taxpayer’s partnership agreement states that the partners intend that Taxpayer will
elect to be a REIT on its U.S. federal income tax return for the fiscal year during which
Taxpayer was formed. The partnership agreement also requires the general partner of
Taxpayer to use best efforts to cause Taxpayer to qualify as a REIT and to make all
necessary tax elections and tax filings.

   Taxpayer relies on external tax advisors and return preparers for its U.S. federal

and state income tax compliance requirements. Taxpayer engaged Firm to prepare
federal and state filings, including extensions and returns for Taxpayer and Subsidiary.
Firm prepared various extensions for the state and federal income tax returns of both
Taxpayer and Subsidiary for their taxable years ended Date 1. The state extensions
and a Form 7004, Application for Automatic Extension of Time to File Certain Business
Income Tax, Information, and Other Returns, for Subsidiary were filed electronically by
Firm on or before their due date of Date 4.

    The Form 7004 for Taxpayer was to be filed by mail because Taxpayer had not

yet received confirmation of the acceptance of its entity classification election. Firm
prepared Taxpayer’s Form 7004 to extend the due date of Taxpayer’s return to Date 6.
The Form 7004 indicated the type of return as Form 1120-REIT in Line 1. Firm
provided the Form 7004 to the Chief Accounting Officer of Manager (“Officer”) on Date 3
for review and filing. Officer assembled the mailing package for the Form 7004 and
provided it as well as mailing instructions to Officer’s executive assistant for mailing. On
Date 4, the executive assistant mailed the Form 7004 for Taxpayer but did not use U.S.
certified mail or request return receipt service. No tracking information was generated,
and no proof of mailing was retained.

   Both Taxpayer and Firm believed the Form 7004 was received and processed by

the Internal Revenue Service (the “Service”) in a timely manner. In Month, Officer
realized that Taxpayer did not receive a stamped return receipt from the Service
confirming delivery of Taxpayer’s Form 7004. Officer was informed by the executive
assistant that the Form 7004 was not mailed using U.S. certified mail with return receipt
service. Officer contacted Firm to request that Firm determine whether the Form 7004
for Taxpayer had been processed by the Service. On Date 5, Firm confirmed that the
Service had not processed a Form 7004 for Taxpayer for its taxable year ended Date 1,
and, therefore, the due date for filing Taxpayer’s initial Form 1120-REIT had not been
extended to Date 6. On Date 7, two weeks after receiving the confirmation from Firm,
Taxpayer made the decision to proceed with submitting this request for an extension of
time to elect to be a REIT for its taxable year ended Date 1. Completion and filing of the
request were delayed, in part because of the Covid-19 emergency.
PLR-102989-21 3

 Firm prepared Taxpayer’s Form 1120-REIT for its tax year ended Date 1.

Taxpayer filed the Form 1120-REIT on Date 6.

   Taxpayer makes the following additional representations:

   1. The request for relief was filed before the failure to make the election was
      discovered by the Service.

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

   3. Taxpayer does not seek to alter a return position for which an accuracy-
      related penalty has been or could be imposed under section 6662 at the time
      it 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 did not choose to not file the election.

   5. Taxpayer is 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 makes this election advantageous to Taxpayer.

   6. The period of limitations on assessment under section 6501(a) has not
      expired for Taxpayer for the taxable year for 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 Taxpayer and Firm have been provided as

required by section 301.9100-3(e)(2) and (3).

                               LAW AND ANALYSIS

   Section 856(c)(1) provides that a corporation, trust, or association shall not be

considered a REIT for any taxable year unless it files with its return for the taxable year
an election to be a REIT or has made such an election for a previous taxable year, and
such election has not been terminated or revoked. Pursuant to section 1.856-2(b) of the
Income Tax Regulations, the election shall be made by the trust by computing taxable
income as a REIT in its return for the first taxable year for which it desires the election to
apply.
PLR-102989-21 4

    Section 301.9100-1(c) 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 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 a regulation 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 for an automatic extension under section 301.9100-2.
Section 301.9100-3(a) provides that requests for relief subject to section 301.9100-3 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 generally is deemed to have

acted reasonably and in good faith if the taxpayer (i) requests relief under section
301.9100-3 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, however, 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
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
PLR-102989-21 5

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 section 301.9100-3.

                                  CONCLUSION

   Based upon the facts and representations submitted, we conclude that Taxpayer

has satisfied the requirements for granting a reasonable extension of time to elect under
section 856(c)(1) to be a REIT beginning on Date 2. Taking into account the
reasonable extension of time granted to Taxpayer, Taxpayer’s Form 1120-REIT filed
Date 6 is considered a timely election under section 856(c)(1) to be a REIT beginning
Date 2.

   This ruling is limited to the timeliness of the filing of Taxpayer’s REIT election

under section 856(c)(1). This ruling’s application is limited to the facts, representations,
Code sections, and regulations 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. Furthermore, no opinion is expressed
regarding the timeliness of Taxpayer’s federal income tax return.

  The ruling contained in this letter is based upon information submitted and

representations made by Taxpayer and accompanied by penalties of perjury statements
executed by an appropriate party. While this office has not verified any of the material
submitted in support of the request for ruling, it is subject to verification on examination.

   This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)

of the Code provides that it may not be used or cited as precedent.

    In accordance with the terms of a Power of Attorney on file in this office, copies

of this letter are being sent to Taxpayer’s authorized representatives.

                                   Sincerely,



                                   _________________________
                                   Steven Harrison
                                   Branch Chief, Branch 1
                                   Office of Associate Chief Counsel
                                   (Financial Institutions & Products)

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