Late REMIC election treated as timely

Plain-English summary

A trust intended one segregated mortgage asset pool to elect real estate mortgage investment conduit status as part of a tiered REMIC structure. Its administrator timely filed the elections for the other pools but omitted this pool from its tracking system because the startup date did not pass through the normal document-review process. The administrator filed the pool's first-year Form 1066 and REMIC election after discovering the mistake, then requested relief before the IRS found the failure. The IRS concluded that the pool met the requirements for discretionary filing relief and treated the late election as timely. The ruling does not waive any penalty or interest for the late Form 1066 and does not decide whether the pool otherwise qualifies as a REMIC.

Ruling snapshot

• Question: Could the REMIC election on the pool's late first-year Form 1066 be treated as timely?
• Outcome: Approved, with the REMIC election treated as timely for the first taxable year
• Key authorities: IRC § 860D(b); Treas. Reg. §§ 1.860D-1(d), 1.860F-4(b)(1), 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202323007                                             Third Party Communication: None
 Release Date: 6/9/2023                                        Date of Communication: Not Applicable
 Index Number: 9100.00-00, 860D.01-00
                                                               Person To Contact:
                                                               --------------------------, ID No. ----------------
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 ----------------------                                        Telephone Number:
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 --------------------------------------------------            Refer Reply To:
 ----------------------------------                            CC:FIP:2
 ----------------------------                                  PLR-118026-22
                                                               Date:
 --------------------------                                    March 16, 2023




Legend

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

Trust Agreement                    =        ------------------------------------------------------------------------
                                            -------

Entity A                           =        --------------------------------------------------
                                            -----------------------

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

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

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

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

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

Year 1                             =        ------------------------------------------

a                                  =        --
PLR-118026-22                                2


b                              =   --



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

      This ruling responds to a letter dated September 21, 2022, 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 860D(b)(1) of the Internal
Revenue Code and section 1.860D-1(d) of the Income Tax Regulations to treat
Taxpayer as a Real Estate Mortgage Investment Conduit (“REMIC”).

                                         FACTS

        Taxpayer was formed on Date 1 pursuant to Trust Agreement. Taxpayer was
formed as a segregated pool of assets, and the Trust Agreement required that a REMIC
election be filed under section 1.860D-1(d)(1) for the asset pool to be treated as a
REMIC. Taxpayer intended to be a part of a tiered REMIC structure along with a other
segregated pools of assets. The Trust Agreement requires that a REMIC election be
filed for each of the b segregated pools of assets. Section 860D(b) provides that the
REMIC election shall be made on the entity’s return for its first taxable year. Taxpayer’s
first year Form 1066 REMIC tax return or a request for an extension to file the return
was due on Date 2. The REMIC elections were timely filed for the other a segregated
pools of assets. The REMIC election for Taxpayer, however, was not timely filed
because a request for an extension to file Taxpayer’s return was not filed by Date 2.

         Entity A is the partnership representative for Taxpayer. Entity A was responsible
for filing Taxpayer’s REMIC election and tax return. Entity A administers many
REMIC returns and relies on a tracking system to do so efficiently. The tracking
system requires the entry of a REMIC's startup day. The startup day drives all the
efforts related to filing of a REMIC's tax returns and extensions. On Date 3, Entity
A's tax management learned that the startup day for Taxpayer was not specified in
the governing document, so Taxpayer was not entered into the tracking system. On
Date 4, Entity A’s tax team explained to its tax management that the team was
awaiting the existence of documentation through the formal document review
process that would have provided the startup day for Taxpayer. The relevant
document, however, did not follow the formal document review process and there
was insufficient communication regarding the documentation that reflected
Taxpayer's startup day. Consequently, the tax team did not enter Taxpayer into the
tracking system and, as a result, a request for an extension to file Taxpayer’s Year
1 Form 1066 REMIC tax return, on which the REMIC election was made, was not
timely filed by Date 2. Taxpayer's Form 1066 REMIC tax return for Year 1, on which
the REMIC election was made, was filed on Date 5.
PLR-118026-22                                 3

      Taxpayer represents that its failure to file a timely REMIC election was
inadvertent and that Entity A has since performed the tax reporting responsibilities for
Taxpayer. Taxpayer further represents that this request for relief under sections
301.9100-1 and 301.9100-3 was submitted as soon as the inadvertent oversight was
discovered and all the facts were collected.

      Taxpayer makes the following additional representations in connection with this
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 Service.

       2) Granting the relief requested will not result in Taxpayer having a lower U.S.
          federal tax liability in the aggregate for all years to which the election applies
          than it 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 have been imposed under section 6662 of
          the Code 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 make the election advantageous to Taxpayer.

       6) The period of limitations on assessment under section 6501(a) has not
          expired for Taxpayer 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 Taxpayer have been provided as required by section
301.9100-3(e).

                                   LAW AND ANALYSIS

         Section 860D(b)(1) provides that an entity which meets the requirements of a
REMIC under section 860D(a) may elect to be treated as a REMIC on the return for its
first taxable year. Once elected, section 860D(b)(1) provides that the entity will be
treated as a REMIC for the first taxable year in which the election is made and all
subsequent taxable years until such status is terminated under section 860D(b)(2).
Section 1.860D-1(d)(1) of the Income Tax Regulations provides that a qualified entity
PLR-118026-22                                4

makes a REMIC election by timely filing, for its first taxable year, a Form 1066, U.S.
Real Estate Mortgage Investment Conduit Income Tax Return, signed by a person
authorized to sign that return. This regulation also provides a reference to section
301.9100-1 for rules regarding extensions of time for making elections. Section 1.860F-
4(b)(1) provides that the due date and any extensions for filing a REMIC’s annual tax
return are determined as if the REMIC were a partnership.

        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 regulations or by a
revenue ruling, a revenue procedure, a notice, or an 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 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
PLR-118026-22                                  5

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 section 301.9100-3.

                                       CONCLUSION

      Based on the information submitted and representations made, we conclude that
Taxpayer has satisfied the requirements for granting a reasonable extension of time to
make the election under section 860D to be treated as a REMIC beginning Year 1.
Therefore, the election filed on Date 5 on behalf of Taxpayer, electing REMIC status for
Year 1, will be deemed to have been timely filed.

                                         CAVEATS

        This ruling is limited to the timeliness of the REMIC election of Taxpayer. This
ruling does not relieve Taxpayer from any penalty or interest that it may owe as a result
of the failure to timely file the Form 1066. This ruling’s application is limited to the facts,
representations, Code sections, and regulations cited herein. 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. No opinion is expressed with regard to whether Taxpayer
otherwise qualifies as a REMIC under part IV of subchapter M of Chapter 1 of the Code.

       Except as expressly 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.

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

                                        Sincerely,


                                        ___________________________
                                        K. Scott Brown
                                        Senior Technician Reviewer, Branch 2
                                        Office of Associate Chief Counsel
                                        (Financial Institutions & Products)
PLR-118026-22                            6

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