Late taxable REIT subsidiary election received a 90-day extension

Plain-English summary

A taxpayer planning to elect real estate investment trust status and its wholly owned subsidiary intended to elect jointly for the subsidiary to be treated as a taxable REIT subsidiary. Their fund's counsel prepared the entity-classification and taxable-REIT-subsidiary election forms but, through an administrative oversight, did not send them for signature or filing. After discovering the mistake, counsel arranged late entity-classification filings and the taxpayer deferred its REIT election to a later year. The taxpayer and subsidiary represented that they acted reasonably and in good faith, sought relief before the IRS discovered the failure, were not using hindsight, and would not obtain a lower aggregate tax liability from late relief. The IRS granted a reasonable extension under Treasury Regulations sections 301.9100-1 and 301.9100-3 and gave them 90 calendar days to file Form 8875 with the requested effective date. The ruling addressed only the form's timeliness and did not decide whether the taxpayer qualified as a REIT or the subsidiary qualified as a taxable REIT subsidiary.

Ruling snapshot

• Question: May the taxpayer and its subsidiary receive extra time to make a joint election under IRC § 856(l) to treat the subsidiary as a taxable REIT subsidiary?
• Outcome: Approved, with 90 calendar days to make the election
• 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: 202349012 [Third Party Communication:
Release Date: 12/8/2023 Date of Communication: Month DD, YYYY]
Index Number: 856.00-00, 856.07-00,
9100.00-00 Person To Contact:
-------------------------, ID No. -----------------
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----------------------- Telephone Number:
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---------------- Refer Reply To:
---------------------------- CC:FIP:B01
--------------------------- PLR-110620-23
Date:
September 14, 2023

Taxpayer = ------------------------
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Subsidiary = ----------------------
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Fund = -------------------------------------------------------
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Fund Counsel = ---------------------

Month = ----------------

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

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

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

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

Year 2 = -------------------------------------------

PLR-110620-23 2

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

This ruling responds to a letter dated May 16, 2023, and submitted on behalf of
Taxpayer and Subsidiary. Taxpayer 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 Taxpayer effective Date 1.

FACTS

Fund created Taxpayer and Subsidiary to pursue investment opportunities. Fund
Counsel, which is counsel for Fund, formed Taxpayer and Subsidiary as limited liability
companies on Date 2. Subsidiary was formed as a wholly owned subsidiary of
Taxpayer for the purpose of holding certain assets in connection with the acquisition of
a portfolio of real estate assets and related assets. Taxpayer intends to elect to be a
real estate investment trust (“REIT”) for federal income tax purposes, effective for
Year 2.

Taxpayer and Subsidiary represent that Subsidiary was intended to be a TRS of
Taxpayer since formation. The limited liability company agreements of Taxpayer and
Subsidiary state that the purpose of Subsidiary is to be a TRS of Taxpayer, and the
agreements authorize their joint TRS election.

Taxpayer originally intended to elect to be a REIT beginning with Year 1, and to
make a joint TRS election for Subsidiary effective Date 2, the date of Subsidiary’s
formation. Fund requested that Fund Counsel arrange for Taxpayer and Subsidiary
each to elect to be treated as a corporation by filing Form 8832, Entity Classification
Election, effective on Date 2, and to arrange for Taxpayer and Subsidiary to make a
joint election on Form 8875, Taxable REIT Subsidiary Election, to treat Subsidiary as a
TRS of Taxpayer effective on Date 2. Fund Counsel prepared the forms as requested,
but, due to an administrative oversight, the forms were not sent to Fund for signatures
of Taxpayer or Subsidiary, and the forms were not filed.

Fund Counsel became aware of the failure to file all three elections late in Month.
Fund Counsel arranged for Forms 8832 to be filed on Date 3, with late classification
relief sought under Revenue Procedure 2009-41 to be effective on Date 2.

Fund Counsel determined that Taxpayer should defer its REIT election to Year 2
because Taxpayer may not meet all requirements for REIT qualification for Year 1.
Therefore, Taxpayer and TRS wish to make the TRS election effective as of Date 1.

Fund makes the following additional representations in connection with this
request for an extension of time:

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

2) Granting the relief requested will not result in Taxpayer or Subsidiary having a
lower U.S. federal 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 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, 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.

6) The period of limitations on assessment under section 6501(a) has 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.

In addition, affidavits on behalf of Taxpayer and Subsidiary have been provided
as required by section 301.9100-3(e)(2) and (3).

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.

PLR-110620-23 4

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
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 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 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

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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 the representations made, we conclude
that Taxpayer and Subsidiary have satisfied the requirements for granting a reasonable
extension of time to elect under section 856(l) to treat Subsidiary as a TRS of Taxpayer,
effective as of Date 1. Accordingly, Taxpayer and Subsidiary have 90 calendar days
from the date of this letter to make the intended election to treat Subsidiary as a TRS of
Taxpayer, effective as of Date 1.

This ruling is limited to the timeliness of the filing of Form 8875. This ruling's
application is limited to the facts, representations, Code sections and regulations
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
subchapter M of chapter 1 of the Code.

The ruling contained in this letter is based upon information submitted and
representations made by Taxpayer and Subsidiary and accompanied by penalties of
perjury statements executed by the appropriate parties. While this office has not
verified any of the material submitted in support of the request for a ruling, it is subject
to verification on examination.

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.

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In accordance with the terms of a power of attorney on file in this office, a copy of
this letter is being sent to your authorized representative.

Sincerely,

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

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