9100 relief for a late taxable REIT subsidiary election on Form 8875

Plain-English summary

A company that planned to be taxed as a real estate investment trust (REIT) wanted one of its subsidiaries to be treated as a "taxable REIT subsidiary" (TRS). A TRS is a corporation a REIT can own that carries on activities the REIT itself cannot do without losing its status, and it pays regular corporate tax on its own income. The REIT and the subsidiary must jointly make this election under section 856(l) by filing Form 8875, but because of a miscommunication among the manager's tax department and several outside advisors, the form was not filed on time. Once the mistake was found, they filed the late form and asked the IRS for an extension of time under Treasury Regulation section 301.9100-3. The IRS found they reasonably relied on their advisors, acted in good faith, and that relief would not prejudice the government. It treated the late Form 8875 as timely, so the TRS election is effective as of the intended date. The ruling is limited to the timeliness of the form; the IRS did not decide whether the company actually qualifies as a REIT or the subsidiary as a TRS.

Ruling snapshot

• Question: May a REIT and its subsidiary get an extension of time to make a late joint election treating the subsidiary as a taxable REIT subsidiary?
• Outcome: approved
• Key authorities: IRC § 856(l); Treas. Reg. §§ 301.9100-1, 301.9100-3; Announcement 2001-17 (Form 8875)

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 202505013                                            Third Party Communication: None
Release Date: 1/31/2025                                      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:B03
                                                             PLR-109724-24
                                                             Date:
                                                             October 31, 2024




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

Subsidiary         = ------------------------------------------------------------------------------------------
                     ------------------------------------------------------------------------------------------
                     ------------------------------------------------------------------------------------------
Joint              = ----------------------------------------
Venture
                     ------------------------------------------------------------------------------------------
Managing           = -----------------------------------------
Group

Accounting         = -----------------------
Firm

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

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

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

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

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

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

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

x                  = -----
PLR-109724-24                                2




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

       This ruling responds to a letter dated May 23, 2024, and supplemental
correspondence, 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

       Taxpayer is a State limited liability company that intends to elect to be taxed as a
real estate investment company (“REIT”) under sections 856 through 859 of the Code,
beginning with its initial taxable year that ended Date 2.

         Taxpayer owns an interest in Joint Venture, a partnership for federal income tax
purposes. Joint Venture indirectly owns Subsidiary, which was formed as a State limited
liability company on Date 1.

      Managing Group manages various funds that own, directly or indirectly, Taxpayer
and Subsidiary. Managing Group’s tax department serves as the tax department for
Taxpayer and Subsidiary.

        Managing Group engaged various external advisors, including Accounting Firm,
to provide tax compliance and consulting services on behalf of Taxpayer and
Subsidiary. Accounting Firm has historically assisted Managing Group and related
entities with a range of tax related matters, including with the preparation and timely
filing of approximately x tax elections, which included Forms 8832, Entity Classification
Election, and Forms 8875, Taxable REIT Subsidiary Election.

        Managing Group specifically engaged Accounting Firm and various other
external advisors to discuss the formation and structuring of Taxpayer and Subsidiary
and maintaining operational compliance with requirements imposed on REITs under the
Code. Managing Group’s tax department understood from prior transactions that to
qualify as a TRS, the REIT and TRS must elect TRS status on a Form 8875. Therefore,
when discussing the operations of the REIT and TRS and corresponding structuring
considerations, Managing Group represents it was understood that a TRS election
would be required, consistent with previous similar transactions. In accordance with its
historic practice, it was the intent of Managing Group for Taxpayer and Subsidiary to
jointly elect on Form 8875 for Subsidiary to be treated as a TRS of Taxpayer effective
as of Date 1. To timely make this election as of Date 1, Form 8875 needed to be filed no
PLR-109724-24                                3

later than Date 3. Managing Group provided Accounting Firm with all necessary
information and Taxpayer assumed that it was compliant with its qualification as a REIT.

       There was no explicit discussion regarding filing Form 8875 on behalf of
Taxpayer and Subsidiary, but due to Managing Group’s experience from prior
transactions it was understood that a TRS election would be required. No one particular
advisor was explicitly requested to assist with the filing of Form 8875, and due to the
number of external advisors and complexity of the structuring transactions, Accounting
Firm did not appreciate the need for them to assist with preparing and filing the Form
8875 even though they had historically assisted Managing Group with similar elections.
As a result of this miscommunication among Managing Group, Accounting Firm, and the
other external advisors involved with advising on Taxpayer’s structuring, Taxpayer and
Subsidiary inadvertently failed to timely file Form 8875 to treat Subsidiary as a TRS of
Taxpayer.

      On Date 4, one of the other external advisors emailed Accounting Firm asking
whether Taxpayer would elect REIT status for the taxable year ended Date 2.
Accounting Firm promptly responded affirmatively and notified the team typically
engaged for preparing tax elections. Accounting Firm then discussed with Managing
Group’s tax department and the other external advisors to confirm whether the Form
8832 or Form 8875 were filed for Subsidiary and Taxpayer. It was at this time that
Taxpayer discovered these forms had not been filed.

       Upon discovery of the failure, on Date 5, Subsidiary filed Form 8832 to elect to
be treated as an association taxable as a corporation effective as of Date 1, pursuant to
the late classification relief provided in Revenue Procedure 2009-41, 2009-39 I.R.B.
439; and Taxpayer and Subsidiary filed Form 8875 to jointly elect to treat Subsidiary as
a TRS of Taxpayer effective Date 6 (the earliest possible effective date at the time).
Taxpayer then filed this ruling request to request an extension of time to elect to treat
Subsidiary as a TRS of Taxpayer on Date 1.

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

      1) Taxpayer and Subsidiary are filing this request for relief before the failure to
         timely make the regulatory election on Form 8875 was discovered by the
         Service.

      2) Granting this request for relief will not result in Taxpayer or Subsidiary having
         a lower U.S. federal tax liability in the aggregate for all years to which the
         regulatory election applies than if the Taxpayer and Subsidiary had timely
         made the election (taking into account the time value of money).

      3) The period of limitations on assessment under section 6501(a) has not
         expired for Taxpayer or Subsidiary for the taxable year for which the election
PLR-109724-24                                  4

          should have been made, nor for any taxable year(s) that would have been
          affected by the election had it been timely made.

       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 seeking to alter a return position for which
          an accuracy-related penalty has been or could have been imposed under
          section 6662 at the time Taxpayer and Subsidiary are requesting relief,
          (taking into account any qualified amended return filed within the meaning of
          section 1.6664-2(c)(3) of the Income Tax Regulations) and the new position
          requires or permits a regulatory election for which relief is requested.

       6) Taxpayer and Subsidiary are not using hindsight in requesting this relief. No
          specific facts have changed since the due date for making the TRS election
          that make this 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).

                                   LAW AND ANALYSIS

        Section 856(l) 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.

         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 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) 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
PLR-109724-24                                 5

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
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.
PLR-109724-24                                 6

                                      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 Date 1. Accordingly, the Form 8875 filed by Taxpayer and Subsidiary on Date
5 will be considered timely filed, and the effective date of the TRS election is 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 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
subchapter M of chapter 1 of the Code. Additionally, no opinion is expressed as to any
tax liability of Subsidiary.

        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.

        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 representatives.

                                                  Sincerely,



                                                  ___________________________
                                                  Andrea M. Hoffenson
                                                  Senior Technician Reviewer, Branch 3
                                                  Office of the Associate Chief Counsel
                                                  (Financial Institutions & Products)


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