REIT received 45 more days to make its intended consent-dividend election

Plain-English summary

A real estate investment trust and its partnership shareholder had used consent dividends in prior years to support the REIT’s dividends-paid deduction. For the year at issue, the shareholder reported the intended consent-dividend amount, but misunderstandings among the REIT, its accounting firm, and its law firm caused the return to report only part as a consent dividend and another part as an irrevocable throwback dividend under IRC § 858(a). The return also overstated cash dividends by treating contributed capital on preferred interests as a distribution. The accounting firm later discovered the errors before the IRS did, and the REIT represented that it had not used hindsight, sought to avoid a penalty position, or obtained a lower aggregate tax liability. The IRS concluded that the REIT satisfied the standards for late-election relief and granted 45 days to make the intended IRC § 565 consent-dividend election. The ruling does not address REIT qualification, the effect of the existing § 858 election, or amended-return consequences.

Ruling snapshot

• Question: Should the REIT receive additional time to make its intended consent-dividend election under IRC § 565?
• Outcome: Approved
• Key authorities: IRC §§ 561, 565, 858(a); Treas. Reg. §§ 1.565-1, 301.9100-1, 301.9100-3; Rev. Rul. 78-296

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202515002 Third Party Communication: None
Release Date: 4/11/2025 Date of Communication: Not Applicable
565.00-00, 9100.00-00
Person To Contact:
-------------------------------------------- -----------------------------------
---------------------------------- ID No. -----------------
------------------------------------------------------- Telephone Number:
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Refer Reply To:
CC:FIP:01
PLR-112044-24
Date:
January 10, 2025

Taxpayer = --------------------------------------------------------------------------------------
-----------------------
Partnership = --------------------------
State = -------------
Date 1 = ------------------
Date 2 = --------------------------
Date 3 = --------------------------
Date 4 = --------------------------
a = -------------
b = ---------
c = -------------
d = -----------
Accounting = --------------------------
Firm
Law Firm = ---------------------------
Year 1 = -------
Year 2 = -------

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

   This ruling responds to a letter dated June 28, 2024, 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 a consent
dividend election under section 565 of the Internal Revenue Code (the “Code”).

                                                 FACTS

   Taxpayer was formed on Date 1 under the laws of State for the purpose of

investing in real property. Taxpayer elected to be taxed as a real estate investment
PLR-112044-24 2

trust (“REIT”) under sections 856 through 859 of the Code beginning with Taxpayer’s
taxable year ended Date 2.

   Partnership, a State limited liability company, is a partnership for federal income

tax purposes. Partnership is the direct holder of the common interests in Taxpayer.
Taxpayer also has preferred interests outstanding.

   Taxpayer relies on the advice of several accountants and attorneys on tax

matters. Taxpayer engaged Accounting Firm to prepare and file its federal income tax
returns for the taxable years ended on Date 2 and Date 3. For those taxable years,
Partnership consented to treat specified amounts as dividends under section 565 by
providing to Taxpayer a completed Form 972, Consent of Shareholder To Include
Specific Amount in Gross Income. Taxpayer completed the consent dividend election
under section 565 for each of those taxable years by attaching Form 973, Corporation
Claim for Deduction for Consent Dividends, and a copy of Partnership’s Form 972 to its
income tax return.

   For the taxable year ended Date 4, Taxpayer paid cash dividends only on its

preferred interests. Consistent with the taxable years ended on Date 2 and Date 3,
Partnership and Taxpayer intended that the remainder of Taxpayer’s deduction for
dividends paid for the year ended on Date 4 would be attributable to consent dividends.
Accordingly, Partnership included $a in dividends on its Form 1065, U.S. Return of
Partnership Income, for its taxable year ended on Date 4 as if Taxpayer had made the
consent dividend election for that amount.

   Taxpayer again engaged Accounting Firm to prepare and file its tax return for the

taxable year ended on Date 4. For that taxable year, however, Taxpayer also consulted
with Law Firm. Because of a misunderstanding, Taxpayer’s return treated only $b as a
consent dividend in the year ended on Date 4 and treated $c as a cash dividend paid in
Year 1 for the taxable year ended on Date 4 pursuant to an election under section
858(a) of the Code (a “throwback dividend”). Specifically, Law Firm prepared a
resolution under which Taxpayer resolved to treat the first cash distribution made in
Year 1 as a throwback dividend. Accounting Firm attached the resolution to Taxpayer’s
return for its taxable year ended on Date 4 and included the throwback dividend for
purposes of calculating Taxpayer’s deduction for dividends paid. Taxpayer had never
before made a throwback dividend and did not understand the distinction between the
election under section 858(a) and the consent dividend election under section 565(a).
Taxpayer’s return for the year ending Date 4 contained a second error relating to the
deduction for dividends paid. Taxpayer inadvertently treated the amount of contributed
capital with respect to its preferred interests as an amount distributed on the preferred
interests, resulting in an overstatement of the amount of its cash dividends by $d.

 Both errors on Taxpayer’s return resulted from misunderstandings among

Taxpayer, Accounting Firm, and Law Firm. But for the errors, Taxpayer would have
PLR-112044-24 3

made a consent dividend election on its return for the taxable year ended Date 4 in the
amount of $a.

    Accounting Firm became aware of the errors and notified Taxpayer in the second

half of Year 2. Accounting Firm advised Taxpayer of the distinction between the
treatment of consent dividends and throwback dividends, including for purposes of the
excise tax imposed by section 4981 of the Code. Accounting Firm advised that a
request for relief under sections 301.9100-1 and 301.9100-3 was the appropriate
corrective action. (Taxpayer has requested no ruling on its election under section
858(a), which, pursuant to section 1.858-1(b)(4), cannot be revoked. Taxpayer will
determine the treatment of dividends paid in Year 1, taking into account the section
858(a) election and the effect of any consent dividend election for the taxable year
ended Date 4.)

  Taxpayer makes the following additional representations in connection with this

request for an extension of time:

  1. Taxpayer has made this request before the failure to properly make the
     consent dividend election was discovered by the Internal Revenue Service.

  2. Taxpayer is not seeking to alter a return position for which an accuracy-
     related penalty has been, or could be, imposed under section 6662 at the
     time Taxpayer requested relief (taking into account any qualified amended
     return filed within the meaning of section 1.6664-2(c)(3)).

  3. Taxpayer has not used hindsight in requesting relief. No specific facts have
     changed since the due date for making the consent dividend election that
     make the election more advantageous to Taxpayer than if the consent
     dividend election had been timely made.

  4. 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 consent dividend
     election applies than it would have had if the election had been timely made
     (considering the time value of money).

  5. The period of limitations on assessment under section 6501(a) has not closed
     for the taxable year in which the consent dividend election should have been
     made or any of the subsequent taxable years that would be affected by the
     election had it been timely filed.

  6. Taxpayer did not choose to not file the consent dividend election, being
     informed in all material respects of the required election and related tax
     consequences.

PLR-112044-24 4

                                       LAW

    Section 565(a) provides that, if any person owns consent stock (as defined in

section 565(f)(1)) in a corporation on the last day of the taxable year of such
corporation, and such person agrees, in a consent filed with the return of such
corporation in accordance with regulations prescribed by the Secretary, to treat as a
dividend the amount specified in such consent, the amount so specified shall, except as
provided in subsection (b), constitute a consent dividend for purposes of section 561
(relating to the deduction for dividends paid).

    Section 1.565-1(a) provides that the dividends paid deduction, as defined in

section 561 of the Code, includes the consent dividends for the taxable year. A consent
dividend is a hypothetical distribution (as distinguished from an actual distribution) made
by certain corporations, including REITs, to any person who owns consent stock on the
last day of the taxable year of such corporation and who agrees to treat the hypothetical
distribution as an actual dividend, subject to the limitations set forth in section 565, and
sections 1.565-2 and 1.565-1(c)(2), by filing a consent at the time and in the manner
specified in section 1.565-1(b). Under section 1.565-1(b)(3) and Rev. Rul. 78-296,
1978-2 C.B. 183, a consent may be filed no later than the due date (including
extensions) of the corporation's income tax return for the taxable year for which the
dividends paid deduction is claimed. Under section 1.565-1(b)(1), a shareholder makes
a consent on Form 972, which it provides to the corporation. Under section 1.565-
1(b)(3), the corporation must file Forms 972 for each consenting shareholder, and a
return on Form 973 showing by classes the stock outstanding on the first and last days
of the taxable year, the dividend rights of such stock, distributions made during the
taxable years to shareholders, and other information required by the form. Under
section 1.565-1(c), the amount specified in the shareholder’s consent generally is
included in the gross income of the shareholder as a taxable dividend.

    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 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
PLR-112044-24 5

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.

                                   CONCLUSION

     Based on the information submitted and the representations made, we conclude

that Taxpayer has satisfied the requirements for granting a reasonable extension of time
to elect to make a consent dividend election under section 565(a) and section 1.565-1
for its taxable year ended Date 4. Accordingly, Taxpayer has 45 calendar days from the
date of this letter to elect to make a consent dividend election for the intended amount
for its taxable year ended Date 4.

   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
PLR-112044-24 6

implied concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter. Specifically, no opinion is expressed as to
(a) Taxpayer’s qualification as a REIT, (b) the effect of Taxpayer’s election under
section 858(a), or (c) the consequences of filing any amended 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 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 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, a copy of

this letter is being sent to your authorized representatives.

                                   Sincerely,



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

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