PLR 200615013: REIT and subsidiary given more time to complete joint election

Plain-English summary

A real estate investment trust and a foreign company it partly owned sought to elect to treat the company as a taxable REIT subsidiary. Their accounting firm filed Form 8875 without the trust officer's signature or an effective date. The IRS found that the parties qualified for an extension because they requested relief before the agency discovered the incomplete election and represented that relief would not reduce their aggregate tax liability. It gave them 30 calendar days from the letter date to file a complete form with the requested effective date. The ruling addressed only the timing of the election and did not decide whether the trust qualified as a REIT.

Ruling snapshot

• Question: Could the REIT and its subsidiary complete a late Form 8875 election with their intended effective date?
• Outcome: Approved, with 30 calendar days to file the complete form.
• Key authorities: IRC § 856(l); Treas. Reg. §§ 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200615013
Release Date: 4/14/2006
Index Number: 857.00-00, 9100.00-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:FIP:B03 – PLR-141533-05
Date: November 29, 2005

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LEGEND:

Trust = --------------------------------------------
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Company A = ----------------------------------------
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Company B = ------------------------------------------------------------------------
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State X = -------------

Country Y = --------

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

Year 1 = -------

Year 2 = -------

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

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

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

a = -----

Dear -------------------

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This responds to a letter dated July 29, 2005, submitted on behalf of Trust and Company A, requesting an extension of time under § 301.9100-1 of the Procedure and Administration Regulations to make an election under § 856(l) of the Internal Revenue Code to treat Company A as a Taxable REIT Subsidiary of Trust.

FACTS

Trust, a State X corporation, was organized in Year 1 and subsequently elected to be taxed as a real estate investment trust (REIT). In early Year 2, Trust and Company B, Trust’s joint venture affiliate in Country Y, acquired an a percent ownership interest in Company A, a Country Y real estate management company.

At the time of the acquisition of Company A, Trust’s U.S. tax advisers, Accounting Firm, advised Trust to file a Form 8875, jointly electing with Company A to have Company A treated as a taxable REIT subsidiary of Trust under § 856(l) of the Code. Trust concurred with Accounting Firm’s recommendation and requested Accounting Firm to prepare and file the Form 8875 with the Service.

Accounting Firm prepared an original Form 8875 and sent it to an officer of Company A for his signature. The officer of Company A signed the Form 8875 and returned it to Company A for further processing. Accounting Firm, however, erroneously mailed the Form 8875 to the IRS Service Center in Ogden, UT before the Form 8875 was complete. The Form 8875 that Accounting Firm submitted and the Service Center received on Date 1 was materially incomplete in the following two ways: an officer of Trust had inadvertently failed to sign the document, and Line 11 of the Form 8875 showing the requested effective date of the election had been mistakenly left blank. Trust and Company A represent that the desired effective date of the election was Date 2.

During a review of Trust’s operations in Date 3, an officer of Trust requested from the Service a copy of the Form 8875 that had been previously submitted by Accounting Firm. After reviewing the document the officer discovered the missing signature and effective date and brought the matter to the attention of Accounting Firm.

Consequently, Trust and Company A submitted a request for a private letter ruling under § 301.9100-1 of the regulations requesting a reasonable extension of time to file a completed Form 8875 to elect to treat Company A as a Taxable REIT Subsidiary of Trust effective Date 2.

Trust and Company A make the following additional representations:

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1. The request for relief was filed by Trust and Company A before the failure to make the regulatory election was discovered by the Service.

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

3. Trust and Company A did 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 Trust and Company A 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, Trust and Company A did not choose to not file the election.

LAW AND ANALYSIS

The Ticket to Work and Work Incentives Improvement Act of 1999, P.L. 106-170, included a change, for tax years beginning after December 31, 2000, to the REIT provisions of § 856(d). This change allows a REIT to form a Taxable REIT Subsidiary that can perform activities that otherwise would result in impermissible tenant service income. The election under § 856(l) is made on Form 8875, “Taxable REIT Subsidiary Election.” Officers of both the REIT and the Taxable REIT Subsidiary must jointly sign the form, which is filed with the IRS Service Center in Ogden, UT.

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 Taxable REIT Subsidiary. To be eligible for treatment as a taxable REIT subsidiary, § 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, § 856(l) specifically provides that the election, and any revocation thereof, may be made without the consent of the Secretary.

In Announcement 2001-17, 8 I.R.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 tax years beginning after 2000 for eligible entities to elect treatment as a taxable REIT subsidiary. The instructions to Form 8875 provide that the subsidiary and the REIT can make the election at any time during the tax year. However, the effective date of the election depends upon when the Form 8875 is filed. The instructions further provide that the effective date on the form cannot be more than 2 months and 15 days prior to the date of filing the election, or 12 months after the date

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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 regulations provides that the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election (defined in § 301.9100-1(b) 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), 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 Internal Revenue Code except subtitles E, G, H, and I.

Section 301.9100-3(a) through (c)(1)(i) sets forth rules that the Internal Revenue 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 § 301.9100-2. Section 301.9100-3(b) provides that subject to paragraphs (b)(3)(i) through (iii) of § 301.9100-3, when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the Service, the taxpayer will be deemed to have acted reasonably and in good faith; and § 301.9100-3(c) 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 years to which the regulatory election applies than the taxpayer would have had if the election had been timely made (taking into account the time value of money).

CONCLUSION

Based on the information submitted and representations made, we conclude that Trust and Company A have satisfied the requirements for granting a reasonable extension of time to elect under § 856(l) to treat Company A as a Taxable REIT Subsidiary of Trust. Accordingly, Trust and Company A will be granted a period of time not to exceed 30 calendar days from the date of issuance of this letter to file a complete Form 8875 to treat Company A as a taxable REIT subsidiary of Trust, effective Date 2.

This ruling is limited to the timeliness of the filing of the Form 8875. This ruling’s application is limited to the facts, representations, Code sections, and regulations cited herein. 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. In particular, no opinion is expressed with regard to whether Trust qualifies as a REIT under subchapter M of the Code.

Moreover, no opinion is expressed with regard to whether the tax liability of Trust and Company A is not lower in the aggregate for all years to which the election applies than such tax liability would have been if the election had been timely made (taking into

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account the time value of money). Upon audit of the federal income tax returns involved, the director’s office will determine such tax liability for the years involved. If the director’s office determines that such tax liability is lower, that office will determine the federal income tax effect.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

Alice M. Bennett
Chief, Branch 3
Office of Associate Chief Counsel
(Financial Institutions & Products)

Enclosures:
Copy of this letter
Copy for section 6110 purposes

cc: