PLR 200719009: Late taxable REIT subsidiary election treated as timely

Plain-English summary

A real estate investment trust and its subsidiary tried to elect taxable REIT subsidiary status on Form 8875, but their adviser filed a form missing the trust officer's signature and showing the wrong effective date. After another law firm found the error, the entities submitted a properly signed form and sought more time to make the election. The IRS granted the extension and treated the later form as timely filed with the requested effective date. Its ruling addressed filing timeliness only, assumed the entities' representations, and left the effect on aggregate tax liability for examination on audit.

Ruling snapshot

• Question: Could the trust and subsidiary obtain more time for their joint taxable REIT subsidiary election?
• Outcome: Approved; the later Form 8875 was treated as timely filed.
• 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: 200719009
Release Date: 5/11/2007
Index Number: 856.00-00, 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
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PLR-146080-06
Date: February 1, 2007

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LEGEND:

Trust = --------------------------------------------------------------------

Company = ------------------------------------------------------------------------------------------
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State X = ------------

Law Firm A = ------------------------

Law Firm B = -------------------------------

Individual X = --------------------------

Year 1 = -------

Year 2 = -------

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

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

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

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

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

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

This responds to a letter dated September 20, 2006, submitted on behalf of Trust and Company, 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 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). On Date 1, Trust organized Company as a State X business trust and owned all of the equity interests of Company. At the time of the formation of Company, Trust's tax advisers, Law Firm A, advised Trust to file a Form 8875, jointly electing with Company to have Company treated as a taxable REIT subsidiary of Trust under § 856(l) of the Code and further advised that Company file a Form 8832 to elect to be classified as a corporation under § 301.7701-3(c). Trust and Company concurred with Law Firm A’s recommendation and requested Law Firm A to prepare and file the Form 8875 and Form 8832 with the Service.

Law Firm A prepared an original Form 8832 for Company to elect to be classified as a corporation, which was duly executed and filed with the Service and became effective on Date 3.

Law Firm A prepared an original Form 8875 and sent it to Individual X, who was an officer of both Trust and Company, for his signatures. Line 11 of the Form 8875 requested an effective date of Date 1. Individual X signed the Form 8875 as an officer of Company, but inadvertently failed to also sign the Form 8875 as an officer of Trust. Individual X returned the Form 8875 to Law Firm A for further processing. On Date 2, before the Form 8875 was complete, Law Firm A mailed the Form 8875 to the IRS Service Center in Ogden, UT. The Form 8875 that Law Firm A submitted to the Service Center was incomplete in the following two ways: an officer of Trust had inadvertently failed to sign the document, and Line 11 of the Form 8875 should have shown an effective date of Date 3, instead of Date 1.

In Year 2, Law Firm B, which had been engaged by Trust in connection with a proposed corporate transaction, requested from Trust a copy of any Form 8875 that had been previously submitted by Trust. Trust provided Law Firm B with a copy of the Form 8875 for Company that had been submitted to the Service by Law Firm A on Date 2. After reviewing the document, Law Firm B discovered the missing signature of a Trust officer and brought the matter to the attention of Trust and Company. On Date 4, Trust brought this matter to the attention of Law Firm A.

On the advice of Law Firm A and Law Firm B, Trust and Company submitted a request for a private letter ruling under § 301.9100-1 of the regulations requesting a

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reasonable extension of time to file a completed Form 8875 to elect to treat Company as a Taxable REIT Subsidiary of Trust. Meanwhile, Trust and Company have represented that, on Date 5, they filed a properly executed Form 8875 to elect to treat Company as a Taxable REIT Subsidiary of Trust, effective Date 3.

Trust and Company make the following additional representations:

1. The request for relief was filed by Trust and Company 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 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 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 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 did not choose to not file the election.

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 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 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.

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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 six 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 have satisfied the requirements for granting a reasonable extension of time to elect under section 856(l) to treat Company as a Taxable REIT Subsidiary of Trust. Accordingly, the Form 8875 that was filed by Trust and Company on Date 5 will be treated as if it had been timely filed to treat Company as a Taxable REIT Subsidiary of Trust as of Date 3.

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. No opinion is expressed with regard to whether Trust otherwise qualifies as a REIT under subchapter M of the Code.

No opinion is expressed with regard to whether the tax liability of either Trust or Company 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 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.

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This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) 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 representatives.

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