PLR 200951030: Extension granted to correct a Taxable REIT Subsidiary election

Plain-English summary

The IRS granted a company and its subsidiary 60 days to file a corrected election to treat the subsidiary as a Taxable REIT Subsidiary. The companies had filed earlier forms, but later discovered that the election might not have followed the form instructions. The ruling found that the requested relief met the reasonable-cause and government-interest standards in the section 301.9100 regulations, based on the companies' representations. The ruling was limited to the timing of the election and did not decide whether the parent qualified as a REIT or whether the companies' aggregate tax liability would be lower.

Ruling snapshot

• Question: Could the companies receive more time to file a corrected election under IRC § 856(l)?
• Outcome: Approved
• Key authorities: IRC § 856(l); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200951030
Release Date: 12/18/2009
Index Numbers: 856.00-00, 9100.00-00
Person To Contact:
------------------, ID No. ------------- Telephone Number:
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Refer Reply To:
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Date:
September 11, 2009

LEGEND:

Company A = -------------------------------------------------------------------------
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Company B = --------------------------------------------------------------

Partnership = ------------------------------------------------------------

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

State Y = -------------

a = ---

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

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

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

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

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

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

Date 7 = ------------------

Date 8 = -------------------

Date 9 = ----------------------

PLR-129506-09
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Dear -----------------:

This responds to a letter dated June 15, 2009, on behalf of 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 B as a Taxable REIT Subsidiary of Company A.

FACTS

Company A, a State X corporation, was formed on Date 1. Company A conducts substantially all of its operations through an approximate a percent partnership interest in Partnership. Partnership wholly owns Company B. Company B, a State Y corporation, was formed on Date 2. Company B engages in certain activities that would otherwise prevent Company A from qualifying as a REIT if such activities were conducted directly by Company A.

On Date 3, Company A and Company B filed Form 8875, Taxable REIT Subsidiary Election, and elected to have Company B treated as a Taxable REIT subsidiary of Company A (“Election”). Election specifies Date 2 as an effective date. Company A did not, however, commence operation during that taxable year and did not elect to be taxed as a REIT. On Date 4, Company A and Company B discovered that Election may not have been in strict compliance with the instructions to Form 8875. As protective measures, Company A and Company B filed Form 8875, first on Date 5, with Date 6 as the effective date of the election, and then again on Date 7, with Date 8 as the effective date. Company A and Company B are now requesting an extension of time to file an election to treat Company B as a taxable REIT subsidiary of Company A, effective as of Date 9.

Company A and Company B make the following additional representations:

1. The request for relief was filed by Company A and Company B before the failure
   to make regulatory elections was discovered by the Service.
2. Granting the relief requested will not result in Company A or Company B having
   a lower tax liability in the aggregate for all years to which the regulatory election
   applies then that they would have had if the election had been timely made
   (taking into account the time value of money).
3. Company A and Company B 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 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, Company A and Company B did not choose to not file the
   election.

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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 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

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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 Company A and Company B have satisfied the requirements for granting a reasonable extension of time to elect under § 856(l) to treat Company B as a taxable REIT subsidiary of Company A, effective as of Date 9. Accordingly, Company A and Company B are granted 60 days from the date of this letter in which to file a corrected Form 8875 to make the intended TRS election.

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 Company A qualifies as a REIT under subchapter M of the Code.

No opinion is expressed with regard to whether the tax liability of Company A and Company B 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.

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.

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

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.

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