Property LLC receives late corporate and taxable REIT subsidiary elections

Plain-English summary

A real estate investment trust indirectly owned an LLC holding one of its properties. After discovering facts about the property that could create risk for REIT status, the taxpayers sought to classify the LLC as a corporation and jointly elect taxable REIT subsidiary treatment from the LLC's formation date. They represented that they would have made both elections if they had known the facts earlier and were not using hindsight. The IRS granted 120 days to file Form 8832 and Form 8875 with the requested effective date. The taxpayers must also file or amend all required open-year returns consistently with the relief, and the ruling does not decide whether the parent otherwise qualifies as a REIT.

Ruling snapshot

• Question: May the property LLC make late corporate-classification and taxable REIT subsidiary elections?
• Outcome: Approved, with Forms 8832 and 8875 and consistent open-year returns due within 120 days.
• Key authorities: IRC § 856(l); Treas. Reg. §§ 301.7701-3, 301.9100-1, and 301.9100-3; Announcement 2001-17.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201516018 Third Party Communication: None
Release Date: 4/17/2015 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00,
856.00-00, 856.07-00 Person To Contact:
---------------, ID No. ----------------
-------------------------------------------------------- Telephone Number:
------------------------------------------------------------ --------------------
---- Refer Reply To:
--------------------------------- CC:PSI:B01
-------------------- PLR-124541-14
---------------------------------- Date:
December 19, 2014

LEGEND

X = -------------------------------------------------------------

Y = ---------------------------------

Advisor = -------------------------------------------------------------------

Property = ---------------------------------------------------------------------------------

State A = ------------

State B = ------------

Year 1 = ------

Year 2 = ------

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

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

Date 3 = --------------------
PLR-124541-14 2

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

    This responds to a letter dated June 23, 2014, and subsequent correspondence,

submitted on behalf of X and Y (collectively, “Taxpayers”), requesting an extension of
time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations (1) for Y to file an election under § 301.7701-3(c)(1)(i) to be classified as an
association taxable as a corporation for federal tax purposes effective as of Date 3, and
(2) for Taxpayers to jointly file an election under § 856(l) of the Internal Revenue Code
(Code) to treat Y as a taxable REIT subsidiary (TRS) of X effective as of Date 3.

FACTS

   According to the information submitted, X is a State A corporation incorporated

on Date 1, that has elected to be treated for federal income tax purposes as a real
estate investment trust (REIT) for its taxable year ended Date 2, and has operated as a
REIT since such date.

  During Year 1, X acquired numerous properties, including Property. Generally,

each of X’s properties is held by a limited liability company owned indirectly by X.

    Y is a limited liability company, formed under the laws of State B on Date 3. X

holds an indirect ownership interest in Y. Y is the owner of Property. Y was eligible to
elect to be classified as an association taxable as a corporation for federal tax purposes
effective Date 3, but Y did not timely file Form 8832, Entity Classification Election, to
make the election effective as of that date.

   In Year 2, X discovered facts about Property and filed a request for this relief

soon thereafter. Taxpayers represent that, had they been aware of such facts to make
timely elections, they would have made the elections to treat Y as a corporation and a
TRS of X, effective as of Date 3, to eliminate a risk to the REIT status of X.

  Taxpayers submitted statements under penalties of perjury from officers of X, Y,

and Advisor in support of this ruling request.

    Taxpayers make the following additional representations:

    1. Neither X nor Y has used, nor has had the opportunity to use, hindsight in
       making this request. No facts have changed since the original due dates of
       the elections that make the elections more advantageous.
    2. The request for relief was filed by Taxpayers before the failure to make the
       regulatory elections was discovered by the Service.
    3. Granting the relief will not result in Taxpayers having a lower tax liability in the
       aggregate for all years to which the regulatory elections apply than it would

PLR-124541-14 3

      have had if the elections had been timely made (taking into account the time
      value of money).
   4. Taxpayers did not seek to alter a return position for which an accuracy related
      penalty has been or could have been imposed under § 6662 at the time the
      relief was requested and the new position requires or permits a regulatory
      election for which relief is requested.
   5. Being fully informed of the required regulatory elections and related tax
      consequences, Taxpayers did not choose not to file the elections.

RULINGS REQUESTED

1. Y requests an extension of time under § 301.9100-3 to make an entity
   classification election under § 301.7701-3 to be classified as an association
   taxable as a corporation effective as of Date 3.

2. Taxpayers request an extension of time under § 301.9100-3 to make a joint
   election under § 856(l) to treat Y as a TRS of X effective as of Date 3.

LAW AND ANALYSIS

    Section 301.7701-3(a) provides, in part, that a business entity that is not

classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an
eligible entity) can elect its classification for federal tax purposes. An eligible entity with
at least two members can elect to be classified as either an association taxable as a
corporation or a partnership, and an eligible entity with a single owner can elect to be
classified as an association taxable as a corporation or to be disregarded as an entity
separate from its owner.

    Section 301.7701-3(c)(1) provides that an entity classification election, or change

in entity classification, must be filed on Form 8832 and can be effective up to 75 days
prior to the date the election is filed or up to 12 months after the date the election is
filed.
Section 301.7701-3(c)(2)(i) provides that such an election must be signed by
either (A) each member of the electing entity who is an owner at the time the election is
filed; or (B) any officer, manager, or member of the electing entity who is authorized
(under local law or the entity’s organization documents) to make the election and who
represents to having such authorization under penalties of perjury. Section 301.7701-
3(c)(2)(iii) provides, in part, if an election is made to change the classification of an
entity, each person who was an owner on the date that any transactions under section
301.7701-3(g) are deemed to occur, and who is not an owner at the time the election is
filed, must also sign the election.

   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, §
856(l)(1) provides that the REIT must directly or indirectly own stock in the corporation,
PLR-124541-14 4

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, 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 tax 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 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 of the election 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
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, a revenue procedure, a notice, or an announcement published in the
Internal Revenue Bulletin.

   Section 301.9100-3(a) through (c)(1)(i) 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 § 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.
Section 301.9100-3(c) 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)(i) provides that the interests
of the government are prejudiced if granting relief would result in a 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).

CONCLUSION

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

conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, Y is granted an extension of time to file a Form 8832 with the appropriate
service center to elect to be classified as an association taxable as a corporation
PLR-124541-14 5

effective Date 3. In addition, Taxpayers are granted an extension of time to jointly elect
to treat Y as a taxable REIT subsidiary of X, effective Date 3. The Form 8832, Entity
Classification Election, and Form 8875, Taxable REIT Subsidiary Election, must be filed
no later than 120 days from the date of this letter with the appropriate service center. A
copy of this letter should be attached to each form. Copies of this letter are enclosed for
that purpose.

    This ruling is contingent on Taxpayers filing and/or amending within 120 days of

this letter all required returns for all open years consistent with the requested relief. A
copy of this letter should be attached to any such returns.

   Except as specifically set forth above, no opinion is expressed or implied

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, no opinion is expressed with regard to whether X
otherwise qualifies as a REIT under subchapter M of the Code.

This ruling is directed only to the Taxpayers requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

   Pursuant to a power of attorney on file with this office, a copy of this letter is

being sent to Taxpayers’ authorized representative.

                                Sincerely,

                                Associate Chief Counsel
                                (Passthroughs & Special Industries)

                                    Joy C. Spies
                                By: Joy C. Spies
                                Senior Technician Review, Branch 1
                                Office of the Associate Chief Counsel
                                (Passthroughs & Special Industries)

Enclosures (2)

   Copy of this letter
   Copy of this letter for section 6110 purposes

cc: