LLC receives more time to make REIT election

Plain-English summary

An LLC intended from its formation to be taxed as a real estate investment trust. Its adviser prepared Form 1120-REIT and a Form 7004 extension request, but heavy filing volume prevented the extension form from reaching the adviser's mailroom before the deadline. The LLC requested relief before the IRS discovered the missed election and represented that it was not using hindsight, had not deliberately declined to file, and would not obtain a lower aggregate tax liability from late relief. The IRS found reasonable action and good faith under the regulatory election-relief standards. It granted 90 days from the ruling date to file Form 1120-REIT and make the section 856(c)(1) election, without ruling on whether the LLC otherwise qualified as a REIT.

Ruling snapshot

• Question: Could the LLC receive an extension to make its REIT election after its adviser failed to timely mail Form 7004?
• Outcome: Approved, with 90 days from the ruling date to file Form 1120-REIT.
• Key authorities: IRC § 856(c)(1); Treas. Reg. §§ 1.856-2(b), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201521015 Third Party Communication: None
Release Date: 5/22/2015 Date of Communication: Not Applicable
Index Number: 9100.00-00, 856.07-00
Person To Contact:
------------------------------------------------- -----------------------, ID No. -------------------
--------------------------------- ---------------------------------------------------
----------------------- Telephone Number:
--------------------------------------- ----------------------
------------------------------------------ Refer Reply To:
CC:FIP:B02
PLR-134452-14
Date:
February 13, 2015

Legend:

LLC = ----------------------------------

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

State = --------------

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

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

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

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

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

This is in reply to a letter dated September 11, 2014, and subsequent
correspondence, requesting an extension of time under sections 301.9100-1 and

PLR-134452-14 2

301.9100-3 of the Procedure and Administration Regulations for LLC to elect to be
treated as a real estate investment trust (“REIT”) under section 856(c)(1) of the Internal
Revenue Code, beginning with its taxable year ended on Date 4.

FACTS

LLC was incorporated on Date 1 under State law. At all times it intended to be
treated as a REIT for federal income tax purposes under Subchapter M of the Code.

LLC retained Advisor to prepare its Form 1120-REIT making the election under
section 856(c)(1). The due date for filing that form was Date 2. Advisor also prepared a
Form 7004 to extend the time for filing the Form 1120-REIT to Date 3.

Due to administrative burdens associated with the immense volume of filings
during the days immediately preceding Date 2, the Form 7004 was not brought to
Advisor’s mailroom before Date 2.

The following representations are made in connection with the request for an
extension of time:

1. The request for relief was filed before the failure to make the regulatory
   election was discovered by the Internal Revenue Service (“Service”).

2. Granting the relief requested will not result in LLC having a lower tax liability in
   the aggregate for all years to which the election applies than it would have had if
   the election had been timely made (taking into account the time value of money).

3. LLC does 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 it 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, LLC did not choose to not file the election.

5. LLC is not using hindsight in requesting this relief. No specific facts have
   changed since the due date for making the election that makes this election
   advantageous to LLC.

In addition, affidavits on behalf of LLC have been provided as required by section
301.9100-3(e) of the Procedure and Administration Regulations.

PLR-134452-14 3

LAW AND ANALYSIS

Section 856(c)(1) provides that a corporation, trust, or association shall not be
considered a REIT for any taxable year unless it files with its return for the taxable year,
an election to be a REIT or has made such an election for a previous taxable year, and
such election has not been terminated or revoked. Pursuant to section 1.856-2(b), the
election shall be made by computing taxable income as a REIT in its return for the first
taxable year for which it desires the election to apply.

Section 301.9100-1(c) of the Procedure and Administration Regulations 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 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(b) provides that subject to
paragraphs (b)(3)(i) through (iii) of section 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 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 upon the facts and representations submitted, we conclude that LLC has
shown good cause for granting a reasonable extension of time to file Form 1120-REIT
making the election under section 856(c)(1) of the Code. The extension of time to
make the election is 90 days from the date of this letter.

This ruling is limited to the timeliness of the filing of LLC’s Form 1120-REIT for
purposes of the election under section 856(c)(1) of the Code. This ruling’s application is
limited to the facts, representations, Code sections, and regulations cited herein. No
opinion is expressed with regard to whether LLC otherwise qualifies as a REIT under
subchapter M of the Code.

PLR-134452-14 4

No opinion is expressed with regard to whether the tax liability of LLC 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.

Except as specifically provided otherwise, no opinion is expressed on the federal
income tax consequences of the transaction described above.

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, copies of
this letter are being sent to your authorized representatives.

Sincerely,

Susan Thompson Baker
Susan Thompson Baker
Senior Technician Reviewer, Branch 2
Office of the Associate Chief Counsel
(Financial Institutions and Products)