Missing mailing proof justified late TRS election

Plain-English summary

A corporation intending to elect REIT status and an indirectly owned subsidiary planned to file Form 8875 so the subsidiary would be treated as a taxable REIT subsidiary. Their adviser prepared and signed a certified-mail transmittal, sent the taxpayers scanned copies, but later could not find proof that the form had actually been mailed or received. The taxpayers requested relief before the IRS discovered the possible failure and represented that they were not using hindsight or seeking a lower aggregate tax liability. The IRS found good cause and gave them 90 days to make the joint election. It did not decide whether the entities otherwise qualified as a REIT and a taxable REIT subsidiary.

Ruling snapshot

• Question: Could the entities make a late taxable REIT subsidiary election when their adviser could not establish that Form 8875 had been mailed?
• Outcome: Approved, with 90 days to make the election
• 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: 201532006 Third Party Communication: None
Release Date: 8/7/2015 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-107747-15
Date:
May 04, 2015

Taxpayer = ------------------------------------------------

OP = -----------------------------------------------------------------------

Subsidiary = ---------------------------

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

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

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

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

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

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

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

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

Month = ------------------
PLR-107747-15 2

Month 2 = -------------

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

This is in response to a letter dated February 13, 2015, and additional
correspondence, requesting an extension of time on behalf of Taxpayer and Subsidiary
to file an election to treat Subsidiary as a taxable REIT subsidiary (“TRS”) of Taxpayer
under section 856(l) of the Internal Revenue Code effective as of Date 2.

FACTS

Taxpayer is a corporation formed on Date 1 under the law of State A. It intends
to file an election under section 856(c) of the Code to be taxed as a Real Estate
Investment Trust (“REIT”) effective for its taxable year that began on Date 2. It is the
sole general partner and largest limited partner of limited partnership OP. OP is the
sole owner of Subsidiary.

Subsidiary is a corporation formed on Date 3 under the law of State B. It
intended to jointly elect with Taxpayer to be a TRS beginning on Date 2 by filing Form
8875, the election to treat Subsidiary as a TRS, before Date 4.

In Month, Taxpayer and Subsidiary’s taxpayer representative, Advisor, prepared
and forwarded to them for signature a Form 8875. Later in Month, officers of Taxpayer
and Subsidiary executed the Form 8875 and forwarded it to Advisor.

On Date 5, Advisor drafted and signed a transmittal letter to be sent by certified
mail return receipt requested, to the Internal Revenue Service Center in accordance
with the instructions to Form 8875. That same day Advisor had the original letters and
the accompanying Form 8875 scanned to send to Taxpayer and Subsidiary by e-mail,
which was done that same day. The e-mail explained that these were copies of the
Form 8875 to be filed that day by certified mail with the Internal Revenue Service.

In Month 2, Advisor sent Taxpayer and Subsidiary another copy of the Date 5
letters and Form 8875. Advisor noticed that he had not received back either a certified
mail return card or a stamped copy of the filed Form 8875 as he had requested in the
transmittal letter to the IRS Service Center. Advisor could find no record of the letter
having been sent by certified mail, and could not find the letter or Form 8875 to show
that they were not mailed. Advisor concluded that he could not determine from his
records whether the transmittal letter and Form 8875 had been properly mailed to or
received by the IRS Service Center.

The following representations are made in connection with the request for an
extension of time:
PLR-107747-15 3

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

2. Granting the relief requested will not result in Taxpayer and Subsidiary 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. Taxpayer and Subsidiary do 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, Taxpayer and Subsidiary did not choose to not file the election.

5. Taxpayer and Subsidiary are 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 Taxpayer and Subsidiary.

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

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 TRS. To be eligible for treatment
as a TRS, section 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, section 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 taxable 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 taxable year.
However, the effective date of the election depends on when the Form 8875 is filed.
The instructions further provide that the effective date 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.
PLR-107747-15 4

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 Internal Revenue 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, revenue
procedure, notice, or 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 section 301.9100-2. Section 301.9100-3(a) provides
that requests for relief subject to this section will be granted when the taxpayer provides
the evidence (including affidavits described in section 301.9100-3(e)) to establish to the
satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith,
and the grant of relief will not prejudice the interests of the Government.

Section 301.9100-3(b) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer (i) requests relief under this section before
the failure to make the regulatory election is discovered by the Service; (ii) failed to
make the election because of intervening events beyond the taxpayer’s control; (iii)
failed to make the election because, after exercising reasonable diligence (taking into
account the taxpayer’s experience and the complexity of the return or issue), the
taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the
written advice of the Service; or (v) reasonably relied on a qualified tax professional,
including a tax professional employed by the taxpayer, and the tax professional failed to
make, or advise the taxpayer to make, the election. Moreover, a taxpayer will be
deemed not to have acted in good faith if the taxpayer (i) seeks to alter a return position
for which an accuracy-related penalty has been or could be imposed under section
6662 at the time the taxpayer requests relief and the new position requires or permits a
regulatory election for which relief is requested; (ii) was informed in all material respects
of the required election and related tax consequences, but chose not to file the election;
or (iii) uses hindsight in requesting relief.

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 the 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). Section 301.9100(3)(c)(ii) provides that the interests of the
government are ordinarily prejudiced if the taxable year in which the regulatory election
should have been made or any taxable years that would have been affected by the
PLR-107747-15 5

election had it been timely made are closed by the period of limitations on assessment
under section 6501(a) before the taxpayer’s receipt of a ruling granting relief under this
section.

CONCLUSION

Based upon the facts and representations submitted, we conclude that Taxpayer
and Subsidiary have shown good cause for granting a reasonable extension of time to
elect under section 856(l) to treat Subsidiary as a TRS of Taxpayer. 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 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 Taxpayer otherwise qualifies as
a REIT or whether Subsidiary otherwise qualifies as a TRS under subchapter M of the
Code.

No opinion is expressed with regard to whether the tax liability of Subsidiary and
Taxpayer 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, a copy of
this letter is being sent to your authorized representative.

Sincerely,

Jonathan D. Silver

Assistant to the Branch Chief
Office of the Associate Chief Counsel
(Financial Institutions and Products)