Company receives 90 days to make late REIT election

Plain-English summary

A corporation formed to own and lease healthcare properties intended to elect real estate investment trust status for its first taxable year. Its chief financial officer inadvertently failed to file the extension form that would have extended the deadline for the return containing the election. The corporation requested relief before the IRS discovered the missed election and represented that relief would not reduce its aggregate tax liability or rely on hindsight. The IRS found the regulatory-election relief standards satisfied and granted up to 90 days to make the REIT election. It expressed no opinion on whether the corporation otherwise qualified as a REIT.

Ruling snapshot

• Question: Should the corporation receive more time to make its election under IRC § 856(c) to be treated as a REIT?
• Outcome: Approved
• Key authorities: IRC § 856(c); Treas. Reg. §§ 1.856-2(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201549023 Third Party Communication: None
Release Date: 12/4/2015 Date of Communication: Not Applicable
Index Number: 856.00-00, 9100.00-00
Person To Contact:
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-------------------------- ID No. ------------------
------------------------------- Telephone Number:
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------------------------------------------ Refer Reply To:
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PLR-115093-15
Date:
August 28, 2015

LEGEND:

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

Company = ---------------------------------------------------------

Firm = ---------------------------

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

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

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

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

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

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

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

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

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

  This ruling responds to a letter dated April 29, 2015, submitted on behalf of

Taxpayer. Taxpayer requests an extension of time under § 301.9100-1 and
§ 301.9100-3 of the Procedure and Administration Regulations to make an election
PLR-115093-15 2

under § 856(c) of the Internal Revenue Code to be treated as a real estate investment
trust (REIT) for the taxable year ended Date 1.

                                      FACTS

   Taxpayer is a State corporation that was organized on Date 2, as a wholly owned

subsidiary of Company. Taxpayer is engaged in the ownership, acquisition, and leasing
of healthcare-related properties. Taxpayer generates revenue primarily by leasing
healthcare-related properties to healthcare operators under triple-net leases.

   On Date 3, Company separated its healthcare and real estate businesses into

two independent publicly traded companies. The separation was accomplished through
the distribution of all of the outstanding shares of common stock of Taxpayer to
Company stockholders on a pro rata basis. Taxpayer holds substantially all of the real
property that was previously owned by Company. Taxpayer intended to elect to be
treated as a REIT under § 856 beginning with its first taxable year ended Date 1.

   Firm was engaged by Taxpayer to provide tax return compliance services to

Taxpayer for Taxpayer’s taxable year ended Date 1, including the preparation of
Taxpayer’s Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment
Trusts, various state income tax returns, and applications for extensions of time to file
such returns.

   On Date 4, Firm delivered to Taxpayer’s chief financial officer (“Officer”) various

income tax return extension forms for the taxable year ended Date 1, with related filing
and tax payment instructions, including Form 7004, Application for Automatic 6-Month
Extension of Time to File Certain Business Income Tax, Information, and Other Returns.
Officer was responsible for filing these extensions and making any required payments
on behalf of Taxpayer.

  Officer failed to file Taxpayer’s Form 7004 by the due date of Date 4, because of

an inadvertent oversight. On or about Date 5, Officer discovered his failure to file
Taxpayer’s Form 7004 while reviewing extension forms and payment vouchers for
Taxpayer’s state income tax returns.

   Because Form 7004 was not timely filed, the deadline for filing Taxpayer’s

federal income tax return, on which Taxpayer’s REIT election was to be made, was not
extended from Date 4 to Date 6. Firm advised Taxpayer to request an extension of time
under § 301.9100-1(c) to elect to be treated as a REIT for the taxable year ended
Date 1. Taxpayer anticipates filing the Form 1120-REIT on or before Date 7.

   Taxpayer makes the following additional representations:

PLR-115093-15 3

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

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

3. Taxpayer did not seek to alter a return position for which an accuracy-related
   penalty has been or could have been imposed under § 6662 of the Code at the
   time Taxpayer 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 did not choose to not file the election.

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

6. The period of limitations on assessment under § 6501(a) has not expired for
   Taxpayer for the taxable year in which the election should have been filed, nor
   for any taxable year(s) that would have been affected by the election had it been
   timely filed.

   Affidavits on behalf of Taxpayer have been provided with the submission as
   required by § 301.9100-3(e).

                             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 § 1.856-2(b) of the
   Income Tax Regulations, the election shall be made by the trust 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) 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 six 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 to mean an election whose due date is prescribed by a regulation, or
   PLR-115093-15 4

a revenue ruling, revenue procedure, notice, or announcement published in the Internal
Revenue Bulletin.

   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
§ 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 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. A taxpayer will be deemed to have not acted
reasonably and 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 § 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 of the required election, 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 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). 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
election had it been timely made are closed by the period of limitations on assessment
under § 6501(a) before the taxpayer's receipt of a ruling granting relief under this
section.

                                  CONCLUSION

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

that Taxpayer has satisfied the requirements for granting a reasonable extension of time
to elect under § 856(c) to be treated as a REIT for the tax year ended on Date 1.
PLR-115093-15 5

Taxpayer is granted a period of time not to exceed 90 calendar days from the date of
this letter to make the election.

  This ruling is limited to the timeliness of the filing of Taxpayer's election under

§ 856(c). 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 under subchapter M of the Code.

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

                                               Sincerely,


                                               ______________________________
                                               K. Scott Brown
                                               Branch Chief, Branch 3
                                               Office of the Associate Chief Counsel
                                               (Financial Institutions & Products)