REIT receives 60 days to make a late consent dividend election

Plain-English summary

A real estate investment trust relied on an accounting firm to prepare and provide its federal returns for filing. The firm omitted one year's Form 1120-REIT from the package, so the trust neither filed that return on time nor made its section 565 consent dividend election. The trust later filed the missing return and requested relief before the IRS discovered the missed election. The IRS found good faith and no prejudice to the government and granted 60 days to file the forms needed for the consent dividend election. It did not decide whether the taxpayer otherwise qualified as a REIT.

Ruling snapshot

• Question: Could the REIT make a late section 565 consent dividend election after its preparer omitted the related Form 1120-REIT?
• Outcome: approved
• Key authorities: IRC §§ 561 and 565; Treas. Reg. §§ 1.565-1 and 301.9100-3; Rev. Rul. 78-296

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 201725012                                               Third Party Communication: None
Release Date: 6/23/2017                                         Date of Communication: Not Applicable
Index Number: 565.00-00, 9100.00-00
                                                                Person To Contact:
---------------------------------------------------             ---------------
------------------------------------------------------          ---------------------------
---------------------------------                               Telephone Number:
                                                                ----------------------
------------------------------------------------------------    Refer Reply To:
---------------------------------------                         CC:ITA:B3
                                                                PLR-129868-16
                                                                Date:
                                                                March 23, 2017


         -------------------------




Legend

Taxpayer                 =           ---------------------------------------------------
                                     ------------------------
Date 1                   =           ----------------------------
Date 2                   =           ---------------------------
Date 3                   =           ---------------------------
Date 4                   =           -----------------------
State                    =           -------------
Accounting Firm          =           ----------------


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

This letter is in response to a ruling request for an extension of time under §§ 301.9100-
1 and 301.9100-3 of the Procedure and Administration Regulations for Taxpayer to
make a consent dividend election pursuant to § 565 of the Internal Revenue Code for
the taxable year ending Date 3.

                                                      FACTS

Taxpayer was organized on Date 1 as a State corporation for the purpose of investing in
real property. Taxpayer elected to be taxed as a Real Estate Investment Trust (REIT)
effective for its initial taxable year ending Date 2 and continuously maintained this status
since.
PLR-129868-16                                 2


Taxpayer hired Accounting Firm to advise it on tax matters, prepare its income tax
returns, and ensure its compliance with Federal tax filing obligations. Accounting Firm
prepared Taxpayer’s multiple returns and mailed them to Taxpayer to file but failed to
include the Form 1120-REIT for taxable year ending Date 3, and thus, Taxpayer did not
file it timely nor make the consent dividend election. Accounting Firm and Taxpayer
discovered this error and Accounting Firm advised Taxpayer to request an extension of
time to make the consent dividend election for the taxable year ending Date 3.
Taxpayer filed its Form 1120-REIT for taxable year ending Date 3 on Date 4.


                                  LAW AND ANALYSIS

Section 565(a) provides that if any person owns consent stock (as defined in § 565
(f)(1)) in a corporation on the last day of the taxable year of such corporation, and such
person agrees, in a consent filed with the return of such corporation in accordance with
the regulations, to treat as a dividend the amount specified in such consent, the amount
so specified shall, except as provided in § 565(b), constitute a consent dividend for
purposes of § 561 (relating to the deduction for dividends paid).

Section 1.565-1(a) of the Income Tax Regulations provides that the dividends paid
deduction, as defined in § 561, includes the consent dividends for the taxable year. A
consent dividend is a hypothetical distribution (as distinguished from an actual
distribution) made by certain corporations to any person who owns consent stock on the
last day of the taxable year of such corporation and who agrees to treat the hypothetical
distribution as an actual dividend, subject to specified limitations, by filing a consent at
the time and in the manner specified in § 1.565-1(b). Section 1.565-1(b)(3) provides
that a consent may be filed not later than the due date of the corporation’s income tax
return for the taxable year for which the dividends paid deduction is claimed. Under
Rev. Rul. 78-296, 1978-2 C.B. 183, the due date for purposes of § 1.565-1(b)(3)
includes the extended due date of a return filed pursuant to an extension of the time to
file.

Section 301.9100-3 of the Procedure and Administration Regulations generally provides
extensions of time for making regulatory elections. For this purpose § 301.9100-1(b)
defines the term “regulatory election” to include an election whose deadline is
prescribed by a revenue ruling, revenue procedure, notice or announcement published
in the Internal Revenue Bulletin.

Section 301.9100-3 provides that requests for extensions of time for regulatory elections
will be granted when the taxpayer provides evidence (including affidavits described in
paragraph (e) of this section) to establish to the satisfaction of the Commissioner that
the taxpayer acted reasonably and in good faith and granting relief will not prejudice the
interests of the government.
PLR-129868-16                                 3


Section 301.9100-3(b)(1) states that a taxpayer will be deemed to have acted
reasonably and in good faith if the taxpayer:

(i) requests relief before the failure to make the regulatory election is discovered by the
Service;

(ii) inadvertently failed to make the election because of intervening events beyond the
taxpayer’s control;

(iii) failed to make the election because, after exercising due diligence, 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, and the tax professional failed to
make, or advise the taxpayer to make, the election.

The affidavits presented show that Taxpayer acted reasonably and in good faith
because it requested relief before the failure to make the election was discovered by the
Service.

Under § 301.9100-3(b)(3), a taxpayer will not be considered to have 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 (taking into
account § 1.6664-2(c)(3) of the Income Tax Regulations) and the new position requires
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. If specific facts have changed since the original
deadline that make the election advantageous to a taxpayer, the Service will not
ordinarily grant relief.

Taxpayer has represented that it is not seeking to alter a return position for which an
accuracy-related penalty has been or could be imposed under § 6662 at the time
Taxpayer requests relief, and was not informed in all material respects of the required
election, and its related tax consequences, but chose not to file the election.
Furthermore, Taxpayer has represented that it is not using hindsight in requesting relief
and that specific facts have not changed since the original deadline that made the
election advantageous to Taxpayer.
PLR-129868-16                                  4


Section 301.9100-3(c)(1)(i) provides, in part, 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)(1)(ii) provides, in part, 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 these
criteria, the interests of the government are not prejudiced in this case.

Accordingly, the consent of the Commissioner is hereby granted for an extension of
time to file the forms necessary to make the § 565 consent dividend election for the
taxable year ending Date 3. This extension shall be for a period of 60 days from the
date of this ruling.

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. In particular, no opinion is hereby expressed or implied regarding whether
Taxpayer otherwise qualifies as a REIT under the Internal Revenue Code.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

The rulings contained in this letter are 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.


                                        Sincerely,


                                        Christopher F. Kane
                                        Branch Chief, Branch 3
                                        (Income Tax & Accounting)