IRS treats a delayed taxable REIT subsidiary election as timely despite COVID-19 filing obstacles

Plain-English summary

A publicly traded REIT indirectly acquired part of a foreign corporation and intended to elect for that corporation to be a taxable REIT subsidiary from the acquisition date. COVID-19 closures delayed the subsidiary's employer identification number and the necessary officer signatures, so the parties filed Form 8875 after the intended deadline. The REIT and subsidiary asked for relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3. Based on their representations, the IRS treated the filed Form 8875 as timely and effective on the intended date. The ruling addressed only timeliness and did not decide whether the parent otherwise qualified as a REIT, whether the subsidiary otherwise qualified as a taxable REIT subsidiary, or whether the election lowered their combined tax liability.

Ruling snapshot

• Question: Could a REIT and its subsidiary receive an extension for a late joint election under § 856(l) to treat the subsidiary as a taxable REIT subsidiary?
• Outcome: approved (the already-filed Form 8875 is treated as timely and effective on the requested date)
• Key authorities: IRC §§ 856(l), 6501(a), 6662; Treas. Reg. §§ 301.9100-1, 301.9100-3; Announcement 2001-17

Full text (IRS public release)

 Internal Revenue Service                                    Department of the Treasury
                                                             Washington, DC 20224

 Number: 202051008                                           [Third Party Communication:
 Release Date: 12/18/2020                                    Date of Communication: Month DD, YYYY]
 Index Number: 9100.00-00, 856.00-00
                                                             Person To Contact:
 ---------------------                                       -------------------, ID No. -----------------
 -----------                                                 Telephone Number:
 ------------------------------                              --------------------
 -------------------------------------------                 Refer Reply To:
 ----------------------------                                CC:FIP:B01
                                                             PLR-118224-20
                                                             Date:
                                                             September 21, 2020




Legend:

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

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

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

 Country A       = --------

 Facilities      = ------------------------------------------------------

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

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

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

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

 a               = ---




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

     This ruling responds to a letter dated August 17, 2020, submitted on behalf of
Taxpayer and Subsidiary. Taxpayer and Subsidiary request an extension of time under
PLR-118224-20                                2

sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations
to make an election under section 856(l) of the Internal Revenue Code (“Code”) to treat
Subsidiary as a taxable REIT subsidiary (“TRS”) of Taxpayer.

                                          FACTS

       Taxpayer was formed under the laws of State A. Taxpayer has elected to be a
real estate investment trust (“REIT”) and is publicly traded. Taxpayer is in the business
of owning Facilities.

       Taxpayer indirectly acquired on Date 1 an interest of a% in Subsidiary, a
company formed under the laws of Country A that is treated as a corporation for U.S.
federal income tax purposes.

         Taxpayer and Subsidiary represent that they intended to treat Subsidiary as a
TRS of Taxpayer effective as of Date 1. Therefore, Taxpayer and Subsidiary intended
to file Form 8875, “Taxable REIT Subsidiary Election,” by Date 2. Closures related to
COVID-19 caused delays in obtaining an EIN number for Subsidiary and obtaining the
necessary signatures of officers of Subsidiary. Subsidiary obtained an EIN on Date 3.
Taxpayer and Subsidiary filed Form 8875 on Date 4.

      Taxpayer requests relief under sections 301.9100-1 and 301.9100-3 for an
extension of time to file the election under section 856(l) to treat Subsidiary as a TRS of
Taxpayer effective as of Date 1.

       Taxpayer and Subsidiary make the following additional representations:

       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 Taxpayer or Subsidiary having a
lower tax liability in the aggregate for all years to which the election applies than they
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 at
the time they 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.
PLR-118224-20                                3

       5. Taxpayer and Subsidiary are not using hindsight in requesting relief. No
specific facts have changed since the due date for making the election that make the
election more advantageous to Taxpayer or Subsidiary.

       6. The period of limitations on assessment under section 6501(a) has not
expired for Taxpayer or Subsidiary for the taxable year in which the election should
have been filed, or for any taxable year(s) that would have been affected by the election
had it been timely filed.

      In addition, affidavits on behalf of Taxpayer and Subsidiary have been provided
as required by sections 301.9100-3(e)(2) and (3).

                                  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 such corporation, and the REIT and such corporation must jointly elect such
treatment. The election is irrevocable once made, unless both the REIT and the
corporation consent to its revocation. In addition, section 856(l) specifically provides
that the election, and any revocation thereof, may be made without consent of the
Secretary.

        In Announcement 2001-17, 2001-1 C.B. 716, the Service announced the
availability of 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 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, revenue procedure, notice, or announcement published in the Internal
Revenue Bulletin.

        Section 301.9100-3(a) through (c)(1) 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
PLR-118224-20                                 4

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. A taxpayer is 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 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)(1) 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)(1)(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)(1)(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 section 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 and Subsidiary have satisfied the requirements for granting a reasonable
extension of time to elect under section 856(l) to treat Subsidiary as a TRS of Taxpayer,
effective as of Date 1. Accordingly, the Form 8875 filed by Taxpayer and Subsidiary to
treat Subsidiary as a TRS of Taxpayer will be treated as timely filed and effective as of
Date 1.
PLR-118224-20                                  5

        This ruling is limited to the timeliness of filing Form 8875. This ruling’s
application is limited to the facts, representations, Code sections, and regulations cited
herein. Except as 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. No opinion is expressed as to whether Taxpayer otherwise qualifies as a
REIT, or whether Subsidiary otherwise qualifies as a TRS, under part II of subchapter M
of chapter 1 of the Code.

       No opinion is expressed with regard to whether the tax liability of Taxpayer and
Subsidiary 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 U.S. 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 U.S. federal income tax effect.

       This ruling is directed only to the taxpayers 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 Power of Attorney on file with this office, copies of this
letter are being sent to your authorized representatives.

                                        Sincerely,



                                        _________________________
                                        Steven Harrison
                                        Branch Chief, Branch 1
                                        Office of Associate Chief Counsel
                                        (Financial Institutions and Products)




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