Late relief to make a taxable REIT subsidiary election after a Form 8875 signature was missing

Plain-English summary

A real estate investment trust (REIT) and a related corporation can jointly elect to treat the corporation as a "taxable REIT subsidiary" (TRS) under § 856(l), which lets the subsidiary run active businesses that a REIT itself cannot. The election is made on Form 8875 and needs signatures from an officer of both the REIT and the subsidiary. Here, the form was filed on time, but the signing officer signed only in their capacity as an officer of the subsidiary and left the REIT signature line blank, so the election was invalid. The REIT's auditors caught the missing signature, a new Form 8875 was filed, and the taxpayers asked the IRS for an extension of time under Treas. Reg. § 301.9100-3 to make the election effective as of the originally intended date. The IRS found the taxpayers acted reasonably and in good faith and that relief would not prejudice the government, and granted the extension, treating the corrected Form 8875 as timely so the TRS election takes effect on the intended date. The IRS expressed no opinion on whether the entities actually qualify as a REIT or a TRS.

Ruling snapshot

• Question: May a REIT and its subsidiary get a § 301.9100-3 extension to make a late § 856(l) TRS election where the original Form 8875 was missing the electing REIT's signature?
• Outcome: Approved (corrected Form 8875 treated as timely; election effective on the intended date).
• Key authorities: IRC § 856(l); Treas. Reg. § 301.9100-1 through -3; Announcement 2001-17 (Form 8875).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202206004 Third Party Communication: None
Release Date: 2/11/2022 Date of Communication: Not Applicable
Index Number: 856.00-00, 9100.00-00
Person To Contact:
--------------- -------------------------, ID No. ----------------
------------------------------------------------------------ Telephone Number:
--------- --------------------
----------------------------------------------------------- Refer Reply To:
-------------------------------------- CC:FIP:B03
------------------------- PLR-110467-21
---------------------------- Date:
November 05, 2021

LEGEND:

Taxpayer = -----------------------------------------------------------------------
-----------------------
Subsidiary = -----------------------------------------------------------------------
------------------------
Accounting Firm = --------------------------
Law Firm = ----------------------------------------------------------
State = -------------
Date 1 = ------------------
Date 2 = -----------------------
Date 3 = --------------------------
Date 4 = --------------------------
Date 5 = --------------------------
Date 6 = ------------------------
Date 7 = ------------------------
Date 8 = -------------------
Date 9 = -------------------
PLR-110467-21 2

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

   This letter responds to a letter dated May 6, 2021, and subsequent

correspondence, submitted on behalf of Taxpayer and Subsidiary (collectively,
“Taxpayers”). Taxpayers request an extension of time under sections 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations to make an election to
treat Subsidiary as a taxable REIT subsidiary (TRS) of Taxpayer under section 856(l) of
the Internal Revenue Code (the Code) effective as of Date 3.

                                      FACTS

   Taxpayer is a State limited liability company formed on Date 1 that has elected to

be treated as a real estate investment trust (“REIT”) for federal income tax purposes
beginning with Taxpayer’s taxable year ended Date 5.

   Subsidiary is a State limited liability company formed on Date 2 that has elected

to be classified as an association taxable as a corporation for federal income tax
purposes. Subsidiary is indirectly owned in part by Taxpayer. Subsidiary owns
interests in various real properties and provides property management and other
services to its own properties and properties held by other entities. Taxpayers
represent that Subsidiary and Taxpayer intended to treat Subsidiary as a TRS of
Taxpayer effective as of Date 3.

    To make a TRS election for Subsidiary effective as of Date 3, Form 8875,

Taxable REIT Subsidiary Election, should have been properly completed and filed with
the Service by Date 7. Taxpayers represent that the Form 8875 for Subsidiary was filed
prior to Date 7 on Date 6. The Form 8875 was signed by an individual who was then an
officer of both Taxpayer and Subsidiary, but only in the officer’s capacity as an officer of
the electing TRS. On Date 8, Accounting Firm, the accounting firm responsible for
auditing Taxpayer’s financial statements, discovered that the filed copy of the Form
8875 was missing a signature on the line provided for the signature of an officer of the
electing REIT.

     The signing officer was not aware that two signatures on the Form 8875 was

required: one in their capacity as an officer of the electing TRS and one in their
capacity as an officer of the electing REIT. When Accounting Firm discovered the
missing signature on the Form 8875, Taxpayer contacted Law Firm to discuss the best
course of action to rectify the situation. Law Firm advised Taxpayers to (i) file a new
Form 8875 as soon as possible with the earliest possible effective date and with the
officer’s signature on both signature lines, and (ii) request an extension of time under
sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations
to make the election under section 856(l) of the Code to treat Subsidiary as a TRS of
Taxpayer effective as of Date 3. On Date 9, Taxpayers filed the new Form 8875
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electing to treat Subsidiary as a TRS of Taxpayer effective as of Date 4. This Form
8875 was signed by an officer on both the line provided in the form for signature of an
officer of the electing TRS and the line provided in the form for signature by an officer of
the electing REIT.

   Accordingly, Law Firm submitted a request on behalf of Taxpayers to the Service

seeking a private letter ruling granting a reasonable extension of time for Taxpayers to
elect under section 856(l) to treat Subsidiary as a TRS of Taxpayer, effective as of Date
3.

                              REPRESENTATIONS

  Taxpayers make the following representations in connection with this request for

an extension of time:

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

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

3. Taxpayers did 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 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, Taxpayers did not choose to not file the election.

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

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

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

                             LAW AND ANALYSIS
   

   PLR-110467-21 4

   Section 856(l) 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.

   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, a revenue procedure, a notice, or an 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
   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 generally 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
   PLR-110467-21 5

make, or advise the taxpayer to make, the election. A taxpayer will be deemed to have
not acted reasonably and in good faith, however, 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.

   Under all the facts and circumstances of this case as presented by Taxpayer and

Subsidiary, we have determined that the interests of the Government are not prejudiced
under the standards set forth in section 301.9100-3(c)(1)(i).

                                   CONCLUSION

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

Taxpayers have satisfied the requirements for granting a reasonable extension of time
so that Taxpayer can elect under section 856(l) to treat Subsidiary as a TRS of
Taxpayer as of Date 3.

  Accordingly, due to the reasonable extension of time granted to Taxpayer and

Subsidiary, the Form 8875 filed by Taxpayer and Subsidiary on Date 9 will be
considered timely filed, and the effective date of the TRS election is Date 3.

                                     CAVEATS

    This ruling is limited to the timeliness of the filing of the Forms 8875. This ruling’s

application is limited to the facts, representations, and Code and regulation sections
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. In particular, no opinion is expressed or implied regarding whether
Taxpayer qualifies as a REIT, or whether Subsidiary otherwise qualifies as a TRS of
Taxpayer under part II of subchapter M of chapter 1 of the Code.
PLR-110467-21 6

    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 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 federal
income tax effect.

    The ruling contained in this letter is based upon information submitted and

representations made by Taxpayer and Subsidiary and accompanied by penalties of
perjury statements executed by the appropriate parties. 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.

  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,


                                    ___________________________
                                    Grace Cho
                                    Assistant to the Branch Chief, Branch 3
                                    Office of Associate Chief Counsel
                                    (Financial Institutions & Products)

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