REIT received 90 days to make a late taxable-subsidiary election

Plain-English summary

A real estate investment trust formed an indirect subsidiary to hold assets connected with a real estate portfolio acquisition. The governing agreement called for the subsidiary to be taxed as a corporation and for the entities to jointly elect taxable REIT subsidiary status. Fund counsel prepared Forms 8832 and 8875 but inadvertently failed to file them by their deadlines. The subsidiary later obtained late entity-classification relief under a revenue procedure. The IRS found that the REIT and subsidiary met the regulatory standards for relief and gave them 90 days to file Form 8875 effective as of the subsidiary's formation date. The ruling addressed only timeliness and did not decide whether either entity otherwise qualified as a REIT or taxable REIT subsidiary.

Ruling snapshot

• Question: May the REIT and its subsidiary make a late joint election for the subsidiary to be treated as a taxable REIT subsidiary?
• Outcome: Approved, with 90 days to file Form 8875
• Key authorities: IRC § 856(l); Announcement 2001-17; 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: 202340012 Third Party Communication: None
Release Date: 10/6/2023 Date of Communication: Not Applicable
Index Number: 9100.00-00, 856.00-00
Person To Contact:
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----------------------------------- Telephone Number:
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----------------------- Refer Reply To:
--------------------------- CC:FIP:B01
PLR-101944-23
Date:
July 12, 2023

Legend

Taxpayer = ----------------------------------------------------------------------------------
----------------------
Subsidiary = ----------------------------------------------------------------------------------
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Manager = ------------------------------
Transaction = -------------------------------------------
Counsel
Fund Counsel = ---------------------
Date 1 = --------------------------
Date 2 = ----------------
Date 3 = -----------------------
Date 4 = -----------------------
Date 5 = --------------------------
Date 6 = --------------------------
State = ------------

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

     This ruling responds to a letter dated December 9, 2022, submitted on behalf of

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

                                                 FACTS

  Taxpayer was formed as a limited liability company under the laws of State on

Date 2. Taxpayer has elected to be treated as a real estate investment trust (“REIT”)

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under sections 856 through 859 for federal income tax purposes beginning with
Taxpayer’s taxable year ended Date 5.
Subsidiary was formed as a limited liability company under the laws of State on
Date 1. Subsidiary was formed as an indirect subsidiary of Taxpayer for the purpose of
holding certain assets in connection with the acquisition of a portfolio of real estate
assets and related assets (the “Portfolio”). Subsidiary’s limited liability company
agreement (the “Subsidiary LLC Agreement”) provides that Taxpayer and Subsidiary
will jointly elect for Subsidiary to be treated as a TRS of Taxpayer for federal income tax
purposes.

  Manager provides origination, acquisition, asset management, and other

administrative services to certain investment vehicles, including Taxpayer and
Subsidiary.

   On Date 1, Transaction Counsel, counsel for Manager in connection with the

acquisition of the Portfolio, formed Subsidiary as indicated under the Subsidiary LLC
Agreement and asked Fund Counsel, counsel for Manager with respect to the
organization of Taxpayer, to arrange for (1) Subsidiary to elect to be treated as an
association taxable as a corporation for federal income tax purposes by filing Form
8832, Entity Classification Election, and (2) Taxpayer and Subsidiary to make a joint
election on Form 8875, Taxable REIT Subsidiary Election, to treat Subsidiary as a TRS
of Taxpayer for federal income tax purposes, in each case, effective as of Date 1.
Generally, an entity classification election cannot take effect more than 75 days prior to
the date the election is filed, and a taxable REIT subsidiary election cannot take effect
more than more than 2 months and 15 days prior to the date the election is filed.

    Fund Counsel prepared the Form 8832 and Form 8875 as requested but

inadvertently failed to file such forms by their due dates. Fund Counsel became aware
of the failure to file on Date 3 and notified Manager of such failure on Date 4.

    Separately, on Date 6, Subsidiary filed a Form 8832 pursuant to the late

classification relief provided for in Rev. Proc. 2009-41, 2009-39 I.R.B. 439, for
Subsidiary to be classified as an association taxable as a corporation 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).

PLR-101944-23 3

   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.

   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 and Subsidiary 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.

  In addition, affidavits on behalf of Taxpayer, Subsidiary, and Fund Counsel have

been provided as required by sections 301.9100-3(e)(2) and (3).

                               LAW AND ANALYSIS

    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 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

PLR-101944-23 4

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 section 301.9100-3 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 generally is deemed to have

acted reasonably and in good faith if the taxpayer (i) requests relief under section
301.9100-3 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, 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 section 301.9100-3.

PLR-101944-23 5

                                   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, Taxpayer and Subsidiary have 90 calendar days
from the date of this letter to make the intended election to treat Subsidiary as a TRS of
Taxpayer, effective as of Date 1.

    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.

    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 a ruling, it is subject
to verification on examination.

   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, a copy of this

letter is being sent to your authorized representative.

                                    Sincerely,



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

PLR-101944-23 6

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