Late REMIC elections for eight mortgage pools treated as timely

Plain-English summary

A sponsor established eight asset pools for a mortgage securitization program and intended each pool to elect real estate mortgage investment conduit status. The sponsor filed identification and information forms but failed to file the first-year Forms 1066 that make the REMIC elections. After discovering the omission, it promptly filed the returns and requested relief before the IRS identified the problem. The IRS found that each pool met the discretionary relief requirements and treated the elections on the late Forms 1066 as timely. The ruling does not waive penalties or interest for filing the returns late and does not decide whether the pools otherwise qualify as REMICs.

Ruling snapshot

• Question: Could the REMIC elections on eight late first-year Forms 1066 be treated as timely?
• Outcome: Approved, with each election treated as timely for the first taxable year
• Key authorities: IRC § 860D(b); Treas. Reg. §§ 1.860D-1(d), 1.860F-4(b)(1), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202341006                                             Third Party Communication: None
 Release Date: 10/13/2023                                      Date of Communication: Not Applicable
 Index Number: 9100.00-00, 860D.01-00
                                                               Person To Contact:
 ------------------------------                                -----------------, ID No. -----------------
 --------------------------------------------------------      Telephone Number:
 ---------------------------------------------------------     --------------------
 ----------------------------------                            Refer Reply To:
 --------------------------                                    CC:FIP:1
                                                               PLR-101835-23
                                                               Date: July 13, 2023




Legend

Sponsor                            =        ---------------------------------------------------------
                                            -----------------------

Trust                              =        ------------------
                                            -----------------------

Agreement                          =        ----------------------------------------------------------------

Pool A                             =        -----------------------------------------------------
                                            -----------------------

Pool B                             =        -----------------------------------------------------
                                            -----------------------

Pool C                             =        -----------------------------------------------------
                                            -----------------------

Pool D                             =        -----------------------------------------------------
                                            -----------------------

Pool E                             =        -----------------------------------------------------
                                            -----------------------

Pool F                             =        -----------------------------------------------------
                                            -----------------------

Pool G                             =        -----------------------------------------------------
PLR-101835-23                                       2

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

Pool H                            =    ----------------------------------------------------
                                       -----------------------

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

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

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

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

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

Year 1                            =    ------------------------------------------


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

       This ruling responds to a letter dated January 25, 2023, requesting an extension
of time under sections 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations to make an election under section 860D(b)(1) of the Internal Revenue Code
and section 1.860D-1(d) of the Income Tax Regulations to treat Pools A, B, C, D, E, F,
G, and H (collectively, “Pools” and individually, each a “Pool”) as Real Estate Mortgage
Investment Conduits (“REMICs”).


                                               FACTS

       Sponsor established the Pools between Date 1 and Date 2 as part of a new
REMIC securitization program to facilitate transactions in the secondary market. Each
Pool is a segregated pool of assets owned by Trust. The Agreement evidences the
creation of the Pools and states the intention of each Pool to make a REMIC election
under section 860D and to designate the regular interests and the residual interest
created by the Pool. Under the Agreement, Sponsor was responsible for making a
REMIC election for each Pool and for preparing, signing, and filing each of the REMIC
tax returns on behalf of the Pools. Sponsor timely filed Form SS-4, Application for
Employer Identification Number, and Form 8811, Information Return for Real Estate
Mortgage Investment Conduits (REMICs) and Issuers of Collateralized Debt
Obligations, for each Pool.

         Section 860D(b) provides that the REMIC election shall be made on the entity’s
return (Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return)
for its first taxable year. The first year Form 1066 for Year 1 for each Pool was due on
Date 3. On or about Date 4, Sponsor discovered the failure to timely file Forms 1066 for
PLR-101835-23                                3

Year 1 for each Pool while reviewing its filings. Upon discovery, Sponsor immediately
began the process of filing Forms 1066 and making REMIC elections for each of the
Pools. Sponsor filed a Form 1066 for Year 1 for each Pool, on which the REMIC
election was made, on Date 5. Each Pool issued a Schedule Q to its residual interest
holder for Year 1. Sponsor, on behalf of each Pool, requests relief under sections
301.9100-1 and 301.9100-3 for a reasonable extension of time for each Pool to make a
REMIC election.

      Sponsor makes the following additional representations in connection with this
request for an extension of time:

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

      2) Granting the relief requested will not result in any of the Pools or Trust having
         a lower U.S. federal 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) Sponsor, on behalf of each of the Pools, does 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 it 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, Sponsor did not choose to not file the election for each of the
         Pools.

      5) Sponsor, for each of the Pools, is not using hindsight in making the decision
         to seek the relief requested. No specific facts have changed since the due
         date for making the election that make the election advantageous to the
         Pools.

      6) The period of limitations on assessment under section 6501(a) has not
         expired for any of the Pools 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, an affidavit on behalf of the Pools has been provided as required by section
301.9100-3(e).
PLR-101835-23                                4

                                  LAW AND ANALYSIS

         Section 860D(b)(1) provides that an entity which meets the requirements of a
REMIC under section 860D(a) may elect to be treated as a REMIC on the return for its
first taxable year. Once elected, section 860D(b)(1) provides that the entity will be
treated as a REMIC for the first taxable year in which the election is made and all
subsequent taxable years until such status is terminated under section 860D(b)(2).
Section 1.860D-1(d)(1) of the Income Tax Regulations provides that a qualified entity
makes a REMIC election by timely filing, for its first taxable year, a Form 1066, U.S.
Real Estate Mortgage Investment Conduit Income Tax Return, signed by a person
authorized to sign that return. This regulation also provides a reference to section
301.9100-1 for rules regarding extensions of time for making elections. Section 1.860F-
4(b)(1) provides that the due date and any extensions for filing a REMIC’s annual tax
return are determined as if the REMIC were a partnership.

        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 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
PLR-101835-23                                 5

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.

                                      CONCLUSION

        Based on the information submitted and representations made, we conclude that
each Pool has satisfied the requirements for granting a reasonable extension of time to
allow it to make the election under section 860D to be treated as a REMIC beginning
Year 1. Therefore, the election made on the Form 1066 filed on Date 5 for each Pool,
electing REMIC status for Year 1, will be deemed to have been timely filed.

                                         CAVEATS

        This ruling is limited to the timeliness of the REMIC election for each Pool. This
ruling does not relieve a Pool from any penalty or interest that it may owe as a result of
the failure to timely file the Form 1066. This ruling’s application is limited to the facts,
representations, Code sections, and regulations cited herein. While this office has not
verified any of the material submitted in support of the request for ruling, it is subject to
verification on examination. No opinion is expressed with regard to whether each Pool
otherwise qualifies as a REMIC under part IV of subchapter M of Chapter 1 of the Code.

       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.
PLR-101835-23                                            6


      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.

                                                Sincerely,


                                                ___________________________
                                                Michael Chin
                                                Senior Technician Reviewer, Branch 1
                                                Office of Associate Chief Counsel
                                                (Financial Institutions & Products)


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