LLC receives relief for a late first-year REIT election

Plain-English summary

A limited liability company formed to invest in real estate intended to elect real estate investment trust status from its formation date. Its accounting firm electronically filed an extension for the first Form 1120-REIT, but the extension was rejected. The firm mistakenly believed it had ten days to correct the rejected extension instead of five, so it mailed the extension seven days after rejection and later filed the return by what it believed was the extended deadline. The taxpayer consistently filed as a REIT and requested relief after the accounting firm discovered the mistake. Based on the taxpayer's representations, the IRS treated the filed Form 1120-REIT as a timely § 856(c) election. The ruling did not decide whether the return itself was timely or whether the company otherwise qualified as a REIT.

Ruling snapshot

• Question: May the LLC receive relief when a rejected extension caused its first Form 1120-REIT to be filed too late to make the election?
• Outcome: Approved. The filed Form 1120-REIT is treated as a timely § 856(c) election.
• Key authorities: IRC § 856(c); Treas. Reg. §§ 1.856-2(b), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202518002 Third Party Communication: None
Release Date: 5/2/2025 Date of Communication: Not Applicable
Index Number: 856.00-00, 9100.00-00
Person To Contact:
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PLR-110824-24
Date:
December 6, 2024

LEGEND

Taxpayer = --------------------------------------------
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Company = --------------------------------------------

Accounting Firm = ----------------

State = -------------

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

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

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

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

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

Date 6 = ----------------

Date 7 = --------------------------

Month 1 = -----------

Month 2 = --------------
PLR-110824-24 2

Year 1 = -------

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

   This letter responds to a letter dated February 9, 2024, submitted on behalf of

Taxpayer. Taxpayer requests 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 856(c) of the Internal Revenue Code (the “Code”) to be treated as a real estate
investment trust (“REIT”) effective Date 1.

                                     FACTS

  Taxpayer is a State limited liability company that was formed on Date 1 for the

purpose of investing in real estate located across the United States.

    Company is generally responsible for Taxpayer’s tax return filing obligations.

Company has a small tax department that relies on outside advisors concerning the
application of complex United States tax matters, including the REIT rules. Accordingly,
Company engaged Accounting Firm, a qualified professional return preparer, to prepare
and timely file federal and state income tax returns for numerous entities, including
Taxpayer. Company intended for Taxpayer to elect to be treated as a REIT (the
“Election”) effective on its formation date of Date 1. Such Election would have been
made by timely filing Form 1120-REIT, U.S. Income Tax Return for Real Estate
Investment Trusts, for the tax year ended Date 2 (the “First REIT Taxable Year”).

   Company engaged Accounting Firm to prepare Taxpayer’s Form 1120-REIT for

the First REIT Taxable Year. Pursuant to this engagement, the Accounting Firm
employees responsible for preparing the Form 1120-REIT (the “Engagement Team”)
prepared and timely electronically filed Form 7004, Application for Automatic Extension
of Time to File Certain Business Income Tax, Information, and Other Returns, on Date

3. Taxpayer’s Form 7004 was, however, rejected.

   Following the rejection, Accounting Firm prepared to paper file the Form 7004
   

   within the perfection period allowed for electronic filing rejections. However, the
   Engagement Team erroneously, but inadvertently, believed that the perfection period of
   ten calendar days applicable to electronically rejected returns applied to electronically
   rejected extensions (rather than the perfection period of five calendar days applicable to
   extensions). Accordingly, on Date 4, seven calendar days from the rejected filing date
   (i.e., Date 3), the Engagement Team mailed Taxpayer’s Form 7004 to the Service.
   Both Taxpayer and the Engagement Team believed that the extension was timely filed.

    Company then provided Accounting Firm with all required information to prepare
   

   PLR-110824-24 3

Taxpayer’s Form 1120-REIT for the First REIT Taxable Year. On Date 5, Taxpayer’s
Form 1120-REIT was filed (i.e., mailed) by what Taxpayer and the Engagement Team
believed was the extended due date.

     Company relied on the Engagement Team to timely prepare the tax return

extension, and then timely file, first electronically and then on paper, the required Form
7004. Company’s tax department was not familiar with the perfection period
requirements with respect to Service e-filing procedures. As such, Company did not
identify the failure to timely file the extension. Until the oversight with the extension was
discovered, Company and the Engagement Team believed that Taxpayer properly
elected, as intended, to be treated as a REIT for the First REIT Taxable Year by timely
filing the Form 1120-REIT.

   In Month 1 of Year 1, other taxpayers with substantially identical facts received

notices from the Service stating that their extensions were rejected. A Company
employee immediately contacted the Engagement Team to request proof of filing of
these extensions. The Engagement Team reached out to another group in Accounting
Firm to confirm whether the documentation on file was sufficient to respond to the
notices. In Month 2 of Year 1, the other group in Accounting Firm confirmed that the
extensions were late because the perfection period for the rejected electronic
extensions was five calendar days, not ten days as the Engagement Team previously
thought. Following this advice, the Engagement Team reviewed its internal files to
determine what other extensions may have been filed late, and which entities may have
made a late REIT election as a result.

   Following the Engagement Team’s review of its internal files, the Engagement

Team determined that Taxpayer needed to request section 9100 relief for its late
Election. On Date 6, after Accounting Firm completed its internal administrative process
concerning Taxpayer’s missed Election, Company engaged Accounting Firm to prepare
a request for section 9100 relief.

   Taxpayer’s income tax returns for tax years ended Date 2 and Date 7 were

prepared consistently with Taxpayer being treated as a REIT since Date 1, as if the
Election had been timely made.

                              REPRESENTATIONS

  Taxpayer makes the following representations in connection with this request for

an extension of time:

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

2. The interests of the government are not prejudiced within the meaning of section
   301.9100-3(c). Granting the relief will not result in Taxpayer having a lower U.S.
   PLR-110824-24 4

income tax liability in the aggregate for all years to which the regulatory election
applies than Taxpayer would have had if the election had been timely made (taking
into account the time value of money).

3. Taxpayer does not seek to alter a return position for which an accuracy-related
   penalty has been or could be imposed under section 6662 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, Taxpayer did not choose not to file the election.

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

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

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

                              LAW AND ANALYSIS
   

   Section 856(c)(1) provides that a corporation, trust, or association shall not be
   considered a REIT for any taxable year unless it files with its return for the taxable year
   an election to be a REIT or has made such an election for a previous taxable year, and
   such election has not been terminated or revoked. Pursuant to section 1.856-2(b) of the
   Income Tax Regulations, the election shall be made by the trust by computing taxable
   income as a REIT in its return for the first taxable year for which it desires the election to
   apply.

   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 six 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 to mean an election whose due date is prescribed by a regulation, or
   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-110824-24 5

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 generally is deemed to have

acted reasonably and 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 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 a 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)(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 representations made, we conclude that

Taxpayer has satisfied the requirements for granting a reasonable extension of time to
elect under section 856(c) to be treated as a REIT effective Date 1. Accordingly, due to
the reasonable extension of time granted to Taxpayer, Taxpayer’s Form 1120-REIT filed
on Date 5 is considered a timely election under section 856(c) for Taxpayer to be
treated as a REIT under subchapter M of the Code effective Date 1.
PLR-110824-24 6

                                               CAVEATS

   This ruling is limited to the timeliness of the filing of Taxpayer’s election under

section 856(c). 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
regarding the timeliness of Taxpayer’s federal income tax return. Furthermore, no
opinion is expressed or implied regarding whether Taxpayer otherwise qualifies as a
REIT under part II of subchapter M of chapter 1 of the Code.

  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 representatives.

                                                 Sincerely,


                                                 ___________________________
                                                 Matthew Howard
                                                 Senior Counsel, Branch 2
                                                 Office of Associate Chief Counsel
                                                 (Financial Institutions & Products)

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