IRS grants late REIT and real property trade elections

Plain-English summary

A limited liability company intended to elect REIT status and to elect to treat its activities as an electing real property trade or business for the business-interest limitation rules. A courier delivered the company's Form 7004 extension request to the Postal Service one day late, which affected the timeliness of the elections on the company's Form 1120-REIT. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. It treated the Form 1120-REIT and attached real property trade or business election as timely, effective as of the requested date. The ruling addressed only the timeliness of the elections and did not determine whether the taxpayer otherwise qualified as a REIT or whether its return was timely.

Ruling snapshot

• Question: May the taxpayer make late REIT and real property trade or business elections effective as of the intended date?
• Outcome: Approved, with the Form 1120-REIT and attached election treated as timely.
• Key authorities: IRC §§ 856(c), 163(j), 163(j)(7)(B), 469(c)(7)(C), 6501, and 6662; Treas. Reg. §§ 1.163(j)-9(d)(1), 1.856-2(b), and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202636010
Third Party Communication: None
Release Date: 9/4/2026
Date of Communication: Not Applicable
Index Number: 856.00-00, 9100.00-00
Person To Contact:
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Refer Reply To:
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PLR-120044-25
Date:
June 4, 2026

Legend

Taxpayer = ------------------------------------------------------
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Company 1 = ----------------------------------

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

Controller = -----------------------------------

Logistics = -------------------

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

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

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

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

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

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

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

Date 7 = -----------------------
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Month 1 = -------

Month 2 = -----

Year 1 = -------

Year 2 = -------

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

This letter responds to a letter dated October 10, 2025, and subsequent correspondence, submitted on behalf of Taxpayer. Taxpayer requests extensions of time under sections 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to make elections, effective Date 1:

(1) Under section 856(c) of the Internal Revenue Code (the “Code”) to be treated as a real estate investment trust (“REIT”) (“a REIT election”), and

(2) Under section 163(j)(7)(B) and section 1.163(j)-9 of the Income Tax Regulations to be treated as a real property trade or business (“RPTOB”) (“an RPTOB election”).

FACTS

Taxpayer is a State limited liability company that was formed on Date 1. As of Date 1, Taxpayer was wholly owned by Company 1, an entity treated as a partnership for Federal income tax purposes.

Relevant to the RPTOB election, Taxpayer holds real property, is engaged in the business of real estate, and its principal business activity code is 531120. Year 1, a year that includes Date 1, was the first year that Taxpayer incurred real property tax. Taxpayer is an accrual-method taxpayer.

At the time of its formation, it was intended that Taxpayer would make a REIT election. This election was to be effective for Taxpayer’s taxable year beginning Date 1 and ending Date 2 (the “Start Year”). This intent was evident from Taxpayer’s timely preparation of its initial-year tax provision, tax footnotes, and financial statements consistent with its intention to be treated as a REIT beginning Date 1. Taxpayer also intended to make an RPTOB election with its return for the Start Year. Taxpayer filed a Form 8832, Entity Classification Election, to be treated as an association taxable as a corporation effective Date 1.

As part of Accounting Firm’s larger engagement to provide tax compliance services for Controller, the manager of Taxpayer, Accounting Firm was engaged to prepare the Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment
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Trusts, for Taxpayer for the Start Year. As part of this engagement, Accounting Firm was engaged to prepare and timely file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, to extend the due date of Taxpayer’s Form 1120-REIT for the Start Year from Date 3 to Date 4 (the “Extension Request”).

Accounting Firm engaged Logistics, a reputable courier service, to deliver the Extension Request to the United States Postal Service (the “USPS”). On Date 5 (a date before Date 3), Accounting Firm completed a label processing request with Logistics for delivery of the Extension Request to the USPS on Date 3. For unknown and inexplicable reasons, Logistics failed to deliver the Extension Request to the USPS on Date 3. Instead, Logistics delivered the Extension Request (and the USPS scanned the Extension Request as accepted) on Date 6, the date following the due date for the Extension Request.

Taxpayer and Accounting Firm learned of the late delivery of the Extension Request in Month 1, Year 2 when other taxpayers with substantially identical facts received notices from the Service that their Forms 7004 were rejected. Upon immediate investigation, Accounting Firm learned that the USPS did not scan the package containing the Extension Request until Date 6. As a result, it appeared that the Extension Request was not timely filed, thus impacting Taxpayer’s ability to make a REIT election and an RPTOB election on a timely filed Form 1120-REIT.

Accounting Firm then advised Taxpayer of the consequences of the late delivery of the Extension Request, including the impact on Taxpayer’s ability to make a REIT election and an RPTOB election. Further, Accounting Firm advised Taxpayer that it could seek relief under sections 301.9100-1 through 301.9100-3 for the IRS to grant an extension of time to make the REIT election and RPTOB election. Taxpayer authorized Accounting Firm to prepare and file the request for such relief in Month 2, Year 2. On or before Date 7, Taxpayer filed a Form 1120-REIT for the Start Year. On this Form 1120- REIT, Taxpayer attached a statement to make the RPTOB election.

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 failures to make the elections were
   discovered by the Service.

2. 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.
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3. This is not a case in which Taxpayer was informed in all material respects of the
   required elections and related tax consequences but chose not to make the elections; rather, Taxpayer fully intended to make the elections and took concrete steps to do so.

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

5. The interests of the government are not prejudiced within the meaning of section
   301.9100-3(c) because granting the relief will not result in Taxpayer having a lower tax liability in the aggregate for all years affected by the elections than Taxpayer would have had if the elections had been timely made (taking into account the time value of money).

6. The interests of the government are not prejudiced within the meaning of section
   301.9100-3(c) because the statute of limitations on adjustment/assessment under section 6501 has not closed for the taxable year in which the regulatory elections should have been made or any taxable years that would have been affected by the elections had they 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
   

   a. REIT Authorities

   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.

   b. Section 163(j) Authorities

   Section 163(a) provides generally for an interest deduction for all interest paid or
   accrued within the taxable year of indebtedness.

   Section 163(j) provides that the amount of business interest allowed as a
   deduction under section 163(j) shall not exceed the sum of (1) the business interest income of such taxpayer for such taxable year; (2) 30 percent of the adjusted taxable
   PLR-120044-25 5

income of such taxpayer for such taxable year, plus; (3) the floor plan financing interest of such taxpayer for such taxable year.

Section 163(j)(5) defines “business interest” as any interest paid or accrued on indebtedness properly allocable to a trade or business.

Section 163(j)(7)(A)(ii) provides the term “trade or business” for purposes of section 163 shall not include any electing real property trade or business.

Section 163(j)(7)(B) defines an electing real property trade or business as “any trade or business which is described in section 469(c)(7)(C) and which makes an election under this subparagraph. Any election shall be made at such time and in such manner as the Secretary shall prescribe and, once made, shall be irrevocable.”

Section 1.163(j)-9(d)(1) provides that an election is made by attaching an election statement to the taxpayer's timely filed original federal income tax return, including extensions.

Section 469(c)(7)(C) defines “real property trade or business” as “any real property development, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.”
c. Authority to Extend the Time to Make Elections

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 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 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
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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. If specific facts have changed since the due date for making the election that make the election more advantageous to the taxpayer, the Service will not ordinarily grant relief. In such case the Service will grant relief only when the taxpayer provides strong proof that the taxpayer’s decision to seek relief did not involve hindsight.

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 section 301.9100-3.

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 make a REIT election and an RPTOB election effective Date 1. Accordingly, due to the reasonable extension of time granted to Taxpayer, Taxpayer’s Form 1120-REIT filed on or before Date 7 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. Further, Taxpayer’s RPTOB election attached to the Form 1120-REIT filed on or before Date 7 is considered a timely RPTOB election, effective Date 1.

CAVEATS

This ruling is limited to the timeliness of the filing of Taxpayer’s elections under sections 856(c) and 163(j). This ruling’s application is limited to the facts,
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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 representative.

Sincerely,

_________
Bernard J. Audet, Jr.
Chief, Branch 2
Office of Associate Chief Counsel
(Financial Institutions & Products)

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