IRS written determination 201550025

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201550025
Release Date: 12/11/2015
Index Number: 856.07-00, 9100.00-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:FIP:B01
PLR-111185-15
Date:
September 4, 2015
Legend
Taxpayer=---------------------------
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Sub 1=-------------------------------------
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Sub 2=----------------------
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Member=-------------------------
LLC 1= ---------------------------------------
Law Firm =----------------------
Accounting Firm= ----------------------------------
State A=------------
State B=-------------
State C=-------------
Date 1=-----------------
Date 2=------------------
Date 3=----------------

PLR-111185-15
2
Date 4=------------------
Date 5=--------------------------
Year 1=------
Business A=--------------------------------------
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a=-----
Dear ---------------:
This responds to a letter dated March 20, 2015 and subsequent correspondence,
submitted on behalf of Taxpayer, Sub 1, and Sub 2. Taxpayer and Sub 1 request an
extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations to elect to treat Sub 1 as a taxable REIT subsidiary (“TRS”)
of Taxpayer under § 856(l) of the Internal Revenue Code (“Code”). Taxpayer and Sub 2
request an extension of time under §§ 301.9100-1 and 301.9100-3 to elect to treat Sub
2 as a TRS of Taxpayer under § 856(l).
FACTS
Taxpayer is a State A corporation formed on Date 1 and will elect to be treated
for federal income tax purposes as a real estate investment trust (“REIT”) under § 856
beginning with its taxable year ended on Date 5. Taxpayer’s primary business is
leasing real properties to unrelated parties.
Sub 1 is a State B limited liability company that Taxpayer formed on Date 2 to
engage in operations that would produce gross income that would not be qualifying
income for a REIT under §§ 856(c)(2) or 856(c)(3). Taxpayer has owned a percent of
the membership interests in Sub 1 since Date 2. Sub 1 filed a late Form 8832, Entity
Classification Election, pursuant to Rev. Proc. 2009-41, 2009-39 I.R.B. 439, prior to the
due date of its first income tax return to be treated as a corporation for federal income
tax purposes effective as of Date 2. Subsequently, Sub 1 received a letter from the
Service approving its Form 8832 electing to be classified as an association taxable as a
corporation effective Date 2. A copy of this letter was submitted on behalf of taxpayers
in connection with their ruling request.
Sub 2 is a State C limited liability company that Taxpayer formed on Date 3 to
engage in operations that would produce gross income that would not be qualifying
income for a REIT under §§ 856(c)(2) or 856(c)(3). Taxpayer has owned a percent of

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the membership interests in Sub 2 since Date 3. Sub 2 filed a late Form 8832 pursuant
to Rev. Proc. 2009-41 prior to the due date of its firstincome tax return to be treated as
a corporation for federal income tax purposes effective as of Date 3. Subsequently,
Sub 2 received a letter from the Service approving its Form 8832 electing to be
classified as an association taxable as a corporation effective Date 3. A copy of this
letter was submitted on behalf of taxpayers in connection with their ruling request.
LLC 1 is a State C limited liability company. Prior to the formation of Taxpayer,
LLC 1 was treated as a partnership for tax purposes and conducted the leasing
business now conducted by Taxpayer as well as Business A..
In Year 1, LLC 1 engaged Law Firm to prepare documents to (i) convert LLC 1
into a REIT, and (ii) separate its operations that would produce gross income that would
not be qualifying income for a REIT under §§856(c)(2) or 856(c)(3) (the “Non-qualifying
Operations”). In connection with the foregoing, all of the partners of LLC 1 contributed
their interests in LLC 1 to Taxpayer in exchange for stock of Taxpayer, at which point
LLC 1 became wholly owned by Taxpayer and became a disregarded entity of Taxpayer
for federal income tax purposes. Taxpayer then contributed the assets used in
connection with the Non-qualifying Operations to Sub 1 and Sub 2 in exchange for all of
the membership interests in each entity. Taxpayer holds its interest in Sub 1 through
Member, a limited liability company and disregarded entity of Taxpayer.
In connection with the formation of Sub 1, Taxpayer adopted an operating
agreement effective as of Date 4 between Member and Sub 1 memorializing the intent
of Member and Taxpayer that Sub 1 be treated as an association taxable as a
corporation, that Member and Taxpayer file the appropriate election to effectuate that
intent, that Sub 1 be treated as a “taxable REIT subsidiary” as defined under section
856(l), and that Sub 1 join Taxpayer in filing the appropriate election.
In connection with the formation of Sub 2, Taxpayer adopted an operating
agreement effective as of Date 4 between Taxpayer and Sub 2, memorializing the intent
of Taxpayer that Sub 2 be treated as an association taxable as a corporation, that
Taxpayer file the appropriate election to effectuate that intent, that Sub 2 be treated as a
“taxable REIT subsidiary” as defined under section 856(l), and that Sub 2 join Taxpayer
in filing the appropriate election.
Taxpayer represents that at all times Taxpayer was advised on the tax issues by
its outside accountant, Accounting Firm. The employee at Accounting Firm who was
responsible has since left Accounting Firm and joined Taxpayer as its CFO. Each of
Law Firm and Accounting Firm thought the other firm would file the Forms 8832 for Sub
1 and Sub 2 and the Forms 8875 for Taxpayer and Sub 1 and Taxpayer and Sub 2,
respectively. As a result, no forms were filed. Taxpayer discovered the failure to file the
Forms 8832 and 8875 when its tax return preparer was preparing extensions for
Taxpayer, Sub 1 and Sub 2.

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In support of their letter ruling request, Taxpayer, Sub 1, and Sub 2 submitted
affidavits from Taxpayer, Law Firm, and the responsible individual from Accounting Firm
as required by § 301.9100-3(e).
Taxpayer, Sub 1, and Sub 2 make the following additional representations:
1. The request for relief was filed by Taxpayer, Sub 1, and Sub 2 before
the failure to make the regulatory elections was discovered by the Internal
Revenue Service (“Service”).
2. Granting the relief will not result in Taxpayer, Sub 1 or Sub 2 having a
lower tax liability in the aggregate for all years to which the elections apply
than they would have had if the elections had been timely made (taking
into account the time value of money).
3. Taxpayer, Sub 1, and Sub 2 are not seeking to alter a return position
for which an accuracy- related penalty has been or could have been
imposed under § 6662 of the Code at the time Taxpayer, Sub 1, and Sub
2 requested relief and the new position requires or permits a regulatory
election for which relief is requested.
4. Being fully informed of the required regulatoryelections and related tax
consequences, none of Taxpayer, Sub 1, or Sub 2 chose to not file the
TRS elections.
5. Taxpayer, Sub 1, and Sub 2 have not used hindsight to seek an
extension of time to make the TRS elections. No specific facts have
changed since the due date for making the elections that makes these
elections advantageous to Taxpayer, Sub 1, and Sub 2.
6. Granting relief will not affect any tax years that are closed under the
statute of limitations.
LAW AND ANALYSIS
Section 856(l) of the Code 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, § 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, § 856(l) specifically provides that the election, and any
revocation thereof, may be made without the consent of the Secretary.

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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 tax 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 tax year.
However, the effective date of the electiondepends upon when the Form 8875 is filed.
The instructions further provide that the effective date of the election 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) of the Procedure and Administration Regulations 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 Internal Revenue 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)(i) 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 § 301.9100-2. Section 301.9100-3(b) provides that
subject to paragraphs (b)(3)(i) through (iii) of § 301.9100-3, when a taxpayer applies for
relief under this section before the failure to make the regulatory election is discovered
by the Service, the taxpayer will be deemed to have acted reasonably and in good faith.
Section 301.9100-3(c) 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)(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 to which the regulatory election
applies than the taxpayer would have had if the election had been timely made (taking
into account the time value of money).
CONCLUSION
Based on the information submitted and representations made, we conclude that
Taxpayer,Sub 1, and Sub 2 have satisfied the requirements for granting a reasonable
extension of time for Taxpayer and Sub 1 to elect under § 856(l) to treat Sub 1 as a
TRS of Taxpayer, effective as of Date 2, and for Taxpayer and Sub 2 to elect under
§ 856(l) to treat Sub 2 as a TRS of Taxpayer, effective as of Date 3. Accordingly,
Taxpayer, Sub 1, and Sub 2 have ninety days from the date of this letter to file their
intended elections.

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This ruling is limited to the timeliness of the filing of Forms 8875. This ruling’s
application is limited to the facts, representations, Code sections, and regulations cited
herein.
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. In particular, no opinion is expressed with regard to whether
Taxpayer qualifies as a REIT, or whether Sub 1 or Sub 2 otherwise qualify as a TRS
under part II of subchapter M of the Code.
No opinion is expressedwith regard to whether the tax liability of Taxpayer, Sub
1, and Sub 2 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 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 and representations
submitted by Taxpayer, Sub 1, and Sub 2 and accompanied by a penalty of perjury
statements executed by 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 Taxpayer, Sub 1, and Sub 2. 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 & Products)
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