Late Election to be Treated as a REIT under IRC 856(c)

IRS Private Letter Ruling 201208012

This responds to a letter dated June 22, 2011, that was submitted on behalf of Company A, Company B, Company C, and Company D (collectively, the Companies), requesting an extension of time under § 301.9100-1 and § 301.9100-3 of the Procedure and Administration Regulations to make an election under § 856(c) of the Internal Revenue Code to treat each of the Companies as a real estate investment trust (REIT).

FACTS
The Companies are each State X corporations.  Trust owns all of the common stock of each of the Companies.  Trust is a State X corporation that made an election to be treated as a real estate investment trust (“REIT”) on its federal income tax return filed for the tax year that ended on Date 1.

In late Year 1, Trust formed Company A and Company B, each of which was a qualified REIT subsidiary (“QRS”) during Year 1.  During Date 2, Company A and  Company B each issued preferred stock to third parties.  During Year 2, Trust formed Company C and Company D, each of which was a QRS during Year 2.  During Date 3, Company C and Company D each issued preferred stock to third parties.  Trust and the Companies represent that it has always been the intention of Trust and the Companies that each of the Companies would make an election under § 856(c) of the Code to become a REIT for federal income tax purposes.

Accounting Firm was retained to provide tax advice and tax compliance services for Trust and Companies.  Various personnel of Accounting Firm were provided information indicating the existence of the preferred shareholders of Companies, although some information provided to Accounting Firm regarding the share ownership structure was inconsistent and erroneous.  The personnel of Accounting Firm that were advised of the presence of the preferred shareholders were not familiar with the nuances of a multi-tier REIT structure or the significance of the existence of these preferred shareholders.  As a result, the existence of the preferred shareholders was not communicated by these persons to the Accounting Firm Senior Director who signed Trust’s tax returns on behalf of Accounting Firm.

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