IRS Grants Extension for Late REIT Election Due to CEO Oversight

IRS Allows Late REIT Election After CEO Fails to Sign Return

The IRS granted a taxpayer’s request for a late election to be treated as a real estate investment trust (REIT) under Section 856(c) of the Internal Revenue Code, despite missing the initial filing deadline. The agency approved the extension after determining that the CEO’s oversight in signing the return constituted reasonable cause under Sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, shielding the taxpayer from potential disqualification and tax consequences.

The $10M Oversight: How a CEO’s Remote Work Led to a Late REIT Election

The taxpayer, a State 1 corporation formed on Date 1 with the intent to elect Real Estate Investment Trust (REIT) status under Section 856(c)(1) of the Internal Revenue Code, encountered a costly delay in filing its initial return. The entity had publicly represented itself as a REIT from inception, with its articles of incorporation, bylaws, and investor communications all reflecting this intent.

To formalize its status, the taxpayer engaged an accounting firm to prepare its Year 1 Form 1120-REIT, which the firm completed in accordance with REIT requirements. The return was mailed to the taxpayer’s corporate office in State 2, where it was confirmed received on Date 3.

However, the taxpayer’s Chief Financial Officer (CFO) worked remotely outside State 2, reducing direct oversight of the in-office signature process. Following standard protocol, the Controller placed the signed return in the Chief Executive Officer’s (CEO’s) physical inbox for execution. At the time, the CEO was present in State 2, but on Date 5, the CEO departed for another country—where they were principally living—without signing or mailing the return.

Taxpayer records indicate the oversight stemmed from the CEO’s competing priorities, including a capital campaign to fund planned acquisitions. The failure to file was not intentional but resulted from operational missteps compounded by remote work arrangements and reduced executive oversight. The oversight was only discovered on Date 6, during a follow-up call with the accounting firm, prompting the firm to advise filing a request for an extension under Section 856(c). The return was ultimately filed on Date 7, but not before exposing the taxpayer to potential disqualification and tax consequences.

Taxpayer’s Plea: Why the IRS Should Grant an Extension

The taxpayer sought relief under Sections 301.9100-1 and 301.9100-3 of the Treasury Regulations, which allow extensions for late regulatory elections when the IRS determines that granting relief will not prejudice the government’s interests. The taxpayer argued that the late REIT election—required under Section 856(c)—should be excused based on six key representations, all aimed at demonstrating that the failure was neither intentional nor advantageous.

First, the taxpayer confirmed that the request for relief was filed before the IRS discovered the late election, ensuring no prejudice to the government’s ability to assess taxes. Second, the taxpayer certified that granting the extension would not reduce its aggregate U.S. federal tax liability for the affected years, even accounting for the time value of money—a critical requirement under Section 301.9100-3 to prevent tax avoidance motives. Third, the taxpayer attested that the late election did not seek to alter a return position subject to an accuracy-related penalty under Section 6662, reinforcing that the request was not an attempt to retroactively correct a flawed filing strategy.

Fourth, the taxpayer emphasized that the failure to file was not a deliberate choice but stemmed from a misunderstanding of the election’s requirements, despite being fully informed of the regulatory obligations. Fifth, the taxpayer explicitly denied using hindsight to justify the relief, asserting that no new facts had emerged since the election deadline that would make the late filing strategically advantageous. Finally, the taxpayer confirmed that the statute of limitations under Section 6501(a) had not expired for the taxable year in question or any affected years, preserving the IRS’s ability to assess any potential deficiencies.

To substantiate these claims, the taxpayer submitted affidavits as required by Section 301.9100-3(e)(2) and (3), providing sworn statements from key personnel—including the CEO and accounting firm—to corroborate the timeline of events, the lack of willful neglect, and the operational missteps that led to the oversight. The affidavits detailed how remote work arrangements and reduced executive oversight contributed to the failure, framing the lapse as a systemic compliance breakdown rather than an intentional disregard of tax obligations.

IRS Rationale: Why the Extension Was Granted

The IRS granted the taxpayer’s request for a late REIT election under Section 301.9100-3, which permits discretionary relief for regulatory elections filed after the deadline if the taxpayer demonstrates reasonable cause and the government’s interests are not prejudiced. This section of the Treasury Regulations applies specifically to elections like the REIT election under Section 856(c)(1), which requires a corporation to file Form 1120-REIT with its tax return for the first year it seeks REIT status.

The IRS’s analysis hinged on two core criteria outlined in Section 301.9100-3(a): whether the taxpayer acted reasonably and in good faith, and whether granting relief would prejudice the interests of the government. The taxpayer met the first requirement by submitting sworn affidavits from key personnel, including the CEO and accounting firm, which detailed the systemic breakdown in compliance caused by remote work arrangements and reduced executive oversight. These affidavits established that the failure to file the election was not due to willful neglect but rather an operational misstep—a lapse in internal controls rather than an intentional disregard of tax obligations.

The IRS also found that the taxpayer’s actions aligned with the factors in Section 301.9100-3(b), which deems a taxpayer to have acted reasonably and in good faith if the failure to make the election was due to intervening events beyond the taxpayer’s control or lack of awareness despite reasonable diligence. The affidavits corroborated that the CEO’s remote work setup and diminished oversight contributed to the oversight, framing the lapse as a compliance failure rather than a deliberate choice to ignore the election requirement.

Crucially, the IRS determined that granting relief would not prejudice the government’s interests, as defined in Section 301.9100-3(c)(1). The agency assessed that the taxpayer’s late election did not result in a lower aggregate tax liability for the affected years, nor did it close any taxable years under the statute of limitations (Section 6501(a) before the taxpayer sought relief. The IRS’s focus on the absence of tax avoidance motives and the timely filing of the corrected return further supported its decision.

In contrast to cases where relief is denied due to hindsight or intentional disregard, the taxpayer’s submission provided a clear, contemporaneous explanation of the circumstances, supported by documentary evidence. The IRS’s willingness to grant the extension reflects its recognition that remote work disruptions and lapses in internal controls—while not excusable—do not necessarily warrant permanent disqualification from REIT status when the taxpayer demonstrates good faith efforts to comply and no prejudice to the government.

What This Ruling Means for REITs and Other Taxpayers

This Private Letter Ruling (PLR) offers critical insight into the IRS’s approach to late REIT elections under Section 856(c), which requires entities to elect REIT status in their first taxable year. While the ruling is non-precedential—meaning it cannot be cited as binding authority—it signals the IRS’s willingness to grant relief under Section 301.9100-3 when taxpayers demonstrate good faith efforts to comply despite administrative or procedural lapses.

For REITs and other taxpayers facing similar late-election scenarios, the ruling underscores three essential compliance priorities. First, robust internal controls for document execution are non-negotiable. Remote work disruptions, as in this case, can exacerbate gaps in oversight, particularly when critical filings hinge on a single signature. Second, proactive follow-up with accounting firms is vital; delays in communication or misaligned expectations can lead to missed deadlines. Third, the ruling highlights the potential compliance risks of remote work, where physical separation may obscure procedural breakdowns that would otherwise be caught in an office environment.

Taxpayers should not interpret this PLR as a blanket invitation to delay elections. The IRS’s decision hinged on the taxpayer’s clear, contemporaneous explanation and documentary evidence of its efforts to comply—factors that mitigated the prejudice to the government. Without such documentation, relief under Section 301.9100-3 remains uncertain. Moreover, the ruling does not address whether the taxpayer otherwise qualifies as a REIT under the stringent tests of Section 856(c), leaving that determination to future examinations.

As remote work and decentralized operations become the norm, this PLR serves as a cautionary tale: compliance is not merely about meeting deadlines but about demonstrating diligence when those deadlines are missed. Taxpayers must prioritize systems that ensure timely execution of filings, transparent communication with advisors, and meticulous recordkeeping to avoid disqualification. In an era where procedural oversights carry heightened consequences, this ruling is a reminder that the IRS values effort and transparency—but not at the expense of accountability.