IRS gives an LLC 60 more days to file Form 8996 and self-certify as a Qualified Opportunity Fund

Plain-English summary

A Qualified Opportunity Fund (QOF) self-certifies by filing Form 8996 with its timely filed tax return; doing so lets investors defer and potentially reduce tax on capital gains reinvested in opportunity zones. Here an LLC taxed as a partnership was formed to be a QOF and took in capital contributions in a particular month, but when its tax preparer asked whether it had become a QOF, the manager mistakenly said no, so the return was filed without a Form 8996. The advisor later caught the error and the taxpayer asked the IRS for relief under Treas. Reg. § 301.9100-3. The IRS found the taxpayer acted reasonably and in good faith and that relief would not prejudice the government, and granted a 60-day extension to file a Form 8996 (attached to an amended return or administrative adjustment request) making the self-certification effective the intended month. The IRS expressed no opinion on whether contributions into the fund are qualifying investments or whether the entity otherwise meets the QOF requirements. This is routine 9100 relief for a missed self-certification caused by a miscommunication.

Ruling snapshot

• Question: May an LLC get an extension under Treas. Reg. § 301.9100-3 to file a late Form 8996 self-certifying as a Qualified Opportunity Fund?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 1400Z-2(d), (e)(4)(A); Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

                                                                Department of the Treasury
 Internal Revenue Service                                       Washington, DC 20224

 Number: 202332009                                              Third Party Communication: None
 Release Date: 8/11/2023                                        Date of Communication: Not Applicable

 Index Number: 9100.00-00, 1400Z.02-00                          Person To Contact:
                                                                -----------------, ID No. -----------------
                                                                Telephone Number:
 ------------------------------                                 --------------------
 ------------------------------------------------               Refer Reply To:
 -----------------------                                        CC:ITA:04
 ------------------------------------                           PLR-122336-22
                                                                Date:
                                                                May 16, 2023




 Taxpayer            =      ------------------------------------------------
                            --------------------------
 Advisor             =      -------------------
 State               =      -------------
 Date 1              =      -------------------------
 Date 2              =      ---------------------------
 Date 3              =      ---------------------------
 Date 4              =      -------------------------
 Manager             =      ----------------------------------------------------------------
                            ---------------------------
 Year 1              =      -------
 Month X             =      --------------



Dear -------------------:
PLR-122336-22                                2

This letter responds to Taxpayer's request, dated Date 4, for a private letter ruling.
Specifically, Taxpayer requests an extension of time, under Treasury Regulation
§§301.9100-1 and 301.9100-3, to file Form 8996, Qualified Opportunity Fund, for
purposes of: making the election, under section 1.1400Z2(d)-1(a)(2)(i) of the Income
Tax Regulations, to be self-certified as a qualified opportunity fund (“QOF”), as defined
in § 1400Z-2(d) of the Internal Revenue Code (“Code”), and to be treated as a QOF,
effective as of Month X of Year 1, as provided under Code § 1400Z-2(d) and Treas.
Reg. § 1.1400Z2(d)-1(a).
This letter ruling is being issued electronically in accordance with Rev. Proc. 2022-1,
2022-1 I.R.B. 1. A paper copy will not be mailed to Taxpayer.


                                         FACTS
Taxpayer represents that it was formed on Date 1 as a limited liability company under
the laws of State. Taxpayer is classified as a partnership for Federal income tax
purposes. Taxpayer was formed with the intent to be a QOF to invest in qualified
opportunity zone property as defined in Code § 1400Z-2(d)(2). Taxpayer’s overall
method of accounting is the accrual method of accounting and employs a calendar tax
year.
Taxpayer did not accept capital contributions from its members until Month X of Year 1.
At that time, Taxpayer amended its operating agreement (“Amended Agreement”) and
communicated to each member that Taxpayer was to become a QOF effective Month X
of Year 1.
Taxpayer vested its management with Manager and designated Manager as the
partnership representative. Manager engaged Advisor to prepare Taxpayer’s Federal
income tax return for Year 1 (“Year 1 Return”). During preparation of the Year 1 Return,
Advisor asked Manager whether Taxpayer had become a QOF as of Year 1. Due to a
miscommunication between the parties, Manager mistakenly responded that Taxpayer
had not intended to become a QOF in Year 1. As a result of this miscommunication,
Advisor prepared and filed Taxpayer’s Year 1 Return on Date 2 without attaching a
completed Form 8996.
Shortly before Date 3, Manager and Advisor held a telephone call to discuss specific tax
questions raised by Taxpayer’s members. After the call, Advisor reviewed Taxpayer’s
Year 1 return and discovered that a completed Form 8996 was not attached.
Subsequently, Manager asked Advisor to request, on Taxpayer’s behalf, regulatory
relief provided under Treas. Reg. §§ 301.9100-1 and 301.9100-3 to remedy the failure
to file Form 8996 for Year 1 on a timely basis.
PLR-122336-22                                3

                                  LAW AND ANALYSIS
Code § 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i) provides that the self-
certification of a QOF must be timely-filed and effectuated annually in such form and
manner as may be prescribed by the Commissioner of Internal Revenue in the Internal
Revenue Service forms or instructions, or in publications or guidance published in the
Internal Revenue Bulletin.
To self-certify as a QOF, a taxpayer must file Form 8996, Qualified Opportunity Fund,
with its tax return for the year to which the certification applies. The Form 8996 must be
filed by the due date of the tax return (including extensions). The information provided
indicates that Taxpayer failed to attach a completed Form 8996 to its timely filed Year 1
Return due to a miscommunication between Manager and Advisor.
Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be
a QOF and electing to self-certify as a QOF. As such, these elections are regulatory
elections, as defined in Treas. Reg. § 301.9100-1(b). According to Treas. Reg. §
301.9100-3(a), requests for extensions of time for regulatory elections that do not meet
the requirements of Treas. Reg. § 301.9100-2 (automatic extensions) must be made
under the rules of Treas. Reg. § 301.9100-3.
Treas. Reg. §§ 301.9100-1 through 301.9100-3 provide the standards that the Internal
Revenue Service (“Service”) will use to determine whether to grant an extension of time
to make a regulatory election. Treas. Reg. § 301.9100-3(a) provides that requests for
extensions of time for regulatory elections (other than automatic changes covered in
Treas. Reg. § 301.9100-2) will be granted when the taxpayer provides evidence
(including affidavits) to establish that the taxpayer acted reasonably and in good faith
and granting relief will not prejudice the interests of the Government.
Treas. Reg. § 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer:
   (i)     Requests relief 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,
           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, and the professional failed
           to make, or advise the taxpayer to make, the election.

Treas. Reg. § 301.9100-3(b)(2) clarifies that a taxpayer is not considered to have
reasonably relied on a qualified tax professional if the taxpayer knew or should have
known that the professional was not competent to render advice on the regulatory
election or was not aware of all relevant facts.
PLR-122336-22                                 4


Under Treas. Reg. § 301.9100-3(b)(3), a taxpayer will not be considered to have acted
reasonably and in good faith if the taxpayer:
   (i)     Seeks to alter a return position for which an accuracy-related penalty could be
           imposed under Code § 6662 at the time the taxpayer requests relief and the
           new position requires a regulatory election for which relief is requested;
   (ii)    Was fully informed 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
           original deadline that make the election advantageous to a taxpayer, the
           Service will not ordinarily grant relief.

Treas. Reg. § 301.9100-3(c) provides that the Service will grant a reasonable extension
of time 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).Treas. Reg. § 301.9100-3(c)(1)(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 year that would have been affected by the election had it
been timely made are closed by the period of limitations on assessment under Code §
6501(a) before the taxpayer's receipt of a ruling granting relief under this section.
                                      CONCLUSION
Based on the information provided, including affidavits and representations, we
conclude that Taxpayer has acted reasonably and in good faith, and granting relief will
not prejudice the interests of the Government. Accordingly, based solely on the facts
and information submitted, and the representations made in the ruling request, we grant
Taxpayer an extension of 60 days from the date of this letter ruling to file a Form 8996
to make the election to self-certify as a QOF for Year 1 under section 1400Z-2 and
section 1.1400Z2(d)-1(a)(2)(i). The election must be made on a completed Form 8996
attached to the Taxpayer’s amended tax return or administrative-adjustment request (as
applicable).
The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, the information is subject to verification on
examination.
This ruling only addresses the granting of Treas. Reg. § 301.9100-3 relief as applied to
the election to self-certify the Taxpayer as a QOF by filing Form 8996 for Year 1.
Specifically, we have no opinion, express nor implied, concerning whether any capital
PLR-122336-22                                 5

contributions made into Taxpayer are qualifying investments as defined in Treas. Reg. §
1.1400Z2(a)-1(b)(34) or whether, at any time, Taxpayer met or meets the requirements
under Code § 1400Z-2 and the regulations thereunder to be a QOF. We express no
opinion regarding the tax treatment of the instant transaction under the provisions of any
other sections of the Code or regulations that may be applicable, or regarding the tax
treatment of any conditions existing at the time of, or effects resulting from, the instant
transaction.
A copy of this letter must be attached to any tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that
this ruling may not be used or cited as precedent. Enclosed is a copy of the letter ruling
showing the deletions proposed to be made when it is disclosed under § 6110.
Pursuant to the Form 2848, Power of Attorney and Declaration of Representation, on
file, we are sending a copy of this letter to Taxpayer's authorized representatives.


                                                         Sincerely,




                                                         Alexa T. Dubert
                                                         Senior Technician Reviewer
                                                         Branch 4
                                                         Office of Associate Chief Counsel
                                                         (Income Tax & Accounting)




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