LLC's amended-return Form 8996 was accepted as a timely QOF election

Plain-English summary

An LLC intended to qualify as a qualified opportunity fund, received members'
capital-gain contributions, and acquired stock in a qualified opportunity zone
business. Its accountant timely filed Form 1065 but inadvertently omitted Form
8996, then attached the form to an amended return after discovering the omission.
The IRS concluded that the LLC acted reasonably and in good faith because its
manager reasonably relied on a qualified tax professional, and that relief would
not prejudice the government. It treated the Form 8996 on the amended return as
timely, allowing the LLC to self-certify as a QOF effective in its intended month.
The ruling did not decide whether its investments or operations otherwise met
the QOF requirements.

Ruling snapshot

• Question: May the LLC receive relief for its late Form 8996 election to self-certify as a qualified opportunity fund?
• Outcome: Approved; the amended-return Form 8996 was treated as timely
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202409007 Third Party Communication: None
Release Date: 3/1/2024 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1400Z.02-00
Person To Contact:
------------------------------ ----------------------, ID No. -----------------
------------------------------------------- Telephone Number:
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------------- Refer Reply To:
----------------------- CC:ITA:B05
----------------------------------------------- PLR-112940-23
Date:
December 06, 2023

   TY: -------

Legend

Taxpayer = -------------------------------------------------
Manager Member = -------------------
Minority Member = -----------------
Accountant 1 = -------------------------
Accountant 2 = --------------------------
Accounting Firm = --------------------------------------
Amended Operating Agreement = -----------------------------------------------------------------
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--------------------------------
State = -------------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = -------
Year 5 = -------
Month 1 = ----------
Month 2 = --------------
Month 3 = -----------
Month 4 = ------
Date 1 = -------------------
Date 2 = ----------------
Date 3 = ----------------------
Date 4 = --------------------
Date 5 = ------------------
Date 6 = ------------------
PLR-112940-23 2

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

This responds to the request by Taxpayer, dated Date 1, for relief under §§ 301.9100-1
through 301.9100-3 of the Procedure and Administration Regulations to file Form 8996,
Qualified Opportunity Fund. Specifically, Taxpayer requests that the Internal Revenue
Service (Service) grant to Taxpayer an extension of time to make an election under
§ 1400Z-2 of the Internal Revenue Code (Code) and § 1.1400Z2(d)-1(a)(2) of the
Income Tax Regulations to self-certify as a Qualified Opportunity Fund (QOF), effective
Month 1, Year 3.

                                      FACTS

The information and affidavits submitted reflect the following facts.

Taxpayer, a limited liability company, was formed under the laws of State on Date 2.
Manager Member was initially the sole member of Taxpayer and served as its manager.
On Date 3, Taxpayer admitted Minority Member as a part owner. Taxpayer’s Amended
Operating Agreement, dated Date 3, reflects the admission of Minority Member as an
owner and indicates that Taxpayer is intended to qualify as a QOF under § 1400Z-2 and
invest in qualified opportunity zone property located in a qualified opportunity zone.
During Month 1, Year 3, Manager Member and Minority Member made contributions of
capital gain to Taxpayer that each received in unrelated transactions. Minority Member
made an additional contribution to Taxpayer in Month 2, Year 3. Taxpayer thereafter
used the funds to acquire qualified opportunity zone stock of a corporation organized as
a qualified opportunity zone business, as defined by § 1400Z-2(d)(3) and
§ 1.1400Z2(d)-1(d) of the Income Tax Regulations.

Accounting Firm has prepared and filed individual income tax returns for Manager
Member since Year 2. Manager Member also retained Accounting Firm to prepare and
file Taxpayer's Form 1065, U.S. Return of Partnership Income, for Year 3. Accountant
1, a shareholder in Accounting Firm, has been a certified public accountant since Year 1
and has experience in preparing individual, partnership, and corporate tax returns.
Accountant 1 was responsible for preparing and filing a Form 1065 for Year 3 on behalf
of Taxpayer.

Accountant 1 prepared Taxpayer’s Form 1065 for Year 3 and thereafter timely filed it
with the Service on Date 4. Accountant 1, however, inadvertently failed to complete a
Form 8996 and attach it to Taxpayer’s return (Form 1065) to self-certify as a QOF as of
Month 1, Year 3.

During Month 3, Year 4, Accountant 1 prepared the Year 3 individual income tax return
for Manager Member, which included a Form 8997, Initial and Annual Statement of
Qualified Opportunity Fund (QOF) Investments. While in the process of preparing such
return, Accountant 1 discovered that he had failed to prepare a Form 8996 for Taxpayer
PLR-112940-23 3

and attach it to Taxpayer’s Form 1065 for Year 3. Accountant 1 thereafter informed
Manager Member of the failure and began preparing Taxpayer’s Year 3 Form 8996.

On Date 5, Accountant 1 filed with the Service an amended Year 3 Form 1065, which
included a completed Form 8996, on behalf of Taxpayer. The Form 8996 attached to
Taxpayer’s amended return was purported to self-certify as a QOF, effective as of
Month 1, Year 3. Accountant 1 believed in good faith that, by including a completed
Form 8996 with Taxpayer’s amended return (Form 1065), Taxpayer had a valid election
in place to self-certify as a QOF.

On Date 6, Accountant 1 was contacted by Accountant 2, the return preparer who was
retained by Minority Member to prepare and file his individual return for Year 3.
Accountant 2 informed Accountant 1 that Minority Member received a written notification
from the Service (Letter 6502) that the tax identification number of the entity listed on
the Form 8997 attached to Minority Member’s return for Year 3 was not associated with
a certified QOF.

During Month 4, Year 5, an employee of the Service notified Accountant 2 that
Taxpayer had no valid election in place to self-certify as a QOF, effective Month 1, Year
3, because such election could not be made late through the filing of an amended
return. Accountant 2 informed Accountant 1 of the information she received from the
Service about Taxpayer’s failure to timely self-certify as a QOF. Accountant 1 thereafter
consulted with a tax attorney, who recommended that Manager Member, on behalf of
Taxpayer, make a request to the Service for relief pursuant to §§ 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations.

                              LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Code directs the Secretary to prescribe regulations to
carry out the statute’s purposes, including rules for the certification of QOFs. Section
1.1400Z2(d)-1(a)(2) of the Income Tax Regulations provides the rules for an entity to
self-certify as a QOF. Section 1.1400Z2(d)-1(a)(2)(i) provides that an entity electing to
be certified as a QOF must do so annually on a timely filed return in such form and
manner as may be prescribed by the Commissioner of Internal Revenue in the forms or
instructions, or in publications or guidance of the Service, published in the Internal
Revenue Bulletin.

To self-certify as a QOF, a taxpayer must file Form 8996 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).

Because § 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for an entity to self-
certify as a QOF, these elections are regulatory elections, as defined in § 301.9100-1(b)
of the Procedure and Administration Regulations.
PLR-112940-23 4

Sections 301.9100-1 through 301.9100-3 of the Procedure and Administration
Regulations provide the standards that the Commissioner will use to determine whether
to grant an extension of time to make a regulatory election. Section 301.9100-3(a)
provides that requests for extensions of time for regulatory elections, other than
automatic extensions covered in § 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 the grant of relief will not prejudice the interests of the
Government.

Under § 301.9100-3(b) of the Procedure and Administration Regulations, a taxpayer is
deemed to have acted reasonably and in good faith if, although exercising reasonable
diligence (taking into account the taxpayer’s experience and the complexity of the return
or issue), he was unaware of the necessity for an election. A taxpayer may alternatively
demonstrate good faith actions if he reasonably relies on a qualified tax professional
and the professional failed to make, or advise the taxpayer to make, the election.

A taxpayer is deemed not to have acted reasonably and in good faith pursuant to the
provisions in § 301.9100-3(b)(3) of the Procedure and Administration Regulations if the
taxpayer—

(i) seeks to alter a return position for which an accuracy-related penalty has been or
could be imposed under § 6662 of the Code 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 make 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.

Section 301.9100-3(c)(1) of the Procedure and Administration Regulations provides that
the Commissioner will grant a reasonable extension of time to make the regulatory
election only when the interests of the Government will not be prejudiced by the
granting of relief.

Section 301.9100-3(c)(1)(i) of the Procedure and Administration Regulations 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).
PLR-112940-23 5

Section 301.9100-3(c)(1)(ii) of the Procedure and Administration Regulations 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 is closed by the period of
limitations on assessment under § 6501(a) before the taxpayer’s receipt of a ruling
granting relief under this section.

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the Government. Manager Member reasonably
relied on a qualified tax professional who failed to make, or advise Taxpayer to make,
the election. Consequently, the Form 8996 attached to Taxpayer’s amended return for
Year 3, filed Date 5, is considered timely filed and Taxpayer has thereby made the
election under § 1400Z-2 and § 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF effective
as of Month 1, Year 3. Taxpayer should submit a copy of this letter ruling to the Service
Center where Taxpayer files its returns along with a cover letter requesting that the
Service associate this ruling with the Year 3 return.

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 referred to in
this letter. Specifically, we express no opinion, either express or implied, concerning
whether any investments made into Taxpayer are qualifying investments as defined in
§ 1.1400Z2(a)-1(b)(34) of the Income Tax Regulations or whether Taxpayer meets the
requirements under § 1400Z-2 of the Code 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.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

The rulings contained in this letter are 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, it is subject to verification on examination.
PLR-112940-23 6

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,



                                           Sue-Jean Kim
                                           Senior Technician Reviewer, Branch 5
                                           Office of Associate Chief Counsel
                                           (Income Tax & Accounting)

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