IRS grants 60 days to file three years of late Forms 8996 self-certifying an LLC as a Qualified Opportunity Fund

Plain-English summary

An LLC taxed as a partnership was formed to be a Qualified Opportunity Fund (QOF), the vehicle used to invest capital gains in designated opportunity zones for tax benefits. To be a QOF, the entity has to self-certify each year by attaching Form 8996 to its tax return. The LLC's accountant prepared and timely filed the partnership returns for three straight years but never attached Form 8996, because the accountant did not know the self-certification was required. The gap came to light when one of the LLC's members received an IRS notice saying its claimed opportunity-zone investments were not linked to a QOF's employer identification number. The LLC asked the IRS for "9100" relief to file the missed forms late. The IRS concluded the taxpayer acted reasonably and in good faith (it had relied on a qualified tax professional) and that relief would not prejudice the government, and it gave the LLC 60 days to file the late Forms 8996 for all three years. The ruling fixes only the timing; it does not decide whether the LLC actually qualifies as a QOF.

Ruling snapshot

• Question: Should the taxpayer get a late-election extension under § 301.9100-3 to file Forms 8996 self-certifying as a QOF for three years?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202325002 [Third Party Communication:
Release Date: 6/23/2023 Date of Communication: Month DD, YYYY]
Index Number: 9100.00-00, 1400Z.02-00
Person To Contact:
---------------------------- ---------------------------, ID No. ---------------
---------------------------- -----------------
-------------------------- Telephone Number:
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Attn: --------------------------- Refer Reply To:
CC:ITA:B08
PLR-118301-22
Date:
March 27, 2023
VIA FAX

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

Taxpayer = ------------------------------------------------------

Date 1 = -----------------

Date 2 = ------------------

Date 3 = --------------------------

Date 4 = ------------------

Date 5 = ------------------

Date 6 = ------------------

Date 7 = ------------------

Date 8 = ---------------------------

Year 1 = -------

Year 2 = -------

Year 3 = -------

State A = ------

Member A = ------------------------------

Member B = ------------------------------------------------

Member C = ----------------------

Trust A = -------------------------------------------------

Manager = ----------------------

Advisor = -----------------

Advising Firm = -----------------------------------------

This letter responds to Taxpayer's request dated Date 8. Specifically, Taxpayer
requests relief under Treasury Regulation §§ 301.9100-1 and 301.9100-3 to file Form
8996, Qualified Opportunity Fund, to (1) self-certify as a qualified opportunity fund
(QOF), as defined in section 1400Z-2(d) of the Internal Revenue Code (Code) and (2) to
be treated as a QOF, effective as Date 1, as provided under section 1400Z-2(d) and
Treas. Reg. § 1.1400Z2(d)-1(a).

According to the information and representations provided, Taxpayer was organized as
a limited liability company under the laws of State A on Date 2 and is classified as a
partnership for U.S. federal income tax purposes. Taxpayer was organized for the
purpose of operating as a QOF and investing in properties located in a qualified
opportunity zone (QOZ). Taxpayer's operating agreement states the Taxpayer's
intention to be a QOF by filing Form 8996. Taxpayer has three members, Member A,
Member B, and Member C. Member A and Member B are wholly-owned by Trust A,
which is for the benefit of Manager. Manager is also the manager of Taxpayer and is
authorized to make tax elections on behalf of Taxpayer.

Manager previously engaged Advisor, a certified public accountant with Advising Firm,
to advise on tax matters and prepare all tax returns for Manager and their businesses.
On Date 2, Taxpayer retained Advisor to prepare and file its tax returns in accordance
with all requirements to be QOF under the Code. Manager instructed Advisor that
Taxpayer was formed for the purpose of operating as a QOF to facilitate investments in
QOZs.

Taxpayer's Year 1 tax return, for the period ending Date 3, was due on or before Date

4. Advisor prepared and timely filed Taxpayer's Year 1 Form 1065 tax return but failed
   to include a Form 8996 to self-certify Taxpayer as a QOF. For Year 2 and Year 3,
   Advisor prepared and filed Taxpayer's tax returns consistent with its intended treatment
   as a QOF but again failed to attach a Form 8996 with each respective tax return.
   Taxpayer represents that its Year 2 and Year 3 tax returns were timely filed, due on
   Date 5 and Date 6 respectively. According to the information and representations
   provided, the failure to file a Form 8996 for all three taxable years was due to Advisor
   being unaware of the requirements for Taxpayer to self-certify as a QOF.

On Date 7, Manager notified Advisor that one of the members of Taxpayer received a
notice from the Internal Revenue Service (IRS) indicating that its claimed opportunity
zone investments were not associated with an employer identification number (EIN) of a
QOF. Taxpayer then proceeded to prepare this private letter ruling request.

                              LAW AND ANALYSIS

Section 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 IRS
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 did not file its Forms 8996 by the due dates of its income tax
returns (including extensions), due to Advisor being unaware of the requirements to
self-certify as a QOF, for Year 1, Year 2, and Year 3.

Section 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 § 301.9100-1(b).

Sections 301.9100-1 through 301.9100-3 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.

Section 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.

In addition, § 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted
reasonably and in good faith if the taxpayer—

   (i) seeks to alter a return position for which an accuracy-related penalty has been
   or could be imposed under section 6662 at the time the taxpayer requests relief,
   and the new position requires or permits a regulatory election for which relief is
   requested;

   (ii) was fully 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) 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)
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). Section 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 section 6501(a) before the taxpayer's receipt of a ruling
granting relief under this section.

                                  CONCLUSION

Based on the facts and information submitted in connection with this request, we
conclude Taxpayer has acted reasonably and in good faith, and that the granting of
relief would not prejudice the interests of the Government.

Accordingly, Taxpayer has satisfied the requirements of the regulations for the granting
of relief, and Taxpayer's late-filed Forms 8996 for Year 1, Year 2, and Year 3, certifying
Taxpayer as a QOF, will be considered timely filed provided it is received by the
appropriate service center no later than 60 days from the date of this letter ruling.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by penalty of perjury statements executed by the appropriate parties.
This office has not verified any of the material submitted in support of the request for a
ruling. However, as part of an examination process, the Service may verify the factual
information, representations, and other data submitted.

This ruling addresses the granting of Treas. Reg. § 301.9100-3 relief as applied to the
election to self-certify Taxpayer as a QOF by filing Forms 8996 for Year 1, Year 2, and
Year 3.

Except as expressly provided herein, no opinion is either expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we have no opinion, either express or implied,
concerning whether any investments made into Taxpayer are qualifying investments as
defined in Treas. Reg. § 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the
requirements and structure under section 1400Z-2 and the regulations thereunder to be
a QOF. In addition, we also express no opinion on whether any interest owned in any
entity by Taxpayer qualifies as qualified opportunity zone property, as defined in section
1400Z-2(d)(2), or whether such entity would be treated as a qualified opportunity zone
business, as defined in section 1400Z-2(d)(3). 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. We
express no opinion as to whether Taxpayer's Year 1, Year 2, and Year 3 Federal
income tax returns are considered timely filed.

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. Code section 6110(k)(3)
provides that it 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 Code
section 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 representative.

This letter 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 the taxpayer.

                                                         Sincerely,

                                                         Mon L. Lam
                                                         Senior Counsel, Branch 4
                                                         Office of Chief Counsel
                                                         (Income Tax & Accounting)

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