IRS grants a late election for an LLC to self-certify as a Qualified Opportunity Fund

Plain-English summary

A Qualified Opportunity Fund (QOF) is an investment vehicle used to defer and reduce tax on capital gains that are reinvested in designated low-income "opportunity zones." To become a QOF, an entity self-certifies by attaching Form 8996 to a timely filed tax return. Here the taxpayer was an LLC taxed as a partnership, organized to serve as a QOF holding interests in an opportunity zone business. Its tax firm was engaged to handle filings for several related entities, but the taxpayer was accidentally left off the list, so no extension was requested and the initial return with Form 8996 was filed late. When the firm caught the error, it filed the return and Form 8996 and asked the IRS for "9100 relief" (an extension of time to make a missed regulatory election under Treas. Reg. § 301.9100-3). The IRS granted the extension, finding the taxpayer acted reasonably and in good faith by relying on its tax professional and that relief would not lower its tax or otherwise prejudice the government. The late-filed Form 8996 is treated as timely, so the entity's QOF election stands. The IRS expressly did not decide whether the taxpayer actually qualifies as a QOF or whether any investments in it are qualifying investments. It matters to opportunity-zone investors whose QOF self-certification was filed late because of a preparer's mistake.

Ruling snapshot

• Question: Should the IRS grant an extension of time under § 301.9100-3 for an LLC to make a late election on Form 8996 to self-certify as a Qualified Opportunity Fund?
• Outcome: approved (the Form 8996 filed on Date 4 is treated as timely filed)
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. §§ 1.1400Z2(d)-1(a)(2); Treas. Reg. §§ 301.9100-1, 301.9100-3; IRC §§ 6662, 6501

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202339001                                             Third Party Communication: None
 Release Date: 9/29/2023                                       Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                               Person To Contact:
 ------------------------------------------                    ---------------------, ID No. -----------------
 -----------------------                                       Telephone Number:
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                                                               Refer Reply To:
 --------------------------------                              CC:ITA:B05
                                                               PLR-100585-23
                                                               Date:
                                                               July 06, 2023




Legend

 Taxpayer        =   --------------------------------------------------------------------
 State           =   --------------
 Member 1        =   ------------------
 Member 2        =   ----------
 Member 3        =   -----------------------
 Firm            =   --------------------------
 Date 1          =   --------------------------
 Date 2          =   ----------------------
 Date 3          =   ---------------------
 Date 4          =   --------------------------
 Month 1         =   ----------------------
 Year 1          =   -------
 Year 2          =   -------
 X               =   ---
 Y               =   ---


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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension of time under §§ 301.9100-1 and 301.9100-3 of the
Procedure and Administrations Regulations to (1) make a timely election under
§ 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations to be certified as a qualified
opportunity fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue Code
(Code); and (2) for Taxpayer to be treated as a QOF, effective as of the month
PLR-100585-23                                 2

Taxpayer was formed in Year 1, as provided under § 1400Z-2(d) of the Code and
§ 1.1400Z2(d)-1(a) of the Income Tax Regulations.

                                          FACTS

Taxpayer, a limited liability company classified as a partnership for Federal income tax
purposes, organized under the laws of State on Date 2. Taxpayer is a cash method
taxpayer and reports income on a calendar year basis. Taxpayer was formed, as one
part of X entities, to meet the definition of § 1400Z-2(d) of the Code and to hold qualified
opportunity zone partnership interests, as defined in code § 1400Z-2(d)(2)(A)(ii), in a
qualified opportunity zone business (“QOZB”). Taxpayer is comprised of 3 members:
Member 1, Member 2, and Member 3. Taxpayer is managed by Member 1.

Member 1 discussed the formation of Taxpayer and several other entities with Firm
during Month 1. Firm was officially engaged to provide services related to the creation
and the tax filing obligations of Taxpayer and the Y other entities. In Year 1, Member 1
provided Firm with the names of the Taxpayer and Members, the EIN of Taxpayer, and
Taxpayer’s operating agreement. However, when Member 1 transmitted the list of
entities that Firm was to perform tax filing services for, Taxpayer was mistakenly
omitted. As a result, Firm requested extensions of time to file for the other entities but
did not request an extension for Taxpayer. In the absence of an extension, Taxpayer
was required to file its initial Federal income tax return, including the Form 8996, on or
before Date 3. Due to the miscommunication, Taxpayer failed to file its Federal income
tax return and Form 8996, Qualified Opportunity Fund, by the due date, and
consequently, the election to self-certify as a QOF on the Form 8996 was not timely
made. In Year 2, Firm received financial statements from the X entities for which they
were engaged to file returns. At that time, Firm discovered that it had failed to file an
extension of time to file for Taxpayer.

Upon discovering that Taxpayer’s Year 1 Federal income tax return and accompanying
election had not been timely filed, Member 1 instructed Firm to file Taxpayer’s Year 1
Federal income tax return and Form 8996. On Date 4, Firm electronically filed
Taxpayer’s Year 1 Form 1065, including Form 8996, with a disclosure statement
identifying that Taxpayer would pursue relief under §§ 301.9100-1 and 301.9100-3 of
the Procedure and Administration Regulations.

Taxpayer represents that granting of the relief under § 301.9100-3 of the Procedure and
Administration Regulations will not result in a lower tax liability for the years affected by
the election.

                                   LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Code directs the Secretary to prescribe regulations 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)
PLR-100585-23                                 3

provides that the entity electing to be certified as a QOF must do so annually on a timely
field return in 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 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
Federal income tax return (including extensions).

Because § 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations 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.

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 section § 301.9100-3(b) a taxpayer is deemed to have acted reasonably and in
good faith if, among other things not relevant here, the taxpayer requests relief before
the failure to make the regulatory election is discovered by the Service, or reasonably
relied on a qualified tax professional, and the tax professional failed to make, or advise
the taxpayer to make the election. However, 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.

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

       (i) seeks to alter a return position for which an accuracy-related penalty has been
       or could be imposed under § 6662 at the time the taxpayer requests relief, and
       the new position requires or permits a regulatory election for which relief is
       requested;
PLR-100585-23                                 4


       (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) 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).

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 are closed by the period of
limitations on assessment under § 6501(a) of the Code 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 would not prejudice the interests of the government. Accordingly, based solely on
the facts and information submitted, and the representations made in the ruling request,
Taxpayer has satisfied the requirements of the regulations for the granting of relief and
Taxpayer's Form 8996, filed on Date 4, is considered timely filed.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by all 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.

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 referenced 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 the taxpayer meets the
requirements under § 1400Z-2 of the Code and the regulations thereunder to be a QOF.
PLR-100585-23                                  5

Further, we also express no opinion on whether any interest in any QOZB owned by
Taxpayer qualifies as qualified opportunity zone property, as defined in § 1400Z-2(d)(2),
or whether any business would be treated as a qualified opportunity zone business, as
defined in § 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.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income 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.

                                           Sincerely,



                                           Christina M. Glendening
                                           Senior Counsel, Branch 5
                                           Office of Associate Chief Counsel
                                           (Income Tax and Accounting)

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