Delinquent Form 8996 was treated as a timely QOF self-certification

Plain-English summary

An LLC was organized to be a qualified opportunity fund and used members'
contributions to buy stock in a qualified opportunity zone business. Its first
accountant incorrectly concluded that the partnership did not need its own
return and failed to prepare Form 1065 or Form 8996. A successor accountant
later filed delinquent returns with Forms 8996. Because the members reasonably
relied on tax professionals, the IRS found that the LLC acted reasonably and in
good faith and that relief would not prejudice the government. It treated the
Form 8996 attached to the first-year delinquent return as timely, allowing QOF
self-certification for that year. The ruling did not decide whether the LLC or
its investments otherwise satisfied QOF requirements.

Ruling snapshot

• Question: May the LLC's delinquent Form 8996 be treated as a timely qualified opportunity fund election?
• Outcome: Approved; the first-year 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: 202407002 Third Party Communication: None
Release Date: 2/16/2024 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-110966-23
Date:
November 15, 2023

    TY: -------

Legend

Taxpayer = -----------------------------------------
QOZB = ---------------------
Member 1 = --------------------------
Member 2 = ------------------------------
Accountant 1 = ----------------------------------
Accountant 2 = ------------------
State = --------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Month 1 = --------------
Month 2 = --------------
Date 1 = ------------------
Date 2 = -------------------------
Date 3 = --------------------------
Date 4 = ---------------------------
Date 5 = ---------------------------
N1 = ---
N2 = -----------

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

This responds to the request by Taxpayer, dated Date 1, as supplemented, 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
PLR-110966-23 2

§ 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations to self-certify Taxpayer as a
Qualified Opportunity Fund (QOF), effective Month 1, Year 1.

                                      FACTS

The information and affidavits submitted reflect the following facts.

Taxpayer, a limited liability company, was organized under the laws of State on Date 2.
The limited liability company agreement governing Taxpayer expressly provides that
Taxpayer was organized to be a QOF under relevant Code provisions and to invest in
qualified opportunity zone property, including the stock of QOZB. Member 1 holds a N1
percent interest in Taxpayer and serves as the manager and partnership representative
of Taxpayer. Member 2 owns the remaining ownership interest in Taxpayer. On Date
3, they contributed $N2 to Taxpayer, which Taxpayer used to purchase shares in
QOZB.

Early in Year 2, both Member 1 and Member 2 contacted Accountant 1, a certified
public accountant specializing in income tax matters, for preparation of their individual
and business tax returns. They informed Accountant 1 that they intended Taxpayer to
be a QOF, effective Month 1, Year 1, and provided Accountant 1 with a copy of a Letter
CP 575B in which the Service assigned an employer identification number to Taxpayer
and reminded that it should file Form 1065, U.S. Return of Partnership Income.
Nevertheless, Accountant 1 erroneously concluded that Taxpayer was not required to
file a return of its own for Year 1. Accountant 1 neither prepared a Form 1065, with an
attached Form 8996 for Year 1, nor advised Member 1 or Member 2 to make the QOF
election for Taxpayer in accordance with the Service’s published guidance. As a result,
Taxpayer made no election pursuant to § 1.1400Z2(d)-1(a)(2) of the Income Tax
Regulations to certify as a QOF.

In Month 2 Year 2 Accountant 1 realized that Taxpayer was required to file a Form 1065
for Year 1. Even then, Accountant 1 did not know how to address the delinquent QOF
election and self-certification by Taxpayer, which should have been included with a
timely filed Form 1065 for Year 1.

Only in late spring of Year 3 did Accountant 2, who had taken over as a return preparer
for Member 1 and Member 2 after Accountant 1's retirement, determine that Taxpayer
needed to obtain a private letter ruling from the Service in order to cure its failure to
make a timely QOF election and self-certification. On Date 4, Accountant 2’s team e-
filed Taxpayer’s delinquent Forms 1065 with attached Forms 8996 for Year 1 and Year
2.

Taxpayer represents that it is subject to the centralized partnership audit regime under §
6221(a) of the Code for Year 1. Taxpayer also represents that, apart from the
correspondence exchanged between this office and Taxpayer in connection with
PLR-110966-23 3

Taxpayer’s request for this ruling, as of Date 5 the Service has not notified Taxpayer
concerning its failure to make an election to self-certify as a QOF for Year 1.

                              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.

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, among other circumstances not
relevant here, the taxpayer requests relief before the failure to make the regulatory
election is discovered by the Service, or although exercising reasonable diligence
(taking into account the taxpayer’s experience and the complexity of the return or
issue), the taxpayer was unaware of the necessity for an election. A taxpayer may
alternatively demonstrate good faith actions if the taxpayer 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—
PLR-110966-23 4

(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).

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.

                                  CONCLUSION

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. Member 1 reasonably relied on
qualified tax professionals, and they failed to make, or advise Taxpayer to make, the
election. Accordingly, based solely on the facts and information submitted, and the
representations made in the ruling request, as supplemented, the Form 8996 attached
to Taxpayer’s return for Year 1, filed Date 4, 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 for Year 1. 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 1 return.
PLR-110966-23 5

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 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.

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.

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.

                                           Sincerely,



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

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