LLC received 60 days to file its omitted QOF self-certification

Plain-English summary

An LLC was formed to operate as a qualified opportunity fund, but its manager did not know the partnership-return and Form 8996 deadline and believed the accountant would begin the filing process. The accountant, who had said he was unfamiliar with QOF requirements, did not realize the manager was relying on him or that the LLC was a partnership. After the missed filing was discovered, the LLC filed its return without Form 8996 and requested relief. The IRS found that the LLC acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file Form 8996 with an amended return or administrative-adjustment request. The ruling did not decide whether the LLC, its investments, or any owned entity otherwise met opportunity-zone requirements.

Ruling snapshot

• Question: May the LLC receive additional time to self-certify as a qualified opportunity fund on Form 8996?
• Outcome: Approved for 60 days from the ruling date
• 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: 202409001
Third Party Communication: None
Release Date: 3/1/2024
Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
--------------------------, ID No. ----------------- Telephone Number:
--------------------
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Refer Reply To:
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CC:ITA:B05
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PLR-111469-23
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Date:
December 01, 2023

In re: ------------------------------
EIN: ----------------

Legend:
Taxpayer = -------------------------------
Date 1 = ------------------
Date 2 = --------------------
Date 3 = ---------------------
Date 4 = ---------------------
Date 5 = -----------------
Date 6 = ---------------------
Date 7 = ---------------------------
Investor = --------------
State = -------------
Accountant = ---------------------------
Month 1 = ------
Month 2 = --------
Year 1 = -------

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

This ruling responds to Taxpayer’s request dated Date 1 and revised request dated Date 2. Taxpayer requests an extension of time to make an election under
§§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, granting an extension of time to make a timely election under § 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations to self-certify as a Qualified Opportunity Fund (QOF) as defined in § 1400Z-2(d) of the Internal Revenue Code (Code). Taxpayer also requests to be treated as a QOF, effective as of Month 1, Year 1, the month Taxpayer intended to become a QOF, as provided under § 1400Z-2(d) and § 1.1400Z2(d)-1(a).
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This letter is being issued electronically in accordance with Rev. Proc. 2020-29, 2020- 21 I.R.B. 859.

FACTS

Taxpayer represents that the facts are as follows:

Taxpayer is a limited liability company organized under the laws of State on Date 3. Taxpayer has a calendar year annual accounting period and uses the cash receipts and disbursements method as its overall method of accounting.

Taxpayer was formed for the purpose of operating a QOF as defined in § 1.1400Z- 2(d)(1). The Taxpayer’s operating agreement was entered into on Date 4, with Investor as the sole member. On Date 5, the operating agreement of Taxpayer was amended to appropriately reflect the entity’s intended purpose and add Investor’s wife as a member. Taxpayer is a partnership for Federal tax purposes.

In Month 2, Year 1, Investor, Taxpayer’s manager, contacted Accountant to assist in the formation of the QOF and for general assistance in Taxpayer’s tax-related matters. Investor previously retained Accountant for other personal and business tax-related matters. Accountant represented that he was unfamiliar with QOFs and their requirements and referred Investor to an attorney with such experience. Investor had an initial call with the attorney, but chose not to retain his services.

Investor did personal research to learn more about QOFs and their requirements. Investor was unaware of the Date 6 filing deadline to file Taxpayer’s partnership return and attach a Form 8996, Qualified Opportunity Fund, to make an election for QOF status. Investor also believed that Accountant would initiate the required filing process since Accountant had been made aware of the existence of Taxpayer at the time of its formation. However, Accountant was unaware of Investor’s dependence on Accountant and was unaware of Taxpayer’s status as a partnership. Consequently, Taxpayer did not timely file its return for Year 1 by Date 6.

After Accountant realized Taxpayer did not timely file its return with attached Form 8996, Accountant recommended that Taxpayer contact a law firm for assistance. Based on advice from the law firm, and with the help of Accountant, Taxpayer filed its Year 1 partnership return on Date 7, without attaching a Form 8996, and requested this PLR for an extension of time to make a timely QOF election.

LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Internal Revenue Code directs the Secretary to prescribe regulations for 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 the entity electing to be certified as a QOF
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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 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). Taxpayer did not file its Form 8996 by the due date of its partnership return due to Investor being unaware of the filing deadline and requirements, and Investor’s belief that Accountant would initiate the process.

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).

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.

Under § 301.9100-3(b), a taxpayer is deemed to have acted reasonably and in good faith if 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, § 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 § 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
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(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 § 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 would not prejudice the interests of the government. Investor was unaware of the filing deadlines and requirements, and believed Accountant would initiate the process. Investor did personal research to learn about the process but lacked the expertise to appreciate the complex nature of QOF election and formation. 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 under § 1400Z-2 and § 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).

This ruling is based upon facts and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. 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) or whether Taxpayer meets the requirements under § 1400Z-2 and the regulations thereunder to be a QOF. Further, we also express no opinion on whether any interest owned in any entity by Taxpayer qualifies as qualified opportunity
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zone property, as defined in § 1400Z-2(d)(2), or whether such entity 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 representatives.

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,

Amy J. Pfalzgraf
Branch Chief, Branch 5
(Income Tax and Accounting

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