LLC gets more time to file Form 8996 self-certifying as an Opportunity Zone fund after its accountant never flagged it

Plain-English summary

An LLC taxed as a partnership was set up to be a Qualified Opportunity Fund (QOF), the vehicle used to defer capital gains by investing in an Opportunity Zone business. To become a QOF, it had to attach Form 8996 to its tax return by the filing deadline. Its accounting firm prepared the return but never told the LLC that Form 8996 was required, so the form was never filed. The omission surfaced later when a different preparer, working on a member's personal return, pulled the LLC's return and noticed the missing form. The LLC asked for relief under the Treasury "9100" regulations. Because the LLC reasonably relied on a tax professional who failed to advise it, and because granting relief would not lower its overall tax, the IRS found good faith and granted 60 days to file Form 8996 (with an amended return). The IRS stressed that this only fixes the deadline; it took no position on whether the LLC actually qualifies as a QOF or whether any investment in it qualifies.

Ruling snapshot

• Question: Should the IRS grant an extension of time to file a late Form 8996 self-certifying the taxpayer as a Qualified Opportunity Fund?
• Outcome: approved (60-day extension)
• Key authorities: IRC § 1400Z-2(d), (e)(4); 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: 202429013
                                                                  Person To Contact:
 Release Date: 7/19/2024
                                                                  ---------------------------, ID No. ---------------
 Index Number: 1400Z.02-00, 9100.00-00                            -----------------
                                                                  Telephone Number:
 ---------------------------                                      --------------------
 ------------                                                     Refer Reply To:
 -------------------------------------                            CC:ITA:B08
 ---------------------------------------------                    PLR-123573-23
 ------------------------------                                   Date:
                                                                  April 19, 2024




VIA E-FAX – --------------------


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

 QOZB                          =        --------------------------------------------------------------

 Month 1                       =        ---------------------

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

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

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

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

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

 Year 1                        =        -------

 Year 2                        =        -------

 Year 3                        =        -------

 State                         =        -------------

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

 Member B                      =        ------------------------------------------------------
PLR-123573-23                                         2


    X                       =        --------

    Y                       =        ----

    Tax Return Preparer     =        ------------------------
    P

    Tax Return Preparer     =        ----------------------
    Q

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



Dear --------------------

This letter responds to Taxpayer's request for a letter ruling dated Date 5. Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-31 for an extension of time to file
Form 8996, Qualified Opportunity Fund, to self-certify as a qualified opportunity fund
(QOF), as defined in section 1400Z-2(d), effective as of Month 1, the first month in
which Taxpayer intended to be a QOF.

                                                 FACTS

According to the information and representations provided, Taxpayer, a limited liability
company (LLC) treated as a partnership for federal tax purposes, was formed on Date 1
in State. On Date 2, Taxpayer represents that Member A and Member B entered into a
LLC agreement for Taxpayer, which stated that Taxpayer's business purpose is to
engage in any lawful activity. Taxpayer represents that upon entering into Taxpayer's
LLC agreement, Member A and Member B made initial capital contributions to
Taxpayer, resulting in Member A and Member B owning X and Y percent, respectively,
of the outstanding membership interests in Taxpayer. Taxpayer represents that it
operates on a calendar year tax year and utilizes the cash method.

Taxpayer represents that on Date 3, Taxpayer, along with certain entities intending to
qualify as QOFs, entered into an LLC agreement of QOZB, which intended to directly
invest in certain real property situated within a qualified opportunity zone. Taxpayer
represents that at all times, QOZB operated as a qualified opportunity zone business.
Member A represents that during Year 1, Member A made capital contributions to
Taxpayer that qualified as eligible gains, as defined in § 1.1400Z2(a)-1(b)(11).



1
 Unless otherwise specified, all "section" references are to sections of the Internal Revenue Code (Code)
and all "§" references to sections of the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301).
PLR-123573-23                                 3

Taxpayer represents that it intended to self-certify as a QOF in Year 1. Taxpayer
represents that on or about Date 4, Taxpayer engaged Tax Return Preparer P, a
certified public accounting firm, to provide tax compliance services and to prepare its
federal income tax returns, including Taxpayer's Year 1 return. Taxpayer represents
that Tax Return Preparer P did not advise Taxpayer of the requirement to file Form
8996. As such, Taxpayer represents a Form 8996 was not filed with its Year 1 return.

Tax Return Preparer Q represents that Member A engaged Tax Return Preparer Q to
file Member A's federal income tax returns for Year 1 and Year 2. During Year 3, Tax
Return Preparer Q represents that it requested Taxpayer's Year 1 return to assist in
preparing Member A's Year 2 return. However, Tax Return Preparer Q represents that
upon review of Taxpayer's Year 1 return, Tax Return Preparer Q discovered Taxpayer's
failure to file a Form 8996 for Year 1. Taxpayer then authorized Advisor to file this
request for a letter ruling on its behalf.

Taxpayer further represents that the tax liabilities of Taxpayer would not be lower in the
aggregate for Year 1 and subsequent taxable years affected by the election than if the
election had not been timely made (taking into account the time value of money).

                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4) of the Internal Revenue Code directs the Secretary to prescribe
such regulations as may be necessary to carry out the purposes of section 1400Z-2,
including rules for the certification of QOFs. Section 1.1400Z2(d)-1(a)(2)(i) of the
Income Tax Regulations 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 Internal Revenue Service forms or
instructions, or in publications or guidance published in the Internal Revenue Bulletin.
The Form 8996 Instructions published pursuant to these regulations specify that to self-
certify as a QOF, a taxpayer must file Form 8996 with its tax return for the year to which
the certification applies by the due date of the tax return (including extensions).

Section 301.9100-3(a) of the Procedure and Administration Regulations 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;
PLR-123573-23                                4

      (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 § 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).

                                     CONCLUSION

The information and representations provided indicates that Taxpayer did not timely file
its Form 8996 by the due date of its federal income tax return for Year 1 due to
Taxpayer's reasonable reliance on Tax Return Preparer P and Taxpayer Return
Preparer P's failure to file a Form 8996 on behalf of Taxpayer. Based on the
information provided, including affidavits and representations under penalties of perjury,
we conclude that Taxpayer has acted reasonably and in good faith, and that granting a
reasonable extension of time for Taxpayer to file Form 8996 will not prejudice the
interests of the Government. Accordingly, based solely on the facts and information
submitted, and the representations made in the ruling request, we grant Taxpayer an
PLR-123573-23                                 5

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 section 1400Z-2 and section 1.1400Z2(d)-
1(a)(2)(i) for Month 1. The election must be made on a completed Form 8996 attached
to the Taxpayer's amended tax return or administrative-adjustment request (as
applicable).

                                         CAVEATS

The granting of an extension of time in this ruling letter is not a determination that
Taxpayer is otherwise eligible to self-certify as a QOF. See § 301.9100-1(a).

This ruling is based upon facts and representations submitted by the 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.

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 in Taxpayer are qualifying investments as
defined in § 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements under
section 1400Z-2 and the regulations thereunder to be treated as 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 Internal
Revenue 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.

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. 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 section 6110.
PLR-123573-23                                            6


Pursuant to the Form 2848, Power of Attorney and Declaration of Representative, on
file, we are sending a copy of this letter to Taxpayer's authorized representatives.


                                                             Sincerely,



                                                             Shareen S. Pflanz
                                                             Branch Chief, Branch 8
                                                             Office of Chief Counsel
                                                             (Income Tax & Accounting)


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