Late Form 8996 relief lets an LLC self-certify as a Qualified Opportunity Fund

Plain-English summary

An LLC was set up to be a Qualified Opportunity Fund (QOF), a vehicle that lets investors defer capital gains tax when they reinvest gains into designated low-income "opportunity zones." To become a QOF, the entity must file Form 8996 with its tax return to self-certify. This LLC never filed the form because one of its partners did not tell the LLC that some contributions were meant to be qualifying investments. When the partner's accountant discovered the missed filing, the LLC asked the IRS for more time under the § 301.9100-3 relief rules. The IRS found the LLC acted reasonably and in good faith and that relief would not hurt the government, so it allowed the late Form 8996 filings if submitted within 60 days. The IRS was careful to say it expressed no opinion on whether the investments actually qualify or whether the entity meets all the QOF requirements. This matters to opportunity-zone investors who can lose big tax benefits if a fund misses its certification deadline.

Ruling snapshot

• Question: Should a fund get more time to file a late Form 8996 to self-certify as a Qualified Opportunity Fund?
• Outcome: approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202451007                                              Third Party Communication: None
 Release Date: 12/20/2024                                       Date of Communication: Not Applicable
 Index Number: 1400Z.02-00, 9100.00-00
                                                                Person To Contact:
 ----------------                                               -----------------------, ID No. -----------------
 ----------------------------------                             Telephone Number:
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 --------------------                                           Refer Reply To:
 -----------------------------------------                      CC:ITA:B04
                                                                PLR-105861-24
                                                                Date:
                                                                September 25, 2024


                                                    LEGEND

 Taxpayer =                   -------------------------------------------------------------
                    -------
 Date 1         =             --------------------------------------------
 Date 2         =             ---------------------------------------
 Date 3         =             -----------------------------------------
 Year 1         =             -------------------------
 Year 2         =             -------------------------
 Year 3         =             -------------------------
 Project        =             -------------------------------------------
 Partner        =             --------------------------------------
 State Z        =             -------------------------------


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

        This letter responds to Taxpayer’s request dated Date 3, requesting a private
letter ruling granting relief to make a late regulatory election pursuant to Treas. Reg. §§
301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations.
Specifically, Taxpayer requests an extension of time 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 of the first month of Year 2, as provided under section 1400Z-2(d)
and Treas. Reg. § 1.1400Z2(d)-1(a).

      This letter ruling is being issued electronically in accordance with Rev. Proc.
2024-1, 2024-1 I.R.B. 1. A paper copy will not be mailed to Taxpayer.

                                         FACTS

        Taxpayer has represented that the facts are as follows. Taxpayer, organized as
a limited liability company under the laws of State Z, was formed on Date 1 to be a QOF
for the purpose of investing in Project, a qualified opportunity zone business as defined
in section 1400Z-2(d)(3) and Treas. Reg. §§ 1.1400Z2(a)-1(b)(29) and 1.1400Z2(d)-
1(d).

       Beginning on Date 2, the partners in Taxpayer, including Partner, made various
contributions to Taxpayer to invest in Project as it began construction. From Date 1
through Year 3, Taxpayer had no items of income, deduction, or credit, and did not file
any tax returns for Year 1, Year 2, or Year 3.

        Taxpayer believed that all of the contributions made by its partners through Year
3 were intended to be non-qualifying investments as defined in Treas. Reg. §
1.1400Z2(a)-1(b)(16). According to the information provided, Partner intended for
certain of Partner’s contributions during Year 2 and Year 3 to constitute qualifying
investments as defined in Treas. Reg. § 1.1400Z2(a)-1(b)(34) but did not communicate
this fact to Taxpayer. Partner was unaware that it was necessary for Taxpayer to make
an election on Form 8996 in order for Partner to make a qualifying investment into
Taxpayer.

        According to the information provided, Taxpayer was aware that in order for one
its partners to make a qualifying investment, Taxpayer needed to timely file a return with
a completed Form 8996 and would have done so if Partner had communicated the fact
that Partner intended for certain of the Year 2 and Year 3 contributions to be qualifying
investments.

       Taxpayer represents that it did not receive any communication from the Internal
Revenue Service indicating that they had discovered Taxpayer’s failure to file a timely
return and attach a Form 8996 for Year 2 or Year 3 prior to the submission of this
request. Taxpayer became aware of the miscommunication between it and Partner
after Partner’s accountant began preparing Partner’s Year 2 and Year 3 tax returns and
discovered that Taxpayer had not filed a timely Form 8996. Partner then alerted
Taxpayer to this fact.

     Once Taxpayer became aware of the consequences to Partner, Taxpayer
engaged legal counsel to prepare this private letter ruling.

                                  LAW AND ANALYSIS

        Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations 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 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 with its tax return for the
year to which the certification applies. Form 8996 must be filed by the due date of the
tax return (including extensions). The information provided indicates that Taxpayer
intended to self-certify as a QOF as of the first month of the year in which any partner in
Taxpayer intended to make a qualifying investment. However, Taxpayer was not
informed by a partner that the partner did intend for its contribution to constitute a
qualifying investment by the date of Taxpayer’s income tax return for such year.

       Because Treas. Reg. § 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 § 301.9100-3(b)(1).

        Treas. Reg. §§ 301.9100-1 through 301.9100-3 provide the standards the
Service will use to determine whether to grant an extension of time to make a regulatory
election. Treas. Reg. § 301.9100-3(a) provides that requests for extensions of time for
regulatory elections (other than automatic changes covered in Treas. Reg. § 301.9100-
2) will be granted when the taxpayer acted reasonably and in good faith and granting
relief will not prejudice the interests of the Government.

      Treas. Reg. § 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.

       Under Treas. Reg. § 301.9100-3(b)(3), a taxpayer will not be considered to have
acted reasonably and in good faith if the taxpayer—

      (i)      Seeks to alter a return position for which an accuracy-related penalty could
               be imposed under § 6662 at the time the taxpayer requests relief and the
               new position requires a regulatory election for which relief is requested;
      (ii)     Was fully informed of the required election and related tax consequences,
               but chose not to file 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.

       Treas. Reg. § 301.9100-3(c) provides that the Service will grant a reasonable
extension of time only when the interests of the Government will not be prejudiced by
the granting of relief. 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.

                                      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 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 Form 8996, certifying Taxpayer as a QOF as of the first month of Year 2, as
well as Taxpayer’s late-filed Form 8996 for Year 3, will be considered timely filed
provided they are 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 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.

       This ruling addresses the granting of Treas. Reg. § 301.9100-3 relief as applied
to the election to self-certify Taxpayer as a QOF, as of the first month of Year 2, and the
late Form 8996 for Year 3. 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 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 owned 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.

      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.

       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.

         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,


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


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