9100 relief for a late Form 8996 self-certifying a Qualified Opportunity Fund

Plain-English summary

An LLC was formed to operate as a Qualified Opportunity Fund (QOF), the vehicle that lets investors defer and reduce tax on capital gains reinvested in designated low-income areas. To become a QOF, an entity must self-certify by attaching Form 8996 to a timely filed return. In its first year the LLC did nothing but receive capital contributions, and its accountant told the manager that no return was needed because there was no activity, so no Form 8996 was filed. A later accounting firm caught the omission. The LLC asked the IRS for an extension of time under Treasury Regulation section 301.9100-3. The IRS found the taxpayer reasonably relied on a tax professional, acted in good faith, and that relief would not prejudice the government. It granted 60 days from the date of the letter to file Form 8996 and self-certify as a QOF effective from the LLC's formation date. The relief covers only the late Form 8996, not any extension to file the partnership return itself. The IRS did not decide whether the entity actually meets the substantive QOF requirements.

Ruling snapshot

• Question: May a fund that missed the deadline to file Form 8996 get an extension of time 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: 202505016                                             Third Party Communication: None
 Release Date: 1/31/2025                                       Date of Communication: Not Applicable
 Index Number: 9100.00-00
                                                               Person To Contact:
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 --------------------                                          Telephone Number:
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 --------------------------                                    Refer Reply To:
                                                               CC:ITA:B05
                                                               PLR-112564-24
                                                               Date:
                                                               November 05, 2024




Legend

 Taxpayer                  =     -----------------------------------------------------------
 Member A                  =     ---------------
 Member B                  =     ------------------------------
 Individual C              =     ------------------
 Operating                 =     ------------------------------------------------------------
 Agreement                       ---------------
 Restated                  =     ------------------------------------------------------------
 Operating                       ------------------------------------------
 Agreement
 Accountant                =     -------------------
 Accounting Firm 1         =     ----------------------------------------
 Accounting Firm 2         =     ----------------------------------
 State                     =     ----------
 Date 1                    =     ----------------
 Date 2                    =     --------------------------
 Date 3                    =     -----------------
 Month 1                   =     --------------
 Year 1                    =     -------
 Year 2                    =     -------
 Year 3                    =     -------
 Year 4                    =     -------
 N1                        =     ----

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

This responds to the request by Taxpayer, dated Date 1, for relief under §§ 301.9100-1

- 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 §
PLR-112564-24                                 2

1400Z-2 of the Internal Revenue Code (Code) and § 1.1400Z2(d)-1(a)(2) of the Income
Tax Regulations to self-certify as a Qualified Opportunity Fund (QOF), effective as of
Date 2.
                                          FACTS

The information and affidavits submitted reflect the following facts.

Taxpayer is a limited liability company which was formed under the laws of State on
Date 2. Taxpayer uses the cash method of accounting and reports income on a
calendar year basis. The Operating Agreement and Restated Operating Agreement
governing Taxpayer expressly provide that Taxpayer was organized to invest in
qualified opportunity zone property.

The recitals and the provisions of Operating Agreement and Restated Operating
Agreement indicate that Taxpayer intends to meet the legal requirements to be a QOF.
For example, one of the recitals of Operating Agreement states that Taxpayer "intends
to invest in a qualified opportunity zone business that will own, operate, and/or improve
qualified opportunity zone property located in a qualified opportunity zone as described
in Internal Revenue Service Notice 2018-48, 2018-28 IRB 9."

Under the terms of Operating Agreement, Taxpayer’s manager was Individual C.
Section N1 of the Restated Operating Agreement, adopted on or about Date 3, effective
Date 2, lists Member A as Taxpayer’s manager. Individual C is the manager of Member
A.

On Date 2, Member A and Member B, made contributions to Taxpayer.
Apart from receiving contributions, Taxpayer engaged in no economic activity and had
no income, deductions, or credits in Year 2.

Individual C is a real estate investor and developer who had not previously formed a
QOF. Since Year 1, Individual C engaged Accountant and Accounting Firm 1 to provide
accounting and tax preparation services for a number of his real estate entities. In the
spring of Year 3 Individual C consulted Accounting Firm 1 about filing the required
federal and state tax returns for Taxpayer for Year 2. Individual C informed Accountant
that Taxpayer was organized for the purpose of being a QOF from the date of its
formation and he summarized for Accountant the capital contributions made into
Taxpayer. Accountant informed Individual C that because Taxpayer engaged in no
activity during Year 2 other than receiving capital contributions from Member A and
Member B, no tax filings were needed for Year 2.

Individual C switched the accounting and tax preparation work for Taxpayer to
Accounting Firm 2 in Year 4. Accounting Firm 2, upon reviewing Taxpayer’s files,
noticed that no Form 1065, U.S. Partnership Return of Income, or Form 8996 had been
filed with the Service for Year 2. Consequently, Taxpayer made no self-certification as a
PLR-112564-24                                 3

QOF for Year 2 by including a completed Form 8996 with a filed Form 1065 for that
taxable year.

Taxpayer thereafter filed this request for a ruling seeking additional time, pursuant to
Procedure and Administration Regulations, to make the self-certification as a QOF
under § 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations.

                                  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 the 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 a request for extensions of time for regulatory elections, other than
automatic extensions covered in § 301.9100-2, will be granted if 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 he 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), was unaware of the necessity for an election. A
taxpayer may alternatively demonstrate that he acted reasonably and in good faith if he
reasonably relied on the services of a qualified tax professional and the professional
failed to make, or failed to advise the taxpayer to make, the election. See § 301.9100-
3(b)(1)(i), (iii), (v).

A taxpayer is deemed not to have acted reasonably and in good faith pursuant to the
PLR-112564-24                                 4

provision in § 301.9100-3(b)(3) of the Procedure and Administration Regulations if the
taxpayer—

  (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 are closed by the period of
limitations on assessment under § 6501(a) before the taxpayer’s receipt of a ruling
granting relief under that 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 will not prejudice the interests of the Government. Taxpayer reasonably relied on
a qualified tax professional for services that included complying with the tax laws and
meeting the Code’s requirements to be a QOF. 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), effective Date 2. The election must be made on a completed Form 8996
attached to the Taxpayer’s tax return for Year 2. This letter ruling grants an extension
of time to file a Form 8996. This letter ruling does not grant an extension of time to file
Taxpayer’s Year 2 Form 1065.
PLR-112564-24                                 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 referred to 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.

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.

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.

                                          Sincerely,



                                          Gerald Semasek
                                          Assistant to the Branch Chief, Branch 5
                                          Office of Associate Chief Counsel
                                          (Income Tax & Accounting)


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