Special Rules for Capital Gains Invested in Opportunity Zones

Department of the Treasury
Internal Revenue Service
Number: 202429013
Washington, DC 20224
Person To Contact:
Release Date: 7/19/2024
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Index Number: 1400Z.02-00, 9100.00-00
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Telephone Number:
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Refer Reply To:
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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
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PLR-123573-23 2
X = ---
Y = ---
Tax Return Preparer
P
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Tax Return Preparer
Q
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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).
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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 selfcertify 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;
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(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.
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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) cc: ---
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