In Private Letter Ruling (PLR) 202019017 released May 8, 2020, the IRS answered an important question for entities that missed their required election to certify as a Qualified Opportunity Fund (QOF), and who seek to extend their time to certify. Generally, to certify as a QOF, a partnership or corporation files Form 8996 with their timely filed federal income tax return (including extensions) to certify that they wish to invest in a Qualified Opportunity Zone (QOZ) and be treated as a QOF.
This election generally asks the taxpayer to certify that they intend to invest in a QOZ, and if so, to specify the date in which they wish the certification to begin. The date an entity certifies as a QOF is important, in that failure to certify could cause a taxpayer to lose the benefits of investing in a QOZ entirely, or subject the taxpayer to unfavorable tax treatment and penalties. For more information about QOZs, please see our previous tax alert on the final regulations.
Prior to this PLR, it had been an open question if the IRS would allow a taxpayer to extend their time to make a QOF election if they had missed the timely filing noted above. In general, a taxpayer is eligible for a reasonable extension of time to make a regulatory election (but no more than six months unless the taxpayer is abroad) under sections 301.9100-1 and 301.9100-3 (commonly known as “9100 relief”) if:
- the election is one that a taxpayer is otherwise eligible to make;
- the taxpayer acted reasonably and in good faith; and
- granting relief will not prejudice the interests of the Government.
It is important to note that the granting of an extension of time is not a determination that the taxpayer is otherwise eligible to make the election.
In the situation discussed by the PLR, the taxpayer’s accountant missed the election to extend the taxpayer’s tax returns, and because of this the taxpayer could not make a timely election to self-certify on Form 8996 as a QOF. PLR 202019017 provided an analysis on the taxpayer’s request for 9100 relief, and ultimately ruled in favor of the taxpayer. The PLR analysis looked at Treas. Reg. 1.1400Z2(d)-1(a)(2)(i), which sets forth the election process to self-certify as a QOF, and determined that this certification is a regulatory election for purposes of 9100 relief. The PLR then determined (under the limited facts discussed) that the taxpayer acted in good faith, and that granting the extension to certify would not prejudice the Government’s interest. Accordingly, the PLR concludes that 9100 relief is proper for the taxpayer in this situation.
Although a PLR cannot be cited as precedent, this is an important ruling for taxpayers to consider if they have missed an election to certify as a QOF on Form 8996. Taxpayers in similar circumstances, acting in good faith, may be able to similarly pursue 9100 relief if doing so would not otherwise prejudice the Government. With this PLR in mind, Taxpayers considering 9100 relief for a missed QOF election should discuss the above and all related issues with their tax adviser before making decisions based on any Qualified Opportunity Zone investment, or 9100 relief in general.