The Best Practice Remains "File on Time"
The Sullivan Opportunity Zone Practice Group has issued multiple advisories and alerts which stand for the proposition that "words matter." To that mantra, we add "deadlines matter, too."
In a recent Private Letter Ruling 202019017, the IRS granted narrow relief to a taxpayer who missed the deadline for filing a Form 8996, pursuant to which a taxpayer elects to treat an otherwise eligible entity as a “Qualified Opportunity Fund.” or “QOF.” As is usual with a PLR, the relief was narrow, fact-dependent and "may not be used or cited as precedent." This PLR usefully reminds everyone about the importance of deadlines in the Opportunity Zone world.
In the PLR, the taxpayer retained an “advisor” to assist in preparing federal tax returns for the first year of operations of a limited liability company that the taxpayer had formed to be a QOF prior to retaining the advisor. The ruling noted that the advisor was retained to, inter alia, prepare and file timely tax returns, related forms and elections, including Form 8996 whereby an entity self-certifies its proper organization as a QOF. Under the applicable regulations, that form, including the applicable certification, is due on the date the federal tax return is due (including extensions).
Owing to an "administrative error" at the advisor’s office, no federal tax returns or related forms (which would have included Form 8996) were filed on the applicable due date, nor was an extension request timely filed. Later, on what would have been the due date for the return had an automatic extension request been filed, the tax return and Form 8996 was filed.
Upon becoming aware of the mistake by the advisor, the taxpayer submitted a request for relief under Treasury Regulation § 301.9100-3 with respect to the QOF election. The relief was granted, based on two fact determinations – (a) the taxpayer acted “reasonably and in good faith” and (b) granting relief would not prejudice the interests of the government.
The relief granted effectively gave the taxpayer an extension of the time in which to make the QOF election but specifically did not address the tax treatment of taxpayer under any other Code section or regulation, including any compliance issue related to Opportunity Zone tax benefits. The PLR, as is typical, expressed no opinion concerning whether investments in the QOF qualified for relief under the Ozone Act or whether the QOF itself was an eligible QOF.
For the taxpayer involved in the PLR, the relief granted presumably satisfied it. For the rest of the Opportunity Zone taxpayers, our guidance is to pay attention to deadlines and be pro-active. If you are relying on others to file your returns, forms, elections and the like, be in touch with them well before the filing deadline.
The lesson learned is simple: it is much easier to file timely rather than to try and fix mistakes later.