Late qualified-opportunity-fund self-certification (Form 8996) allowed under 9100 relief

Plain-English summary

An LLC taxed as a partnership was set up to be a qualified opportunity fund (QOF), a vehicle that lets investors defer and reduce tax on capital gains they reinvest in economically distressed "opportunity zones." To become a QOF, the entity has to self-certify each year by attaching Form 8996 to a timely filed tax return. Here the accounting firm the taxpayer had hired failed to file the partnership return, the Form 8996, and even the extension request, so the certification was missed. The taxpayer asked the IRS for an extension under the § 301.9100-3 relief rules. The IRS granted 45 days from the date of the letter to file the return and self-certify on Form 8996, finding the taxpayer reasonably relied on its tax professional and that relief would not prejudice the government. The ruling only fixes the timing; it does not decide whether the entity actually qualifies as a QOF or whether any investment in it qualifies.

Ruling snapshot

• Question: May the taxpayer get an extension of time to file a late Form 8996 self-certifying as a qualified opportunity fund?
• Outcome: Approved (45-day extension granted)
• 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: 202202009 Third Party Communication: None
Release Date: 1/14/2022 Date of Communication: Not Applicable
Index Number: 1400Z.02-00
Person To Contact:
--------------------------------- --------------------, ID No. ------------
-------------------------------- Telephone Number:
-------------------------- --------------------
------------- Refer Reply To:
--------------------------- CC:ITA:5
PLR-111015-21
Date:
October 20, 2021

Legend

Taxpayer = -------------------------------------------
-------------------------
Member = ----------------------------------
State = ----------------
Accounting Firm = ------------------
Entity --------------------------
Date 1 ------------------
Date 2 = ------------------
Date 3 = --------------------------
Date 4 = ---------------------
Date 5 = ---------------------
X% = -----------
Year 1 = -------

Dear ------------------

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension under sections 301.9100-1 and 301.9100-3 of the
Income Tax Regulations to (1) make a timely election under section 1.1400Z2(a)-
1(a)(2)(i) to be certified as a qualified opportunity fund (QOF), as defined in section
1400Z-2(d) of the Internal Revenue Code, and (2) for Taxpayer to be treated as a QOF,
effective as of the month Taxpayer was formed in Year 1, as provided by section
1400Z-2 and section 1.1400Z2(d)-1(a).
PLR-111015-21 2

                                     FACTS

Taxpayer is a limited liability company organized under the laws of State and was
formed on Date 3. Taxpayer is treated as a partnership for Federal income tax
purposes. Taxpayer’s overall method of accounting is the accrual method of accounting
and has a tax year end of Date 2.

Taxpayer owns X% of Entity. Entity is a limited liability company classified as a
partnership for Federal income tax purposes and was formed for the purpose of
operating as a Qualified Opportunity Zone Business as defined in § 1400Z-2(d)(3).

Taxpayer engaged the services of Accounting Firm in Year 1. Accounting Firm had
prepared and timely filed income tax returns for owners and affiliates of Taxpayer for
three years prior to Year 1. According to the affidavits and additional information
provided to us, Taxpayer knew Accounting Firm to be competent and sophisticated in
handling Federal income tax matters, including the handling and filing of Federal income
tax returns and self-certifications with respect to qualified opportunity funds. However,
Accounting Firm failed to file Form 8996, Qualified Opportunity Fund, and the
Taxpayer’s Year 1 Federal income tax return by the due date of Date 4. As a result,
Taxpayer failed to file Form 8996 and its Form 1065, U.S. Return of Partnership
Income, for Year 1 by the due date. Accounting Firm also failed to timely file Form
7004, Application for Automatic Extension of Time to File Certain Business Income Tax,
Information and Other Returns. Accounting Firm discovered that it had failed to file
Taxpayer’s Federal income tax return and Form 8996 on Date 5. After discovering that
the election had not been timely filed, Member subsequently authorized Accounting
Firm to file a private letter ruling request for relief under sections 301.9100-1 and
301.9100-3 on Date 1. Taxpayer has not yet filed its Form 1065 for Year 1.

                              LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Internal Revenue Code directs the Secretary to
prescribe regulations for 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(a)-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 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, Qualified Opportunity Fund,
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). The information provided
indicates that Accounting Firm did not file Taxpayer’s Federal income tax return and the
Form 8996 by Date 4 due to a mistake.
PLR-111015-21 3

Because section 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 section
301.9100-1(b).

Sections 301.9100-1 through 301.9100-3 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 requests for extensions of time for
regulatory elections (other than automatic extensions covered in section 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.

Under section 301.9100-3(b) a taxpayer is deemed to have acted reasonably and in
good faith if the taxpayer requests relief before the failure to make the regulatory
election is discovered by the Service, or reasonably relied on a qualified tax
professional, and the tax professional failed to make, or advise the taxpayer to make,
the election. However, a taxpayer is not considered to have reasonably relied on a
qualified tax professional if the taxpayer knew or should have known that the
professional was not competent to render advice on the regulatory election or was not
aware of all relevant facts.

In addition, section 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).
PLR-111015-21 4

Section 301.9100-3(c)(1)(ii) 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 this 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 would 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 the taxpayer an extension of 45 days from the date of this letter ruling to file a
Federal income tax return to make the election to self-certify as a QOF under section
1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i). The election is to be made on a completed
Form 8996.

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.

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 referenced 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
section 1.1400Z2 (a)–1(b)(34) or whether the taxpayer meets the requirements under
section 1400Z-2 and the regulations thereunder to be a QOF. Further, we also express
no opinion on whether Entity is a qualified opportunity zone business, as defined under
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.
PLR-111015-21 5

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

                                   Sincerely,


                                   Erika C. Reigle
                                   Senior Technician Reviewer, Branch 5
                                   Office of Associate Chief Counsel
                                   (Income Tax & Accounting)

cc: