Extra time granted to self-certify as a qualified opportunity fund after a missed Form 8996

Plain-English summary

A limited partnership was set up to invest in a qualified opportunity zone and bought real estate there. To get the tax benefits of a qualified opportunity fund (QOF), it had to self-certify by attaching Form 8996 to its partnership return for the first year. The partnership's accountant intended to attach the form but, amid the COVID-19 pandemic, overlooked his notes and filed the return without it. The miss was found the next year while preparing the following return. The partnership asked the IRS for an extension of time under Treasury Regulation section 301.9100-3, representing that it reasonably relied on its accountant and that relief would not lower its tax. The IRS granted a 60-day extension to file an amended return or an administrative adjustment request making the QOF election on Form 8996. The IRS expressed no opinion on whether the partnership actually qualifies as a QOF or whether investments in it qualify. This matters because self-certification is the gateway to opportunity-zone tax deferral, and a late Form 8996 caused by professional error is the classic case for section 301.9100 relief.

Ruling snapshot

• Question: May the partnership get an extension of time to file Form 8996 to self-certify as a qualified opportunity fund after its accountant failed to attach it to the original return?
• Outcome: Approved (60-day extension under section 301.9100-3 to make the QOF election)
• Key authorities: IRC § 1400Z-2(d), (e)(4)(A); Treas. Reg. §§ 1.1400Z2(a)-1(a)(2)(i), 1.1400Z2(d)-1(a); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202204002 Third Party Communication: None
Release Date: 1/28/2022 Date of Communication: Not Applicable
Index Number: 1400Z.02-00
Person To Contact:
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------------------------------------ ID No. -----------------
------------------------------------------ Telephone Number:
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Refer Reply To:
------------ CC:ITA:B05
PLR-111326-21
Date:
October 27, 2021

Legend

Taxpayer = -------------------------------------------------------------
Date 1 = ------------------
Year 1 = -------
State Z = --------
Date 2 = --------------------------
Date 3 = --------------------
Attorney = --------------------
Law Firm = ---------------------------------
Accountant = --------------------
Accounting Firm = ----------------------------
Date 4 = -----------------
Date 5 = ------------------
Year 2 = -------

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

This ruling responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests an extension of time 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
first month of Year 1, as provided under section 1400Z-2(d) of the Code and section
1.1400Z2(d)-1(a) of the Income Tax Regulations.
PLR-111326-21 2

                                     FACTS

Taxpayer was organized as a limited partnership under the laws of State Z on Date 2
and is classified as a partnership for federal income tax purposes. Taxpayer was
organized for the purpose of investing in qualified opportunity zone property as defined
in section 1400Z-2(d)(2).

Taxpayer purchased real estate within a qualified opportunity zone on Date 3. Taxpayer
was represented by Attorney of Law Firm and Accountant of Accounting Firm. Attorney
and Accountant discussed the need for Taxpayer to file a Form 8996, Qualified
Opportunity Fund with Taxpayer’s Form 1065 for Year 1 to self-certify as a QOF.
Accountant confirmed that he would attach the Form 8996 to the appropriate tax filing.

Accountant reviewed and signed the Taxpayer’s Form 1065 for Year 1 on Date 4. Due
to the ongoing COVID-19 pandemic, Accountant did not review all his notes on the
matter and failed to include the Form 8996 with the return. This failure was discovered
on Date 5, when information gathering began for the preparation of Taxpayer’s return
for Year 2.

After Taxpayer became aware of the consequences of failing to timely file the Form
8996, this request for relief was promptly submitted under sections 301.9100-1 and
301.9100-3. Taxpayer represents that it relied on Accountant to timely file Form 8996.
Taxpayer further represents that granting of the relief under section 301.9100-3 will not
result in a lower tax liability for the years affected by the election.

                             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 that 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 Taxpayer did not file its Form 8996 by the due date of its income tax
return (including extensions) due to Accountant’s failure to include it with Taxpayer’s
return for Year 1.
PLR-111326-21 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-111326-21 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 the 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 60 days from the date of this letter ruling to
either file an amended return or an Administrative Adjustment Request (whichever is
appropriate) to make the election under section 1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i).
The election is to be made on Form 8996.

This ruling is based upon facts and representations submitted by the 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 the 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. 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 the taxpayer and accompanied by a penalty of perjury statement executed
PLR-111326-21 5

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,



                                     Shareen S. Pflanz
                                     Chief, Branch 5
                                     Office of Associate Chief Counsel
                                     (Income Tax and Accounting)

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