Extra time for a fund to file a late Form 8996 self-certifying as a Qualified Opportunity Fund from its formation

Plain-English summary

The Opportunity Zone rules let investors defer and reduce tax on capital gains they reinvest in a "Qualified Opportunity Fund" (QOF). To be a QOF, an entity must self-certify by filing Form 8996 with its tax return, effective from a chosen month. Here the taxpayer intended to be a QOF from the month it was formed but, relying on its advisor, failed to file the Form 8996 to self-certify. It asked the IRS for an extension under Treasury Regulation section 301.9100-3. The IRS found the taxpayer acted reasonably and in good faith and that relief would not prejudice the government, and granted additional time to file the Form 8996 self-certifying as a QOF for the first year, effective from formation. This lets the fund (and its investors) qualify for the Opportunity Zone tax benefits despite the missed certification.

Ruling snapshot

• Question: Should an entity get more time under section 301.9100-3 to file a late Form 8996 self-certifying as a Qualified Opportunity Fund effective from its formation?
• Outcome: Approved (extension granted to file Form 8996 self-certifying QOF status for the first year).
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. § 1.1400Z2(d)-1; Treas. Reg. §§ 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 202206015                                               Third Party Communication: None
Release Date: 2/11/2022                                         Date of Communication: Not Applicable
Index Number: 1400Z.02-00
                                                                Person To Contact:
                                                                --------------------------
-------------------------------------------                     ID No. -----------------
------------------------------------                            Telephone Number:
-------------------------------------------                     --------------------
--------------------------                                      Refer Reply To:
                                                                CC:ITA:B04
                                                                PLR-113536-21
                                                                Date:
                                                                November 09, 2021


                                                    LEGEND

Taxpayer         =          --------------------------------------------------------------------
Advisor          =          ---------------------------------
Year 1           =          -------
Year 2           =          -------
Date 1           =          --------------------------
Date 2           =          ---------------------
Date 3           =          ---------------------
Date 4           =          --------------------------
Date 5           =          -------------------
State Z          =          ------


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

This letter responds to Taxpayer’s request dated June 11, 2021, seeking a private
letter ruling granting relief to make a late regulatory election pursuant to Treas.
Reg. §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations. Specifically, Taxpayer requests an extension of time to file Form 8996,
Qualified Opportunity Fund, to (1) self-certify as a qualified opportunity fund (QOF),
as defined in section 1400Z-2(d) of the Internal Revenue Code (Code) and (2) to be
treated as a QOF, effective as of the month the Taxpayer was formed, as provided
under section 1400Z-2(d) and Treas. Reg. § 1.1400Z2(d)-1(a).

This letter ruling is being issued electronically in accordance with Rev. Proc. 2020-
29, 2020-21 I.R.B. 859. A paper copy will not be mailed to Taxpayer.
PLR-113536-21                               2

                                       FACTS

Taxpayer has represented that the facts are as follows. Taxpayer, a partnership
organized as a limited liability company under the laws of State Z, was formed as a
QOF on Date 1 for the purpose of investing in qualified opportunity zone property
as defined in section 1400Z-2(d)(2). On or around Date 2, Taxpayer’s
representatives communicated with Advisor regarding the preparation of
Taxpayer’s Federal income tax return for Taxpayer’s first year of operation – Year
1, the year Taxpayer was formed. The information provided by Taxpayer indicates
that Advisor was tasked with preparing and timely filing Taxpayer’s Federal income
tax return and all related forms and elections to self-certify Taxpayer as a QOF, and
to treat Taxpayer as a QOF as of the month Taxpayer was formed.

According to the affidavits and additional information provided to us, Taxpayer and
Advisor were aware of the requirement to file Form 8996 with the Taxpayer’s timely
filed Federal income tax return for Year 1 for the Taxpayer to self-certify QOF
status and to be treated as a QOF as of the month Taxpayer was formed. Advisor
was retained by Taxpayer so that Taxpayer could comply with the Form 8996
requirements and Advisor was expected to file a request for an automatic extension
of time for Taxpayer’s Federal income tax return for Year 1. On Date 3, Advisor
filed for an automatic extension. On Date 4, Advisor electronically filed Taxpayer’s
Federal income tax return; however, Advisor failed to attach or include Form 8996
with Taxpayer’s timely filed Federal income tax return. Thereafter, Advisor
informed Taxpayer that the Federal income tax return had been timely filed and that
the Service had accepted the entire Federal income tax file and Advisor advised
Taxpayer that no further action would be needed on the part of Taxpayer. On Date
5, in connection with preparing its Year 2 Federal income tax returns, Taxpayer
discovered the failure of Advisor to file Form 8996.

Shortly thereafter, Taxpayer submitted this request seeking relief under Treas. Reg.
§§ 301.9100-1 and 301.9100-3.

                               LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for
the certification of QOFs. Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i) 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.

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 the Taxpayer did not file its Form 8996 by the
PLR-113536-21                                3

due date of its income tax return (including extensions) due to Advisor’s failure to
file the Form 8996 with its Year 1 tax return.

Treas. Reg. §§ 301.9100-1 through 301.9100-3 provide the standards that the
Service will use to determine whether to grant an extension of time to make a
regulatory election. Treas. Reg. § 301.9100-3(a) provides that requests for
extensions of time for regulatory elections (other than automatic changes covered
in Treas. Reg. § 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 granting relief will not prejudice the interests of the Government.

Treas. Reg. § 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;
       (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.

Under Treas. Reg. § 301.9100-3(b)(3), a taxpayer will not be considered to have
acted reasonably and in good faith if the taxpayer—

       (i)     Seeks to alter a return position for which an accuracy-related penalty
               could be imposed under § 6662 at the time the taxpayer requests
               relief and the new position requires a regulatory election for which
               relief is requested;
       (ii)    Was fully informed of the required election and related tax
               consequences, but chose not to file 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.

Treas. Reg. § 301.9100-3(c) provides that the Service will grant a reasonable
extension of time only when the interests of the Government will not be prejudiced
by the granting of relief. 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.

                                    CONCLUSION
PLR-113536-21                               4


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,
Taxpayer has satisfied the requirements of the regulations for the granting of relief,
and Taxpayer’s late-filed Form 8996, certifying the Taxpayer as a QOF as of the
month the Taxpayer was formed, will be considered timely filed provided it is
received by the appropriate service center no later than 60 days from the date of
this letter ruling.

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.

This ruling addresses the granting of Treas. Reg. § 301.9100-3 relief as applied to
the election to self-certify the Taxpayer as a QOF by filing Form 8996 for Year 1.
Specifically, we have no opinion, either express or implied, concerning whether any
investments made into Taxpayer are qualifying investments as defined in Treas.
Reg. § 1.1400Z2(a)-1(b)(34) or whether 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.

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.

In accordance with the Power of Attorney on file with this office, we are sending a
copy of this letter to your authorized representatives.

                                            Sincerely,



                                            Ronald J. Goldstein
                                            Senior Technician Reviewer, Branch 4
                                            (Income Tax & Accounting)