IRS grants late relief to self-certify as a qualified opportunity fund

Plain-English summary

An LLC taxed as a partnership was set up to invest in a qualified opportunity zone, a
program that offers capital gains tax benefits for investing in designated low-income areas.
To qualify, the entity must self-certify as a qualified opportunity fund (QOF) by attaching
Form 8996 to a timely filed return each year. Here the owners, a married couple, gave their
accounting firm the information to file, but the accountant left the firm and the partnership
return with Form 8996 was filed late, so the self-certification failed. After learning the
consequences, the taxpayer asked the IRS for relief under the Section 301.9100-3 rules,
which allow an extension when the taxpayer acted reasonably and in good faith and relief
will not prejudice the government. Finding reasonable reliance on the advisor, the IRS
treated the late Form 8996 as timely filed. The ruling covers only timeliness, not whether
the entity actually meets the QOF requirements.

Ruling snapshot

• Question: Should the entity get a § 301.9100-3 extension to make its late QOF self-certification election?
• Outcome: Approved (Form 8996 deemed timely filed)
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. §§ 1.1400Z2(a)-1, 1.1400Z2(d)-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202215012                                             Third Party Communication: None
 Release Date: 4/15/2022                                       Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                               Person To Contact:
 ---------------------------                                   --------------------------,
 ----------------------------------                            ID No. -----------------
 ----------------------------------                            Telephone Number:
                                                               --------------------
 -------------------------------------                         Refer Reply To:
                                                               CC:ITA:B05
          ------ -------                                       PLR-117027-21
                                                               Date:
                                                               January 20, 2022




Legend


 Taxpayer                    =   -----------------------------------------------------
 Members                     =   --------------------------------------------
 Year 1                      =   -------
 State Z                     =   -------------
 Accountant                  =   ------------------
 Accounting Firm             =   ------------------------------
 New Accountant              =   --------------------
 Date 1                      =   ----------------------
 Date 2                      =   --------------
 Date 3                      =   ---------------------
 Date 4                      =   --------------------
 Date 5                      =   ---------------------
 Date 6                      =   ---------------------
 Date 7                      =   ---------------------
 Date 8                      =   ------------------
 Date 9                      =   ---------------------


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

This ruling responds to the Taxpayer’s request dated Date 1. Specifically, the 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(d)(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 the Taxpayer to be treated as a QOF, effective as of
Date 2, as provided under section 1400Z-2(d) of the Code and section 1.1400Z2(d)-1(a)
of the Income Tax Regulations.
                                           FACTS
PLR-117027-21                                 2


The Taxpayer represents the facts are as follows:

The Taxpayer was organized as a limited liability company under the laws of State Z on
Date 3 and is classified as a partnership for federal income tax purposes. The Taxpayer
amended its operating agreement to reflect its purpose of investing in qualified
opportunity zone property as defined in section 1400Z-2(d)(2) on Date 4.

The Taxpayer is owned by the Members, a married couple. On Date 5, the Members
spoke to Accounting Firm in order to obtain advice on the potential tax filing obligations
of the Taxpayer as a QOF. The Accountant and Accounting Firm had previously
prepared individual returns for the Members.

On Date 6, the Members forwarded information regarding the various federal tax filing
obligations for the Taxpayer for Year 1, including the filing of a request for an extension
of time, to Accounting Firm and assumed that Accountant would take all necessary
steps to file the Federal income tax return. The due date for the Taxpayer’s Form 1065
was Date 7.

On Date 8, the Members followed up with the Accounting Firm about the status of the
Taxpayer’s Form 1065 for Year 1. The Members were then informed that that the
Accountant had left Accounting Firm, the Accountant believed that Accounting Firm was
not responsible for the Taxpayer’s return, and that Accounting Firm did not have the
capacity to file the Taxpayer’s return. The Members promptly engaged the New
Accountant, who then filed the Taxpayer’s return on Date 9 with an attached Form
8996, Qualified Opportunity Fund. The Form 8996 indicated that the Taxpayer intended
to be treated as a QOF as of Date 4. Because the Form 1065 and Form 8996 were filed
late, Taxpayer failed to self-certify as a QOF.

After Taxpayer became aware of the consequences of failing to timely file the Form
1065 and 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 and
Accounting Firm 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
PLR-117027-21                                3

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 due date of its income tax
return (including extensions) due to the failure to file a timely filed return.

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)(1)(i), 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.

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.
PLR-117027-21                                  4

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).

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, Taxpayer has satisfied the requirements of the regulations for the granting of
relief and Taxpayer’s Form 8996, filed on Date 9, is considered timely filed.

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 also express no
opinion whether any interest owned in any entity by the Taxpayer qualifies as qualified
opportunity zone property or whether such entity would be treated as a qualified
opportunity zone business. 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
PLR-117027-21                               5

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
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,



                                         Erika Reigle
                                         Senior Technician Reviewer
                                         Office of Associate Chief Counsel
                                         (Income Tax and Accounting)


Cc: