9100 relief to self-certify a late qualified opportunity fund election (Form 8996)

Plain-English summary

An LLC taxed as a partnership was organized to invest in a qualified opportunity zone and intended to self-certify as a qualified opportunity fund (QOF) by filing Form 8996 with its partnership return. Because of a miscommunication between the manager and two accounting firms about which firm was preparing the return, the LLC missed its filing deadline, so the QOF self-certification election was not made on time. The taxpayer asked the IRS for an extension under sections 301.9100-1 and 301.9100-3. The IRS found the taxpayer acted reasonably and in good faith (it had relied on tax professionals and sought relief before the IRS discovered the failure) and that granting relief would not lower its tax or prejudice the government. The IRS therefore treated the late-filed Form 8996 as timely filed, allowing the entity to be certified as a QOF effective from the month it was formed. The ruling does not decide whether the entity actually qualifies as a QOF.

Ruling snapshot

• Question: Should the IRS grant a late-election extension for an entity to self-certify as a qualified opportunity fund on Form 8996?
• Outcome: approved (late Form 8996 treated as timely filed)
• 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: 202230001                                             Third Party Communication: None
 Release Date: 7/29/2022                                       Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                               Person To Contact:
 ------------------------                                      ---------------------, ID No. -----------------
 -------------------                                           Telephone Number:
 ------------------------------------------                    --------------------
 -----------------------------------                           Refer Reply To:
                                                               CC:ITA:B05
                                                               PLR-100257-22
                                                               Date:
                                                               May 02, 2022




Legend

Taxpayer                  =        ----------------------------------------------
Date 1                    =        --------------------------
Year 1                    =        -------
State                     =        -------------
Date 2                    =        -----------------------
Managing Member           =        -------------------------------------------------------
Manager                   =        -------------------
Entity                    =        -----------------------------------------------------------
Year 2                    =        -------
Firm 1                    =        ----------------------------------
Advisor 1                 =        -----------------------
Firm 2                    =        ------------------
Advisor 2                 =        ----------------------
Date 3                    =        --------------------------
Date 4                    =        ---------------------------
Date 5                    =        ---------------------------


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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension under section 301.9100-1 and section 301.9100-3 of
the Income Tax Regulations to (1) make a timely election under section 1.1400Z2(d)-
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,
PLR-100257-22                                2

effective as of the month Taxpayer was formed in Year 1, as provided under section
1400Z-2(d) of the Code and section 1.1400Z2(d)-1(a) of the Income Tax Regulations.

                                         FACTS

Taxpayer is a limited liability company, classified as a partnership for Federal income
tax purposes, organized under the laws of State on Date 2. Taxpayer is an accrual
method taxpayer with a taxable year end of December 31. Taxpayer was organized for
the purpose of investing in qualified opportunity zone property as defined in section
1400Z-2(d)(2) of the Code. Taxpayer is managed by Managing Member. Manager is
the President of Managing Member. Since its formation, Taxpayer has raised and
invested in Entity.

In Year 2, Manager engaged the services of Firm 1 and Advisor 1 to prepare Manager’s
Year 1 individual income tax return as well as several Federal income tax returns for
various entities related to investments in which Manager has a controlling interest.
Manager intended for Firm 1 and Advisor 1 to also prepare Taxpayer’s Year 1 Federal
income tax return, Form 1065, U.S. Return of Partnership Income, including any
necessary extensions or elections related to the return, such as the Form 8996,
Qualified Opportunity Fund.

Firm 2 prepares returns for entities controlled by Manager’s real estate fund business.
Manager engaged Firm 2 and Advisor 2 to prepare Entity’s Year 1 Form 1065. On Date
3, Firm 2 timely filed Entity’s Form 1065 and furnished Entity’s Schedule K-1 to Entity’s
partners, including Taxpayer. On Date 4, Advisor 1 contacted Advisor 2 regarding the
Schedule K-1 furnished by Entity to Taxpayer. Up to Date 4, Advisor 1 believed that
Firm 2 was engaged to prepare Taxpayer’s Year 1 Form 1065. However, Advisor 1
realized on Date 4 that Firm 1 and Advisor 1 had been engaged to file Taxpayer’s Year
1 Form 1065 and that there was a communication error between them and Manager.
As a result, Taxpayer failed to file its Federal income tax return and Form 8996 by the
due date, and consequently, the election to self-certify as a QOF on the Form 8996 was
not timely made.

Upon discovering that Taxpayer’s Year 1 Form 1065 and accompanying election had
not been timely filed, Manager instructed Firm 1 to file Taxpayer’s Year 1 Federal
income tax return and Form 8996. On Date 5, Firm 1 electronically filed Taxpayer’s
Year 1 Form 1065 with a disclosure statement identifying that Taxpayer would pursue
relief under sections 301.9100-1 and 301.9100-3.

Taxpayer 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.
PLR-100257-22                                3


                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) 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(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 with its tax return for the year
to which the certification applies. The Form 8996 must be filed by the due date of the
Federal income tax return (including extensions). The information provided indicates
that Taxpayer did not file its Form 8996 by the due date of its Federal income tax return
(including extensions) due to a miscommunication between Firm 1 and Manager.

Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF
and electing to self-certify as a QOF. As such, these elections are regulatory elections,
as defined in section 301.9100-1(b). According to section 301.9100-3(a), requests for
extensions of time for regulatory elections that do not meet the requirements of section
301.9100-2 (automatic extensions) must be made under the rules of section 301.9100-

3. Additionally, requests for relief subject to section 301.9100-3 will be granted when
the taxpayer provides evidence to establish that the taxpayer acted reasonably and in
good faith, and that the granting 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, failed to make the election, because after
exercising reasonable diligence (taking into account the taxpayer’ s experience and the
complexity of the return or issue), the taxpayer was unaware of the necessity for the
election, 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
PLR-100257-22                                 4

          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).

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 section 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,
Taxpayer has satisfied the requirements of the regulations for the granting of relief and
Taxpayer's Form 8996, filed on Date 4, is considered timely filed.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by all appropriate parties.
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 any interest in Entity owned by Taxpayer qualifies as qualified
opportunity zone property, as defined in section 1400Z-2(d)(2), or whether Entity would
be treated as a qualified opportunity zone business, as defined in section 1400Z-2(d)(3).
PLR-100257-22                                  5

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




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