Opportunity fund gets 45 more days to file the Form 8996 its accountant forgot to attach

Plain-English summary

To get the tax benefits of a Qualified Opportunity Fund (QOF), an entity
has to "self-certify" each year by attaching Form 8996 to its timely-filed
tax return. Here, an LLC taxed as a partnership was set up to be a QOF and
invested in opportunity-zone property, but the accountant it hired filed
the partnership return on time and forgot to attach Form 8996. When the
accountant later caught the mistake, the taxpayer asked the IRS for late
relief under the § 301.9100 regulations. Because the manager reasonably
relied on a qualified tax professional who dropped the ball, and granting
relief would not give the taxpayer a windfall or harm the government, the
IRS found the taxpayer acted reasonably and in good faith. It granted 45
days to file an amended return with the Form 8996 election. The IRS
expressed no view on whether the entity actually qualifies as a QOF.

Ruling snapshot

• Question: Should a taxpayer get more time to file a late Form 8996
  QOF self-certification its tax advisor failed to attach?
• Outcome: Approved (45-day extension to file an amended return)
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2)(i),
  301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202306003
Release Date: 2/10/2023
Index Number: 1400Z.02-00, 9100.00-00

[Third Party Communication:
Date of Communication: Month DD, YYYY]

Person To Contact:
------------------, ID No. -----------------
Telephone Number:

Refer Reply To:
CC:ITA:B04
PLR-109640-22
Date:
November 09, 2022

LEGEND

Taxpayer = -------------------------------------------------
Tax Advisor = -------------------------
Manager = ----------------------
State = ------------
Date 1 = -----------------------
Date 2 = -----------------------
Date 3 = --------------------
Year 1 = -------

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

This responds to Taxpayer's request dated April 29, 2022. Specifically, Taxpayer
requests relief under Treasury Regulation §§ 301.9100-1 and 301.9100-3 granting an
extension of time to make a timely election under Treasury Regulation § 1.1400Z-2(a)-
1(a)(2)(i) to be certified as a Qualified Opportunity Fund (QOF), as defined in § 1400Z-
2(d) of the Internal Revenue Code (Code).

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 Taxpayers.

                                     FACTS

Taxpayer was organized as a limited liability company under the laws of State on Date 1
and it is classified as a partnership for federal income tax purposes. On Date 2,
Taxpayer adopted a resolution to its operating agreement stating that the purpose of
Taxpayer is to act as a Qualified Opportunity Fund and invest in a Qualified Opportunity
Zone Business. Shortly thereafter, Taxpayer made an investment to acquire Qualified
Opportunity Zone Property as defined in Code §1400Z-2(d)(2). Taxpayer's Manager
retained Tax Advisor, a qualified tax advisor, to file Taxpayer's Form 1065 for the Year

1. Tax Advisor has multiple years of experience in both public and private accounting
   and has a high level of expertise for tax reporting. Manager does not have tax expertise
   and represents that he relied on Tax Advisor, who he believed had a high level of
   expertise in tax preparation and reporting.

It has been represented that, at the time Tax Advisor was retained, Tax Advisor was
made aware of Taxpayer's desire and intent to self-certify as a Qualified Opportunity
Fund at the time of filing Taxpayer's Year 1 federal income tax return. Tax Advisor
timely filed Taxpayer's Year 1 federal income tax return but failed to attach Form 8996
(which is required to certify Taxpayer as a Qualified Opportunity Fund for Year 1). On
Date 3, Tax Advisor became aware of his failure to timely file Form 8996 with
Taxpayer's federal income tax return for Year 1. Upon being made aware that Form
8996 had not been timely filed, Taxpayer submitted this request for relief.

                              LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Treasury Regulation § 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 Service in
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).

Because § 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 § 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 § 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 § 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, § 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).

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 Taxpayer an extension of 45 days from the date of this letter ruling to file an
amended Year 1 income tax return to make the election under § 1400Z-2 and
§ 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 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
§ 1.1400Z2 (a)-1(b)(34) or whether Taxpayer meets the requirements under § 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.

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.

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

                                       Sincerely,



                                       Lisa Mojiri-Azad
                                       Senior Technician Reviewer, Branch 4
                                       Office of Associate Chief Counsel
                                       (Income Tax and Accounting)

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