Late-election relief to self-certify as a Qualified Opportunity Fund on Form 8996

Plain-English summary

A company that wanted to be a Qualified Opportunity Fund (QOF), the vehicle investors use to defer capital gains by investing in opportunity zones, has to self-certify by filing Form 8996 with a timely tax return. This taxpayer, an LLC taxed as a partnership, decided after formation to operate as a QOF but, because of a mistaken belief about the filing deadline and a breakdown in communication with its tax advisors, missed the deadline to file its return and Form 8996. After discovering the error, it filed the return and an amended return with the Form 8996 and asked the IRS for relief under the "9100 relief" regulations (Treas. Reg. § 301.9100-3). The IRS granted relief, finding the taxpayer acted reasonably and in good faith and that relief would not prejudice the government, so the late Form 8996 certifying QOF status is treated as timely filed. The IRS expressed no opinion on whether investments in the taxpayer actually qualify or whether the taxpayer otherwise meets the QOF requirements.

Ruling snapshot

• Question: Should the IRS grant an extension of time to file Form 8996 to self-certify as a Qualified Opportunity Fund?
• Outcome: Approved (late Form 8996 treated as timely filed).
• Key authorities: IRC § 1400Z-2(d), (e)(4)(A); Treas. Reg. § 1.1400Z2(d)-1(a); Treas. Reg. §§ 301.9100-1 through 301.9100-3.

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202310002                                             Third Party Communication: None
 Release Date: 3/10/2023                                       Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                               Person To Contact:
 -----------------------------------------------               ----------------, ID No. -----------------
 -----------------------------------                           Telephone Number:
 -----------------------------------                           --------------------
                                                               Refer Reply To:
                                                               CC:ITA:B04
                                                               PLR-110739-22
                                                               Date:
                                                               December 12, 2022




 Taxpayer                        =             -------------------------------------------------------------------------
 Tax Advisors                    =             -----------------------------
 State X                         =             ----------
 Date 1                          =             ------------------
 Date 2                          =             -----------------------
 Date 3                          =             --------------------------
 Date 4                          =             ---------------------------
 Date 5                          =             ---------------------------
 Month 1                         =             ---------------------
 Month 2                         =             ---------------------
 Year 1                          =             -------

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

This responds to Taxpayer’s request dated Date 1, 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 the Taxpayer as a Qualified Opportunity Fund (QOF) defined in section
1400Z-2(d) of the Internal Revenue Code (Code) and (2) for the Taxpayer to be treated
as a QOF, effective as of the month the taxpayer was formed, as provided under Code
§ 1400Z-2 and Treas. Reg. § 1.1400Z2(d)-1(a).

                                                    FACTS

Taxpayer was organized as a limited liability company on Date 2 under the laws of State
X and is classified as a partnership for federal income tax purposes. Taxpayer originally
intended to operate as a qualified opportunity zone business and engaged Tax Advisors
for assistance in doing so. After formation, during Month 1, Taxpayer altered its
strategy to operate as a QOF, as defined in § 1400Z-2(d) of the Code. This shift in
strategy was not communicated with Tax Advisors. In Month 2, Taxpayer solicited
contributions from potential investors and an initial investment in Taxpayer was made
on Date 3. It has been represented that Taxpayer intended to be a QOF during Month
1.

Due to a mistake in belief regarding the filing deadline, Taxpayer failed to timely file its
Year 1 tax return and accompanying Form 8996 to self-certify as a QOF. Taxpayer
became aware of its failure when it subsequently contacted Tax Advisors to prepare its
Year 1 tax return. According to Taxpayer, with assistance from Tax Advisors
Taxpayer’s Year 1 Form 1065 was filed on Date 4, and an amended return including
Taxpayer’s Form 8996 (self-certifying the Taxpayer as a QOF as of Month 1) was filed
on Date 5.

                                   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 Taxpayer did not file its Form 8996 by the due date of its Year 1 income
tax return due to a mistake in belief regarding the filing deadline and subsequent lack of
communication with Tax Advisors.

Because Treas. Reg. § 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).

Treas. Reg. §§ 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. 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.

Section 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 Treasury Regulation § 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.

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,
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 Month 1 is
considered timely filed.

                                         CAVEATS

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 relief under Treas. Reg. § 301.9100-3 as applied
to the election to self-certify the Taxpayer as a QOF by filing Form 8996, Qualified
Opportunity Fund, 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 § 1400Z-2 and the regulations thereunder to be a QOF.
We also 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. Code § 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, a copy of this letter is
being sent to Applicants’ authorized representative.

This letter ruling is being issued electronically in accordance with Rev. Proc. 2022-1,
2022-1 I.R.B. 1. A paper copy will not be mailed to Taxpayer.


                                        Sincerely,



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


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