Late qualified opportunity fund self-certification accepted

Plain-English summary

A partnership formed to operate as a qualified opportunity fund missed the deadlines for its Form 1065 and Form 8996 after a communication failure over which accounting firm would prepare the return. After discovering the error, it filed the return and Form 8996 and requested discretionary filing relief. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government's interests. It therefore treated the Form 8996 as timely filed and accepted the fund's self-certification from the redacted formation month. The ruling does not decide whether the fund or any investment actually satisfies the substantive qualified opportunity zone requirements.

Ruling snapshot

• Question: May the partnership's late Form 8996 be treated as timely for qualified opportunity fund self-certification?
• Outcome: Approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a), 301.9100-1, 301.9100-2, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                Department of the Treasury
                                                         Washington, DC 20224

 Number: 202314006                                       Third Party Communication: None
 Release Date: 4/7/2023                                  Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                         Person To Contact:
 ------------------------------                          ----------------, ID No. -----------------
 ---------------------------------------                 Telephone Number:
  -------------------------                              --------------------
                                                         Refer Reply To:
                                                         CC:ITA:B04
                                                         PLR-113080-22
                                                         Date:
                                                         January 06, 2023




 Taxpayer                              =   --------------------------------------------------------
 Investment Organization               =   -----------------------------------
 X                                     =   -----
 State A                               =   -------------
 Date 1                                =   -------------------
 Date 2                                =   -------------------
 Date 3                                =   --------------------------
 Date 4                                =   ---------------------
 Month 1                               =   ---------------------
 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 that its Form 8996, Qualified Opportunity Fund, filed on Date 2, be
treated as timely for purposes of making an election 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 3 under the laws of State
A and is classified as a partnership for federal income tax purposes. Taxpayer was
formed for the purpose of operating as a QOF.
PLR-113080-22                                 2

Taxpayer is affiliated with Investment Organization, which consists of over X affiliated
partnerships. Generally, Investment Organization’s accounting department engages
one of two different CPA firms to file an affiliated entity’s tax returns. During discussions
as to which CPA firm would be engaged to prepare Taxpayer’s return, there was a
miscommunication regarding Taxpayer’s status as a limited liability company. As a
result, Taxpayer failed to engage the appropriate advisor and subsequently failed to file
its Year 1 Form 1065 and Form 8996 by the filing deadline. On Date 4, Taxpayer
became aware of its failure to timely file its return. On Date 2, Taxpayer filed its Year 1
Form 1065 and accompanying Form 8996, self-certifying as a QOF.

                                  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 an inadvertent miscommunication.

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;
PLR-113080-22                                 3

       (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 Form 8996 filed on Date 2, 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.
PLR-113080-22                                  4

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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