Late Form 8996 was treated as timely after an adviser used the wrong tax year-end

Plain-English summary

A corporation that had been a qualified opportunity fund converted to a partnership and later merged into another entity, creating a short tax year. The resulting partnership intended to self-certify as a qualified opportunity fund from the conversion date. Its tax professional mistakenly assumed a calendar year-end, so the short-year return and Form 8996 were not filed on time. Because the taxpayer reasonably relied on that professional and satisfied the regulatory relief standards, the IRS treated the later-filed Form 8996 as timely, while expressly declining to decide whether the entity, its investments, conversion, or merger otherwise qualified for the claimed tax treatment.

Ruling snapshot

• Question: Could the partnership's late Form 8996 self-certification be treated as timely after its adviser used the wrong tax year-end?
• Outcome: Approved, with the filed Form 8996 treated as timely
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202316001
Release Date: 4/21/2023 Third Party Communication: None
Date of Communication: Not Applicable
Index Number: 1400Z.02-00, 9100.00-00
Person To Contact:

                                                          --------------------------, ID No. ---------------

                                                          Telephone Number:

----------------------------- --------------------
Refer Reply To:
CC:ITA:B05
PLR-111768-22

                                                          Date:
                                                          January 23, 2023

Legend

Taxpayer = -----------------------------------
Entity A = ---------------------------
Entity B = -----------------------------
Entity C = -------------------
X% = --------------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = -------
Date 1 = -------------------
Date 2 = ----------------
Date 3 = ------------------
Date 4 = ---------------------------
Date 5 = ----------------------
Date 6 = -----------------------
Date 7 = ------------------
Month 1 = --------------
Manager = --------------------
Tax = -------------------
Professional
Tax Firm = ---------

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

This ruling responds to Taxpayer’s request dated Date 1. Specifically, Taxpayer
requests relief under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations granting an extension of time to make a timely election

PLR-111768-22 2

under § 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations to self-certify as a
Qualified Opportunity Fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue
Code (Code). Taxpayer also requests to be treated as a QOF, effective as of Date 5, as
provided under § 1400Z-2(d) of the Code and § 1.1400Z2(d)-1(a) of the Income Tax
Regulations.

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.

                                      FACTS

Entity A was formed as a corporation in Year 1 and timely self-certified as a QOF for the
Year 2 tax year.

Entity B was organized as a limited liability company in Year 3 and is treated as a
partnership for U.S. Federal income purposes. Entity B made a timely election to self-
certify as a QOF effective Date 3. On Date 4, Entity B acquired X% of the common
stock of Entity A.

On Date 5, Entity A was converted to a limited liability company classified as a
partnership for U.S. Federal income tax purposes and changed its name, becoming
Taxpayer. Taxpayer was organized for the purpose of qualifying as a QOF effective as
of Date 5. However, the QOF election was not timely made. Taxpayer represents that
the Date 5 conversion was a taxable liquidation of the assets and liabilities of Entity A to
its shareholders, followed by a contribution of the same assets and liabilities to
Taxpayer.

On Date 6, Taxpayer merged into Entity C, with Entity C as the surviving entity. Entity C
is disregarded as an entity separate from its owner, Entity B. Therefore, Taxpayer is
treated as merging into Entity B.

The Date 6 merger was intended to qualify as the tax-free merger of two QOF
partnerships under § 1.1400Z2(b)-1(c)(6)(ii)(C)(2). However, Taxpayer failed to timely
make an election to self-certify as a QOF as of Date 5 on Form 8996, Qualified
Opportunity Fund. Taxpayer represents that it is eligible to make an election to self-
certify as a QOF under § 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations.

Manager represents that he relied on Tax Professional to prepare the Taxpayer’s return
and related documents, including information for the Date 5 conversion and Date 6
merger for Taxpayer’s tax year ending on Date 6.

Tax Professional was provided with all relevant information and documents to timely file
Taxpayer’s short-year tax return and Form 8996 to self-certify as a QOF. Tax
Professional filed a request for an extension to file Taxpayer’s tax return on the date
Tax Professional believed to be the deadline. However, Tax Professional mistakenly

PLR-111768-22 3

assumed that Taxpayer’s tax year ended on December 31, Year 4, not Date 6. As a
consequence, Taxpayer’s tax return and Form 8996 to self-certify as a QOF were not
timely filed.

In Month 1, Manager employed Tax Firm to prepare Taxpayer’s tax return for Year 4.
An employee of Tax Firm discovered that Tax Professional did not timely file Taxpayer’s
request for an extension to file and promptly informed Manager. Upon discovery, Tax
Firm prepared this submission requesting relief.

On Date 7, Taxpayer filed its Form 1065 and Form 8996 for the short period ending
Date 6.

                             LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Code directs the Secretary to prescribe regulations for
rules for the certification of QOFs. Section 1.1400Z2(d)-1(a)(2)(i) 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 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 forms or
instructions, or in publications or guidance published in the Internal Revenue Bulletin.

To self-certify as a QOF, a taxpayer must file a 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 any extensions). The information
provided indicates that the Tax Representative did not file Taxpayer’s Form 8996 due to
Tax Professional’s mistaken belief that Tax Professional had timely filed a request for
an extension and therefore, could timely file Taxpayer’s tax return and Form 8996 to
self-certify as a QOF.

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 by § 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 a taxpayer provides evidence (including affidavits) to establish that the
taxpayer acted reasonably and in good faith and in the grant of relief will not prejudice
the interests of the Government.

Under Section 301.9100-3(b)(v), a taxpayer is deemed to have acted reasonably and in
good faith if the taxpayer reasonably relied on a qualified tax professional and the tax
professional failed to make, or advise the taxpayer to make, the election.

PLR-111768-22 4

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 aspects 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 grant ordinary 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 the taxpayer having a lower tax liability in the aggregate
for all taxable years affected by the election than the taxpayer would have has 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 limitation 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, the
Taxpayer has satisfied the requirements for the granting of relief. Taxpayer reasonably
relied on Tax Professional who failed to make a timely election. Accordingly, Taxpayer’s
Form 8996, dated Date 7, 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 the 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 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

PLR-111768-22 5

whether any investments made into Taxpayer are qualifying investments as defined
§ 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets requirements under § 1400Z-2 and
the regulations thereunder to be a QOF. Further, we also express no opinion on
whether any interest owned in any entity by Taxpayer qualifies as qualified opportunity
zone property, as defined in § 1400Z-2(d)(2), or whether such entity would be treated as
a qualified opportunity zone business, as defined in § 1400Z-2(d)(3). 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.

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 regarding the tax treatment of the Date 5
conversion or Date 6 merger.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used of 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 representatives.

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 the return that provides the date and control number of this
letter ruling.

The rulings contained in this letter are based upon information and representations
submitted by 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.

PLR-111768-22 6

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,



                                       Amy J. Pfalzgraf
                                       Acting Branch Chief, Branch 5
                                       Office of Associate Chief Counsel
                                       (Income Tax & Accounting)

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