IRS grants late-filing relief to self-certify as a Qualified Opportunity Fund after the preparer omitted Form 8996

Plain-English summary

An LLC taxed as a partnership was formed to be a Qualified Opportunity Fund (QOF), the vehicle that lets investors defer capital-gains tax by reinvesting the gain in a designated low-income "opportunity zone." To become a QOF, an entity must self-certify by filing Form 8996 with a timely filed tax return. Here the fund hired two advisors, timely extended and filed its return, but the preparer inadvertently left the Form 8996 off the return, so the QOF election was missed. One advisor then wrongly suggested fixing the problem with an amended return, which does not cure a missed election. After discovering the election was still not valid, the fund asked the IRS for relief under the "9100" regulations (Treas. Reg. §§ 301.9100-1 and 301.9100-3), which let the IRS treat a missed regulatory election as timely when the taxpayer acted reasonably and in good faith and granting relief will not prejudice the government. Because the fund reasonably relied on a tax professional who failed to make the election, the IRS granted relief: the late Form 8996 will be treated as timely if filed within 60 days, effective from the month the fund was formed. This ruling (PLR-117048-22) is a companion to 202320005 (PLR-117049-22): the two letters are issued the same day, on identical facts, to related funds. The ruling grants only the extension of time and gives no opinion on whether the fund actually qualifies as a QOF.

Ruling snapshot

• Question: Should the IRS grant an extension of time under Treas. Reg. § 301.9100-3 to treat a late-filed Form 8996 (QOF self-certification) as timely?
• Outcome: Approved (relief granted; late Form 8996 treated as timely if filed within 60 days)
• Key authorities: IRC § 1400Z-2; Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i); 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: 202320004                                               Third Party Communication: None
Release Date: 5/19/2023                                         Date of Communication: Not Applicable
Index Number: 1400Z.02-00, 9100.00-00,
              9100.22-00                                        Person To Contact:
                                                                --------------------------, ID No. ----------------
-----------------------------------------                       Telephone Number:
---------------------------------                               --------------------
------------------------------                                  Refer Reply To:
 ---------------------------------                              CC:ITA:B04
                                                                PLR-117048-22
                                                                Date:
                                                                February 22, 2023

                                                     LEGEND

 Taxpayer         =          ------------------------------------------------------------------
 Manager          =          --------------------------
 Advisor 1        =          ----------------
 Advisor 2        =          -------------
 Tax Year         =          ------------------
 Year 1           =          -------
 Year 2           =          -------
 Year 3           =          -------
 Date 1           =          ----------------------
 Date 2           =          --------------------
 Date 3           =          --------------------------
 Date 4           =          --------------------------
 Date 5           =          -----------------
 Date 6           =          ----------------------
 Month 1          =          ------------
 Month 2          =          ------------
 Month 3          =          --------------
 State Z          =          ----------

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

This letter responds to Taxpayer's request, dated Date 6, for a private letter ruling.
Specifically, Taxpayer requests an extension of time, under sections 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations,1 to file Form 8996,

1 Unless otherwise specified, all "section" or "§" references are to sections of the Internal Revenue Code
(Code) or the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301).

Qualified Opportunity Fund (QOF), for purposes of: (1) making the election, under
section 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations, to be certified as a
qualified opportunity fund (QOF), as defined in section 1400Z-2(d), and (2) to be treated
as a QOF, effective as of the month the Taxpayer was formed, as provided under
section 1400Z-2(d) and section 1.1400Z2(d)-1(a).

                                          FACTS

Taxpayer has represented that the facts are as follows.

Taxpayer was organized as a limited liability company under the laws of State Z on
Date 1. Taxpayer is classified as a partnership for Federal income tax purposes.
Taxpayer's method of accounting is the accrual method of accounting and has a tax
year end of Tax Year. Manager is the partnership representative of Taxpayer.

At the end of Year 1, Manager engaged Advisor 1 to advise Taxpayer and Advisor 2 on
issues pertaining to section 1400Z-2 and related tax regulations. On Date 2, Advisor 1
informed Advisor 2 that Taxpayer must self certify as a QOF for Year 2 by filing a Form
8996 with Taxpayer's Year 2 Federal income tax return ("Year 2 Return") in order for
Taxpayer to be treated as a QOF as of the month Taxpayer was formed, Month 1 of
Year 2.

In Month 2 of Year 1, Manager became aware that a QOF must file a Form 8996 with its
Federal income returns in order to self certify. Advisor 1 and Advisor 2 met in Year 2 to
discuss the details of Taxpayer's Year 2 filing requirements and Form 8996.

Advisor 2 timely filed a Form 7004, Application for Automatic Extension of Time To File
Certain Business Income Tax, Information, and Other Returns, during Year 3 and
subsequently filed Taxpayer's Year 2 Return on Date 3 but inadvertently failed to
include a Form 8996 with the return.

In Month 3 of Year 3, Advisor 1 asked Advisor 2 whether Advisor 2 had filed a Form
8996 with the Taxpayer's Year 2 return. Advisor 2 reported that they had inadvertently
failed to do so. Advisor 1 erroneously advised Advisor 2 that Taxpayer could rectify the
failure by having Taxpayer file an amended Federal income tax return for Year 2.
Pursuant to this advice from Advisor 1, Advisor 2 prepared and Taxpayer filed on Date 4
an amended Year 2 Federal income tax return, which included a Form 8996.

Taxpayer discovered around Date 5 that Taxpayer's election to be a QOF was not
timely filed and promptly made this request for relief under sections 301.9100-1 and
301.9100-3.

Taxpayer represents that it relied on Advisor 2 to timely file Form 8996. Taxpayer
further 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.

                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for the
certification of QOFs. Section 1.1400Z2(d)-1(a)(2) 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
tax return (including extensions). The information provided indicates that the Taxpayer
did not file a Form 8996 with its timely filed income tax return due to Advisor 2's failure
to include the completed form with Taxpayer's Year 2 Return filed on Date 3.

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 301.9100-1(b) defines the term "regulatory election" as including any election,
whose due date is prescribed by a regulation published in the Federal Register.
Because section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for an entity to
self-certify as a QOF, this election is a regulatory election within the meaning of section
301.9100-1(b)

Section 301.9100-3(a) provides that requests for extensions of time for regulatory
elections (other than automatic changes covered in section 301.9100-2) will be granted
when 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.

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.

Under section 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 has
              been or could be imposed under section 6662 at the time the taxpayer
              requests relief and the new position requires a regulatory election for
              which relief is requested;
      (ii)    Was informed in all material respects 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) provides that the Commissioner will grant a reasonable
extension of time to make a 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.

                                     CONCLUSION

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, 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
the month the Taxpayer was formed, will be considered timely filed provided it is
received by the appropriate service center no later than 60 days from the date of this
letter ruling.

This ruling is based upon facts 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 a
ruling, it is subject to verification on examination.

This ruling addresses the granting of section 301.9100-3 relief as applied to the election
to self-certify the Taxpayer as a QOF by filing Form 8996 for Year 2. Specifically, we
have 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 Taxpayer meets the requirements under section 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.

Pursuant to the Form 2848, Power of Attorney and Declaration of Representation 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 their return that provides the date and control number of the
letter ruling.

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,



                                       Alexa T. Dubert
                                       Senior Technician Reviewer
                                       Branch 4
                                       Office of Associate Chief Counsel
                                       (Income Tax & Accounting)


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