Late Form 8996 self-certification as a Qualified Opportunity Fund treated as timely

Plain-English summary

An LLC taxed as a partnership was formed to operate as a Qualified Opportunity Fund (QOF), the vehicle that lets investors defer capital gains by investing in designated opportunity zones. To become a QOF, an entity must self-certify by filing Form 8996 with its tax return by the return's due date. The fund's overseas manager mistakenly thought the return was due later than it actually was (partly because of COVID-19 travel restrictions that hampered hiring U.S. staff), so the Form 8996 was filed late. The taxpayer asked the IRS for relief under Treas. Reg. § 301.9100-3 to treat the late Form 8996 as timely. The IRS agreed the taxpayer acted reasonably and in good faith and that relief would not prejudice the government, so it treated the Form 8996 as timely filed, meaning the entity made a valid QOF self-certification election for the first year. The IRS expressed no opinion on whether the entity actually qualifies as a QOF or whether any investments into it are qualifying.

Ruling snapshot

• Question: Can a late-filed Form 8996 be treated as timely under § 301.9100-3 so the taxpayer's QOF self-certification election is valid?
• Outcome: Approved (late Form 8996 treated as timely filed)
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2), 301.9100-1 through 301.9100-3; IRC § 6501(a)

Full text (IRS public release)

 Internal Revenue Service                                Department of the Treasury
                                                         Washington, DC 20224

 Number: 202331002                                       Third Party Communication: None
 Release Date: 8/4/2023                                  Date of Communication: Not Applicable
 Index Number: 9100.00-00, 1400Z.01.00,
               1400Z.00-00, 1400Z.02-00                  Person To Contact:
                                                         -----------------, ID No. -----------------
 --------------------                                    Telephone Number:
 ----------------------------------------------------    --------------------
                                                         Refer Reply To:
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                                                         -----------------
 -----------------------------
                                                         CC:ITA:B04
 In Re:                                                  PLR-122178-22
                                                         Date:
                                                         May 09, 2023


 Taxpayer       = ------------------------------
                  ------------------------------

                     ----------------------
 State Z        =    -------------
 Year 1         =    -------
 Tax Year       =    ------------------
 Country 1      =    -------------------
 Advisor             --------------
 Limited        =    ------------------------------
                     ----------------------------
 Firm 1         =    ------------------------------
                     ----
 Firm 2         =    ------------------------------
                     -------
 Date 1         =    ---------------------
 Date 2         =    ---------------------
 Date 3         =    ---------------------
 Date 4         =    ------------------
 Date 5         =    ---------------------
 Date 6         =    -----------------------------
 Date 7         =

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


This letter responds to Taxpayer’s request, dated Date 7, and supplemental
correspondence. Specifically, Taxpayer requests relief under sections 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations for Taxpayer’s Form 8996,
Qualified Opportunity Fund, filed on Date 6, to be treated as timely for the purposes of
making the election: (1) to self-certify Taxpayer as a qualified opportunity fund (“QOF”),
PLR-122178-22                                        2

as defined in section 1400Z-2(d) of the Internal Revenue Code; and (2) for Taxpayer to
be treated as a QOF, effective as of the month Taxpayer was formed, as provided
under section 1400Z-2 and section 1.1400Z(d)-1(a) of the Income Tax Regulations.1

                                                 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 and is classified as a partnership for Federal income tax purposes. Taxpayer
was organized for the purpose of qualifying as a QOF and investing in qualified
opportunity zone property as defined in section 1400Z-2(d)(2). Taxpayer employs the
accrual method of accounting and has a tax year-end of Tax Year.

Advisor serves as the managing director of Limited, which is based in Country 1.
Limited holds a beneficial interest in Taxpayer and provides management services to
Taxpayer.

Advisor and Limited struggled, due to COVID-19 travel restrictions, to hire suitable
supervisory personnel to manage Taxpayer’s financial and tax activities in the United
States. Advisor and Limited were aware of the necessity for Taxpayer to timely file
Form 1065, U.S. Return of Partnership Income, along with a Form 8996, for Year 1
(“Year 1 Return") and had intended to engage an accounting firm, to properly extend the
due date of Taxpayer’s Year 1 Return.

Advisor and Limited, however, mistakenly believed that Taxpayer’s Year 1 Return and
Form 8996 were due on Date 4 rather than on Date 2. Based on this mistaken belief,
Advisor and Limited engaged Firm 1 on Date 3 to file, on Taxpayer’s behalf, a Form
7004, Application for Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns, for Year 1.

Shortly before Date 5, Advisor learned of the missed filing deadline when engaging Firm
2 to replace Firm 1 as Taxpayer’s tax preparer. On Date 5, Advisor engaged Firm 2 to
prepare and file Taxpayer’s Year 1 Return, along with a Form 8996, which Firm 2 did on
Date 6. Shortly thereafter, Advisor engaged Firm 2 to prepare this request seeking
relief under sections 301.9100-1 and 301.9100-3.

                                        LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules 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
1 Hereinafter, all references to sections are to the Internal Revenue Code, (Code), or the Treasury

Regulations (26 CFR Part 1) or (26 CFR Part 301) as applicable.
PLR-122178-22                                3

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 Taxpayer did
not timely file its Form 8996 due to the mistaken belief of Advisor and Limited as to the
filing deadline for Taxpayer’s Year 1 Return.

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. Section
1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF and
electing to self-certify as a QOF. As such, these elections are regulatory elections, as
defined in section 301.9100-1(b)(1).

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.

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.

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
PLR-122178-22                                 4

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. The Form 8996, attached to Taxpayer’s Year 1 Return and filed on Date 6, is
considered timely filed, and Taxpayer has thereby made the election under § 1400Z-2
and § 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF for Year 1. Taxpayer should submit
a copy of this letter ruling to the Service Center where Taxpayer files its returns, along
with a cover letter, requesting that the Service associate this ruling with the Year 1
return.

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.

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 1. Specifically, we
have no opinion, either expressed 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) provides that
it may not be used or cited as precedent. Enclosed is a copy of the letter ruling showing
the deletions proposed to be made when it is disclosed under section 6110.
PLR-122178-22                                 5


In accordance with the Form 2848, Power of Attorney and Declaration of
Representative on file with this office, we are sending an electronic copy of this letter to
your authorized representatives.




                                                  Sincerely,




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




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