IRS grants a corporation a late election to self-certify as a Qualified Opportunity Fund for two years after its preparer left Form 8996 off the returns

Plain-English summary

An entity becomes a Qualified Opportunity Fund (QOF), a vehicle for deferring and reducing tax on capital gains reinvested in low-income "opportunity zones," by self-certifying on Form 8996 attached to a timely filed tax return each year. Here the taxpayer was a corporation formed to act as a QOF, and it invested in a related corporation operating a business in an opportunity zone. The taxpayer hired a return preparer that understood a Form 8996 was required, but when the preparer filed the taxpayer's consolidated corporate returns (Form 1120) for two consecutive years, it left the Form 8996 off both times, so the QOF self-certification was never made. After the IRS asked for more information and the error surfaced, the taxpayer requested "9100 relief" (an extension of time to make a missed regulatory election under Treas. Reg. § 301.9100-3) for both years. The IRS granted it, finding the taxpayer reasonably relied on a qualified tax professional and that relief would not prejudice the government. The taxpayer has 60 days to file the two Forms 8996 with amended returns, and the self-certification is treated as timely. As usual, the IRS did not decide whether the taxpayer actually qualifies as a QOF. It matters to opportunity-zone investors whose preparer repeatedly omitted the self-certification form.

Ruling snapshot

• Question: Should the IRS grant a corporation an extension of time under § 301.9100-3 to file late Forms 8996 self-certifying it as a Qualified Opportunity Fund for two years after its preparer omitted the form?
• Outcome: approved (60 days to file the Year 1 and Year 2 Forms 8996 with amended returns; treated as timely)
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. § 1.1400Z2(d)-1(a)(2); Treas. Reg. §§ 301.9100-1, 301.9100-3; IRC §§ 6662, 6501

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                 Washington, DC 20224

Number: 202339010                                                [Third Party Communication:
Release Date: 9/29/2023                                          Date of Communication: Month DD, YYYY]
Index Number: 9100.00-00, 1400Z.02-00
                                                                 Person To Contact:
---------------------                                            --------------------------, ID No. ----------------
----------------------------                                     -----------------
------------------------------------                             Telephone Number:
                                                                 --------------------
Attn: ----------------------                                     Refer Reply To:
                                                                 CC:ITA:B04
                                                                 PLR-122200-22
                                                                 Date:
                                                                 June 30, 2023
VIA eFAX



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

QOZB                           =       ---------------------------------------------------------------------

Date 1                         =       ----------------

Date 2                         =       ----------------

Date 3                         =       ------------------

Date 4                         =       ------------------

Date 5                         =       ---------------------------------------

Date 6                         =       ----------------------

Date 7                         =       -----------------------

Date 8                         =       -----------------------

Date 9                         =       -----------------------

Date 10                        =       ----------------

Date 11                        =       -------------------------

Year 1                         =       -------
PLR-122200-22                                    2


 Year 2                   =     -------

 X                        =     --------

 Y                        =     --------

 Member A                 =     ----------------------

 Member B                 =     -------------------

 Tax Return Preparer      =     ------------------



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

This letter responds to Taxpayer's request dated Date 11. Specifically, Taxpayer
requests relief under Treasury Regulation §§ 301.9100-1 and 301.9100-3 to allow
Taxpayer to file Forms 8996 (Qualified Opportunity Fund) for Year 1 and Year 2 and for
the Forms 8996 to be treated as timely for purposes of the election: (1) to self-certify the
Taxpayer as a qualified opportunity fund (QOF), as defined in § 1400Z-2(d) of the
Internal Revenue Code (Code); and (2) for the Taxpayer to be treated as a QOF,
effective as of Date 1, as provided under Code § 1400Z-2 and Treasury Regulation §
1.1400Z2(d)-1(a).

                                            FACTS

According to the information and representations provided, Member A and Member B
(hereto referred to as Shareholders, collectively), as part of a QOF structuring plan,
formed QOZB, a corporation for U.S. tax purposes, on or around Date 2, for the
purpose of being a qualified opportunity zone business and operate a newly formed
business in a Qualified Opportunity Zone (QOZ). On Date 3, Shareholders formed
Taxpayer, a corporation for U.S. tax purposes, for the purposes of qualifying as a QOF
and investing in qualified opportunity zones (QOZ). On Date 4, Taxpayer’s Board of
Directors adopted a resolution that Taxpayer was formed for the purpose of serving as a
QOF. Taxpayer currently has two members, Member A and Member B. Member A
owns a X percent interest in Taxpayer, while Member B owns a Y percent interest.

In Date 5, in anticipation of Taxpayer’s 2019 tax return filing obligations, Member A
engaged Tax Return Preparer to prepare Taxpayer’s and QOZB’s federal and state
corporation tax returns for the Year 1 tax year. Taxpayer represents that it reasonably
believed Tax Return Preparer to be competent, reliable, and sophisticated in handling
federal income tax matters, including the filing of federal income tax returns and self-
certifications with respect to QOFs. Taxpayer also represents that Tax Return Preparer
PLR-122200-22                                3

understood that Taxpayer was required to file a Form 8996 in Year 1 in order to self-
certify as a QOF.

Prior to engaging Tax Return Preparer, Taxpayer filed a timely request for an extension
of time to file its Year 1 return, extending Taxpayer’s due date for its Year 1 return to
Date 8.

Taxpayer represents that due to common ownership of Taxpayer and QOZB, Taxpayer
and QOZB are an affiliated group which may elect to file a consolidated return in lieu of
separate returns. In Date 6, Tax Return Preparer began preparing Taxpayer’s Form
1120 consolidated return for Year 1. However, when Tax Return Preparer filed
Taxpayer’s Year 1 Form 1120 consolidated return, the necessary Form 8996 was not
included in the filing. Taxpayer’s Form 1120 was filed on Date 7.

It has been represented that the same issue occurred for Year 2. As such, Taxpayer’s
Year 2 Form 1120 (filed on Date 9) did not include the necessary Form 8996 with
Taxpayer’s Form 1120.

On Date 10, Taxpayer was notified of that additional information was needed in
connection with Taxpayer’s Form 8996 for Tax Year 1. Upon further review, Taxpayer
identified the error and failure to timely file the Form 8996. Taxpayer then proceeded to
prepare this private letter ruling request.


                                 LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Treasury Regulation § 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 the Taxpayer did not file its Form 8996 by the due date of its income tax
return (including extensions) due to Tax Return Preparer’s failure to file a Form 8996
with Taxpayer’s Forms 1120 for Year 1 and Year 2.

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 § 301.9100-1(b). According to Treasury Regulation § 301.9100- 3(a),
requests for extensions of time for regulatory elections that do not meet the
requirements of Treasury Regulation § 301.9100-2 (automatic extensions) must be
PLR-122200-22                                4

made under the rules of Treasury Regulation § 301.9100-3. Additionally, requests for
relief subject to § 301.9100-3 will be granted when the taxpayer provides evidence to
establish that the taxpayer acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the government.

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 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.

In addition, § 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 respects 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 ordinarily grant relief.
PLR-122200-22                                 5

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's request for extension of time to elect to be a QOF and to self-
certify as a QOF is a regulatory election governed by Treasury Regulation § 301.9100-

3. We further conclude that, based on the facts and information submitted in connection
with this request, 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 has 60 days from the date of this letter to file its Forms 8996, certifying the
Taxpayer as a QOF as of Date 1, for Year 1 and Year 2. The election must be made on
completed Forms 8996 attached to the Taxpayer’s amended tax returns or
administrative-adjustment requests (as applicable).


                                        CAVEATS

This ruling is based upon facts and representations submitted by the Taxpayer and
accompanied by penalty of perjury statements executed by the appropriate parties.
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 Treasury Regulation § 301.9100-3 relief as applied
to the election to self-certify the Taxpayer as a QOF by filing Forms 8996 for Year 1 and
Year 2. Specifically, we have no opinion, either express or implied, concerning whether
any investments made into Taxpayer are qualifying investments as defined in Treasury
Regulation § 1.1400Z2 (a)-1(b)(34) or whether Taxpayer meets the requirements and
structure under § 1400Z-2 and the regulations thereunder to be a QOF. In addition, 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
PLR-122200-22                                            6

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. Enclosed is a copy of the letter ruling
showing the deletions proposed to be made when it is disclosed under Code § 6110.

Pursuant to the Form 2848, Power of Attorney and Declaration of Representation, on
file, we are sending a copy of this letter to Taxpayer's authorized representatives.

This letter is being issued electronically in accordance with Rev. Proc. 2020-29, 2020-
21 I.R.B. 859 and Rev. Proc. 2022-1, 2022-1 I.R.B. 1. A paper copy will not be mailed
to the taxpayer.

                                                             Sincerely,



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


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