IRS grants a 60-day extension to file a late Form 8996 self-certifying a Qualified Opportunity Fund

Plain-English summary

An LLC taxed as a partnership was formed to invest in qualified opportunity zone property and to operate as a Qualified Opportunity Fund (QOF), a vehicle that lets investors defer and reduce tax on capital gains they roll into it. To be a QOF, an entity must self-certify each year by attaching Form 8996 to its timely filed tax return. The taxpayer's CPA did not realize Form 8996 was required and did not file it, so the QOF self-certification election was never made on time. The taxpayer asked the IRS for relief under the "9100" regulations (Treas. Reg. § 301.9100-3), which allow more time for a missed election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. A taxpayer is deemed to have acted reasonably when it relied on a qualified tax professional who then failed to make the election. The IRS found the standards met (and none of the disqualifiers, such as hindsight, applied) and granted a 60-day extension to file Form 8996. The extension covers only the Form 8996, not the entity's Form 1065, and the IRS expressed no opinion on whether the entity actually qualifies as a QOF or whether investments into it are qualifying investments.

Ruling snapshot

• Question: May an entity whose accountant failed to file Form 8996 get an extension of time to self-certify as a Qualified Opportunity Fund under section 1400Z-2?
• Outcome: approved
• Key authorities: IRC § 1400Z-2(d), (e)(4)(A); Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202439008
Release Date: 9/27/2024
Index Number: 1400Z.02-00, 9100.00-00

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:
------------------------, ID No. ------------------
Telephone Number:
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Refer Reply To:
CC:ITA
PLR-109882-24

Date:
June 26, 2024

Legend

Taxpayer = [redacted]
State = [redacted]
Practitioner = [redacted]
X = [redacted]
Date 1 = [redacted]
Date 2 = [redacted]
Date 3 = [redacted]
Date 4 = [redacted]
Year 1 = [redacted]
Manager = [redacted]

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

This ruling responds to Taxpayer's request for a letter ruling dated Date 1 and supplemental information dated Date 4. Specifically, Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, to (1) make a timely 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) of the Internal Revenue Code, and (2) for Taxpayer to be treated as a QOF, effective for its taxable year ended Date 3, effective as of Date 2, as provided by section 1400Z-2(d) and section 1.1400Z2(d)-1(a).

FACTS

Taxpayer has represented that the facts are as follows:

Taxpayer is a limited liability company organized under the laws of State and was formed on Date 2. Taxpayer is classified as a partnership for U.S. federal income tax purposes and was formed for the purpose of investing in qualified opportunity zone property and serving as a QOF.

Taxpayer engaged Practitioner to prepare the Year 1 tax returns. Manager was not aware of the necessity to include Form 8996, Qualified Opportunity Fund, with Form 1065. Practitioner is a licensed certified public accountant and has over X years of experience in public and private accounting. Practitioner mistakenly thought that a Form 8996 was not required for Year 1. Manager represents that he relied on Practitioner to prepare the correct forms to self-certify as a QOF. As a result, Taxpayer failed to file its Federal income tax return with Form 8996 by the due date, and consequently, the election to self-certify as a QOF on the Form 8996 was not timely made. Taxpayer then filed this request for relief.

LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) of the Internal Revenue Code directs the Secretary to prescribe regulations for rules for the certification of QOFs. Section 1.1400Z2(d)-1(a)(2) 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 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 Practitioner did not file Taxpayer's Form 8996 because neither Manager nor Practitioner were aware of the requirement.

Because section 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 section 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 section 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.

Under section 301.9100-3(b), a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the Service, or reasonably relied on a qualified tax professional, and the tax 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.

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 section 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.

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 (considering 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.

Based on the facts and information submitted and the representations made, we conclude that Taxpayer has acted reasonable and in good faith, and that the granting of relief would not prejudice the interests of the Government. Taxpayer reasonably relied on a qualified tax professional, and the tax professional failed to make, or advise the taxpayer to make, the election. Accordingly, we grant Taxpayer an extension of 60 days from the date of this letter ruling to file a Form 8996 to make the election to self-certify as a QOF under section 1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i). The election must be made on a completed Form 8996 attached to the Taxpayer's tax return. This letter ruling grants an extension of time to file a Form 8996. This letter ruling does not grant an extension of time to file Taxpayer's Form 1065.

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 information, representations, and other data submitted.

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, 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.

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 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.

Sincerely,

Amy J. Pfalzgraf
Branch Chief, Branch 5
(Income Tax & Accounting)

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