Opportunity fund receives 45 days to make a late self-certification election

Plain-English summary

A limited liability company taxed as a partnership was formed to invest in and rehabilitate qualified opportunity zone property and intended to operate as a qualified opportunity fund. Its tax adviser did not know that the company needed to file Form 8996 with a timely federal return to self-certify as a fund, even though it otherwise believed it had no filing obligation for that year. After a new accounting firm discovered the omission, the company requested discretionary late-election relief under the Section 9100 regulations. The IRS found that the company acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days to file an amended return and make the election on Form 8996. The ruling did not decide whether the company's investments qualified or whether it otherwise met the substantive requirements for qualified opportunity fund status.

Ruling snapshot

• Question: Could the company late-file Form 8996 and elect qualified opportunity fund status beginning with the first month of the relevant tax year?
• Outcome: Approved, with 45 days to file an amended return and Form 8996
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(a)-1, 1.1400Z2(d)-1, 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                         Department of the Treasury
                                                  Washington, DC 20224

 Number: 202141004                                Third Party Communication: None
 Release Date: 10/15/2021                         Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                  Person To Contact:
 --------------                                   --------------------, ID No. ------------
 ---------------------------------------          Telephone Number:
 ------------------------------------             --------------------
 ---------------------------                      Refer Reply To:
 ----------------------------                     CC:ITA:5
                                                  PLR-109639-21
 --------------------------                       Date:
                                                  July 21, 2021




 Legend


 Taxpayer                            =                     ----------------------------------------
 B                                   =                     --------------------------
 State Z                             =                     ----------------------
 Tax Advisor                         =                     -------------------------
 Accounting Firm                     =                     ---------------------------------

 Accounting Firm C                   =                     -----------------
 Entity                              =                     ---------------
 Date 1                              =                     ------------------
 Date 2                              =                     ---------------------------
 Date 3                              =                     --------------------------
 Date 4                              =                     ------------------
                                     =
 X%                                  =                     ---------
 Year 1                              =                     -------
 Year 2                              =                     -------


Dear ------------------

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension under sections 301.9100-1 and 301.9100-3 of the
Income Tax Regulations to (1) make a timely election under section 1.1400Z2(a)-
1(a)(2)(i) 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
as of the first month of its taxable year ending Date 2, as provided by section 1400Z-2
and section 1.1400Z2(d)-1(a).
PLR-109639-21                                2

                                         FACTS

Taxpayer is a limited liability company organized under the laws of State Z on Date 3
and is treated as a partnership for Federal income tax purposes. Taxpayer was
organized for the purpose of investing in and rehabilitating qualified opportunity zone
property as defined in section 1400Z-2(d)(2) of the Internal Revenue Code. Taxpayer’s
method of accounting is the accrual method of accounting with a tax year end Date 4.
Taxpayer is requesting an extension of time under section 301.9100-3(b)(1) of the
Income Tax Regulations to self-certify as a Qualified Opportunity Fund (QOF) under
section 1.1400Z2(d)-1.

Taxpayer was formed with the intent to be the X% owner of Entity. Entity is an LLC
classified as a partnership for federal income tax purposes and was formed for the
purpose of operating as a Qualified Opportunity Zone Business as defined in § 1400Z-
2(d)(3) and section 1400Z2(d)(-1).

Taxpayer engaged the services of Accounting Firm in Year 1. Tax Advisor was the
primary contact for Taxpayer, and aware of Entity’s acquisition of the property in a
qualified opportunity zone. According to the affidavits and additional information
provided to us, B and Taxpayer discussed forming a QOF. However, Tax Advisor was
unaware of the requirement to file Form 8996, Qualified Opportunity Fund with the
Taxpayer’s timely filed Year 1 Federal income tax return for Taxpayer to self-certify
QOF status, as Taxpayer otherwise had no filing obligation for that taxable year. As a
result, Taxpayer failed to file Form 8996 and its Form 1065, U.S. Return of Partnership
Income for Year 1 by the due date. B became concerned with the level of service
Taxpayer received from Tax Advisor. B engaged the services of Accounting Firm C in
Year 2. In discussions with Accounting Firm C concerning the qualification of Taxpayer
as a QOF,B was informed of the need to file Form 8996 with the tax return for the Year

1. B subsequently authorized Accounting Firm C to file a private ruling request for relief
under sections 301.9100-1 and 301.9100-3 on Date 1.

                                  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 that the rules for an entity to self-certify as a
QOF. Section 1.1400Z2(a)-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, 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
PLR-109639-21                                3

indicates that the taxpayer did not file its Form 8996 by the due date of its income tax
return (including extensions) due to his belief that submission was not required for the
year at issue.

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 § 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.
PLR-109639-21                                 4

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 has acted reasonably and in good faith, and that the granting of
relief would not prejudice the interests of the government. Accordingly, based solely on
the facts and information submitted, and the representations made in the ruling request,
we grant the taxpayer an extension of 45 days from the date of this letter ruling to file an
amended return to make the election under section 1400Z-2 and section 1.1400Z2(d)-
1(a)(2)(i). The election is to be made on Form 8996.

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.

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)(3) or whether the 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.
PLR-109639-21                                  5

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.


                                       Sincerely,


                                       Shareen S. Pflanz
                                       Chief, Branch 5
                                       Office of Associate Chief Counsel
                                       (Income Tax & Accounting)




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