Extra time for a fund to file a late Form 8996 self-certifying as a Qualified Opportunity Fund from its formation

Plain-English summary

The Opportunity Zone rules let investors defer and reduce tax on capital gains they reinvest in a "Qualified Opportunity Fund" (QOF). To be a QOF, an entity must self-certify by filing Form 8996 with its tax return, effective from a chosen month. Here the taxpayer intended to be a QOF from the month it was formed but, relying on its advisors, failed to file the Form 8996 to self-certify. It asked the IRS for an extension under Treasury Regulation section 301.9100-3. The IRS found the taxpayer acted reasonably and in good faith and that relief would not prejudice the government, and granted additional time to file the Form 8996 self-certifying as a QOF for the first year, effective from formation. This lets the fund (and its investors) qualify for the Opportunity Zone tax benefits despite the missed certification.

Ruling snapshot

• Question: Should an entity get more time under section 301.9100-3 to file a late Form 8996 self-certifying as a Qualified Opportunity Fund effective from its formation?
• Outcome: Approved (extension granted to file Form 8996 self-certifying QOF status for the first year).
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. § 1.1400Z2(d)-1; Treas. Reg. §§ 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

 Number: 202206016                                              Third Party Communication: None
 Release Date: 2/11/2022                                        Date of Communication: Not Applicable
Index Number: 1400Z.02-00
                                                                Person To Contact:
------------------------------                                  --------------------------
-----------------------                                         ID No. -----------------
-------------------------------------------------               Telephone Number:
-------------------------------                                 --------------------
                                                                Refer Reply To:
                                                                CC:ITA:B04
                                                                PLR-119190-21
                                                                Date:
                                                                November 09, 2021


                                                    LEGEND

Taxpayer                =          --------------------------------------------------------
Company                 =          ---------------------------
Advisor 1               =          ------------------
Advisor 2               =          ------------------
Advisors                =          ------------------------------------------
Year 1                  =          -------
Season 1                =          ------------------
Month 1                 =          -------------
Date 1                  =          --------------------------
State Z                 =          ----------


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

This letter responds to Taxpayer’s request dated September 9, 2021, seeking a
private letter ruling granting relief to make a late regulatory election pursuant to
Treas. Reg. §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations. Specifically, Taxpayer requests an extension of time to file Form 8996,
Qualified Opportunity Fund, to (1) self-certify as a qualified opportunity fund (QOF),
as defined in section 1400Z-2(d) of the Internal Revenue Code (Code) 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 Treas. Reg. § 1.1400Z2(d)-1(a).

This letter ruling is being issued electronically in accordance with Rev. Proc. 2020-
29, 2020-21 I.R.B. 859. A paper copy will not be mailed to Taxpayer.
PLR-119190-21                               2


                                        FACTS

Taxpayer has represented that the facts are as follows. Taxpayer, a company
organized as a limited liability company under the laws of State Z, was formed as a
QOF on Date 1 for the purpose of investing in qualified opportunity zone property as
defined in section 1400Z-2(d)(2). During Season 1, Taxpayer’s representatives
communicated with Advisor 1 (the tax advisor for a separate company owned by a
member of Taxpayer) and Advisor 2 (an outside tax advisor) regarding investment in
Qualified Opportunity Zones, with the anticipation that Advisors would work together
on the preparation of Taxpayer’s Federal income tax return for Taxpayer’s first year
of operation – Year 1, the year Taxpayer was formed. The information provided by
Taxpayer indicates that Advisors were tasked with preparing and timely filing
Taxpayer’s Federal income tax return and all related forms and elections to self-
certify Taxpayer as a QOF, and to treat Taxpayer as a QOF as of the month
Taxpayer was formed.

According to the affidavits and additional information provided to us, Taxpayer and
Advisors were aware of the requirement to file Form 8996 with the Taxpayer’s timely
filed Federal income tax return for Year 1 for the Taxpayer to self-certify QOF status
and to be treated as a QOF as of the month Taxpayer was formed. Advisors were
retained by Taxpayer so that Taxpayer could comply with the Form 8996
requirements and Advisors were expected to timely file Taxpayer’s Federal income
tax returns and all related forms and elections to self-certify Taxpayer as a QOF.
However, Advisor 1 mistakenly believed that the tax preparation firm retained by
Company (the entity to be invested in as the Qualified Opportunity Zone property)
would be preparing Taxpayer’s Federal income tax returns. Advisor 2 mistakenly
believed that Advisor 1 would be preparing Taxpayer’s Federal income tax returns.
As such, Advisors failed to timely file Taxpayer’s Year 1 Federal income tax return
and Form 8996. During Month 1 Advisors discovered the failure to file the Year 1
federal income tax return and Form 8996. Thereafter, Advisors informed Taxpayer
that the Federal income tax return and Form 8996 had not been timely filed.

Shortly thereafter, Taxpayer submitted this request seeking relief under Treas. Reg.
§§ 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. Treas. Reg. § 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.
PLR-119190-21                                 3

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 due to Advisors’ failure to timely file the Year 1
income tax return or the Form 8996.

Treas. Reg. §§ 301.9100-1 through 301.9100-3 provide the standards that the
Service will use to determine whether to grant an extension of time to make a
regulatory election. Treas. Reg. § 301.9100-3(a) provides that requests for
extensions of time for regulatory elections (other than automatic changes covered in
Treas. Reg. § 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 granting relief will not prejudice the interests of the Government.

Treas. Reg. § 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.

Under Treas. Reg. § 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 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 fully informed 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.

Treas. Reg. § 301.9100-3(c) provides that the Service will grant a reasonable
extension of time only when the interests of the Government will not be prejudiced
by the granting of relief. 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.
PLR-119190-21                                 4

                                     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 the 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 Treas. Reg. § 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 express or implied, concerning whether any
investments made into Taxpayer are qualifying investments as defined in Treas.
Reg. § 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.

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. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, we are sending a
copy of this letter to your authorized representatives.

                                                  Sincerely


                                                  Ronald J. Goldstein
                                                  Senior Technician Reviewer
                                                  (Income Tax & Accounting, Branch 4)