9100-3 extension to self-certify a late qualified opportunity fund (Form 8996) election

Plain-English summary

A newly formed LLC taxed as a partnership was set up to be a qualified opportunity fund (QOF), which requires self-certifying each year by filing Form 8996 with a timely partnership return. The taxpayer's accounting firm verbally accepted the engagement, but because of a staff mistake never set up the client in its workflow system and missed the filing deadline, filing neither the return nor an automatic extension. After catching the error, the firm filed the return and Form 8996 late. The taxpayer asked the IRS under Treasury Regulation 301.9100-3 for extra time to make the QOF self-certification, which is a regulatory election. The IRS found the taxpayer acted reasonably and in good faith (it had reasonably relied on a qualified tax professional who failed to act) and that relief would not prejudice the government, so it treated the late-filed Form 8996 as timely. The IRS expressed no opinion on whether the taxpayer actually qualifies as a QOF or whether its underlying investment is a qualified opportunity zone business.

Ruling snapshot

• Question: May a taxpayer get a § 301.9100-3 extension to make a late QOF self-certification (Form 8996) election under § 1400Z-2 after its tax advisor missed the filing deadline?
• Outcome: Approved (late-filed Form 8996 treated as timely)
• Key authorities: IRC § 1400Z-2(d), (e)(4); Treas. Reg. §§ 1.1400Z2(a)-1, 1.1400Z2(d)-1, 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202213007 Third Party Communication: None
Release Date: 4/1/2022 Date of Communication: Not Applicable
Index Number: 1400Z.02-00
Person To Contact:
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---------------------------------------- ID No. ------------
----------------------- Telephone Number:
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Refer Reply To:
CC:ITA:5
In Re:----------------------------------------- PLR-119155-21
Date: January 3, 2022

Legend

Taxpayer = ----------------------------------------------
-------------------------
Member = -----------------
State Z = -----------------
Accounting Firm = --------------------------------------------
----
Tax Advisor = --------------------------------
Entity = --------------------------------------------
---
Date 1 = -------------------
Date 2 = ------------------
Date 3 = ----------------------
Date 4 = ------------------
Date 5 = --------------------------
Date 6 = ----------------------
Date 7 = -----------------
Date 8 = -------------------
Date 9 = -------------------
X% = --------
Year 1 = -------

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

This ruling responds to Taxpayer’s request for a letter ruling dated Date 1. Specifically,
Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of
the Income Tax Regulations, (1) to make a timely election under section 1.1400Z2(a)-
PLR-119155-21 2

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,
effective as of the month Taxpayer was formed in Year 1, as provided by section
1400Z-2(d) and section 1.1400Z2(d)-1(a) of the Income Tax Regulations.

                                      FACTS

Taxpayer was organized as a limited liability company under the laws of State Z on
Date 3 and is treated as a partnership for Federal income tax purposes. Taxpayer’s
overall method of accounting is the cash method of accounting and has a tax year end
of Date 4.

Taxpayer’s sole investment is in Entity. Entity is a limited liability company 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).

Taxpayer engaged the services of Accounting Firm in Year 1. According to the
affidavits and information provided to us, on or about Date 5, Member had a
conversation with Tax Advisor to prepare and timely file Taxpayer’s 2020 Federal
income tax return, Form 1065, U.S. Return of Partnership Income, and all related forms
and elections to self-certify Taxpayer as a QOF. Tax Advisor verbally accepted the
engagement and the responsibility to prepare and file a timely return, including the
preparation and filing of an automatic extension using Form 7004, Application for
Automatic Extension of Time to File Certain Business Income Tax, Information and
Other Returns, if necessary. Accounting Firm uses a standardized procedure to be
followed upon the acceptance of a new engagement in order for a new client to be set
up in Accounting Firm’s workflow management system. However, Tax Advisor failed to
follow Accounting Firm’s procedure and therefore Taxpayer was not setup in Accounting
Firm’s system. Since Taxpayer was not set up in Accounting Firm’s system, Tax
Advisor failed to file Taxpayer’s federal income tax return or Form 7004 by the Date 6
deadline.

On Date 7, Tax Advisor became aware of the failure to file Taxpayer’s automatic
extension and began preparing the Taxpayer’s Federal income tax return and all related
forms and elections. Tax Advisor prepared Form 8996, Qualified Opportunity Fund and
filed it with Taxpayer’s Form 1065 for Year 1 on Date 2.

                               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(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
PLR-119155-21 3

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 Accounting Firm did not file Taxpayer’s Federal income tax return and the
Form 8996 by Date 6 due to a mistake made by Tax Advisor.

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.

PLR-119155-21 4

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 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,
Taxpayer has satisfied the requirements of the regulations for the granting of relief and
Taxpayer's Form 8996, filed on Date 2, is considered timely filed.

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)(34) or whether the taxpayer meets the requirements under
§ 1400Z-2 and the regulations thereunder to be a QOF. Further, we also express no
opinion on whether Entity is a qualified opportunity zone business, as defined under
§ 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 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-119155-21 5

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

A copy of this letter must be attached to any income 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.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

                                               Sincerely,




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

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