IRS grants 45 more days to make a late Qualified Opportunity Fund self-certification after the accountant left Form 8996 off the return

Plain-English summary

A limited liability company taxed as a partnership was formed to invest in a qualified
opportunity zone and intended to self-certify as a Qualified Opportunity Fund (QOF) under
IRC § 1400Z-2(d). To do that, it had to attach Form 8996 to its timely-filed Year 1
partnership return (Form 1065) and check the QOF box. Its accountant inadvertently failed
to attach the form the manager had prepared and did not check the box, so the
self-certification never happened. The mistake surfaced the next year, and the taxpayer
asked the IRS for an extension of time under Treas. Reg. § 301.9100-3.

The IRS granted relief. Because the missed election was a "regulatory election" (its
deadline is set by regulation), the IRS could extend the time if the taxpayer acted
reasonably and in good faith and relief would not prejudice the government. The taxpayer
qualified by reasonably relying on a qualified tax professional who failed to make the
election, and it represented that relief would not lower its tax liability. The IRS gave the
taxpayer 45 days from the ruling to file an amended return or Administrative Adjustment
Request and make the QOF election on Form 8996. Importantly, the IRS expressed no opinion
on whether the investments actually qualify or whether the entity really meets the QOF
requirements, only that it may make the late election.

Ruling snapshot

• Question: May the taxpayer get an extension of time under § 301.9100-3 to make a late QOF self-certification election on Form 8996?
• Outcome: Approved (45-day extension to file an amended return or AAR and make the election)
• Key authorities: IRC § 1400Z-2(d), (e); Treas. Reg. §§ 1.1400Z2(d)-1(a)(2)(i), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202217004                                            Third Party Communication: None
 Release Date: 4/29/2022                                      Date of Communication: Not Applicable
 Index Number: 1400Z.02-00
                                                              Person To Contact:
 ----------------------------------------------------------   ----------------
 --------------------------                                   ID. No. -----------------
 --------------------------------                             Telephone Number:
                                                              --------------------
 -------------------------------------                        Refer Reply To:
                                                              CC:ITA:B05
          ------------                                        PLR-116394-21
                                                              Date:
                                                              February 03, 2022




Legend


 Taxpayer                          = --------------------------------------------------------------------------
                                     -------------
 Year 1                            = -------
 Year 2                            = -------
 State Z                           = ----------
 Manager                           = -------------------
 Accountant                        = --------------------------------------------------------------------------
                                     ------------
 Accounting Firm                   = ------------------------------------------------------------
 Date 1                            = ------------------
 Date 2                            = ------------------
 Date 3                            = ---------------------
 Date 4                            = -----------------------
 Date 5                            = ---------------------
 Date 6                            = -------------------




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

This ruling responds to Taxpayer’s request dated Date 1, for an extension of time under
Treas. Reg. §§ 301.9100-1 and 301.9100-3 to (1) make an election under Treas. Reg. §
1.1400Z2(d)-1(a)(2)(i) to be certified as a qualified opportunity fund (QOF), as defined in
Internal Revenue Code (IRC) § 1400Z-2(d); and (2) for Taxpayer to be treated as a
PLR-116394-21                              2

QOF, effective as of the June of Year 1, as provided under IRC § 1400Z-2(d) and
Treas. Reg. § 1.1400Z2(d)-1(a).

                                        FACTS

According to information submitted, Taxpayer was organized as a limited liability
company under the laws of State Z on Date 2 and is classified as a partnership for
Federal tax purposes. Taxpayer was organized for the purpose of investing in qualified
opportunity zone property as defined in IRC § 1400Z-2(d)(2). Taxpayer is owned by
Manager and several other members.

In anticipation of organizing Taxpayer, Manager researched the requirements for QOFs,
including attending several seminars on the topic. Additionally, Manager met with
Accountant about organizing a QOF. Accountant was an experienced public accountant
who was in the process of selling his business, Accounting Firm. Manager believed
Accountant to have a fantastic reputation and trusted him based on his experience. In
Year 1, Manager and the other members of Taxpayer organized and capitalized
Taxpayer. Certain of those capital contributions were intended by the members to be
qualifying investments.

Accountant was hired to prepare and file Taxpayer’s Federal income tax return for Year

1. According to the affidavits and information provided to us, Accountant was aware of
Taxpayer’s intent to self-certify as a QOF. And both Manager and Accountant knew of
Taxpayer’s requirement to submit Form 8996, Qualified Opportunity Fund, with
Taxpayer’s timely-filed Form 1065, U.S. Return of Partnership Income, for Year 1.
Towards the end of Year 1, Manager prepared a Form 8996. On Date 3, Manager and
Accountant met regarding Taxpayer’s Form 1065 for Year 1. Because Accountant’s tax
software did not yet have updates with respect to Form 8996, Manager provided
Accountant the Form 8996 that Manager had prepared. However, when Accountant
later timely-filed Taxpayer’s Form 1065 on Date 4, Accountant inadvertently neglected
to attach the Form 8996 that Manager provided and did not check the box on the Form
1065 that Taxpayer intended to certify as a QOF. As a result, Taxpayer failed to self-
certify as a QOF for Year 1.

After Taxpayer’s Year 1 Form 1065 was filed, the purchaser of Accounting Firm
contacted Manager, stating that Accounting Firm would no longer provide any services
to Taxpayer, because the purchaser of Accounting Firm did not want to develop the
expertise to deal with issues related to QOFs. Manager sought a new tax advisor and
tax preparer for Taxpayer. However, nobody working on behalf of Taxpayer went back
to review the Year 1 Form 1065 until it was time to prepare Taxpayer’s Form 1065 for
Year 2. On Date 5, an employee of Taxpayer discovered that the Form 8996 was not
submitted with Taxpayer’s Year 1 Form 1065, and on Date 6, verified that
understanding. Taxpayer represents that it relied on Accountant to timely file Form
8996. Taxpayer further represents that granting of the relief under Treas. Reg. §
PLR-116394-21                                  3

301.9100-3 will not result in a lower tax liability for the years affected by the election
than Taxpayer would have had if the election had been timely made.

                                   LAW AND ANALYSIS

IRC § 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 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
(Commissioner) in the Internal Revenue Service (IRS) 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 for 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 Taxpayer did not timely
file Form 8996 due to Accountant’s mistake in neglecting to attach the Form 8996 to
Taxpayer’s timely-filed return.

The Commissioner has discretion to grant a reasonable extension of time to make a
regulatory election pursuant to the standards set forth in Treas. Reg. §§ 301.9100-1
through 301.9100-3. Treas. Reg. § 301.9100-1(b) defines the term “regulatory election”
as including any election the due date for which is prescribed by a regulation published
in the Federal Register. Because Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i) sets forth the
manner and timing for an entity to self-certify as a QOF, such elections are regulatory
elections, as defined in Treas. Reg. § 301.9100-1(b).

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 will be 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 IRS;

   (ii)    failed to make the election because of intervening events beyond the
           taxpayer’s control;

   (iii)   failed to make the election because, after exercising due diligence, the
           taxpayer was unaware of the necessity for the election;

   (iv)    reasonably relied on the written advice of the IRS; or
PLR-116394-21                                4

   (v)     reasonably relied on a qualified tax professional, and the tax professional
           failed to make, or advise the taxpayer to make the election.

Under Treas. Reg. § 301.9100-3(b)(2), a taxpayer will not be considered to have
reasonably relied on a qualified tax professional if the taxpayer knew or should have
known that the professional was not —

   (i)     competent to render advice on the regulatory election; or

   (ii)    Aware of all relevant facts.

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 § 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 IRS
           will not ordinarily grant relief.

Treas. Reg. § 301.9100-3(c) provides that the IRS 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 tax years affected by the
election than the taxpayer would have had if the election had been timely made. Treas.
Reg. § 301.9100-3(c)(1)(i). Additionally, Treas. Reg. § 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.
PLR-116394-21                                 5

                                   CONCLUSION

Based on the material submitted, 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 Taxpayer an extension of 45 days
from the date of this letter ruling to either file an amended return or an Administrative
Adjustment Request (whichever is appropriate) to make an election under Treas. Reg. §
1.1400Z2(d)-1(a)(2)(i) to be certified as a QOF. The election is to be made on Form
8996.

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
Treas. Reg. § 1.1400Z2(a)–1(b)(34) or whether Taxpayer meets the requirements under
IRC § 1400Z-2 and the regulations thereunder to be a QOF. We also express no
opinion regarding the tax treatment of the instant transaction under the provisions of any
other sections of the IRC 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. IRC § 6110(k)(3) provides that it
may not be used or cited as precedent.

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.

This ruling is based upon information and representations submitted by Taxpayer and
Attorney and accompanied by a penalty of perjury statement signed by an appropriate
party. Although this office has not verified any of the material submitted in support of the
request for ruling, it is subject to verification on examination.
PLR-116394-21                                 6


In accordance with the provisions of a power of attorney on file with this office, a copy of
this letter is being sent to Taxpayer’s authorized representatives.


                                          Sincerely,



                                          Erika Reigle
                                          Senior Technician Reviewer
                                          Office of Associate Chief Counsel
                                          (Income Tax and Accounting)

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