IRS grants a late-filing extension to let an LLC self-certify as a Qualified Opportunity Fund

Plain-English summary

To qualify as a Qualified Opportunity Fund (QOF), an entity must self-certify by filing Form 8996 with a timely filed tax return. An LLC taxed as a partnership, formed to invest in opportunity zone property, missed that deadline: its accountant failed to file the automatic extension he had promised, so the partnership return and Form 8996 were filed late. On discovering the error, the taxpayer sought "9100 relief," a discretionary extension of time to make a late regulatory election under Treasury Regulation § 301.9100-3. That relief is available when the taxpayer acted reasonably and in good faith (including reasonable reliance on a tax professional who dropped the ball) and granting it will not prejudice the government. The IRS found both tests met and treated the Form 8996 as timely filed. The ruling does not decide whether the entity actually qualifies as a QOF, only that it may make the election.

Ruling snapshot

• Question: May the taxpayer get an extension of time to self-certify as a QOF after its accountant failed to file a timely return and Form 8996?
• Outcome: Approved (extension granted; Form 8996 treated as timely)
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1(a)(2)(i), 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202219001 Third Party Communication: None
Release Date: 5/13/2022 Date of Communication: Not Applicable
Index Number: 1400Z.02-00
Person To Contact:
---------------------------- --------------------------,
---------------------------- ID No. -----------------
-------------------------- Telephone Number:
--------------------
----------------------------------------- Refer Reply To:
CC:ITA:B05
------------ PLR-100595-22
Date:
February 15, 2022

Legend

Taxpayer = -------------------------------------------------------
Year 1 = -------
Year 2 = -------
State Z = ------------
Members = --------------------------------------------------------------------------
-----------------------------------------------------------
Accounting Firm = -------------
Old Accountants = -----------------------------------------
Accountant = ---------------------
New Accountant = ----------------
Date 1 = --------------------------
Date 2 = ---------------------
Date 3 = --------------------------
Date 4 = --------------------------
Date 5 = ---------------------
Date 6 = ---------------------------
Date 7 = ----------------
Date 8 = --------------------------
Date 9 = ---------------------------

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

This ruling responds to the Taxpayer’s request dated Date 1. Specifically, the taxpayer
requests an extension of time under sections 301.9100-1 and 301.9100-3 of the Income
Tax Regulations to (1) make a timely election under section 1.1400Z2(d)-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 the Taxpayer to be treated as a QOF, effective as of
PLR-100595-22 2

Date 2, as provided under section 1400Z-2(d) of the Code and section 1.1400Z2(d)-1(a)
of the Income Tax Regulations.

                                      FACTS

The Taxpayer was organized as a limited liability company under the laws of State Z on
Date 3 and is classified as a partnership for Federal income tax purposes. The
Taxpayer was organized for the purpose of investing in qualified opportunity zone
property as defined in section 1400Z-2(d)(2). Taxpayer is owned by the Members.

Accounting Firm has historically prepared tax returns for the Members and was
engaged for Year 1 to prepare and file the Taxpayer’s Form 1065. Old Accountants,
employees of the Accounting Firm, had previously prepared the Members’ returns. Both
Old Accountants left the Accounting Firm and Accountant became responsible for the
firm’s relationship with the Members and the Taxpayer at the end of Year 1.

On Date 4, representatives of the Taxpayer met with a colleague of the Accountant and
informed him of their intention to self-certify the Taxpayer as a QOF. According to the
affidavits and information provided to us, following this meeting, Accountant was
informed of these intentions.

Early in Year 2, Accountant informed the Taxpayer that he was overburdened and could
not complete the return by the due date on Date 5. Accountant told the Taxpayer that he
would file automatic extensions with the Service, extending the due date to Date 6. The
Members understood from this meeting that Accountant would timely file the automatic
extensions for the relevant Federal tax returns, including the Taxpayer’s Year 1 tax
return.

On Date 7, the Taxpayer was informed that Accountant was leaving the Accounting
Firm, and that their account would be taken over by New Accountant. Upon reviewing
the Accountant’s work on the Taxpayer’s return, New Accountant discovered that the
automatic extensions had never been filed. Representatives of the Taxpayer were
informed of this on Date 8. New Accountant filed the Taxpayer’s return on Date 9 with
an attached Form 8996, Qualified Opportunity Fund. Because the Form 1065 and Form
8996 were filed late, Taxpayer failed to self-certify as a QOF.

After Taxpayer became aware of the consequences of failing to timely file the Form
1065 and Form 8996, this request for relief was promptly submitted under sections
301.9100-1 and 301.9100-3. Taxpayer represents that it relied on Accountant to timely
file Form 1065 and Form 8996. Taxpayer further represents that granting of the relief
under section 301.9100-3 will not result in a lower tax liability for the years affected by
the election.
PLR-100595-22 3

                             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(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, 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 Accountant’s failure to properly file for automatic extensions for the
Taxpayer’s Form 1065.

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

PLR-100595-22 4

           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 (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 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 the 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 9, is considered timely filed.

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.

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 the Taxpayer are qualifying investments as defined
in section 1.1400Z2(a)–1(b)(34) or whether the Taxpayer meets the requirements under
section 1400Z-2 and the regulations thereunder to be a QOF. We also express no
opinion whether any interest owned in any entity by the Taxpayer qualifies as qualified
PLR-100595-22 5

opportunity zone property or whether such entity would be treated as a qualified
opportunity zone business. 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 representative.

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,



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

Cc: ------------------------