Late Form 8996 accepted so a fund can self-certify as a Qualified Opportunity Fund

Plain-English summary

A partnership (an LLC) was formed to be a Qualified Opportunity Fund (QOF), a vehicle that lets investors defer tax on capital gains reinvested in opportunity-zone property. Becoming a QOF requires "self-certifying" by filing Form 8996 with a timely tax return (including extensions). The fund hired an advisor to do this, but an administrative error meant the advisor never filed the automatic extension (Form 7004), so the return and Form 8996 were late and the self-certification did not take effect. The problem came to light only when the IRS sent a late-filing notice for a related entity handled by the same advisor. The fund requested relief under Treasury Regulation § 301.9100-3. The IRS found the fund acted reasonably and in good faith (it reasonably relied on a tax professional who failed to file) and that relief would not prejudice the government, so it treated the late Form 8996 as timely, certifying the entity as a QOF effective the month it was funded. This is a companion ruling to a nearly identical request; the IRS did not decide whether the entity actually qualifies as a QOF or whether investments in it qualify.

Ruling snapshot

• Question: Should the fund get an extension of time under § 301.9100-3 so its late-filed Form 8996 self-certifying as a QOF is treated as timely?
• Outcome: approved (late Form 8996 treated as timely; QOF status effective the funding month)
• Key authorities: IRC § 1400Z-2(d); Treas. Reg. §§ 1.1400Z2(d)-1(a), 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202311003                                             Third Party Communication: None
 Release Date: 3/17/2023                                       Date of Communication: Not Applicable
 Index Number: 1400Z.02-00, 9100.00-00
                                                               Person To Contact:
 -----------------                                             --------------------------, ID No. ----------------
 ---------------------------                                   -----------------
 -------------------------------------                         Telephone Number:
 -----------------------------                                 --------------------
                                                               Refer Reply To:
                                                               CC:ITA:B04
                                                               PLR-112333-22
                                                               Date:
                                                               December 19, 2022



                                                   LEGEND

 Taxpayer         =        -------------------------------------------
 Advisor          =        --------------------------
 Year 1           =        -------
 Date 1           =        -----------------------
 Date 2           =        --------------------------
 Date 3           =        ---------------------
 Date 4           =        ---------------------------
 Date 5           =        --------------------------
 Month 1          =        ---------------------
 State Z          =        --------------



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

This letter responds to Taxpayer’s request dated -------------------, 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 funded, 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. 2022-1,
2022-1 I.R.B. 1. A paper copy will not be mailed to Taxpayer.
PLR-112333-22                                 2

                                          FACTS

Taxpayer has represented that the facts are as follows. Taxpayer, a partnership
organized as a limited liability company under the laws of State Z, was formed to be a
QOF for the purpose of investing in qualified opportunity zone property as defined in
section 1400Z-2(d)(2). On Date 1, the members of Taxpayer sold real estate and on
Date 2 they funded the Taxpayer with the capital gain proceeds of such sale.

Taxpayer’s representatives communicated with Advisor regarding the preparation of
Taxpayer’s Federal income tax return for Year 1. According to the affidavits and
representations provided to us, Taxpayer and Advisor were aware of the requirement to
file Form 8996 with the Taxpayer’s Federal income tax return for Year 1 in order for the
Taxpayer to self-certify QOF status and to be treated as a QOF as of the Month 1.
Advisor was retained by Taxpayer so that Taxpayer could comply with the Form 8996
requirements and Advisor was expected to file Form 7004, Application for Automatic
Extension of Time To File Certain Business Income Tax, Information, and Other
Returns, in order to request an automatic extension of time for Taxpayer’s Federal
income tax return for Year 1. However, due to an administrative error, Advisor failed to
file Taxpayer’s Form 7004 for Year 1 by Date 3 . As such, Taxpayer’s Federal income
tax returns and Form 8996 filed on Date 4 were not timely filed.

On or around Date 5, Taxpayer received a late-filing notice from the Internal Revenue
Service (the Service) for a separate related entity for which Advisor was also engaged
to prepare returns. At that time, Advisor reviewed all of Taxpayer’s filings and
discovered that Taxpayer’s Form 7004 had not been timely filed. Shortly thereafter,
Advisor learned that Taxpayer’s self-certification as a QOF was not effective as a result
of the late filing and informed Taxpayer’s representatives of this fact.

                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations 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.

To self-certify as a QOF, a taxpayer must file Form 8996 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 Advisor’s failure
to file for an extension on Form 7004 by Date 3.

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
PLR-112333-22                                 3

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 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 § 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-112333-22                                  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 Month 1, 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.

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, as of Month 1 and the late filed 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.

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 representatives.


                                                   Sincerely,



                                                   Lisa Mojiri-Azad
                                                   Senior Technician Reviewer, Branch 4
                                                   Office of Associate Chief Counsel
                                                   (Income Tax & Accounting)


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