IRS grants a late-filing extension for a fund to self-certify as a Qualified Opportunity Fund

Plain-English summary

An LLC taxed as a partnership was formed specifically to be a Qualified Opportunity Fund (QOF), the vehicle that lets investors defer and reduce capital-gains tax by investing in designated low-income "opportunity zones." To become a QOF, an entity must self-certify by filing Form 8996 with its tax return by the return's due date (including extensions). Here the fund's tax advisor overlooked the requirement and never filed the return, an extension, or the Form 8996 on time, so the QOF election was missed. The fund asked the IRS for relief under the "9100" regulations (Treas. Reg. §§ 301.9100-1 and 301.9100-3), which let the IRS treat a missed regulatory election as timely when the taxpayer acted reasonably and in good faith and granting relief will not prejudice the government. Because the fund relied on a qualified tax professional who failed to make the election, discovered the error itself, and would not gain a hindsight tax advantage, the IRS concluded the standard was met and treated the late-filed Form 8996 as timely, effective as of the date the fund intended to become a QOF. The ruling is narrow: it grants only the extension of time to self-certify and expressly gives no opinion on whether the fund actually qualifies as a QOF or whether any investment qualifies. The lesson: a business that misses the QOF self-certification deadline because of a preparer's mistake can often obtain 9100 relief to preserve the election.

Ruling snapshot

• Question: Should the IRS grant an extension of time under Treas. Reg. § 301.9100-3 to treat a late-filed Form 8996 (QOF self-certification) as timely?
• Outcome: Approved (relief granted; late Form 8996 treated as timely filed)
• Key authorities: IRC § 1400Z-2; Treas. Reg. § 1.1400Z2(d)-1(a); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                Washington, DC 20224

Number: 202321004                                               [Third Party Communication:
Release Date: 5/26/2023                                         Date of Communication: Month DD, YYYY]
Index Number: 9100.00-00, 1400Z.02-00
                                                                Person To Contact:
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---------------------------------                               Telephone Number:
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                                                                Refer Reply To:
                                                                CC:ITA:B04
Attn: ------------------                                        PLR-117364-22
                                                                Date:
                                                                February 27, 2023
VIA FAX

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

 Taxpayer                      =        ---------------------------------------------------------------------
 Date 1                        =        ----------------------
 Date 2                        =        ------------------
 Date 3                        =        --------------------
 Date 4                        =        --------------------------
 Date 5                        =        ---------------------
 Date 6                        =        ---------------------
 Date 7                        =        --------------------------
 Date 8                        =        ---------------------------
 Year 1                        =        -------
 Member A                      =        -----------------------------------------------------------
 Member B                      =        ------------------------------------------------
 Owner                         =        ----------------------------------------
 Advisor                       =        ----------------------
 State A                       =        -------------

This letter responds to Taxpayer's request dated Date 7. Specifically, Taxpayer
requests relief under Treasury Regulation §§ 301.9100-1 and 301.9100-3 for Taxpayer's
Form 8996 (Qualified Opportunity Fund), as filed on Date 8, to be treated as timely for
purposes of the election: (1) to self-certify Taxpayer as a qualified opportunity fund
(QOF), as defined in § 1400Z-2(d) of the Internal Revenue Code (Code); and (2) for the
Taxpayer to be treated as a QOF, effective as of Date 3, as provided under Code §
1400Z-2 and Treasury Regulation § 1.1400Z2(d)-1(a).

                                          FACTS

According to the information and representations provided, Taxpayer was organized as
a limited liability company under the laws of State A on Date 1 and is classified as a
partnership for U.S. federal income tax purposes. Taxpayer uses the cash method of
accounting as its overall method, and files its Federal income tax returns
on a taxable year ending Date 2.

Taxpayer was organized for the purpose of being a QOF and investing in qualified
opportunity zone (QOZ) property as defined in section 1400-2(d)(2) of the Code.
Taxpayer's operating agreement states the Taxpayer's intention to invest exclusively in
QOZ property as a QOF. Taxpayer currently has two members, Member A, a
disregarded entity wholly owned by Owner, and Member B. Owner is also the managing
member of Taxpayer.

Owner regularly engages Advisor for tax compliance and advisory services for certain
Owner's business and investment entities. Shortly after forming Taxpayer, Owner
informed Advisor that Taxpayer was created to be a QOF. Although Advisor and Owner
discussed using a third-party tax return preparer, who had experience with opportunity
zones, to handle tax compliance for Taxpayer, Advisor agreed to prepare and
Taxpayer's Federal income tax return, Form 1065, U.S. Return of Partnership Income,
including any necessary extensions or elections related to the return, such as the Form
8996, Qualified Opportunity Fund ("Taxpayer's Year 1 tax return").

Taxpayer's Year 1 tax return, for the period ending Date 4, was due on Date 5.
Taxpayer, however, did not file, by Date 5, either Taxpayer's Year 1 tax return or a
Form 7004, Application for Automatic Extension of Time to File Certain Business
Income Tax, Information, and Other Returns. As such, Taxpayer did not file timely a
Form 8996 for Year 1. According to the information and representations provided, the
failure was solely due to Advisor's oversight and lack of understanding of the
requirements for Taxpayer to self-certify as a QOF.

On Date 6, Advisor notified Owner of Advisor's failure and advised Taxpayer to request
an extension of time, pursuant to § 9100 and the Regulations thereunder, to file a Form
8996. Taxpayer then proceeded to prepare this private letter ruling request. Taxpayer
represents that since submitting this private letter ruling request on Date 7, Taxpayer
has filed its tax return, which included a completed Form 8996, for Year 1 with the
appropriate IRS Service Center on Date 8.

                                 LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Treasury Regulation § 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, 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 (including extensions) due to Advisor's failure to request, on a timely basis, an
extension of time to file Taxpayer's Year 1 tax return.

Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF
and electing to self-certify as a QOF. As such, these elections are regulatory elections,
as defined in § 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 § 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.

Section 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.

In addition, § 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.

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.

                                      CONCLUSION

Based on the facts and information submitted in connection with this request, we
conclude 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
Form 8996, filed on Date 8, certifying the Taxpayer as a QOF as of Date 3 is considered
timely filed.

This ruling is based upon facts and representations submitted by the Taxpayer and
accompanied by penalty of perjury statements executed by the appropriate parties.
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 Treasury Regulation § 301.9100-3 relief as applied
to the election to self-certify the Taxpayer as a QOF by filing Form 8996 for Year 1.

Except as expressly provided herein, no opinion is either expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we have no opinion, either express or implied,
concerning whether any investments made into Taxpayer are qualifying investments as
defined in Treasury Regulation § 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the
requirements and structure under § 1400Z-2 and the regulations thereunder to be a
QOF. In addition, we also express no opinion on whether any interest owned in any
entity by Taxpayer qualifies as qualified opportunity zone property, as defined in §
1400Z-2(d)(2), or whether such entity would be treated as a qualified opportunity zone
business, as defined in § 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.

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. Code § 6110(k)(3) provides
that it may not be used or cited as precedent. Enclosed is a copy of the letter ruling
showing the deletions proposed to be made when it is disclosed under Code § 6110.
Pursuant to the Form 2848, Power of Attorney and Declaration of Representation, on
file, we are sending a copy of this letter to Taxpayer's authorized representatives.

This letter 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 the taxpayer.

                                                Sincerely,


                                                _____________________________
                                                Alexa T. Dubert
                                                Senior Technician Reviewer
                                                Branch 4
                                                Office of Chief Counsel
                                                (Income Tax & Accounting)

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