Qualified opportunity fund received relief for a late Form 8996

Plain-English summary

A partnership formed to invest in a qualified opportunity zone asked the IRS to treat its late Form 8996 self-certification as timely. The partnership had hired a large accounting firm to prepare its first return and the QOF form, but the firm failed to enter the partnership into its filing system and missed both the return deadline and the extension request. The error was discovered when an accountant for a related entity asked about the return, after which the partnership filed the delinquent forms and disclosed the late filing. The IRS found that the partnership reasonably relied on a qualified tax professional, acted in good faith, and would not prejudice the government's interests. It therefore treated the Form 8996 as timely and allowed the partnership to self-certify as a QOF from the requested date, without deciding whether its investments or operations otherwise met the opportunity-zone rules.

Ruling snapshot

• Question: Could the partnership receive extra time to file Form 8996 and self-certify as a qualified opportunity fund from its requested effective date?
• Outcome: Approved
• Key authorities: IRC § 1400Z-2; Treas. Reg. §§ 1.1400Z2(d)-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202324005                                              Third Party Communication: None
 Release Date: 6/16/2023                                        Date of Communication: Not Applicable
 Index Number: 1400Z.01-00, 9100.00-00
                                                                Person To Contact:
 -------------------------------------------------              ------------------------, ID No. ---------------
 -------------------                                            Telephone Number:
 -------------------------------------                          --------------------
 -------------------------------------                          Refer Reply To:
                                                                CC:ITA:B05
                                                                PLR-118299-22
                                                                Date:
          TY: -------                                           March 21, 2023




Taxpayer                   =        ---------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Submission Date =                   ---------------------------
Date 1                     =        --------------------------
State Z                    =        ---------------
Year 1                     =        -------
Members                    =        ------------------------------------------------------------
                           =        -----------------------------------------------------------------
Firm                       =        --------------------------
Year 2                     =        -------




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

This ruling responds to Taxpayer’s request for a letter ruling requested on Submission
Date. Taxpayer requests relief under section 301.9100-3 of the Procedure and
Administration Regulations. Specifically, Taxpayer requests an extension of time to file
a self-certifying election on Form 8996, Qualified Opportunity Fund, for Taxpayer to be
treated as a qualified opportunity fund (QOF), as defined in section 1400Z-2(d) of the
Internal Revenue Code and section 1.1400Z2(d)-1(a) of the Income Tax Regulations
effective as of Date 1.

                                                      FACTS

Taxpayer was organized as a limited liability company under the laws of State Z on
Date 1 in Year 1 and is treated as a partnership for Federal income tax purposes.
Taxpayer was formed with contributions from its Members. The Members had eligible
gain from Year 1 that they contributed to Taxpayer.
PLR-118299-22                                   2

Taxpayer’s overall method of accounting is the cash receipts and disbursements
method of accounting, and Taxpayer has a December 31 tax year end. Taxpayer was
formed to meet the definition of section 1400Z-2(d) and to hold qualified opportunity
zone partnership interests (within the meaning of section 1400Z-2(d)(2)(A)(ii)) in a
qualified opportunity zone business (QZOB) as defined in section 1400Z-2(d)(3). The
QZOB, classified as a partnership for Federal income tax purposes, was formed to
acquire, develop, and lease real estate, and to invest in real estate in a designated
opportunity zone in State Z.

According to the affidavits and information provided to us, the Members engaged the
services of Firm, a large public accounting firm, with the assistance in the formation of
Taxpayer. Additionally, Firm was engaged to handle the tax filings for Taxpayer,
including filing Taxpayer’s first Form 1065, U.S. Return of Partnership Income, for the
Year 1 tax year (due March 15, Year 2, unless on extension), along with the self-
certification Form 8996, Qualified Opportunity Fund.

Firm, despite agreeing to handle the tax filings of Taxpayer, failed to input Taxpayer into
its internal system to track all tax return filings. As a result, Firm failed to timely file the
Form 1065 by March 15 of Year 2 (and thus did not file Form 8996 by March 15 of Year
2). Firm also did not file timely a Form 7004, Application for Automatic Extension of
Time to File Certain Business Income Tax, Information and Other Returns.

In April of Year 2, an accountant for an entity related to the Members reached out to
Firm, inquiring about the status of Taxpayer’s income tax returns. At this point, Firm
realized that Taxpayer had expected it to file an extension. When Firm determined that
it had failed to input Taxpayer into its internal system, it informed Taxpayer that the
extension had not been filed (thus Firm had not filed Taxpayer’s return by the original
due date, either).

With this discovery, Taxpayer asked Firm to file the delinquent returns (Form 1065 and
Form 7004 asking for an extension of time to file, along with Form 8996), and to seek
this letter ruling requesting relief under section 301.9100-3. Taxpayer has now filed all
the required Year 1 tax forms, including Form 8996 and a Form 8275, Disclosure
Statement, notifying the Service of the late filing and the private letter ruling request.

Taxpayer represents that, other than the missed extension of time to file its return, it has
otherwise and continues to meet all the rules under section 1400Z-2 and the regulations
thereunder.

Taxpayer represents that granting of the relief under section 301.9100-3 is proper, as it
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the government
PLR-118299-22                                  3

                                    LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the
certification of QOFs. Section 1.1400Z2(d)-1(a)(2) provides 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 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 Firm did not file Taxpayer’s Form 8996 due to the Firm’s failure to input
Taxpayer into its internal system, resulting in Firm’s failure to file an extension of time to
file the Form 1065 and the Form 8996.

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 section 6662 at the time the taxpayer
              requests relief, and the new position requires or permits a regulatory
              election for which relief is requested;
PLR-118299-22                                 4


       (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 Taxpayer has acted reasonably and in good faith, and that the granting of
relief would not prejudice the interests of the government: Taxpayer has satisfied the
requirements for the granting of relief under section 301.9100-3(b). Accordingly, based
solely on the facts and information submitted, and the representations made in the
ruling request, the Form 8996 attached to Taxpayer’s return for Year 1 is considered
timely filed, and Taxpayer has thereby made the election under section 1400Z-2 and
section 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF for Year 1 as of Date 1.
Taxpayer should submit a copy of this letter ruling to the Service Center where
Taxpayer files its returns along with a cover letter requesting the Service associate this
ruling with the Year 1 return.

This ruling is based upon facts and representations submitted on behalf of the Taxpayer
by one of the Members and a partner in Firm and accompanied by a penalty of perjury
statement 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 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
PLR-118299-22                                  5

whether any investments made into Taxpayer are qualifying investments as defined in
section 1.1400Z2 (a)–1(b)(34) or whether Taxpayer meets the requirements under
section 1400Z-2 and the regulations thereunder to be a QOF. Further, we also express
no opinion on whether any interest owned in any entity by Taxpayer qualifies as
qualified opportunity zone property, as defined in section 1400Z-2(d)(2), or whether
such entity would be treated as a qualified opportunity zone business, as defined in
section 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.

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.

                                       Sincerely,



                                       Kyle C. Griffin
                                       Assistant to the Branch Chief, Branch 5
                                       Office of Associate Chief Counsel
                                       (Income Tax & Accounting)




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