Late qualified opportunity fund certifications accepted for two years

Plain-English summary

A limited partnership formed to invest in qualified opportunity zone property hired a long-time tax adviser to prepare its first two federal returns and the forms needed to self-certify as a qualified opportunity fund. The adviser filed both returns on time but did not know that Form 8996 had to be included each year. After discovering the requirement, the adviser informed the partnership and the partnership requested relief. The IRS concluded that the partnership acted reasonably and in good faith and that relief would not prejudice the government's interests. It agreed to treat the Forms 8996 for both years as timely if the appropriate service center received them within 60 days, without deciding whether the partnership or its investments otherwise met the QOF rules.

Ruling snapshot

• Question: Could the partnership obtain relief for missing Form 8996 from its timely filed returns for two years?
• 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: 202324007                                             Third Party Communication: None
 Release Date: 6/16/2023                                       Date of Communication: Not Applicable
 Index Number: 1400Z.02-00, 9100.00-00,
               9100.22-00                                      Person To Contact:
                                                               --------------------------, ID No. --------------
 -----------------------------------------                     Telephone Number:
 ------------------------------                                --------------------
 -------------------------------------                         Refer Reply To:
  -----------------------------                                CC:ITA:B04
                                                               PLR-118763-22
                                                               Date:
                                                               March 24, 2023




                                                   LEGEND

 Taxpayer         =        -------------------------------------------------------------------
 Advisor          =        --------------------------------
 Manager          =        -----------------------
 Tax Year         =        ------------------
 Year 1           =        -------
 Year 2           =        -------
 Year 3           =        -------
 Date 1           =        ------------------
 Date 2           =        ----------------------
 Month 1          =        ------
 Month 2          =        -----
 State Z          =        --------
 X                =        ---


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

This letter responds to Taxpayer’s request, dated Date 2, for a private letter ruling.
Specifically, Taxpayer requests an extension of time, under sections 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations,1 to file Form 8996,
Qualified Opportunity Fund (QOF), for purposes of: (1) making the election, under
section 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations, to be certified as a
qualified opportunity fund (QOF), as defined in section 1400Z-2(d), and (2) to be treated
as a QOF, effective as of the month Taxpayer was formed, as provided under section
1400Z-2(d) and section 1.1400Z2(d)-1(a).


1 Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code

(Code) or the Treasury Regulations (26 CFR Part 1) or (26 CFR Part 301).
PLR-118763-22                                 2

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.

                                          FACTS

Taxpayer has represented that the facts are as follows.

Taxpayer was organized as a limited partnership under the laws of State Z on Date 1 for
the purpose of investing in qualified opportunity zone property as defined in section
1400Z-2(d)(2). Taxpayer is classified as a partnership for Federal income tax purposes.
Taxpayer has a tax year end of Tax Year.

After formation, Taxpayer engaged Advisor to provide tax and accounting services for
Taxpayer, including preparation of Taxpayer’s Federal income tax returns for Year 1
and Year 2. According to the information and affidavits received, Advisor had provided
Manager with Federal tax preparation services in connection with Manager’s other
businesses for X years. Advisor was tasked with the preparation and timely filing of
Taxpayer’s Federal income tax return and all related forms and elections to self-certify
Taxpayer as a QOF, and to treat Taxpayer as a QOF as of the month Taxpayer was
formed, Month 2 of Year 1.

According to the information and affidavits provided, Advisor timely filed Taxpayer’s
Year 1 and Year 2 Federal income tax returns. However, Advisor was not aware of the
requirement to include a Form 8996 in order to self-certify Taxpayer as a QOF as of the
month Taxpayer was formed.

In Month 1 of Year 3, Advisor became aware of the fact that Taxpayer was required to
have filed a Form 8996 with its Year 1 and Year 2 Federal income tax returns in order to
self-certify as a QOF. Advisor subsequently informed Taxpayer of this fact and of the
fact that Taxpayer had not included Forms 8996 with its Year 1 and Year 2 tax returns.

                                  LAW AND ANALYSIS

Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for the
certification of QOFs. Section 1.1400Z2(d)-1(a)(2) 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 Taxpayer did
not file a Form 8996 with its timely filed income tax return due to fact that Advisor was
PLR-118763-22                                 3

unaware of the requirement to include the completed form with Taxpayer’s Year 1 or
Year 2 returns.

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 301.9100-1(b) defines the term “regulatory election” as including any election,
whose due date is prescribed by a regulation published in the Federal Register.
Because section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for an entity to
self-certify as a QOF, this election is a regulatory election within the meaning of section
301.9100-1(b)

Section 301.9100-3(a) provides that requests for extensions of time for regulatory
elections (other than automatic changes covered in section 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.

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.

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.

Under section 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 has
               been or could be imposed under section 6662 at the time the taxpayer
               requests relief and the new position requires a regulatory election for
               which relief is requested;
      (ii)     Was informed in all material respects of the required election and related
               tax consequences, but chose not to file the election; or
PLR-118763-22                                 4

      (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 a 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.

                                      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 Forms 8996, certifying Taxpayer as a QOF as of the
month Taxpayer was formed, will be considered timely filed provided they are received
by the appropriate service center no later than 60 days from the date of this letter ruling.

This ruling is based upon facts and representations submitted by 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 a
ruling, it is subject to verification on examination.

This ruling addresses the granting of section 301.9100-3 relief as applied to the election
to self-certify Taxpayer as a QOF by filing Form 8996 for Year 1 and Year 2.
Specifically, we have no opinion, either express or implied, concerning 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. We 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
PLR-118763-22                                  5

applicable, or regarding the tax treatment of any conditions existing at the time of, or
effects resulting from, the instant transaction. Further, we express no opinion regarding
whether Taxpayer has timely filed its original returns for any relevant tax year.

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 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 Form 2848, Power of Attorney and Declaration of
Representation on file with this office, a copy of this letter is being sent to your
authorized representative.



                                                   Sincerely,



                                                   Mon L. Lam
                                                   Senior Counsel, Branch 4
                                                   (Income Tax & Accounting)




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